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Case Conclusion Date: 01.01.2010
Practice Area: Estate planning
Outcome: Inheritance did not interfere with Medi-Cal Qualification; preserved inherited money for use by Nursing Home Resident and when Nursing Home Resident passes away, inheritance will pass to her heirs protected from Medi-Cal recovery
Description: A family came to me with a difficult Medi-Cal planning situation. Their mother had recently been advised that the mother’s aunt had died and she was about to inherit around $600,000. Normally that would not be a bad thing, however, in this case, it would be a good thing with potentially negative economic consequences. It seems the mother was gravely ill, even though reasonably young. But due to her medical condition, she was confined to the sub-acute care unit of a skilled nursing home and the cost being incurred was about $25,000 per month. Two years earlier an attorney had helped the mother rearrange ownership of her assets, primarily her home, in such a manner that the mother would qualify to have the Medi-Cal system pay for the cost of her sub-acute nursing home care, and upon her passing away, the home would avoid being the subject of recovery claim by the Department of Health Care Services (the “Medi-Cal” people). However, in order to continue receiving the public assistance, the mother can’t have more than $2,000 worth of assets. Thus receiving this inheritance would result in the mother exceeding the asset limit and she would loss the public benefits (Medi-Cal) with the expectation that the inheritance would then have to be totally consumed paying for the skilled nursing home care. Upon learning about the impending inheritance, the family went back to the same attorney and asked for help, but the attorney was at a loss for any solution. The assets would be inherited and would have to be used for mother’s care. When approached by the family, I advised them there were several things which could be done. We could apply to the probate court to cause the assets to be placed into an individual special needs trust (known as a “(d)(4)(A) trust”) or mother could inherit the assets and put them into a pooled special needs trust (known as a “(d)(4)(C) trust” or a “charitable pooled trust”). But each of these would result in the assets remaining upon the mother’s death being subject to a recovery claim by the Medi-Cal system. So I proposed implementing a strategy whereby we asked a court to amend the aunt’s trust changing the method of distribution. The probate court has the right to amend an irrevocable/non-amendable trust where it can be proven that the circumstances existing at the time the plan was created were different that those existing at the time of death, and had the aunt known about these changed circumstances, she would have caused the plan to be amended in some way to address those changed circumstances so as to achieve a more appropriate result. In this case the circumstances which changed where the mother becoming severely ill with huge medical expenses plus the fact that inheriting the money outright would result in a loss of Medi-Cal benefits. So we asked the judge to provide that instead of an outright distribution of the assets to the mother, that the assets should be placed into a “third party” special needs trust for the benefit of the mother. Held in such a trust the assets would be ignored for purposes of determining Medi-Cal benefits, and yet the funds remain available to provide the mother with whatever her needs/wants might be which are not provided for through her Medi-Cal benefits. And upon the mother’s death, the remaining assets will pass to her children.