California Medicaid Medi-Cal Benefits Must Be Paid From Revocable Trust Prior To Distribution To Trust Beneficiaries

In Riverside County Public Guardian v. Snukst, a January 10, 2022 opinion, the California appellate court gave an overview of the obligations of a decedent’s estate or trust to pay back Medicaid Medi-Cal benefits.

The Facts Of Riverside County Public Guardian v. Snukst

In November 2009, Joseph Snukst moved into a senior care facility.  He was diagnosed with dementia.  In 2015, the Riverside County Public Guardian was appointed conservator of Joseph’s person and estate.  Joseph died in 2016.  From 2013 until his death, Joseph was a Medi-Cal beneficiary.

In 2004 Joseph created a revocable trust.  The Trust was designated as the pay on death beneficiary of an annuity.  Shawna, Joseph’s niece, was the beneficiary of the Trust.  Upon Joseph’s death, the Trust received over $800,000 from the annuity.

A few months after Joseph’s death, the public guardian notified the department of Joseph’s death.  The California Department of Health Care Services (the department) presented a creditor’s claim in the amount of $480,465.52 to the public guardian for reimbursement of Medicaid Medi-Cal benefits Joseph had received.  The public guardian requested authority to pay the department.  The California probate court denied the request, finding that the annuity ceased to be a conservatorship asset upon Joseph’s death and became an asset of the Trust and was not liable to reimburse the Medicaid Medi-Cal benefits received.  According to the probate court:

The trust “is the primary beneficiary of the annuity. No order under Probate Code section 2580 was made to change the beneficiary. Therefore, the annuity ceased to be a conservatorship asset upon the death of the conservatee and became an asset of the [trust] dated March 15, 2004. Consequently, the conservator has no authority to use the funds from this annuity to pay the [department’s] claim.” The court added, “Even if the conservator had authority to access these funds, the conservator would have no statutory duty to use the funds to pay this debt of the conservatee’s estate. This was not a debt that became payable during the conservatee’s lifetime, but rather was a creditor’s claim that arose upon his death. Compare Probate Code section 2430 and Probate Code section 9000. Although Probate Code 2631(a) would permit this payment to be made (if the annuity or other sufficient resources were available in the conservatorship estate), it would be discretionary and not mandatory.”

Pursuant to the California probate court’s order, the public guardian amended the account and eliminated the annuity as an asset of the estate and removed the request for payment of the department’s claim.  The amendment was approved.  The public guardian then requested authority to distribute the remaining funds in the trust to Shawna.

The department objected, claiming that the court had authority to pay the department’s creditor claim.  The probate court ordered that Shawna receive notice explaining that if the Court approved the claim, Shawna’s distribution would be reduced by that amount.

The public guardian again amended its accounting, and included a request to pay the department’s claim.  The probate court ultimately denied the public guardian’s request to pay the department’s claim without explanation.

What Is Medicaid?

The appellate court summarized the federal Medicaid program and California’s participation in the program through Medi-Cal:

California participates in the federal Medicaid program and must comply with the Medicaid Act in exchange for federal contributions to the cost of care provided to needy individuals. [Citation.] The Medicaid Act provides that applicants may qualify for Medicaid benefits if they are aged, blind, or disabled and their income and resources are insufficient to meet the costs of health care. [Citation.] If the applicant is over the age of 55, his or her principal residence is excluded when determining eligibility. This allows elderly applicants, despite having a valuable asset, to qualify for Medicaid covered services.

Recovery Of Medicaid Benefits From Decedent’s Estate Or Recipients Of Property

In exchange for receiving Medicaid services, federal law requires that the state recover the benefits paid during the recipients lifetime from the estate at death:

In compliance with federal law, state law also requires the [state] to seek reimbursement from the deceased recipient’s estate or from recipients of property from the decedent by distribution or survival. [Citation.] This requirement is expressed in mandatory terms. Property once held by the decedent and transferred to heirs by a trust is part of the decedent’s estate and is subject to recovery under the same statute.” (Maxwell-Jolly v. Martin (2011) 198 Cal.App.4th 347, 353-354; see Belshé v. Hope (1995) 33 Cal.App.4th 161, 164.)

Here, the department argued that the California probate court failed to comply with federal and state law by denying its claim for reimbursement from the trust for the Medicaid Medi-Cal benefits that Joseph had received. The appellate court agreed, turning to the California Probate Code for its analysis.

