Q. We were obliged to arrange for mom to move into a nursing home because she has become frail and needs full-time care. We now need to apply for a Medi-Cal subsidy to help pay for the cost of her care, which is quite expensive. We’ve heard that Medi-Cal may then take her home. Is this true?

A. Well, “Yes” and “No”, but the good news is that by taking proper legal steps during your mother’s lifetime the home can be fully protected and preserved for her intended beneficiaries.

During Mom’s Lifetime: So long as mom is alive, and so long as you indicate on the Medi-Cal application form that she intends to return home some day if she is able, the home remains an exempt asset. If you do so, then during her lifetime Medi-Cal will not attempt to put a lien on the home. Further, under current California law home ownership will not interfere with her eligibility for a Medi-Cal long-term care subsidy no matter how much equity she has in the home. However, this unlimited equity value will be changing in the near future: when a new law called the Deficit Reduction Act is fully phased in, the home equity value for a single person must be under $750,000 in order to qualify, but even then the unlimited equity value for a married person will remain in effect.

Upon Mom’s Death: During your mother’s lifetime, Medi-Cal will keep a running tab of the amounts it pays out for her care. When she dies, the home will then cease to be an exempt asset and Medi-Cal will then seek to “recover” its payments from her estate. If she still owns the home at the time of her death, Medi-Cal will file a claim. That claim will need to be paid before the home can be sold or transferred to your mother’s beneficiaries. This is called Medi-Cal “estate recovery”. Medi-Cal can never recover more than it has paid out in benefits, but usually the amount paid out is substantial and can, itself, force the family to sell or refinance the home. And, by the way, holding the home in a “Living Trust” does not avoid this exposure to recovery.

However, there are perfectly proper ways to avoid this recovery, provided that proper steps are taken during your mother’s lifetime. These planning steps must comply with Medi-Cal rules. They should also take into account tax consequences and probate avoidance concerns among others. Elder Law attorneys sometimes create a very special kind of irrevocable trust to use for this purpose. It is usually unwise for family members to attempt to handle this special transaction on their own. If not handled correctly, a transfer of the home for the purpose of avoiding Medi-Cal recovery claims could expose the home to even greater adverse tax consequences.