The Problem With Revocable Living Trusts (in California)

By Zoran K. Basich, Elder-Care Attorney

More and more “investment advisers” are selling Trusts as vehicles for preventing probate, avoiding taxes and providing for estate management. Approximately 40 million baby boomers soon will require increasingly expensive medical care during a longer life expectancy than their parents. As they become ill with Cancer, Strokes, Alzheimer’s disease, Parkinson’s disease and other debilitating illnesses care will, in many cases, be delivered in a Skilled Nursing Home setting.

The average stay at a nursing home can easily exceed $100,000 a year, and in some cases can last 10 or more years.

Often with proper planning for middle class families, most nursing home expenses can be paid for under the Long-Term Medi-Cal Program (the State equivalent of the Federal Medicaid program), without impoverishing the patient’s spouse and without depleting the Family Estate. Medi-Cal is not just a poverty program. Middle-class taxpayers suffering a catastrophic illness can often qualify, if they comply with applicable rules and regulations, which are complex and subject to frequent amendment.

Living Trusts can be a part of good Estate Planning for Long-Term Care. The “income and principal clause” in most of today’s Trusts obligates the person administering your Trust to take whatever steps necessary to make certain you are cared for. This clause can force you or your spouse to use all Trust Assets for healthcare until the Trust is depleted. Assets held in a Revocable Trust at death are subject to an Estate Recovery. The State Director of Health Services is entitled to reimbursement for every cent of Medi-Cal benefits paid to the patient after age 55. That claim takes priority over any other Trust terms for payments to others, including spouses and children.

Under Medi-Cal regulations, typical trust assets – real property, stocks, bank or investment accounts, vehicles and income – are not exempt from Medi-Cal reimbursement claims. Those same assets, if held in a manner other than a Revocable Living Trust, could be exempted from reimbursement. California has the authority to place an estate claim against the property of a Medi-Cal recipient, including property that passes upon death to the recipient’s heirs through a Revocable Living Trust. This means that Trust Assets are viewed as cash available to privately pay the cost of a Nursing Home stay.

A Living Trust is not automatically compatible with effective Estate Planning for Long-Term illness and inheritance preservation. Living Trusts can, and will, interfere with your ability to rely on excellent government benefits. The good news is that, with appropriate advice and competent Advisers, other options are available to preserve your Estate and ensure your loved ones’ financial stability.

For additional information, to order a FREE video or DVD about planning for Long Term Care, or to make an appointment, click on Zoran K. Basich in PRO’s Wellness Village.

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