Protecting Medi-Cal Benefits with Estate Planning, with Attorney Elijah Keyes

0:00 One of the benefits of proper estate planning is being able to maintain Medi-Cal benefits in California, or I guess that would be Medicaid benefits on a state-similar concept, but Medi-Cal here in California with proper planning, and it seems kind of like an oxymoron. How can I have an estate plan with all kinds of assets in it and qualify for it sounds like a welfare-ish type of program, but the idea is the program is designed for people who are to benefit from it, pay taxes, or residents, and there are programs that can be quite beneficial. One of the experts in this field is past guest, Elijah Keyes, who is with the Keyes Law Group in California. Elijah, thanks for coming back to our program. Thanks so much for having me again, it's nice to see you. Why is it that, how does an estate plan properly protect, or should I say protect one's Medi-Cal benefits or open up one to Medi-Cal benefits if they need so? So the weird thing about Medi-Cal is that Medi-Cal has eight different programs. Two of them specifically relate to seniors who need more care, so someone has some injury or an illness that causes them to need some sort of caregiving assistance, and two of the Medi-Cal programs will help them. When seniors age, the three most expensive things that they can possibly absorb will be healthcare, caregiving at home or in a facility, and housing, right, those are the three big expenses.

1:22 So what Medi-Cal does is it helps people deal with number two, which is caregiving, and sometimes healthier expenses. And so what a good estate plan will do is it will open up options so that you can either spend all your money and qualify for Medi-Cal's pretty strict income and asset guidelines, or allow you to use different options to keep some of the money for your benefit, but allow other people to help you along the way. And really, you know, when I first heard the concept to me, it seemed kind of nefarious in that, you know, moving money around, but the truth is the law is written that way, and if you prepare properly, you're just following the rules related out by the legislation. I was always saying to people, if you don't like the law, you can change it. You know, I'm a real estate agent, I'm limited, you know, on what I can talk to people about, and okay, customers are mad at me, I say, I don't write the law, I just have to follow it. In your case, it's not that you wrote the law, it's that, you know, I'm a taxpayer, we pay taxes to get legislation that benefits residents of California, and so you're just really representing your client to help them maximize it. Give me an idea, what kind of numbers we're talking about, what kind of benefit can somebody get, and what are some of the techniques that you use to help them qualify for them? Sure, so we're going to keep this as a pretty high level, because it can get really granular. Now one thing to explain first is that I'm in California, these are California rules, every other state does not offer this option, so this is only an option in California.

2:45 So if you're going to Google this, or do some sort of an internet search, and you come back and say, oh, you lied to me, you might be reading something from Indiana, you might be reading something from like New Jersey, it doesn't work there, it only works here. So the way that this works is that California has a certain limit of assets that you can qualify for most Medi-Cal programs, not all, there's a lot of different rules, but Medi-Cal that we're talking about here is Medi-Cal for the age blind and disabled, which is generally people who are older or disabled, or Medi-Cal skilled nursing. And they say that right now, under current law, if you're a single person who's applying can have $130,000 of certain stuff, like cash in the bank, liquid assets, you can have a house, you can have retirement accounts, you can have your personal effects, your furniture and your broken temporary, you get to keep that. But other things like cash in the bank and stocks and bonds, you have a limit, and that limit is $130,000. So Medi-Cal says, if you call the Medi-Cal people at the state level or at the county level, they're going to say, well, spend your money, if you have $500,000 cash in the bank, spend your money down until you reach $130,000 and then we'll give you benefits. So if you're in a skilled nursing home, Medi-Cal will pay, but only if you have less than $130,000. And there's some tactics and strategies that we can use to move that money away from you. There's certain ways that you do this, but in essence, you choose one or more people who are trusted individuals, either related to you or not related.

4:11 Someone who you believe is going to be a good person for you. And you use a trust. This is how estate planning comes into play. You use a trust in between you and the other person. If you're the giver and someone else is the receiver, you use a trust in between you. So you're going to give assets to that trust. Now that trust has a couple of features. One of them is that you are no longer the owner. So you, the person who's giving is not the owner and that the person who is receiving is not the owner either. It stands in between them. That way no one can ever accuse the other person of stealing it from you. And Medi-Cal cannot accuse you of owning the things. A couple of different ways that we can do that. And the timing of those distributions is extremely important because if someone says, hey, I'm just going to give a million dollars, Medi-Cal might disqualify them for a while. So you have to be really careful to work with someone to understand how fast the money moves in, what type of trust it is, and who is the trusted person. And once we have all of those three things kind of nailed down, then we can do a plan and we qualify lots of people for Medi-Cal benefits. So to clarify a little bit on a high level, the idea of the trust is kind of like a corporation in that it is a different entity that has its own legal status and therefore it's not the person who perhaps transferred the assets into the trust or the corporation to use that example.

