Federal Estate and Gift Taxes for 2024
IRS gift and estate tax announcements for the 2024 calendar year include an increase in the federal gift tax annual exclusion amount to $18,000 per donor per recipient for the year, and a further increase in the estate tax exemption, which is now at $13,610,000 for assets of people who die during 2024.
This record-high threshold makes federal estate tax avoidance a merely hypothetical problem for most households. Most of the trusts that we write are therefore designed mainly for other purposes – including, as discussed below, reducing the risk of Medi-Cal collections claims against estates.
Improved Eligibility for Medi-Cal for Long-Term Care
As of January 2024, it became easier for Californians to claim full traditional Medi-Cal benefits that include long-term care coverage. A major new difference is that, as of January 1, 2024, California will no longer impose asset limits on eligibility for such benefits.
Where the old asset limits were $2000 per individual and $3000 for a couple, Phase 1 of the new rules, starting July 1, 2022, increased the asset limit to $130,000 per individual plus $65,000 per additional household member. In Phase 2, which began January 1, 2024, Medi-Cal asset limits were abolished for traditional ("non-MAGI") Medi-Cal in California.
Because of this change, some people who have substantial assets may newly be able to qualify for full traditional Medi-Cal on the basis of disability or age as long as their current income is relatively low. This combination of rules is still disappointing for many people with disabilities who would like to earn more income without losing their Medi-Cal supportive services. People who receive Supplemental Security Income (SSI) disability benefits are also still subject to the strict federal asset limits. However, for some retirees, the end of the Medi-Cal asset cap represents a major opportunity.
California was able to drop the asset limit under its AB 133 law, passed in the 2021 legislative session, because the federal Medicaid program granted waivers allowing federal subsidies to continue for this modified approach to the program. The state Department of Health Care Services (DHCS) is still adjusting to the new rules, so it is a good idea to continue watching for Medi-Cal rule announcements on the ACWDL/MEDIL regulatory letters page. For example, the recent ACWDL 23-29 regulatory letter, posted in the ACWDL list for 2023, provided helpful cross-reference links to previous official guidance on the new rules as context for an announcement that the Asset Verification Program will reduce operations because there is now less need to verify assets.
Because of these changes, Medi-Cal is more widely available to fund long-term care in nursing facilities. Medi-Cal can also help some people to receive nursing care and/or support services while remaining in their homes under the programs broadly known as Home and Community-Based Services (HCBS). Retirees who could not previously consider Medi-Cal because of their property and/or savings may now be able to apply for services such as In-Home Support Services (IHSS), Program for All-Inclusive Care for the Elderly (PACE), and other HCBS services.
IHSS and PACE are two of the programs that help fragile seniors to remain at home.
Two of the key California programs that enable seniors to age in place are In-Home Support Services (IHSS) and the Program for All-Inclusive Care for the Elderly (PACE).
IHSS provides in-home care for eligible elders who are blind or disabled and require assistance for everyday living activities. Subject to a county IHSS office application, review by a county social worker, and a determination of IHSS needs, approval for the program allows elders to employ an individual caregiver with public funds. The caregiver is hired either directly by the client, with employment screening and paperwork handled via the local county Public Authority, or sometimes through a contractor that hires and supervises caregivers. IHSS assistance can provide respite for family/household caregivers, or in some cases can employ caregivers to do work that they otherwise might do without pay. The types of care provided include, but are not limited to, housecleaning, laundry, grocery shopping, cooking, and bathing.
PACE is a collection of local medical and social service programs subsidized by both Medicare and Medicaid (Medi-Cal in California). It helps people 55 or older to “age in place” who might otherwise have to move to nursing homes to receive care. PACE assesses the participant’s needs in an initial consultation and curates a care plan to provide multiple services for enrollees. Alongside usual Medi-Cal and Medicare-covered services, or as a means of providing such services, PACE programs often include benefits offered at local adult health day care centers that are supplemented by in-home services. DHCS maintains a California statewide list of PACE center services’ availability by Zip code. The federal Medicare website provides a nationwide lookup site for PACE programs.
More long-term care programs and other subsidized health care programs are available to Californians.
References on subsidized long-term care programs available in California include this DHCS introductory page on long-term care and this additional page on seniors’ health programs. Medi-Cal long-term care eligibility is the key to Federal and California subsidies for all of these programs. Important additional programs of this type include the Multipurpose Senior Services Program (MSSP) and other long-term care alternatives.
The automated calculator on the Covered California website is a helpful way to estimate potential eligibility for state-administered health plans and subsidies, including various types of Medi-Cal coverage and the Covered California program. The program also posts an annual chart for eligibility by income, linked from this reference page.
For Californians who do not qualify for traditional Medi-Cal, public subsidies are available for health care at many income levels, from “MAGI Medi-Cal,” for Californians with household modified adjusted gross income (MAGI) below 138% of the official federal poverty level, to full Covered California health care subsidies under the Affordable Care Act for Californians with modest incomes, up to partial Covered California assistance for incomes up to $58,320 for a single-person household or $78,880 for a household of two.
Continuing cautions under the new rules:
Caution must still be exercised in applying for Medi-Cal, whether for long-term care or otherwise. Eligibility will be easier under the new law, but the income limits still apply, and there are other risks – including the risk of Medi-Cal recovery against deceased participants’ estates.
Under the Medi-Cal estate recovery program, which still exists, Medi-Cal may seek repayment from the estate of a deceased participant who received benefits on or after their 55th birthday.
For Medi-Cal participants deceased on or after January 1, 2017, Medi-Cal may make collections claims against assets that are in the probate estate of the deceased Medi-Cal recipient at the time of death. DHCS may claim reimbursement for Medi-Cal expenses that include “payments made, including managed care premiums paid, for nursing facility services, home and community-based services, and related hospital and prescription drug services received when the beneficiary was an inpatient in a nursing facility or received home and community-based services.” (Medi-Cal collections rules were formerly stricter, before the effective date of SB 833 on January 1, 2017.)
Surviving family or other fiduciaries who are responsible for the affairs of a deceased Medi-Cal beneficiary must act within 90 days from the date of death to provide the DHCS Director with a “Notice of Death” and a copy of the death certificate. An estate recovery claim from DHCS may then follow. Financial hardship waivers may be sought in some circumstances within 60 days of the date of the DHCS letter presenting the estate recovery claim.
Trusts may still help to insulate against Medi-Cal collections claims.
Probate assets are assets that were in the name of the deceased person or payable to the deceased person’s own estate, that are inherited under a will or, if there is no valid will, then by next of kin under state inheritance laws. (Confusingly, a person can have a “probate estate” in this sense even if their “probate assets” are not valuable enough to reach the threshold of value that requires a court probate proceeding.)
Probate assets do not include assets of a deceased person that are transferred to others through mechanisms such as a trust, “pay on death” beneficiary listings, or survivorship rights under joint tenancy ownership or the rights of a surviving spouse. For this reason, beneficiary listings or joint tenancy ownership can often help insulate financial assets from probate. However, survivorship arrangements are only sometimes appropriate as ways to transfer real estate. The gaps left by these approaches are where trusts become useful.
For many homeowners, a helpful way to reduce the risk of Medi-Cal asset recovery claims is to place assets into a trust. The possibility of more favorable treatment under Medi-Cal collections rules is one of the ways in which trusts help to pass down assets to beneficiaries, preserving generational wealth.
For details on Medi-Cal treatment of trusts under the new asset rules – what changes, and what stays the same – see the updated November 17, 2023 guidance at ACWDL 23-22E on the ACWDL 2023 regulatory letters page.