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Dear Counselor: Exploring legal ways to pay for skilled nursing care

Question: "Is there a legal way to transfer my assets to my children and have Medi-Cal cover any nursing home care that I might need without being subject to a penalty imposed after my death?" -- Stan in Davis

Answer: Allow me to build on what may be Stan's concern with a hypothetical person we will call "Mom." Suppose that for the past few years, Mom has been doing well and living independently in her own home. But one morning, she falls, breaks her hip and goes to the hospital. All signs point to a need for custodial nursing care. Let's then assume that the hospital discharges Mom to a skilled nursing facility.

Because Mom was in the hospital for more than three days, Medicare pays for the skilled nursing facility for 90 days. After the 90 days, the nursing home begins billing Mom at $8,000 per month and her savings are depleted in a few months. Mom now has less than $2,000 in her savings and is "Medi-Cal-eligible," so the state picks up the bill.

Now, suppose that Mom spends a year and a half at the nursing home before she dies. After the funeral, the children are preparing the house for sale, when the letter from Medi-Cal arrives. The Medi-Cal "Recovery Division" wants reimbursement for the $176,000 it spent on Mom's 22 months of care, and it is placing a lien on the house in that amount. There goes the college tuition payments for Mom's grandchildren -- well, at least one of them.

Was there a way of preserving the money and keeping the Recovery Division's hands off of Mom's estate? Yes.

Let's start with the home. It involves the transfer of the real property into a "life estate." In this case, Mom could have transferred the home to her children and reserved a "life estate" in the property. With a life estate, she would have retained full rights in the real property during her life, but at the moment of her death, the home is held by the children. 

Thus, when Medi-Cal "looks back" to see what property Mom held at death, there's nothing to find. As for the savings she had, Medi-Cal planning involves a series of small daily transfers to relatives that divest Mom's estate of cash. So again, when Medi-Cal "looks back" to see whether Mom made any large transfers of property in the last few years of her life, there is nothing.

Now, you may be asking yourself the more philosophical question of whether this type of elder law planning is morally right. On one hand, here you have an elder with sufficient assets to cover the expense of skilled nursing, but through a series of monetary transfers and a life estate deed, the price of skilled nursing is passed on to the state -- our heretofore cash-strapped but still debt-ridden state.

On the other hand, if large corporations can take advantage of tax loopholes, then why can't Mom take advantage of the currently existing Medi-Cal laws?

Because, as Davisites, we all love a good policy discussion, I will leave that to you, the readers, to ponder. But regardless of your ethical view, it is legal, and for some people, Medi-Cal planning may be just what the doctor, or your counselor, ordered.

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