5:32 It's now a separate entity. They don't own the assets, so it doesn't count towards their $130,000 limit. That's right. As long as it's done properly. Yeah. And you're right. It is its own person. It is its own corporate entity. The way that companies and trust work in the United States is you can have a trust that's the same as you. It's called a revocable trust. If I set up my own revocable living trust, then the assets inside that trust are mine. But if I set up an irrevocable trust, those assets are not mine. Now, someone might say, well, I'll go online to some online mechanism and I'll just create this weird trust. And the answer is that there are about six or seven different pain points we want to touch with that trust. Even though some of the trust language may look very similar to other trusts, it really is a specialized document. Most estate attorneys don't do this because it's too complicated. It's not in the wheelhouse. This really is a subspecialty of a subspecialty. So you really need a specialist to try to set one of these things up. I can see the potential problem. You're going to ChatGPT and said, give me Medicaid qualified and they give you a trust and it's irrevocable or revocable. What's the difference? It's just two letters. The answer is all the difference in the world as far as qualifying and being able to use the assets back. If you make a mistake. So these are things that require just two letters, irrevocable as IR plus revocable trust. But they're really completely different.

6:50 And the other confusing part, if I'm correct on this, is I got a revocable trust for my assets while I'm alive. When I pass, it becomes then irrevocable. So it's the same trust, I think, that becomes irrevocable. So I can see where I could say, well, what difference does it make? I'll just make it irrevocable now. So let's talk about that. What if somebody did the wrong trust? They went on ChatGPT and typed it in and moved all their assets into irrevocable trust. What happens then? Well, if they're looking for Medi-Cal qualification and they create an irrevocable trust, they're going to probably, 90% likely, they're going to abandon some tax benefits for the beneficiaries and they're going to cost people a lot of money. And so whenever you're moving a lot of money or things or assets, you have to remember that there's a scale. The scale is just that the larger the transfer is, the more the consequence for getting it wrong. So just one example, we set up these trusts for rental properties quite often. So somebody has a rental property, Medi-Cal allows you to have one house, not two. So you have a rental property, we move the rental property into the irrevocable trust. And if we don't set it up right, then when you pass away, you as a realtor will be really familiar with cost basis, right? The cost basis of a piece of real estate is what you paid for it, plus it goes down through depreciation if it's a rental.

8:12 So when you sell the house, you have the sale proceeds minus the cost basis. All that intervening, all that in between is capital gain. You have to pay tax on that. More between 25% to 35%, it can be a big number. And so for some people, some people say, well, I'm just going to set up a really simple irrevocable trust and move my money in. Well, you have to have a weird tax situation. This is probably going too deep. But that irrevocable trust needs to be set up in three or four different ways. One way you can set it up is designed for cash. Another way you can set it up is designed for rental property. Another way you can set it up is designed for stock. And so we design the trust based upon the assets going in to try to do two things. Number one, make sure that neither person owns that money because we don't want the person who's the receiver to be accused by Medi-Cal of stealing. Number two, and we don't want the person who's gone Medi-Cal to be accused of owning it. So we need to separate those three people. And then secondly, we want to make sure that all the tax benefits that we want for the receiver eventually in the future, that we can capture them because the trust is its own person. If we get to design it however we want to, if you want to design a perfect person, would you want it to be kind, would you want it to be respectful, would you want this person to be strong-willed, would you want this person to be physically fit and healthy? We can design the trust in a lot of different ways by riding different paragraphs.

9:36 It seems to me like the process is a bit of a whack-a-mole in that there's a number of different potential problems and your job's attorney is to kind of lay out the potential problems and figure out which ones you can tolerate, which ones where the benefits are the greatest and try to find the right balance. I mean, you have reassessment issues, you have state tax, federal tax issues, you have gift tax issues, you have qualifying for the Medi-Cal, all these get interplayed. Talk a bit about the care for Medi-Cal, you know, as somebody who's entering into that phase and maybe even that story a little bit, I don't think any of us really understand how expensive that is because my next-door neighbor happened to work for a great employer and happened to buy a full-time 24-7 care package years ago when they were even available. And unfortunately, he's been married, I think, for 40, 50 years and his wife is incapacitated and they thought she was going to pass like seven or eight years ago. She's had 24-hour care in the house all that time. I can't even imagine what that costs. What kind of costs are you talking about for care that Medi-Cal will pick up? There's kind of two levels for care, that's a good question. There's two levels for that in-home care. The first level is when you have one caregiver and the second level is when you have two. And the two in-home caregivers is where that big number comes in.

