When it comes to qualifying for Medi-Cal, California has done away with the asset test so that it no longer matters what assets you own and what is their value; everyone qualifies asset-wise. However, your income can be required to be paid for long-term care in a nursing home. Additionally, your assets can be subject to be payable for a Medi-Cal recovery lien. Learn more about how to avoid the costs of long-term care in a nursing home.
First-Party Special Needs Trusts
A trust designed for the excess resources of a Medi-Cal applicant or beneficiary is known as a special needs trust. This type of trust is established by federal law, and the applicant will not be penalized for transferring assets into it as long as it is established correctly. When the trust is created with the beneficiary’s own assets, it is called a first-party special needs trust, or a self-settled special needs trust, and is defined in federal law under 42 USC 1396p(d)(4)(a). These trusts are often used to manage a significant amount of funds received from an inheritance or court settlement when the beneficiary is already receiving Medi-Cal.
To qualify for a first-party special needs trust, the beneficiary must be under the age of 65 and disabled. All assets of the first-party trust can only be used for the benefit of the Medi-Cal recipient. The special needs trust’s funds cannot be used to pay for anything that Medi-Cal would pay for; it can only be used to supplement the needs of the Medi-Cal recipient.
Upon the death of the Medi-Cal recipient, a first-party special needs trust requires payback to a Medi-Cal recovery lien from the remaining assets of the trust.
Pooled Trusts
A pooled trust, also known as a d4c trust, is a special purpose trust operated by a non-profit organization for Medi-Cal beneficiaries. It combines the resources of participants into one master trust, with separate sub-trusts or sub-accounts for each individual. This type of trust offers an advantage when compared to a first-party special needs trust—namely that it can be established by anyone, regardless of age, and does not have the same restrictions. It is also the only option for those over 65.
A sub-account in a pooled trust can be established by the Medi-Cal applicant/beneficiary, their parent, grandparent, guardian, or court. Upon the death of the Medi-Cal beneficiary, the state is entitled to reimbursement from the pooled trust for expenses paid on the beneficiary’s behalf. Any remaining amount is divided between the charitable organization that created the pooled trust and those designated by the Medi-Cal beneficiary.
Third-Party Special Needs Trusts
A third-party special needs trust is different from a first-party special needs trust because it’s created with the assets of family members, friends, or other relatives, rather than the Medi-Cal beneficiary’s own assets. Although it’s sometimes called a special treatment trust, it isn’t officially designated as such in federal law and doesn’t have the same statutory requirements as a first-party trust.
Since the trust doesn’t contain assets transferred by the beneficiary, but only assets belonging to someone else, the only requirement is that the trustee has sole discretion over the distribution of trust assets. The beneficiary can’t demand any type of distribution, doesn’t own the property in the trust, and doesn’t have direct access to trust funds. The beneficiary can’t receive cash from the trust, and all distributions from the trust must be monitored to ensure the beneficiary doesn’t become ineligible due to owning countable assets over the resource limit.
Unlike a first-party special needs trust, which must allow for payback of a Medi-Cal recovery lien, so long as the trust is established by a parent or grandparent, any residuary beneficiary can be established with a third-party special needs trust, and the state has no right to reimbursement from this trust after the Medi-Cal beneficiary’s death.
What about a child or grandchild?
You may have a child or grandchild who has special needs and receives Medi-Cal benefits. If you set up a special needs trust within the legal framework allowable under law, you can provide for that child or grandchild’s supplemental needs and he or she will still qualify for Medi-Cal benefits. The greatest benefit is that the assets in the special needs trust can bypass a Medi-Cal recovery lien and be paid to your other loved ones.
Avoiding a Medi-Cal Recovery Lien
Any assets in a revocable living trust that avoids probate will also avoid a Medi-Cal recovery lien at the death of the Medi-Cal recipient. It is imperative that the Medi-Cal recipient put all his or her assets in a revocable living trust to avoid the Medi-Cal recovery lien.
