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Expert Advice

Jun. 29, 2017

New Rules for Medi-Cal and Special Needs Trusts

A new law benefits injured plaintiffs by removing hurdles.

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Two recent enactments offer new opportunities to personal injury attorneys and estate planning attorneys.


The first of them changes the rules for injured plaintiffs who seek to protect their Medi-Cal benefits by creating a Self-Settled Special Needs Trust. A new federal statute amends the rules that allow mentally competent individuals to establish their own “payback” special needs trusts with their own assets. For the uninititated: when injured plaintiffs need to preserve eligibility for Medi-Cal and Supplemental Security Income, often the solution is the creation and funding of a Special Needs Trust.

Until 2017, that type of trust had to be established by a parent, grandparent, court or guardian or under a Pooled Trust. The plaintiff could not establish his or her own Trust. That requirement caused delays and expense, and it was a burden to get court jurisdiction if the plaintiff was not incompetent or a minor.

Now, under legislation known as the SNT Fairness Act, a physically disabled, but mentally competent adult plaintiff under age 65 can establish and fund the trust with the required payback provision. Most important, this can now be done without involving a court or the injured person’s family. The governing statute is 42 U.S.C. § 1396p (d)(4)(A). The word “individual” has been added to the list of persons who can establish a Special Needs Trust. Now this can be done directly by the injured party.


California’s Medi-Cal estate recovery law has also changed. The amendment relates to section 14009.5 of the state’s Welfare and Institution Code. Estate planners thus have a new use for an old tool in that, with respect to persons dying after January 1, 2017, all assets held in a standard vanilla Revocable Living Trust cannot be claimed by the State.

Assets held in joint tenancy, or in accounts which are distributed upon death by survivorship or by beneficiary designation are similarly protected. The only assets that are subject to recovery are those assets in the person’s “probate estate.” In practical terms, this means that if assets are correctly funded into a revocable trust, they are not at risk for an estate claim.

In addition, recovery by the state is completely prohibited from the estate of a deceased Medi-Cal patient who is survived by a spouse, registered domestic partner, a minor child or a disabled child. Previously, there was estate recovery on assets that the widow(er) inherited, or limits on the protections for disabled or minor children.

With respect to a potentially rare situation where the heirs are subject to a lien on their inheritance, the interest rate on the lien has been clarified, and the rate cannot exceed simple interest at 7 percent per year. See Cal. Welf, & Inst. Code § 14009.5(d).

A claim against a home of modest value shall be waived based on a hardship application and exemption. Modest value means a home whose fair market value is 50 percent or less of the average price of homes in the county where the homestead is located, as of date of the decedent’s death. See Cal. Welf. & Inst. Code § 14009.5(f)(5).

Not all Medi-Cal covered services are have to be repaid. But note: primarily home and facility long term care services are reimbursable to the California Department of Health Care Services.

The new law requires the state to provide a current or former beneficiary or their authorized representative a copy of the amount of Medi-Cal expenses that may be recoverable. There is a $5.00 fee for this, and information how to request this is found at:


Counsel must understand that these recent changes don’t resolve every issue, nor do they eliminate all recovery liability. There are still Medi-Cal estate recovery and eligibility issues to consider:

  • Estate recovery only arises when someone has QUALIFIED for Medi-Cal. Eligibility rules still apply.
  • The state may still have a right to be repaid for Medi-Cal covered services in three cases:
  1. when the patient used Medi-Cal and then received personal injury proceeds, if there is a self – settled Special Needs Trust created under federal law or under Probate Code 3600;

  2. for services for certain permanently institutionalized patients; or

  3. if Medi-Cal benefits were incorrectly (generally fraudulently) paid.

Even so, personal injury attorneys and their clients now have new solutions to offer to their clients when dealing with Medi-Cal and Medicaid issues.

Patricia Tobin specializes in Elder Law, Medi-Cal, and legal planning for families. She is a Certified Specialist in Estate Planning, Probate and Trust, a Certified Elder Law Attorney, and a Fellow of the National Academy of Elder Law Attorneys.


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