10:54 One in-home caregiver, oftentimes you may live with a spouse or a child or a friend. So maybe that person provides some care for free and so that one caregiver is really there while that person is out of the house, maybe they're working or maybe they need a break. So that's less expensive. Generally, $25 to $40 an hour, the higher that you go, the more skilled caregiver you're going to get. However, when you get to two caregivers, oftentimes now you need 24-hour care. The reason why you need two caregivers is to help someone physically move themselves. If someone cannot get up, they have to have a special lift in their house called a Hoyer lift or they have to have two caregivers. So with two caregivers in the house, now you're running $30,000 a month sometimes. And so because it's $35 to $40 an hour, times two, times eight hours a day, times seven days a week, times 52 weeks a year, and you can do the math, it ends up being about $250 to $350,000. It's a lot of money. And so with that understanding, sometimes people can't afford $300,000 a year because they're just going to spend everything. Most people have not planned to spend $300,000 of unexpected expenses during their lifetime. They haven't budgeted $25,000 a month. If someone had a fixed income, they just haven't done that.

12:14 So they moved to a skilled nursing home. Skilled nursing home has a much lower rate than $35,000 a month. It's probably about 15. Average rate in California is just below 15,000. I have seen rates up to about 25. I've seen rates as low as 13 or 14. What Medi-Cal does is they say that there are certain skilled nursing homes that will accept the Medi-Cal payment and certain ones that will not. And that's okay. But ones that will not accept Medi-Cal payment, we can't use them. But ones that will accept Medi-Cal payment, they will agree to allow the government to pay them the fee for the person who is there. So if you're looking for a facility, probably the most important thing is to understand, is it a good facility? Understanding that Medi-Cal facilities are not as bright, shiny, and beautiful as others. But the question is not whether they're bright, shiny, and beautiful. The question is, does someone receive good care? And so a lot of facilities that are Medi-Cal facilities, they just do a really good job that the paint on the door might be scuffed. The handrail might not be polished, but the care will be taught notch, and that's what you want to look for. You know, I went to a facility, a family member once, that was notched and scuffed, and as you describe it, but the employees were so enthusiastic. And I remember they had like these group exercises, and like everybody, all the staff members were greeting everybody, and it just felt, you know, felt very personal and in a sense warm, human-wise.

13:41 And I think that's that's important piece, too. And I've also had a family member who was in a very expensive high-end, you know, bougie area facility. Really nice. I mean, it was like, it was to me, it was like a hotel that I might stay in, a cafeteria and so, you know, eating area and all that, and was much more sterile, and also probably as the residents, they were all more private, so it's a little more sterile. So yeah, these things are very, to find a fit for a family member is a real challenge. Yeah, it can be. As an estate planner, you know, you set them up, you know, hopefully to with a plan that's going to lead them to victory. But you can never, I imagine, possibly see all of the potential outcomes, right? Like in the case of my neighbor, they're ready to pronounce her, I want to say 10 years ago, maybe it was eight years ago, but something before COVID. And here she is. So if you, even if you thought you could afford $300,000 a year for the first couple of years, these last eight years would have been, I don't know what you'd do. You run out of money and what do you do? You say, I'm sorry. And it's not like a trash can. You can't put out in front of the yard and have the trash can be taken. This is your family member that you care about. So I guess you're, I know you're involved in the planning stages. Do you also get involved in the administration when it comes time? Because I imagine it's your fault if you didn't make the right assumptions. As attorney, who's going to blame?

