It's best to shelter home

By McNichol & Tillem

Dear Len & Rosie, I’m writing in regard to a very good friend. Her husband died two years ago after spending a year in a nursing home. He was a recipient of Medi-Cal. After his death, the state sent out an estate claim form asking about his assets.

My friend was advised by an attorney at that time that, as a widow, her house would automatically pass on to her children. Last month, you said that this wasn’t so. He said that the state could step in and her children would have to fight to get their inheritance. - Margaret

Dear Margaret, After your friend’s death, the executor or administrator of her estate, or the trustee of her revocable trust, is required by law to notify the California Department of Health Care Services of her death. DHCS will then mail back an estate claim. If your friend owns an interest in the home upon her death, then the half of the home she received from her husband upon his death will be subject to the Medi-Cal estate recovery claim. Her children will have to pay back DHCS even if she adds them to the title of the property as joint tenants or leaves them the home in an ordinary revocable trust.

But it’s not too late. Your friend can still shelter the home. She could give it outright to her children prior to her death, but that’s not really a good idea. Her children would own the home with their mother’s cost basis, and would likely have to pay a great deal of capital gains tax when they sell the home after her death.

The best way of sheltering the home is if your friend creates an irrevocable trust that leaves her a personal right of occupancy in the home, but otherwise restricts her rights to the property. This way, when your friend dies, she will not own an interest in the home that will be subject to Medi-Cal estate recovery claims. Other provisions should be included in the trust to ensure that the home will get a new cost basis on your friend’s death. That way, when the children sell the home, no capital gains tax will be due.

This is not the ordinary sort of revocable trust that most trusts and estates lawyers do. Your friend should consult with an elder law attorney that does Medi-Cal planning now to make sure that her children will inherit her home later, free of Medi-Cal estate claims.

One final point. Your friend’s husband died with a bank account that surely passed to your friend upon his death. DHCS is going to claim the money that was in this account upon the husband’s death, less his funeral and burial or cremation expenses. If your friend dies decades from now, it will be difficult for her children to deal with this claim.

It’s important for your friend to collect the account statement showing the date-of-death value of the account, and the receipts for her husband’s final expenses, and keep them in a safe place.

Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, at 996-4505, or www.lentillem.com. Len also answers legal questions each weekday, noon to 12:45 p.m., and Sundays, 4-7 p.m., on KGO Radio 810 AM.

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