Long-term care is one of the most significant financial risks facing California families today. Nursing home care in the San Jose and Bay Area region regularly exceeds $10,000 per month. Assisted living facilities, memory care units, and skilled nursing facilities all represent costs that can deplete decades of savings in a matter of years.

For many California families, Medi-Cal, the state’s Medicaid program, is the primary safety net for long-term care costs. But qualifying for Medi-Cal in a way that does not require first spending down most of your assets requires careful planning, often years in advance. And for families whose estate plans do not account for Medi-Cal, the consequences can be severe.

This article explains how Medi-Cal interacts with California estate plans, what families need to know about asset limits and the look-back period, and how trusts and other planning tools can be used to protect assets while preserving eligibility.

What Is Medi-Cal and When Does It Cover Long-Term Care?

Medi-Cal is California’s implementation of the federal Medicaid program. It provides health coverage to low-income Californians, including coverage for long-term care services that Medicare does not cover. Medicare, despite being the primary health insurer for most Americans over 65, covers skilled nursing facility care only for limited periods following a qualifying hospital stay and does not pay for custodial care, which is the type of care most people need when they can no longer live independently.

Medi-Cal, by contrast, will cover long-term custodial care costs for eligible individuals. Eligibility is based on income and assets. For a single applicant, the asset limit is currently $130,000 under California’s updated rules following the passage of Assembly Bill 133, which took effect January 1, 2024. Notably, California eliminated its asset test for most Medi-Cal programs in 2024, but long-term care Medi-Cal (also called institutional Medi-Cal) retains an asset test and a look-back review, which is why planning remains essential.

California also has an active estate recovery program, which means the state can seek reimbursement from a deceased Medi-Cal recipient’s estate for benefits paid. The estate recovery rules in California were also modified in 2024 to limit recovery to assets that pass through probate, which significantly affects how trusts are used in Medi-Cal planning.

The Five-Year Look-Back Period

The most important concept in Medi-Cal long-term care planning is the look-back period. When someone applies for long-term care Medi-Cal, the state reviews all asset transfers made by the applicant within the prior five years. If the state finds that assets were transferred for less than fair market value during that window, it will impose a disqualification period, a period during which the applicant is ineligible for Medi-Cal even if they otherwise qualify.

The length of the disqualification period depends on the value of the transferred assets divided by the average monthly cost of nursing home care in California. A large transfer made two years before an application could result in many months of ineligibility, during which the applicant would need to pay for care out of pocket.

This is why Medi-Cal planning, like all tax and benefits planning, works best when it begins well before a care need arises. Families who start planning five or more years before anticipated long-term care need have the most flexibility. Families in a crisis situation, where care is needed immediately, have far fewer options.

It is worth noting that the look-back period applies to transfers, not to trust creation alone. Simply placing assets in a trust does not insulate them unless the trust is structured so that the assets are genuinely no longer available to the applicant. Revocable trusts, including standard living trusts, do not protect assets from Medi-Cal consideration because the grantor retains control.

Revocable Living Trusts and Medi-Cal: What They Do Not Do

A common misconception among California families is that holding assets in a revocable living trust protects them from Medi-Cal. It does not.

For Medi-Cal eligibility purposes, assets held in a revocable trust are treated as if the grantor still owns them directly. Because the grantor can revoke the trust and reclaim the assets at any time, Medi-Cal counts those assets as available resources. Placing a home, investment accounts, or other property into a standard revocable living trust accomplishes many valuable estate planning goals, including avoiding probate and maintaining organized asset management, but Medi-Cal asset protection is not among them.

This is an important point for Bay Area and San Jose families whose estate plans were created primarily to avoid probate. The trust may be well-drafted and appropriate for its purpose, but it does not create any buffer against Medi-Cal spend-down requirements for long-term care.

Irrevocable Trusts and Medi-Cal Planning

Unlike revocable trusts, properly structured irrevocable trusts can be used to remove assets from Medi-Cal consideration, provided the transfer occurs outside the look-back period.

The key concept is that once assets are transferred into an irrevocable trust, the grantor no longer owns or controls them. Because the assets are genuinely unavailable to the grantor, Medi-Cal does not count them as resources, assuming the transfer was made more than five years before the Medi-Cal application.