15:01 Well, the attorney, right? Is that, is that how it works? Well, so my job, there's three different phases for Medi-Cal. And my job is to help prepare things financially. the difference between CPAs and lawyers from a tax perspective, not a Medi-Cal perspective, but it's similar. The difference between a CPA and a tax attorney is that the CPA takes the calculation that's done, the equation that's used by the IRS and puts numbers through the equation and that taps on their, on their, on their calculator and comes out with a number at the end. What the attorney does, the attorney changes the treatment of the numbers. So we changed the valuation. So similar with Medi-Cal. Medi-Cal says, Hey, look, there's a certain equation that we use for Medi-Cal benefits and we tip type on our calculator and this is how much you owe. And this is how much, this is how much you have to spend down. What the attorney does is we change the definition of the things under each piece of that equation. So you might say, well, one PCD equation is this $130,000. Well, the attorney can allow you to give things away so that you can qualify faster, so you can keep the money. You don't have to spend it. Well, Medi-Cal says that you call the Medi-Cal workers, they say, you can't do that, but then when you make the application, when you've done that, they say, that's fine. So they're not allowed to tell you how to do this. They just, they'd have to work with you. And so the thing to consider is that what the attorney does, the attorney is trying to help you qualify at different stages and help you avoid the negative consequences of the Medi-Cal rules.

16:20 And so there's three, I told you that I mentioned at the beginning of this conversation, there are three different phases we have to look at. Number one phase is before you qualify, do you have less than $130,000 of what Medi-Cal calls countable or exempt asset or I'm sorry, not exempt asset. So there's countable assets, which are, which Medi-Cal says are not exempt from counting or there are non-countable assets. The Medi-Cal says are exempt. We're not going to count those. We're getting more of these. Do you have less than $130,000 on this side next year that's going to [unclear], but this year it's 130. Okay. Whoa, it's going to [unclear], right now it's 130, it's going to change. Yeah. Second phase is you now have Medi-Cal. Medi-Cal says you get to keep a certain amount of income and everything else that you earn has to be paid for your medical care. If you're in a nursing home, has to go to the nursing home care. If you're at home, it has to go to caregivers or your medical care. Once you spend that, it's called a share of cost. You get to keep a certain amount of money. Everything above that is spent. Can the attorney affect that amount of money that you get to keep? If you're married, yes. If you're single, no. Okay. Third phase, after you pass away, Medi-Cal is a loan. It's not a gift. Medi-Cal wants their money back, but they only get to take it in one very specific way.

17:41 When you pass away, you could have a joint account with people and the joint account goes to another person. Medi-Cal doesn't take that. When you pass away, you could have a life insurance account, a life insurance policy, and you give money through a beneficiary designation. Medi-Cal doesn't take that. When you pass away, you could have a very small amount of money that we use a special tool to give money away without going to probate. Medi-Cal doesn't take that. Medi-Cal doesn't take assets in a trust. Medi-Cal doesn't take assets that were gifted. Medi-Cal only takes assets that go through a probate court proceedings, certain rules with how that works, but Medi-Cal only takes from the probate. They don't take from anywhere else. But what the attorney does, the attorney does three things. Help to lower the amount that you have to pay, help to lower the amount that you have to pay, I'm sorry, help to, help to increase the amount you get to keep, help to lower the amount you have to pay during Medi-Cal and help you keep what it is you want to give away without paying Medi-Cal back. One, two. And I see these in public cases often where, and it's never week one. It's always like two or three months into it during the creditor period that the state gets a creditors notice and the person had some, maybe not be caregiving, but it might just be medical care and they get a bill. Of course, you know, in the last week, it could be, you know, $150,000. And so here you're selling a house and there's three beneficiaries and they're dividing up to $500,000 in their mind.

19:03 Next thing you know, you know, $150,000 gets pulled into some sort of a Medi-Cal cost and that's obviously a case because they didn't have any preparation. Right. If you, if all you have is the house while you're alive, you get the Medi-Cal benefit, I guess, but when you pass, then Medi-Cal gets that money back. Because it wasn't planned properly. Now that, that trust that you use to avoid Medi-Cal can be irrevocable or it can be irrevocable. There is no relationships. Remember, we have three periods of time before Medi-Cal, $130,000. You need an irrevocable trust to protect your things during Medi-Cal is income. There's no trust that will change or affect that after Medi-Cal. You need, you need assets and a trust to protect your things. That does not need to be irrevocable during your lifetime. That needs to be irrevocable after you pass away. So irrevocable trust, number one, revocable trust, number three is completely fine. Sometimes people have two trusts, irrevocable to protect, irrevocable to get benefits, revocable to avoid payback. It's very common. recently I had a client who, had a house worth about $2 million owed about one three, so she had about [unclear] equity. If she sold it, had no other assets, she really, she needed a lot of things. But one of the things you need clearly was some sort of a adult facility, a care facility, and that money is not going to last.

