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They are "sold" on that approach, but is it the right decision under present law?
Transferring ownership on the remote chance of receiving Medi-Cal is usually ill advised.
What if one never receives Medi-Cal and one's home is lost? Questions to first ask include: Should I transfer my house, if so when; to whom should I transfer my house; and how should I transfer my house?
Only assets in which a Medi-Cal recipient had some ownership at death are subject to recovery claims.
While one's principle residence is exempt for purposes of determining Medi-Cal eligibility, it is subject to Medi-Cal estate recovery after the Medi-Cal recipient and spouse die. Transferring such residence before death prevents future Medi-Cal recovery.
That said, anyone who expects to receive Medi-Cal soon and wishes to protect their residence should examine their options. One should act while they still have legal capacity to sign a deed. Many hedge their bets by using instructions in their power of attorney and living trust that authorize gifting.
Then there are income tax considerations. Gifting means that all appreciation in the home's value since it was originally purchased may be taxed to the beneficiary when they later sell the home.
If the property were inherited at the owner's death, rather than gifted during lifetime, then any appreciation in the owner's hands is eliminated from income taxation because the death beneficiary gets a so-called "stepped-up" basis for inherited assets.
For example, if someone purchased his home in 1980 for $75,000 and it is worth $175,000 at his death, then when the child who inherits avoids income tax on the $100,000 appreciation when he sells.
Gifting entails transferring ownership. Married persons typically transfer their residence to their spouse; if they are incompetent, then a court order is needed unless legal authority for gifting is already in place.
When children from prior relationships exist, concerns over disinheritance by a step-parent arise. In such case, the home may instead be instead left to their own children subject to a life estate, or right of occupancy, favoring their spouse.
The gift to one's children can either be through a deed to the children, as (equal or unequal) tenants in common, or through a transfer in to a trust for their benefit. Either approach can also be combined with a retained life estate that allows the transferor to continue to live in (or rent) the residence until they die, and for their beneficiaries to receive a "stepped-up" basis at their death.
An irrevocable trust can serve multiple purposes. Like a reserved life estate, it can protect the donor's right to live at home.
In addition, a trust can further allow for the home to be sold and for a new home to be purchased while the donor is alive, and/or for the sale proceeds to go to other beneficiaries, either immediately or over time.
It can also retain and protect the assets of the beneficiaries from their creditors. Again, a
life estate can be used to get a "stepped-up" basis.
Currently, an irrevocable trust is often unnecessary. One can either transfer the home with a reserved life estate or sell the home and gift the proceeds over time ("stacked gifting") without creating any ineligibility period.
Gifting all the proceeds as a lump sum within the present 30 month look-back period, however, creates an ineligibility period.
Eventually, when California implements the 2006 Federal DRA changes all gifting will create an ineligibility period. For now flexibility exists.
Lastly, consult a qualified attorney before proceeding.
Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law. His office is at 55 First St., Lakeport, California. Dennis can be reached by e-mail at
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