California's SB 833 law, which took effect in January 2017, offers a little-known but generous asset protection choice to homeowners who receive Medi-Cal benefits for long-term care, or who might receive such benefits in future. [This article was updated in early 2021.]
Asset planning choices that can be used to invoke SB 833 were prudent for several reasons before this new law passed, so people with revocable trusts may already be positioned to benefit from the new law without knowing it.
The new law may protect heirs or beneficiaries where a deceased Medi-Cal patient leaves California assets that have been organized with the goal of avoiding probate. Some familiar ways of avoiding California probate that may also have advantages under SB 833 are to place a house into a revocable trust, or to provide for an automatic survivorship transfer at death to the owner's or co-owner's spouse, children or other beneficiaries.
The most dramatic way SB 833 changed California Medi-Cal collections law is that, at the death of an elder who received long-term care covered by Medi-Cal, the state can only collect for the cost of care against those California assets of the patient that would count as part of the estate for probate purposes. Collections generally are delayed until after the deceased patient's spouse or registered domestic partner ("RDP") also dies.
No asset planning choice can ever guarantee asset protection, especially since federal law on public medical coverage is in flux. But SB 833 has tremendous promise for helping people who are or may be in long-term care to preserve their assets for the next generation.
In previous years, the Medi-Cal program was able to recoup payments made for Medi-Cal services out of assets remaining after the deaths of the patient and the patient’s spouse (or RDP) – potentially including a family house that had qualified as an exempt asset for Medi-Cal purposes during the patient's lifetime. The main exceptions to recovery were narrow ones for household members considered likely to be dependent, such as a surviving spouse/RDP, a child with an early-acquired disability, or a family member who had the patient's long-term caregiver.
Under SB 833, the Medi-Cal recoupment procedures are more lenient. As of January 1, 2017, Medi-Cal benefits that paid for long-term care services (nursing home costs, Program of All- Inclusive Care for the Elderly ("PACE") and other programs designed to help frail elderly people) will be “recovered” – in other words, collected – only by state collection claims against assets that count as “probate assets” after the patient (and spouse/RDP, if any) are deceased.
It is important to review the phrasing of house titles to see if they have the intended effect. A home might be owned through a trust, or with a spouse/RDP or children in the form of “joint tenancy” or “community property with right of survivorship.” Or, following a pre-2017 style of Medi-Cal planning advice, aging homeowners may have transferred the home to their children while retaining a right to live there – a “life estate.” (Life estates of this type may now have further disadvantages under provisions of the new Proposition 19 property tax law, which took effect in February 2021.) If these or other asset protection steps have not been taken, then all or part of a home's value may be subject to probate.
For married spouses/RDPs, a plain “community property” title has very different consequences from “community property with right of survivorship”. Also note there is a new “Transfer on Death” title option to give a survival right to a beneficiary, who does not need to be a child or spouse/RDP – but although that option is intended to simplify inheritance, in practice it should be used only with careful review of potential consequences.
If the property left by a deceased Medi-Cal long-term care patient includes probate assets, then after the patient and spouse/RDP are deceased, Medi-Cal can still make claims against the heirs for the money that Medi-Cal paid to a nursing home, or to a PACE program like On Lok in San Francisco or the Center for Elders' Independence in the East Bay, or to some (not all) of the other Medi-Cal programs for people who receive health care at home.
For more information see our page on estate planning for Medi-Cal.