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Elder Law: Medi-Cal Update    

Medi-Cal Recovery Regulations
California's Department of Health Services (DHS) has released new proposed regulations for Medi-Cal estate recovery claims. Among other things, the new recovery regulations (if enacted) would allow DHS to recover against the estate of a Medi-Cal recipient who irrevocably transfers a home on or after May 22, 2006 in which the elder/owner transferor retains a life-estate or separate right to occupy the home. The amount of the DHS claim would be the lesser of the value of the life-estate (or retained occupancy right) or the amount received in Medi-Cal benefits.

Furthermore, DHS plans to value the retained life-estate (or occupancy right) according to valuation tables as of the moment prior to the decedent's death. Additionally, if a Medi-Cal recipient had only made a revocable transfer of real property , such as to a revocable living trust, the claim from DHS would apply to the entire value of the property.

Again, these proposed regulations would only apply to such transfers of a home occurring on or after May 22, 2006, and should not impact any prior transfers. However, any of you who have transferred title to your home with a retained life-estate or occupancy right as part of your Medi-Cal planning should contact us in the event you wish to have your planning reviewed.

New Medi-Cal Recovery Regulations
The Department of Health Services (DHS) has issued new emergency Medi-Cal recovery regulations, which have been approved and are now effective. Specifically targeted in these regulations are reserved life estates in real property. In the past, a common way of protecting a Medi-Cal recipient's estate from recovery for Medi-Cal benefits he/she received had been to transfer the remainder interest in the beneficiary's home to his/her other family members (usually a spouse or children), retaining only a "life estate" for the recipient's lifetime that gave the beneficiary the use and possession rights to the property only for his/her remaining life time.

Once the recipient died, the life estate was extinguished, resulting in no estate for DHS to recover against. This has changed under the new regulations. When a Medi-Cal recipient dies with a life estate, DHS will make a claim against the value of the life estate, as valued on life estate/remainder interest tables, to recover whatever amount the beneficiary received in Medi-Cal benefits. While our firm stopped using life estates as a planning technique for Medi-Cal clients over three years ago, this technique was widely used before that time; and many recipients have such plans. The new regulations will require recovery against all life estates created after January 1, 1993 (the date Federal regulations were enacted that allow the State to establish these regulations). Therefore, even those life estates we created a number of years ago are in jeopardy.

If you or a family member has used a "life estate"-type plan for Medi-Cal recovery avoidance purposes, please contact us to discuss these new regulations and their impact on your particular situation.

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Medi-Cal Regulations
On August 2, 2004, the DHS (Department of Health Services) issued emergency regulations authorizing recovery against annuities purchased on or after September 1, 2004. Public comment in regard to these regulations ended October 1, 2004. DHS intends to repeal these emergency annuity regulations and re-issue them as part of the comprehensive regulations to be issued after October 1, 2004. The use of the "emergency regulation process" prompted a huge backlash from consumer and elder advocacy groups, who argued that there was no emergency.

Using such emergency regulations does not allow adequate public comment prior to issuance of the regulations, creating uncertainty as to the applicability of regulations and frequently leading to lawsuits for clarification. DHS is currently working on comprehensive recovery regulations that will greatly modify the ability of DHS to recover against the estate of a Medi-Cal recipient. DHS had declared that comprehensive recovery regulations would be issued after October 1st of 2004.

As of the date of this newsletter, however, those regulations have yet to be issued. These regulations are expected to contain changes regarding recovery claims against annuities, retirement accounts, and personal residences. As DHS issues regulations which allow for additional recovery options, and as additional restrictions regarding transfers of assets are enacted, we expect many changes in planning for Medi-Cal recipients. We will update you on the regulations as they are issued by DHS. Should any regulations be issued prior to our Elder Law seminar, we will discuss those new regulations as part of that seminar. If you have specific questions about the impact these new regulations may have on your personal or a loved one's estate plan, please call us for an appointment.

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If you know anyone who is receiving Medi-Cal benefits, a recent change in the Medi-Cal recovery upon death procedures can have severe consequences. (Medi-Cal recovery is the process by which the State seeks to recoup the payments it has made on behalf of a Medi-Cal recipient by attaching assets which were considered exempt for Medi-Cal qualification purposes.)

The state is now focusing recovery efforts against the personal residence or any interest in that residence (including a life estate interest) of the Medi-Cal recipient upon death. Many so-called Medi-Cal estate plans are set up with a life estate interest in the personal residence. If you know someone who finds himself in this situation, please contact Janis for an appointment to discuss additional options to protect the residence from the recovery process.

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