When it comes to issues of Medi-Cal and the primary residence, there are two situations which need to be considered, qualification to receive Medi-Cal benefits and Medi-Cal recovery against the home after a person has died.
Although there are several situations which can result in the home being considered exempt for purposes of qualifying to receive Medi-Cal benefits, all of which are set forth in Cal Code Regs. Tit. 22 §50425, there is one exemption which normally makes all the remainder of them redundant. That rule is that a person’s primary residence is considered as an exempt asset so long as the Medi-Cal applicant either resides there, or if they don’t reside there (because they are residing in assisted living or a skilled nursing home) they intend to return home. Evidencing this intent can most easily be done by checking the appropriate box on the application to receive Medi-Cal benefits. I would recommend that this box on the questionnaire ALWAYS be checked as having an intent to return home. And yes, where someone is filling out the form for the incapacitated person, they can check this box on the applicant’s behalf.
So what is a home? It includes any single family residence. It also includes a multiple -unit dwelling so long as one of the units has been or is intended to be used as the primary residence. For example, if a Medi-Cal applicant owns a four-plex or an eight-plex and occupies one of the units as their primary residence, the ENTIRE complex is exempt for purposes of Medi-Cal qualification.
Must it be real property? No. It can include any personal property used as a personal residence. This can include a mobile home, fifth wheel, motor home, boat, bus, etc. as long as it is intended to be used or has been used as the primary residence.
The Deficit Reduction Act of 2005 (passed in 2006) places a limit on the amount of equity a person can have in their personal residence. The Medicaid statutes provide that this limit will be $500,000, but give each state the authority to adjust that up to as much as $750,000. Although California has finally passed legislation which will implement the Deficit Reduction Act (DRA), that legislation specifically prohibits DRA enforcement until such time as final regulations have been issued. Although the Department of Health Care Services has informally indicated these regulations will be coming soon, they do not appear on the immediate horizon, and it may be the latter part of 2010 or later before they are actually in place. When we see those regulations, it is expected the amount will be set at $750,000, although California’s current fiscal problems might impact this decision making process.
And, whether this limit is set at $500,000 or $750,000, it is likely that California will continue to set the fair market value of any residence based upon its value as assessed for real property tax purposes. As an example, pretend Mrs. Jones wants to qualify to receive Medi-Cal benefits. Her home is worth $1,200,000 and has a $700,000 mortgage encumbering it. The home is assessed at $600,000 based upon its Proposition 13 value. For purposes of measuring Mrs. Jones’s equity, the new rules are likely to provide that Mrs. Jones has equity of zero ($600,000 assessed value minus the debt). Thus owning this home will not prevent Mrs. Jones from qualifying to receive Medi-Cal benefits.
Let’s pretend that Mrs. Jones qualifies to receive Medi-Cal benefits as the DHCS pays for part of her care while she resides in a skilled nursing home. During that period, the DHCS paid out $400,000 toward her nursing home care. Upon Mrs. Jones passing away, unless some rules prevent them from doing so, the recovery division of the DHCS will cause a lien to be placed against the home of Mrs. Jones, and demand to be reimbursed for the money paid out on her behalf. However, this can be avoided, and there are several techniques legally available to do so.
The DHCS takes the position that if Mrs. Jones does not own the home at the time of her death, then the DHCS can’t put a lien on it, thus avoiding the Medi-Cal Recovery Lien. So as you can see, a simple technique for avoiding the Medi-Cal Recovery Lien is for Mrs. Jones to give the home to her children (or anyone else) while she is still alive so that she doesn’t own the home upon her death, thus avoiding the Medi-Cal Recovery Lien. This causes two problems. First is the “look back period” (an entirely different subject). The Medi-Cal rules currently provide that if an applicant gifts assets within 30 months of applying for Medi-Cal benefits with the intention of thereby meeting the asset limitation rules to qualify for such benefits, the applicant will be denied benefits for some period of time (yet another separate subject of some length). But remember, that the personal residence (where you intend to live) is exempt for purposes of qualifying for Medi-Cal benefits. The DHCS takes the position that if the personal residence is exempt and ignored for purposes of qualification, then you can’t gift it away with the intent to qualify for benefits. Thus, gifting away your home (where you intend to reside) will not violate the “look back rules” as long as you intend to reside there.
Wait, there is a conflict here. How can you give the home away and still intend to reside there? That is one of the tricks. The applicant needs to gift the home away, while retaining enough rights to permit her to reside there the remainder of her lifetime, while at the same time making sure that her retained rights will not cause her to be considered the “owner” of the residence upon her death (otherwise it would be subject to the Medi-Cal Recovery Lien). There are basically four techniques by which this can be done. Each of these techniques is different in terms of other consequences they might cause such as 1) income tax, 2) gift taxes, 3) reassessment for property taxes, 4) capital gain taxes when the property is sold (whether before or after the death of the Medi-Cal recipient) and 5) income taxes associated with the excess of any debt encumbering the home at the time of the gift and how much the person paid for the home when purchased. So whichever technique is used to avoid the Medi-Cal Recovery Lien, it must be chosen keeping all of these considerations in mind.