Tuesday, 16 April 2024

Estate planning: SSI/MediCal estate recovery planning options

Persons receiving SSI/Medi-Cal benefits often wish to preserve their home against eventual estate recovery at death. Under current law, a person receiving SSI and/or Medi-Cal may give away his/her residence prior to death and avoid estate recovery, yet not lose any SSI and/or Medi-Cal benefits.


Transferring one’s home to family (e.g., one’s children), however, creates the potential hazard that one might get evicted, for various reasons, including a falling-out with the new owner, or problems befalling the new owner (such as creditor actions or divorce). What alternatives are available?


Various options exist. The reader is cautioned, however, that except for the first option below, none are guaranteed to succeed at avoiding estate recovery. Estate recovery is a very controversial area of law, and no one knows what the law will provide at one’s death.


So let’s examine the options.


One option is to sell the property to family with an understanding that they will allow one’s continued occupancy. This could be done by way of an installment sale that would generate monthly income, which is often preferable to taking a reverse mortgage.


So long as the income was spent buying exempt services or resources each month there would be no worries about accumulating disqualifying (excess) resources (cash). A bona fide sale with a sale price based on a qualified appraisal will not result in estate recovery claims against.


Another option is to transfer the residence to a family member while retaining a legal right of occupancy – either a reserved life estate or an unrecorded occupancy agreement.


A life estate is a much more substantial right and has to be contained in the deed of conveyance. California has not pursued recovery against life estates, although it has been threatened.


An occupancy agreement is not recorded (and so is more stealthy), but is a less substantial right. A right of occupancy is akin to an indefinitely long-term lease, but without rent payments. Also, whereas the life estate guarantees the family will get a new basis when the original owner dies, the occupancy agreement is less certain.


The last option discussed here is transferring the home to an irrevocable trust while reserving a lifetime right of occupancy.


The trust, often called an “intentionally defective irrevocable trust” (a.k.a., the ‘IDIT’), provides extra protection and flexibility.


First, the IDIT is not answerable to the creditors of whomever inherits the house, until such time as they actually inherit (when title goes outright into their name).


Second, the IDIT allows for the residence to be sold and the proceeds to be used to buy a replacement residence. That flexibility can be particularly desirable if one considers possibly moving to another home and/or different location.


Third, the IDIT allows one to still be the owner for income tax purposes, real property tax purposes and estate tax purposes (now usually only relevant insofar as the stepped-up basis at death goes).


Selecting the best option involves careful consideration of factors that usually differ very significantly from person to person.


Do not presume which one suits you best until you have discussed this with a qualified advisor.


Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law. His office is at 55 1st St., Lakeport, California. Dennis can be reached by e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone at 707-263-3235.


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