Paying for Long Term Care while Protecting the Home

As medical expenses increase, it is becoming more common for people to worry about paying for long term care.  The average cost of a skilled nursing home is approximately $5,000 to $7,000 per month.  Regardless of the size of one’s estate, an extended period of time spent in a nursing home can significantly deplete one’s resources.  Because of this dire situation, more people are applying for Medi-Cal.

Medi-Cal is the California version of Medicaid, a means-tested program available for those in need.  In the context of long-term care, Medi-Cal will pay the costs of a skilled nursing facility on your behalf, minus any income that you make.  In order to qualify for Medi-Cal, you must have less than $2,000 in “countable” assets.  “Countable” assets include cash, stocks, investments, retirement savings, automobiles other than your primary vehicle, and real property other than your personal residence.

Although the personal residence typically does not count toward the $2,000 threshold and therefore typically does not prevent you from qualifying for Medi-Cal regardless of its value, there are certain issues regarding the residence that must be considered if you are on Medi-Cal or likely to be on Medi-Cal in the future.  

First, if you ever need to tap the equity in the home either through a mortgage (traditional mortgage or reverse mortgage) or through a sale, you will be converting the non-countable asset (the home) into a countable asset (cash), thereby suddenly making you ineligible for Medi-Cal again.  

Second, if you still own the residence in your name upon death, Medi-Cal may recover against the value of the residence to reimburse itself for the nursing home costs it paid for during your lifetime before your beneficiaries receive it as part of an inheritance.  In many cases, the residence could be completely lost to a Medi-Cal recovery.

A common solution to these issues regarding the residence is a “Medi-Cal Trust.”  Under this strategy, the residence is transferred to the Medi-Cal Trust and its equity could be tapped during your lifetime without interfering with your Medi-Cal eligibility.  Furthermore, the residence can be transferred to your heirs upon death without a Medi-Cal recovery, regardless of how much Medi-Cal paid to nursing homes on your behalf during your lifetime.

Medi-Cal rules and strategies are complex but, with the right guidance, they present a number of planning opportunities.