By Liza Horvath
Senior Advocate
Q: My wife and I have a Revocable Living Trust, where my wife and I are the trustees, with our house, 401K and investments included in the trust. Our two single adult children are the beneficiaries of the trust. We also each have a long-term care insurance policy, however, we don’t expect the policy to cover all of our potential care expenses. Can a long-term care facility access the trust to pay for expenses not covered by insurance? We would like to leave something to the kids.
A: Generally speaking, it is expected that the assets of your estate would be used for your care. So, if your long-term care insurance pays only part of a care facility’s monthly fee, your spouse or trustee (who may be one in the same) would normally use estate assets, whether or not they are held in a trust, to cover any deficit. This can be extremely costly and over the years some attorneys have become specialists in Medi-Cal planning where they intentionally “bankrupt” the sick spouse in order to qualify for Medi-Cal benefits. This planning allows the ill spouse to remain in a care facility at the cost of Medi-Cal without tapping estate assets that are then used to support the “well” spouse and ultimately pass to kids.
Historically, without such planning, Medi-Cal would support the ill spouse but, upon the death of the Medi-Cal recipient, reimbursement would be sought from the estate and Medi-Cal could “clawback” assets to such a degree as to leave a surviving spouse destitute.
This scenario can devastate families and is so egregious that a new law has been passed that provides some relief for families from Medi-Cal clawback. Under the new law and provided certain criteria are met, decedents passing away after January 1, 2017 can be relieved from the requirement to repay Medi-Cal costs and a revocable trust can provide some of this protection.
This is a huge benefit to families and one more reason to consider using a revocable living trust in your estate planning. There are specific requirements that need to be met so working with an attorney who knows the ins and outs of Medi-Cal and the new law is important.
It is also important to remember that a revocable living trust should not be considered an “asset protection” vehicle, in general. A revocable trust will not protect your assets against debts you run up during your lifetime or against a successful lawsuit that results in a judgment against you.
If you are required to stay at a long-term care facility and your estate does not pay for costs and absent any Medi-Cal benefits, the facility can seek payment from your estate – regardless of a trust.
A huge market exists for asset protection trusts but, in California, our choices are limited. Other states such as Alaska, South Dakota and Nevada offer protection trusts that can be accessed by California residents. It is a matter of planning and using an out of state trustee. Professionals in high-risk professions such as doctors often access this type of planning but it can be complex and costly. Using insurance and planning, as you have, is the easiest way to protect your assets.
Liza Horvath has over 30 years’ experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust management company. This is not intended to be legal or tax advice. Questions? Email liza@montereytrust.com or call 831-646-5262.
