People in the baby-boom generation are increasingly finding themselves in need of long-term care and looking to an Orange County estate planning attorney for assistance in making the necessary arrangements for their future care.
Considering that a private room at an assisted living facility in California costs an average of $240-$480 per day, depending on the facility's location, many estates find their assets rapidly diminishing with each passing day a patient continues in care. Fortunately, there is a method to receive the medical attention you require while also protecting your family's financial security.
What is the best way to pay for a nursing home stay?
A common misconception is that Medicare will cover the price of nursing home care, which is not always the case. Unfortunately, Medicare only pays the whole costs of treatment for the first 21 days, with the exception that the patient must be hospitalized for at least three days before to being admitted to a skilled nursing facility or rehabilitation facility.
Fortunately, Medi-Cal, California's Medicaid health-care program, supports longer stays in nursing homes for an infinite period of time under certain conditions. This medical assistance program, on the other hand, is intended for people with little financial resources.
Medi-Cal can also pursue assets of the deceased patient after the death of the patient and their spouse in order to reimburse them for the medical services they provided during their lives.
What Is a Medi-Cal Asset Protection Trust and How Does It Work?
It is possible to establish a Medi-Cal Asset Protection Trust (MAPT) to enable individuals qualify for long-term Medi-Cal benefits while simultaneously shielding their assets and principal residence from Medi-Cal estate recovery.
This form of trust is extremely useful as an estate planning tool, allowing folks who need to remain in a nursing home to receive the care and support they require without depleting their financial resources.
Why Should You Create a Medi-Cal Asset Protection Trust? What Are the Benefits of Creating a Medi-Cal Asset Protection Trust?
A Medi-Cal Protection Trust has a plethora of other benefits in addition to assisting persons in need to qualify for long-term care while protecting their financial assets. Here are the top five benefits of creating a trust, as well as the reasons why a probate attorney in Orange County may advocate this sort of trust.
1. Qualifying for Medi-Cal Long-Term Care is number one on the list.
Once assets are deposited in a MAPT, they are no longer considered when determining eligibility for Medi-Cal benefits. This helps someone to obtain the long-term care they require, whether at home or in a nursing facility, without having to deplete the family's financial resources in the process.
An applicant for long-term care must have assets and income that are below a specified threshold in order to be considered. A qualifying individual can have up to $2,000 in liquid assets under Medi-Cal, while their spouse can have up to $130,380 in non-exempt assets under the program at this time.
Once a MAPT is established, the estates of the spouse or the individual attempting to qualify for Medi-Cal are no longer considered assets of the spouse or the individual. They have now been designated as trust assets.
2. Protecting Your Assets and Your Home From Medi-Cal Recoveries
After a patient who has used Medi-Cal and their spouse passes away, the State of California has the right, and does so on a regular basis, to go after any assets in the patient's name in order to recover the expenditures that were incurred while utilizing Medi-Cal services.
Patients who have relied on Medi-Cal to assist them in making the payments associated with long-term care can face overwhelming financial burdens. With people spending an average of 835 days in nursing homes, or more than two years, and the average yearly cost of a private room in a nursing home in Los Angeles, California coming in at $127,020, it's easy to see how an estate might quickly deplete its assets.
All assets placed into a MAPT become the property of the trust, as previously stated. This means that Medi-Cal will no longer be able to confiscate any of these assets in order to pay for the long-term expenditures associated with a deceased patient's health treatment after he or she passes away.
3. Keeping Capital Gains Taxes to a Minimum
Single homeowners can exclude up to $250,000 in capital gains from the sale of their primary dwelling, or up to $500,000 if they are a married couple, on the sale of their primary residence. If they have resided in their current residence for two out of the last five years, it is considered their principal residence. When a residence is placed in a MAPT, this incredible tax benefit is kept for the owner.
In many cases, parents make the mistake of donating their homes to their children in order to remove the property from their names and keep it out of the hands of the state of California. As many people are aware, real estate values in California continue to rise, and a home that was acquired for $200,000 ten years ago may today be worth $1 million or more.
When the children inherit this appreciated asset, the initial purchase price becomes the cost basis for the asset's valuation. The children will be accountable for the capital gains tax on $800,000 of a home valued at $1 million with an original purchase price of $200,000, resulting in a total tax liability of $800,000.
Even if the same house had been placed in a MAPT, the capital gains tax would have been avoided since the cost basis would have been the price of their parent's house when their parent died, rather than the current market value. As you can see, there are a variety of tax advantages to owning a home and putting it in a master planned community.
4. Keeping Your Investments Safe
Once investments are placed in a MAPT, the owner may continue to benefit from the income created by these investments for the foreseeable future. This protects investments while also allowing funds to be retained. When it comes to investments and MAPTs, an estate planning attorney can help you choose the best course of action.
5. Establishing a Medi-Cal-Compliant Trust Fund
There are many different kinds of trusts. The revocable living trust is one of the most well-known and often used types of trust. A revocable trust is one that can be changed or canceled at any time, and it can be used to pay for a person's long-term care expenses if they so choose. This means that the owner's assets would have to be depleted in order for him or her to qualify.
Medi-Cal includes a number of criteria about how someone might spend down their assets and retirement funds in order to qualify for the program. These include a look-back phase during which all previous transfers of property and assets are scrutinized and evaluated. If they have been gifted or sold during this time period, they will be ineligible for a length of time following that.
At McKenzie Legal & Financial, we provide a wide range of services to ensure that you can go forward with ease. In addition to helping you make the most of your life's work, our financial and estate planning services can also help you enhance your retirement savings account. Thomas L. McKenzie, a qualified financial consultant and a renowned Los Angeles Estate Planning Attorney, works across a broad range of topics to ensure that your ultimate wishes are carried out in the manner in which you desire them to be carried out.
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