Asset Splitting Eases Health-Cost Burden

Question: I was interested in your recent column on nursing care and custodial insurance in which you made the statement, “In California, however, a couple’s community property can be split so that the assets of the couple’s community property can be spent down to qualify him or her for Medi-Cal, while the assets of the partner outside the home can be preserved.� Can you give me more details on this?--R.S.

Answer: This was a piece of legislation (Welfare and Institutions Code, Section 14006.2), passed in 1985, that was sorely needed. Previously, a couple faced with horrendous nursing home or custodial expenses could qualify for aid under Medi-Cal only after they had spent their combined assets down to virtually zero--leaving the non-institutionalized partner every bit as destitute as his/her partner.

The procedure is fairly complex, so we obviously can’t touch all bases. However, a general description is offered by Tim Lockwood of the Medi-Cal medical eligibility branch’s policy section in Sacramento, which writes and interprets eligibility requirements.

A couple can take advantage of the splitting provision two ways. The couple can prepare a written “interspousal agreement,� which, in the event of the institutionalization of either party, simply establishes them as, in effect, living apart when that institutionalization takes place. The other way is to do nothing and, after a month of institutionalization, they are considered living apart and the county welfare department simply applies its own formula to the splitting. (Although Medi-Cal is a state program, it is administered by the counties.)

Either way, however, the same principle prevails: The assets can’t be loaded in favor of the spouse not being institutionalized. Certain property (but not much) is exempt from the splitting--primarily the house, if it’s the principal residence of the person institutionalized or of the spouse or a dependent child under 21 or a disabled dependent or if it isn’t the principal residence at the time but is the house where the person being institutionalized intends to return after his/her confinement. One car per couple is also exempt from the splitting.

But, with these two lone exemptions, Lockwood said, virtually everything else is fair game and must be split evenly, and the institutionalized partner’s half has to be spent down to $1,800 in order to qualify for Medi-Cal. This includes not only the obvious--cash, checking and savings accounts, stocks and bonds--but also such assets as the cash value of life insurance policies and Individual Retirement Accounts (minus the penalty for early withdrawal, if applicable). Company pension plans aren’t included in this, however, because a third, disinterested party (the sponsoring company) is involved.

All community income during the spouse’s confinement, Lockwood added, is similarly divided, but not necessarily 50/50. As an example: The husband and wife are both on Social Security, the husband drawing $700 a month and his wife half of that, $350. In this case, the husband retains the larger share (his), and his wife’s portion goes to the Medi-Cal program as her share of the cost.

There’s a valid reason, Lockwood said, for choosing the written interspousal agreement before, or at the time of, institutionalization rather than letting the county do it by formula.

“If, in time, the person is released from custodial care and returns home,� he said, “the county automatically has to recombine those community property assets. And then, if later, he or she has to go back into the custodial-care facility, the whole process starts over--splitting the assets a second time.

“If this happens two or three times and the assets are recombined each time, there’s bound to be some loss through repeated fragmentation.�

This is avoided by using the interspousal agreement, Lockwood added, because the agreement is a one-time change in the legal character of the assets: from community property to separate property.

As we said, it can get pretty complicated, but you can get help and advice through a newly created ombudsman program in the California Department of Aging and/or through your county welfare office (Department of Public Social Services).