Claims Procedure For Revocable Trusts Under the California Probate Code

California Probate Code section 19000 et seq. “governs claims procedures, including notice requirements and time limitations, for revocable trusts of deceased settlors.” (Wagner v. Wagner (2008)  162 Cal.App.4th 249, 254; see Ross & Cohen, Cal. Practice Guide: Probate (The Rutter Group 2021) ¶ 2:117.2 et seq., p. 2-96 et seq.)

Formally, the trustee “‘may file with the court a proposed notice to creditors’ in order to obtain a case number and then publish and serve notice to creditors or potential claimants as provided in [Probate Code] section 19040 and the subsequent sections of the Probate Code. . . .” (Wagner v. Wagner, supra, 162 Cal.App.4th at p. 254.) However, a “trustee is not required to utilize this formal claims procedure and, as an alternative, may proceed informally in administering a decedent’s trust . . . .” (Id. at p. 255.)

A Trustee Must Give Notice To the California Department of Health If the Trustee Knows That the Settlor Received Medicaid Medi-Cal Benefits

California Probate Code section 19202, in relevant part, provides: “(a) If the trustee knows or has reason to believe that the deceased settlor received health care under [Medi-Cal], the trustee shall give the [department] notice of the death of the deceased settlor . . . in the manner provided in Section 215” by mailing or personally delivering such notice, including a copy of the death certificate, to the department at its Sacramento office within 90 days after the death. (Prob. Code, § 215.)

Here, because the public guardian was Joseph’s conservator, the public guardian knew that he had received Medicaid Medi-Cal benefits and, accordingly, provided notice of his death to the department.

Upon receiving notice of Joseph’s death, the department submitted its claim for reimbursement for Medi-Cal benefits provided to Joseph. Joseph’s primary asset was the annuity, which was paid to the trust upon his death. Shawna is the sole beneficiary of the trust. Property once held by the decedent and transferred to heirs by way of a revocable inter vivos trust is part of the decedent’s estate and is subject to recovery under California Welfare and Institutions Code section 14009.5.

The California Court explained the broad definition of the term “estate” to include a trust when analyzing Medicaid Medi-Cal claims:

“California utilizes the federal definition of ‘estate.’ The regulations for the Medi-Cal estate recovery program define ‘estate’ as ‘all real and personal property and other assets in which the individual had any legal title or interest at the time of death (to the extent of such interest), including assets conveyed to a dependent, survivor, heir or assignee of the deceased individual through joint tenancy, tenancy in common, survivorship, life estate, living trust, or other arrangement.’” (Bonta v. Burke (2002) 98 Cal.App.4th 788, 790-791 (Bonta), italics added, quoting former Cal. Code Regs., tit. 22, § 50960, subd. (b)(1).) “The inclusion of the catchall ‘or other arrangement’ suggests that Congress intended the definition to be as all-inclusive as possible.” (Bonta, at p. 793; see Belshé v. Hope, supra, 33 Cal.App.4th at pp. 173-174, 175 [“We find Congress intended the term ‘estate’ to have a broad meaning. By including probate and nonprobate transfers on death in the estate, the purposes of [Medicaid] will be better achieved and the broad definition will ensure that assets of a recipient are used for the cost of care rather than given away.”].)

Here, the public guardian acted as both conservator of Joseph’s estate and trustee of the trust. Regardless of which “hat” the public guardian was wearing, notice of Joseph’s death was provided to the department, which timely submitted a claim against the estate, and Joseph’s estate included “assets conveyed to a[n] . . . heir . . . through . . . living trust . . . .” (42 U.S.C. § 1396p(b)(4)(B), italics added; see Cal. Code Regs., tit. 22 § 50960.12, subd. (a).)

In conclusion, the California appellate court stated:

To summarize, the department is required to seek recovery of Medi-Cal benefits provided to Joseph before his death (Welf. & Inst. Code, § 14009.5, subd. (a)), and property once held by Joseph and transferred to Shawna as part of the trust is subject to such recovery. (Belshé v. Hope, supra, 33 Cal.App.4th at pp. 173-175.) Moreover, as a public policy matter, “allowing the State to recover as much as possible of the costs of medical services provided to low-income persons furthers the purpose of the Medicaid and Medi-Cal programs. The recovered costs replenish the program and allow ‘the state to . . . provide future services.’” (Bonta, supra, 98 Cal.App.4th at pp. 793.) The department, therefore, is entitled to recover from Joseph’s estate or the beneficiary of the trust—Shawna—the cost of the Medi-Cal benefits provided to him before his death.

The Court reversed the California probate court’s order approving the first and final account of the trust and remanded with directions that the probate court consider the validity of the department’s application and consider the sufficiency of the evidence of the Medicaid Medi-Cal services provided.

 

 

 

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