Irrevocable Medi-Cal planning trusts are typically structured so that the grantor retains the right to income generated by the trust assets, but not the principal itself. This structure allows a parent, for example, to continue receiving income from invested assets while those assets are protected from Medi-Cal spend-down requirements. The principal passes to heirs at death without being subject to Medi-Cal estate recovery, because assets held in an irrevocable trust generally do not pass through probate.

The tradeoff is real: irrevocability means the grantor cannot take back the assets if circumstances change. This is a significant commitment, and it requires careful consideration of the grantor’s anticipated financial needs, family dynamics, and the nature of the assets being transferred.

The Home and Medi-Cal: Special Considerations

The family home is often the most valuable asset in a California estate and receives special treatment under Medi-Cal rules. A primary residence is generally considered an exempt asset for Medi-Cal eligibility purposes while the applicant is alive, provided the applicant intends to return home or a spouse or dependent family member lives there.

However, the home becomes subject to Medi-Cal estate recovery after the recipient’s death if it passes through probate. California’s post-2024 estate recovery rules limit recovery to probate assets, which means that a home held in a trust at death is generally not subject to recovery. This is a significant reason why transferring a home to an irrevocable trust as part of a Medi-Cal plan can protect it from recovery even if the transfer triggers a look-back review.

For families with high-value Bay Area homes, this analysis is particularly important. A home worth $1.5 million or more represents a substantial recovery target for the state if it passes through probate following a Medi-Cal recipient’s death. Proper planning can protect that asset for the next generation.

The interaction between Proposition 19, which limits the parent-child property tax reassessment exclusion, and Medi-Cal trust planning is also a live issue for many Bay Area families. Transferring a home to an irrevocable trust may trigger property tax reassessment depending on how the trust is structured, and California law in this area requires careful analysis.

Caregiver Child Exception and Other Exempt Transfers

Not all asset transfers trigger a Medi-Cal look-back penalty. California recognizes a number of exempt transfers that can be made without imposing a disqualification period, regardless of the look-back window.

One important exception is the caregiver child exception. If a parent transfers a home to a child who has lived in that home for at least two years prior to the parent’s institutionalization and who provided care that delayed the parent’s need for nursing home placement, that transfer is exempt from look-back penalties. This exception can be valuable for families where an adult child has been providing ongoing care.

Transfers to a disabled child, transfers to certain trusts for disabled individuals, and transfers between spouses also fall outside the look-back rules. An experienced Medi-Cal planning attorney can evaluate which exceptions apply to a particular family’s situation and structure transfers accordingly.

Spousal Protections: The Community Spouse Resource Allowance

For married couples, Medi-Cal has specific rules designed to prevent impoverishment of the spouse who remains at home, called the community spouse. Under the community spouse resource allowance rules, the at-home spouse is permitted to retain a certain amount of assets while the other spouse receives Medi-Cal long-term care benefits.

California has adopted a maximum community spouse resource allowance that is among the more generous in the country. Understanding how these rules apply, and how to structure an estate plan to make full use of the protected amounts, requires working with an attorney who has current knowledge of California’s Medi-Cal eligibility rules.

When to Start Planning

The single most important factor in Medi-Cal planning is time. The five-year look-back means that assets transferred today will be fully protected for applications made after five years. Every year of delay narrows the planning window.

For families in their 50s or early 60s with parents who may need care in the coming years, or for individuals in their 60s who want to protect assets for their own potential care needs, the time to begin planning is now. The best Medi-Cal plans are built before there is any crisis.

For families already facing an imminent care need, crisis planning options are more limited but still exist. Specific strategies, including the use of Medi-Cal compliant annuities, promissory notes, and spousal protections, may be available depending on the circumstances. An attorney who focuses on elder law and estate planning can evaluate what remains possible.

Working With an Attorney Who Understands California Medi-Cal Law

Medi-Cal rules are complex, change frequently, and interact with federal Medicaid law, California estate law, property tax law, and income tax law in ways that require careful coordination. The 2024 changes to California’s asset test and estate recovery rules have created new planning opportunities for some families while eliminating certain older strategies.

At The Dayton Law Firm, we work with clients in San Jose and throughout Santa Clara County to develop estate plans that account for the full picture, including the potential need for long-term care. If you are concerned about protecting your assets and your family’s financial security while preserving access to Medi-Cal benefits, we invite you to contact our office for a consultation.