Estate planning is a vital tool, especially when it comes to protecting assets and ensuring one’s financial well-being in the face of potential healthcare costs. As individuals consider their long-term care needs and eligibility for government programs like Medi-Cal, questions often arise regarding the effectiveness of various estate planning tools in safeguarding assets. One common tool is the revocable trust, also known as a living trust. But the pressing question remains: Does a revocable trust provide protection against the asset limitations imposed by Medi-Cal?
What is Medi-Cal?
Medi-Cal is California’s version of the Medicaid program, which is a joint federal and state program that provides healthcare coverage to individuals and families with low income and limited resources. It is administered by the California Department of Health Care Services (DHCS) and is designed to ensure that eligible individuals have access to necessary medical services.
Key Points about Medi-Cal
Eligibility: Eligibility for Medi-Cal is primarily based on income and certain categorical requirements. Eligible individuals include low-income adults, children, pregnant women, elderly individuals, and people with disabilities. The specific income limits and requirements may vary based on factors such as age, household size, and disability status.
Covered Services: Medi-Cal provides a wide range of healthcare services, including but not limited to:
- Doctor visits and consultations
- Hospital care
- Prescription medications
- Emergency services
- Laboratory tests and X-rays
- Mental health services
- Preventive care and vaccinations
- Family planning services
- Long-term care (in certain cases)
Application Process: To apply for Medi-Cal, individuals can complete an application through the California Department of Social Services (CDSS) or through Covered California, the state’s health insurance marketplace. The application requires providing information about income, assets, household size, and other relevant details.
What is a Revocable Trust?
A revocable trust, also known as a living trust or inter vivos trust, is a legal arrangement that allows an individual, referred to as the grantor or settlor, to maintain control over their assets during their lifetime while providing for the management and distribution of those assets upon their death or incapacity. Here is a more in-depth explanation of a revocable trust:
Elements of a Revocable Trust
Grantor/Settlor: The grantor is the person who creates and funds the trust by transferring their assets into it. The grantor retains control over the trust during their lifetime and has the power to modify, revoke, or terminate the trust at any time.
Trustee: The trustee is the person or entity responsible for managing the trust assets in accordance with the grantor’s instructions. In most cases, the grantor serves as the initial trustee, maintaining control over the trust’s assets. However, the trust document should also name a successor trustee to take over management duties upon the grantor’s death or incapacity.
Beneficiaries: The beneficiaries are the individuals or entities designated to receive the trust’s assets or benefits after the grantor’s death or according to specific instructions outlined in the trust document. Beneficiaries can include family members, friends, charitable organizations, or even the grantor themselves.
Trust Property: The grantor transfers assets, such as real estate, bank accounts, investments, and personal property, into the trust, designating them as trust property. The trust property is then managed and distributed according to the terms and provisions established by the grantor.
Benefits and Purposes of a Revocable Trust
Probate Avoidance: One of the primary reasons people create revocable trusts is to avoid the probate process. Assets held in a revocable trust typically pass directly to the beneficiaries upon the grantor’s death without going through probate, which can be time-consuming and costly.
Privacy: Unlike a will, which becomes part of the public record during probate, a revocable trust allows for greater privacy. The trust’s terms and distribution of assets remain confidential.
Incapacity Planning: A revocable trust provides mechanisms for managing assets in the event of the grantor’s incapacity. The successor trustee steps in to manage the trust property on behalf of the grantor, ensuring their ongoing financial needs are met.
Flexibility and Control: The grantor retains control over the trust assets during their lifetime and has the flexibility to modify or revoke the trust as circumstances change. They can also establish specific instructions for how the assets should be managed and distributed upon their death.
Succession Planning: A revocable trust allows for seamless succession planning. The named successor trustee can take over the management and distribution of assets without the need for court involvement or delays.
Does a Revocable Trust Protect Assets From Medi-Cal?
A revocable trust does not provide asset protection from Medi-Cal (California’s Medicaid program) or other creditors during your lifetime. A revocable trust is considered a “grantor trust” because the person who creates the trust (the grantor) retains control over the trust assets and can revoke or modify the trust at any time.
Since the grantor of a revocable trust maintains control and access to the assets, Medi-Cal considers those assets to be available for determining eligibility and assessing benefits. If you require long-term care and need to qualify for Medi-Cal benefits, the assets held in a revocable trust may be considered as part of your countable assets, subject to spend-down requirements.
It’s important to note that while a revocable trust does not protect assets from Medi-Cal during your lifetime, it can play a role in your estate plan to help facilitate the distribution of assets after your passing. Upon your death, the revocable trust can become irrevocable, and the assets held within the trust may be managed and distributed according to the trust’s provisions. At that point, the assets may be protected from certain creditors or claims.
If asset protection from Medi-Cal or other creditors is a concern, you may need to explore other estate planning strategies, such as an irrevocable trust or other asset protection tools.
How Can I Protect Assets From Medi-Cal?
It’s crucial to consult with an experienced estate planning attorney who specializes in Medi-Cal planning to explore the best strategies and tools based on your specific circumstances. They can help you navigate the complex regulations, understand the implications of different options, and develop a comprehensive asset protection plan while considering your overall estate planning goals.
Schedule a Consultation with a Professional Estate Planning Attorney
Galanti & Copenhaver offers personalized services to every client, ensuring their unique needs are met. Our dedicated team is available to address any questions or concerns you may have. Schedule a consultation today to speak with us at Galanti & Copenhaver!