5 Benefits of Having a Medi-Cal Asset Protection Trust

As the baby-boom generation ages, more people are finding themselves in need of long-term care and turning to an Orange County estate planning attorney to help them plan accordingly. 

With the average cost of a private room in a nursing home in California running anywhere from $240-$480 a day, depending on the location, many estates find their assets drained away with each passing day a patient remains in care. Fortunately, there is a way to get the care you need while maintaining your family’s wealth.

How Do You Cover the Cost of a Nursing Home?

Some people unknowingly assume that Medicare will cover the costs associated with nursing homes. Unfortunately, Medicare only covers the total costs for the first 21 days with the stipulation that the patient has to be hospitalized for at least three days before entering into a skilled nursing facility. 

After this, and for the next 100 days, Medicare provides partial compensation. Following the first 100 days, this federal health insurance program does not cover any of the costs.

Fortunately, Medi-Cal, California’s Medicaid health care program, covers extended stays in nursing homes for an indefinite period. This medical assistance program, however, is designed for low-income individuals. 

Additionally, after the death of the patient and their spouse, Medi-Cal can pursue the assets of the deceased patient to cover the costs of the medical care they provided over their lifetime.

What Is a Medi-Cal Asset Protection Trust? 

A Medi-Cal Asset Protection Trust (MAPT) is an irrevocable trust designed to help individuals qualify for Medi-Cal long-term benefits while protecting their assets and primary residence from Medi-Cal estate recovery. 

As an estate planning tool, this type of trust is highly effective, helping those needing to stay in a nursing home get the care and support they need without exhausting their assets. 

What Are the Benefits of Having a Medi-Cal Asset Protection Trust?

In addition to helping those in need qualify for long-term care while protecting their assets, a Medi-Cal Protection Trust has many additional benefits. Let’s take a look at the top five benefits and why a probate attorney Orange County may recommend this type of trust.

#1 Qualifying for Medi-Cal Long-Term Care

Once assets are placed into a MAPT, they are no longer counted for Medi-Cal eligibility purposes. This enables someone to receive the long-term care they need, whether at home or in a nursing home, without having to waste away the family’s assets. 

To be eligible for long-term care, an applicant must have assets and income under a certain amount. Currently, Medi-Cal only allows qualifying individuals to have up to $2,000 in liquid assets, while their spouse can have up to $130,380 in non-exempt assets. 

Estates are no longer considered the assets of the spouse or the individual attempting to quality for Medi-Cal once they’re placed into a MAPT. They are now the assets of the trust.

#2 Securing Your Assets and Home From Medi-Cal Recovery

After a patient that has used Medi-Cal and their spouse passes on, the State of California has the right, and uses it frequently, to go after any assets in the patient’s name to collect the costs they occurred using Medi-Cal. 

For patients who used Medi-Cal to help make the payments associated with long-term care, those costs can be staggering. With people staying in nursing homes, on average, 835 days, or more than two years, and the average annual cost of a private room in a nursing home in Los Angeles, California coming in at $127,020, it’s easy to see how an estate can be eaten away.

Again, assets that are placed into a MAPT are now property of the trust. This means that Medi-Cal can no longer seize any of these assets to pay for the long-term costs associated with a deceased patient’s health care.

#3 Limiting Capital Gains Tax

Single homeowners may exclude up to $250,000 in capital gains on the sale of their primary residence, or $500,000 if they are a married couple. The residence is considered primary if they have lived in their home for two of the preceding five years. This phenomenal tax benefit is preserved if the residence is placed in a MAPT. 

Unfortunately, parents often make the mistake of gifting their home to their children to take it out of their name and keep it away from the State of California. As many are aware, homes continue to appreciate in California and what parents may have purchased for $200,000 may now be worth $1 million or more. 

When this appreciated asset is given to the children, the original purchase price becomes the cost basis. This means that for a home valued at $1 million with an original purchase price of $200,000, the children will be responsible for the capital gains tax on $800,000. 

If that same home had been placed in a MAPT, the capital gains tax would be eliminated because the cost basis would be the price of the home at the time of their parent’s death. As you can see, there are several tax benefits produced by placing your home and in a MAPT. 

#4  Protecting Investments

Once investments are placed in a MAPT, the owner may continue to receive the income that is generated from these investments. This protects investments while retaining funds. An estate planning attorney can determine your best approach when it comes to investments and MAPTs.

#5 Creating a Medi-Cal Compliant Trust

There are many types of trusts. One well-known and commonly used trust is the revocable living trust. A revocable trust means that it can be altered or canceled and, therefore, can be used for a person’s long-term care costs. This means that assets would have to be spent down in order for the owner to become eligible.

Medi-Cal has several rules regarding how someone can spend down their assets and retirement savings to qualify. These include a look-back period in which all past transfers of property and assets are reviewed. If they have been gifted or sold during this timeframe, a period of ineligibility will ensue. 

Protect Your Assets With Medi-Cal 

An estate planning lawyer Orange County can help you or your loved one qualify for Medi-Cal long-term care benefits and avoid the state’s recovery of assets that are still in the patient’s name after passing. It is called the Medi-Cal Asset Protection Trust.

We understand the complexities involved in protecting your assets while getting the care you need. Call us for a complimentary consultation at McKenzie Legal & Financial today.