20:24 I mean, I don't know how long she'll live, but it only lasts so long. And so I was talking to the attorney and said, I know there's some way that one can protect this asset so that we can sell the house in a way that not all the money goes subject to Medi-Cal. I don't know the details. So I guess there's a long way of saying, it seems to me this is a very specialized area, I imagine, a chunk of your business comes from other attorneys to say, Hey, I have a probate administration or I have a, estate plan I'm working on. And I don't really know to see what Medi-Cal like you do. And, is that a common process where they bring you in just to handle the Medi-Cal portion or is it something you need to be involved in the entire estate planning process? No, it's, that's a good question. It is really common that other attorneys will hear what I do and we'll send just clients for Medi-Cal planning. They will have already done an estate plan. some portions, one small portion of that estate plan often has to be updated, which is a power of attorney for financial management. You know, very specialized. One of those do Medi-Cal planning, but oftentimes we can utilize an existing, we can use an existing revocable trust. We can use an existing will, we can use an existing healthcare directive. And then my job is just to do the Medi-Cal plan. That happens quite often where I would say, I would think just because it's so specialized and you only get it wrong.

21:41 I mean, like in this case, it's the whole ball game, right? If you get that right, then you have [unclear] of assets or some portion of it to deal with, and if you don't get it right, you're really going to go with that money pretty fast. It'd be, I don't, I, you know, I don't think it would be $300,000 cause she's not going to stay in the property. I think that's not an option for her, but interesting. Well, look, I certainly appreciate it. I know we, when we started this, thinking this was a very narrow topic, but it's narrow, but it's very deep. And I think it's really important. And it seems like it's one that comes up more and more as a real estate agent, you know, I get more involved, these phone calls before somebody's decided to move. And so I guess the question is how long before, somebody needs Medi-Cal benefits, do they need to start planning on this? I guess it varies for every person, but yeah, there's, there's no set bright line rule. the best way, the best time to start planning is to know, it's to know if the skilled nursing home or if the home care is a reality. so, example, someone is diagnosed with a Parkinson's disease. It's a horrible disease. It's, it's debilitating. It has two features, mental, and another feature physical. So once you have a diagnosis like that, you know, that physical capacity is probably going to wane over time.

23:01 Maybe mental capacity faster. Who knows. But when someone has some physical disability and we know that there's going to need to be some caregiving in the future, that's when you start the conversation, the options that we have to do Medi-Cal planning are more the longer away the care is the shorter and closer the care is the options are still there. They are still there, but the options reduce over time because there are, there are a few options that we have for crisis planning, meaning when someone needs Medi-Cal today, we have very few options, but there are things that we can do. We can get Medi-Cal. It just the options are, they were fewer options, but when you contact beforehand, the options are much larger. That's kind of a catch 22 because attorneys like me, we charge out of pocket. And so when you're looking at some care in the future, you might say, well, I'm not sure if I need to do this now. So I would like to keep my money in my pocket and totally respect that. Totally do. But just so you know, Medi-Cal planning, Medi-Cal cost or a nursing home cost, 15 to $20,000 a month. Yeah. So if you can avoid that for even one month, it's very well worth your time. Yeah. I think it's the nature of estate planning. I'm always amazed when I see, you know, clients with good estate plans, or I should say the good state of planning in a fact, that I can estimate my head, you know, this person saved, you know, $100,000 of, you know, litigation, tax work, you know, taxes on stuff.

24:30 Otherwise you have to pay. I mean, you're talking about really big numbers in some cases, even modest estates, you're talking about a big percentage of money that becomes available. So look, I, again, I know we've started and we're concerned that this is narrow, but there's a lot to talk about here. And I think with the age and the population, it's getting more and more important to evaluate these things. So I really appreciate your time. Elijah Keyes as the, Keyes Law Group, PC, and, been a friend of the program, been on before, for more information, you can reach out to him. Phone number we have [phone number shown on screen]. If you're driving, can't get that. So if you reach out to me, I'd be honored to make an introduction. Also info at keyeslawgroup.com, obviously an expert in this field. And I'm once really important, Elijah, thank you so much for sharing with us today, these important concepts. I know you do other estate planning and someday we'll, we'll get into a little broader topic, but I find it very interesting to thank you so much for your time. Hey, thanks so much, Bill. And look, I'm off there. and for us, you, this is probably a week we get together a week and I talked to attorneys about probate administration, litigation, and learning probate through, proper estate planning. I found today we've, we had a chance to do that with an expert in this particular field with, which I just find it more common in my business as well. Hope you find it interesting. I'd love to get your comments. I put it in the social media you're watching this in or reach out to me if I can help at bill gross probate on social media as always make today your best day ever.

25:50 Thanks so much.