Introduction: Those who wish to qualify for Medi-Cal (Medicaid outside of California) need to meet certain net worth requirements. California’s version allows the disabled spouse to have no more than $2000 while the healthy spouse can have up to approximately $113,000. But if all of that $115,000 is community property isn’t it really $57,500 each?
Consider Dave who is in a skilled nursing facility (SNF. Competent and aware of what is going on, he is deeply concerned about his wife, Lauren, and her continuing ability to be able to provide for herself. Dave’s care is running at $15,000 per month. And there is no end in sight. Medi-Care is gong to terminate in two weeks and then Dave and Lauren are on their own. Their total assets are $115,000 in the bank.
This is not an uncommon situation. Acute and sub acute care at a SNF often runs between $10,000 and $20,000. Worse, most people do not have long term care insurance. Some, wrongly believe that their ordinary health/medical insurance will cover SNF. The truth is, the only avenue available to Dave and Lauren is going to be Medi-Cal. [Back to Top of Article]
Qualify the Easy Way: So how do they qualify if Dave can only have $2000 but yet both names are on the bank account. Seems easy enough to simply have Lauren transfer $113,000 of the bank account into her name alone. And, yes, they would be qualified at that point. [Back to Top of Article]
Recovery: There is, however, still a problem and it’s a big one. Medi-Cal is a loan, not a gift. In other words, when Dave and Lauren are gone, the Medi-Cal authorities want their money back. They will take it out of Lauren’s estate (assuming she is the 2nd to die). That certainly is not what Dave and Lauren would have wanted. After all, they wanted their daughter to get it. [Back to Top of Article]
The Problem: But, here’s the kicker. Medi-Cal will only take it out of Lauren’s estate to the extent that she inherited from Dave when he died. The $115,000 was all community property. When she transferred the $113,000 to an account in her name alone, that did not change the ownership, it was still community property. Therefore, when Dave dies, she inherits half of that ($57,500) from him. And when she dies, Medi-Cal is entitled at least up to that $57,500 from Lauren’s estate. [Back to Top of Article]
Transmutation Agreement: The solution is something called a transmutation agreement. If Lauren and Dave sign such an agreement, then that transmutes (converts) all of that $113,000 from community property to Lauren’s separate property. Now, all of a sudden, when Dave dies, Lauren hasn’t inherited anything from him and when Lauren dies, Medi-Cal is not entitled to anything from Lauren’s estate. Instead, the daughter gets it. All because of having the right documentation done in the correct way. [Back to Top of Article]
What Lawyers Accomplish: And that’s where lawyers come in. A qualified competent attorney is going to be able to advise you properly about all the little “gotchas” that you never thought about it. [Back to Top of Article]