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New Medi-Cal Estate Recovery Law: Another great reason for a revocable living trust


California’s current Medi-Cal recovery rules are primed for a big change. Governor Jerry Brown has signed into law new provisions limiting reimbursement to the state for Medi-Cal benefits received. On January 1, 2017 these new provisions become effective, and for those of us who die on or after that date the creation of a revocable living trust becomes ever more important.


Under current law, the state can make claims on the estate of a deceased person for any Medi-Cal benefits they received at age 55 or older. Liquid assets may have to be surrendered, as well as a residence, as a “voluntary lien” can be placed against it, which can result in a sale and payment of the proceeds to the state after the death of the Medi-Cal recipient, or his or her spouse.


The new law will considerably narrow the scope of recovery claims by the state for past Medi-Cal benefits. The state will no longer be able to recover for basic health services such as doctor’s visits and prescription drugs unless the services are related to nursing home care or home and community based services.


If the decedent did receive care eligible for reimbursement under the new law, there are several situations which will exempt the estate from recovery. One new provision is that if the Medi-Cal recipient is married at the time of his or her death, estate recovery will be forever barred, not just postponed until after the survivor dies (although if the surviving spouse also receives Medi-Cal benefits, a claim for recovery could be made regarding his or her benefits received). A claim is also forever barred if the decedent had a minor child, or a disabled child (already the law, which will stay in place). If the state seeks recovery via the decedent’s residence, a hardship waiver can be requested for a “homestead of modest value”, whose fair market value is 50% or less of the average price of homes in the county.


An exciting change in the new law is that only assets subject to probate will be available for estate recovery by the state. Any assets which are held by a revocable living trust will be exempted from estate recovery. Thus if the Medi-Cal recipient has had an estate plan drafted, including a revocable living trust, and made sure that his or her assets are properly titled in the trust, the state will not be able to seek reimbursement through the surrender or sale of these assets.


Creating a will alone will not protect against either probate or Medi-Cal estate recovery. Assets transferred through a will are subject to probate if their value is over $150,000. California residents create revocable living trusts to circumvent probate because it is expensive, time-consuming and public. Now there is one more good reason to plan to avoid it—claims against the assets by the state for Medi-Cal reimbursement. Assets titled in joint tenancy, survivorship or life estates will also be exempt from Medi-Cal estate recovery; however, holding assets in a revocable living trust is the best way to insure that the decedent’s wishes are fulfilled and that his or her beneficiaries receive their full inheritance. If married, a revocable living trust will protect both spouses’ estates against recovery claims by Medi-Cal.


This new law makes it even more imperative for California residents to implement a revocable living trust, and we continue to counsel our clients to take the steps now to make sure they have created a valid, properly funded revocable living trust.

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