This is another installment in our series on Medi-Cal planning. In this blog post we discuss common eligibility problems and a few of the tools we can use to solve them.
Once we have analyzed our client’s situation and see why they are ineligible, either because they have too much income, too much assets, or both, we can create a plan to get them eligible. This will involve reducing income, assets or both.
Income Too High
As discussed previously, when we are trying to qualify our clients for community-based Medi-Cal, the countable income can be reduced by increasing the allowable deductions – usually health insurance premiums.
In both community-based and nursing home Medi-Cal, countable income received from investments can be reduced by reducing the investments that are generating income. We will discuss this in the section that follows.
Too Much Assets
Spend down
There are a number of ways to eliminate countable assets. The first is to spend down the assets. If countable assets are $8,000 and there is a $10,000 credit card balance, the excess assets can be eliminated by partially paying the credit card bill. Other debts or obligations can be paid off. Money can be spent on living expenses or home repairs or even vacations. As long as fair value is received for the money spent there will be no penalty for spending down assets.
Turn Countable Assets into Exempt Assets
A second common technique is to turn countable assets, such as bank accounts or investment accounts, into exempt assets. Cash can be used to purchase a new car, which is an exempt asset regardless of its value. Cash can be used to pay off or significantly reduce the mortgage on a residence, increasing the equity in the exempt asset. Cash could also be moved into an IRA if permitted, or to purchase a burial plot – also an exempt asset.
Transfers
Another common category of planning technique is the transfer of assets. The Medi-Cal application is evaluated based on the assets owned by the applicant at the time of the application. Those assets include any owned by the applicant or owned jointly by the applicant and others, assets owned by the applicant’s spouse, and assets owned by the applicant’s revocable living trust. The countable assets do not include assets previously owned by the applicant but transferred to an irrevocable trust. One of our most useful and common planning techniques is to create an irrevocable trust and transfer assets to it.
Petition to Increase CSRA
For some married couples, even with the applicants’ spouse’s income being retained by the community spouse, the community spouse’s monthly income will not be as high as the community spouse’s Minimum Monthly Maintenance Needs Allowance (MMMNA), which for 2018 is $3,090. One way to solve the problem is to ask the court for permission to keep assets above the exempt asset limits, so that the community spouse can receive the income from those assets. An example of this follows.
Example: Married with Insufficient MMMNA
Henry is applying for Medi-Cal. He and his wife, Wendy, have, in addition to their allowable exempt assets, a rental home worth $275,000, on which they earn $1,250 per month in rent. After subtracting Henry’s personal allowance of $35 per month, their joint income is $2,750 per month, which includes the $1,250 per month in rent. That amount ($2,750) is less than Wendy’s MMMNA of $3,090. We could petition the court to allow Wendy to keep the rental home, even though it would mean the couple had more than the permissible amount of assets, in order to generate sufficient income for Wendy. This is a common technique used to address both an asset problem (too much) and an income problem (too little).
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If you’re someone who needs to include Medi-Cal planning in your estate plan, we can help. For more information on what Medi-Cal planning should look like, visit https://absolutetrustcounsel.com/practice-areas/medi-cal-planning/ for even more resources to help get you started.