By JUDD MATSUNAGA, ESQ.
Strange times? You bet — ICE raids, National Guard, curfews, demonstrations, protests, and Trump tariffs. Could it get any worse??? Unfortunately, yes.
According to The L.A. Times (May 30, 2025), Gov. Gavin Newsom’s recent revised budget proposal includes reinstituting the “asset test” for Medi-Cal benefits. These proposed changes are terrible news, especially for an aging Japanese American community that depends on Medi-Cal to pay for long-term care.
Since the elimination of the “asset test” on Jan. 1, 2024, there’s been a surge in Medi-Cal enrollment because a millionaire could then qualify. Medi-Cal funding cost the state $17.1 billion in the 2014-15 fiscal year, when you had to “spend down” assets to qualify.
But after a 2024 law removing the asset test, Medi-Cal funding rose dramatically to $37.6 billion. Newsom claims the growing costs are due to the larger-than-anticipated enrollment increase. Furthermore, as the Baby Boomers reach nursing home age, costs are expected to continue rising.
Newsom’s critics argue that the proposed cuts will harm the health and well-being of low-income, disabled, and elderly individuals. The reinstituting of the asset test would require millions of Californians who rely on Medi-Cal and In-Home Supportive Services to prove their assets total less than $2,000 (or $3,000 for couples).
The budget proposal is still under consideration, with ongoing discussions and potential adjustments as it progresses through the legislative process.
In the meantime, some seniors are taking advantage of the current Medi-Cal laws with no asset test. They are getting their Medi-Cal cards now under the current rules. There’s really no disadvantage — you keep your Medicare and you keep the same doctors.
Then, if they change the law at some later date, there’s a chance that people already on Medi-Cal could get “grandfathered in.” In other words, there would be an exemption created for existing individuals who will not be subject to the new rules. It is very unlikely that nursing home residents would be kicked out on the street; there would be too much public outcry.
You might ask, “Can they do that? Can they change the law without a public vote?” In a word — YES (they have done it before). Then, you might further ask, “If they can change the Medi-Cal eligibility rules (which they have but now want to reinstate), can they also change the law regarding Medi-Cal recovery?” Absolutely.
In fact, “the writing is on the wall,” i.e., demand is up, long-term care costs are skyrocketing, and the state is running a budget deficit. I’ve actually been expecting a change in the recovery laws ever since they changed in 2017.
Many people are often confused about Medi-Cal and their rights to avoid Medi-Cal recovery. The state cannot recover for basic health services such as doctor’s visits, prescription drug costs or managed care reimbursements, unless the services are related to nursing home care. They are particularly concerned that if they end up in a nursing home, the state will “take” their homes after they die. So let’s back up to review the current law.
California state laws say that if a senior over 55 goes into a skilled nursing home paid for by Medi-Cal, the state may try to be reimbursed for services provided after their death. To be clear, the State of California does not actually “take” away anyone’s home per se. Your home can, however, be subject to an estate claim after your death.
Recovery does not happen during your lifetime, only after death. If your home is still in your name when you die, and if it is subject to probate under California law, it is part of your “estate” and the state may make a claim against it for the amount of the Medi-Cal benefits paid or the value of the estate, whichever is less.
For those beneficiaries who die on or after Jan. 1, 2017, the definition of “estate” from which the state can recover is severely limited. The state can only recover for the amount of benefits paid for the decedent, or the value of any of the decedent’s property received by a recipient by distribution, whichever is less. If you leave your estate in a will, for example, this would be by “distribution” and your estate could be subject to recovery.
The beneficiary’s estate that can be subject to recovery now includes only real and personal property or other assets included within the individual’s estate, as defined for the purposes of state probate law. Thus, if the property is not subject to probate in California, the state cannot recover it. California’s state probate law excludes property held in living trusts, joint tenancies, life estates, and other types of probate-avoiding transactions.
Therefore, since 2017, you can LEGALLY protect your home from future Medi-Cal recovery (under the current law). First, if there is nothing left in your name when you die, there can be no recovery. Furthermore, the state cannot seek recovery from your children’s own assets. Second, if you have a home and other assets left in your estate after you die, you can still avoid recovery by keeping your home and other assets out of probate court.
Therefore, the easiest way to avoid probate (and still control your money and property) is with a revocable living trust, although the current law can be changed.
Here’s my point: (1) California is running out of money; (2) The governor plans on reducing Medi-Cal costs by reinstituting the “asset test”; (3) It’s also likely that California can change Medi-Cal recovery laws in the not too distant future.
So what do you do? What can you do? For some Rafu Shimpo homeowners who want to protect their homes from state recovery in the event they end up in a nursing home at some point in their lives, I actually have a possible solution.
Every once in a while, a parent wants their home to be kept “in the family” after they die, as opposed to selling the family home and dividing up the money. So, this “solution” is not intended to work for every homeowner, perhaps 1 in 5.
Here’s a simplified example: Husband dies, survived by his wife and daughter. Daughter lives with Mom with the home in a trust. Mom and daughter (especially daughter) are concerned that if Mom ends up in a nursing home, the state could recover against the house, forcing daughter to sell.
You say, “The house is in a trust — therefore no recovery.” True, under the current law. But, we are assuming that the state has (or will soon) change the law, and trusts won’t protect the home from recovery (i.e., pre-2017 laws). Basically, we would use the same strategy to protect homes from recovery as we did prior to the new 2017 law. That strategy is to gift the home to the child(ren) while you’re still alive so there’s nothing left in your estate upon your death, i.e., no recovery.
You say, “If I gift my house to my daughter, can she sell my house?” YES. That’s why I said this will work 20% (1 in 5) of the time. If you don’t absolutely trust your daughter, don’t do it.
Let’s say it’s your son. I often hear this: “I trust my son, but it’s my daughter-in-law that I’m worried about.” First, you’re making a gift to your son, “a married man as his sole and separate property.” Second, your son or daughter will gift back to you a “Lifetime Right to Occupy” agreement so they can’t sell it during your lifetime.
You might further say, “My CPA said not to transfer my home while I am alive because it will blow the step-up in basis and there would be a huge capital gains tax.” True. First, the idea is for the child to never sell the home in his or her lifetime, i.e., no sale, no capital gain tax.
Again, that’s why I said this will work 20% (1 in 5) of the time. If the child has no plans to sell the home, you can pretty much guarantee that there will be no Medi-Cal recovery against the child’s home when you die.
Finally, you might ask, “What about property taxes?” It used to be that under Prop 13, any transfer from parent to child was exempt from property tax reassessment. Then came Prop 19. After Feb. 16, 2021, transfers of a family home between parents and their children are now subject to reassessment unless the property continues as the family home of the transferee. The transferee must live in the home as their primary residence within one year of transfer.
[Sidebar: If you have an apartment building that you want to pass to your children without property tax reassessment, there are Prop 19 loopholes that involve LLCs.]
Under Prop 19, a parent must transfer his or her “primary residence” to a child who lives in or moves in as “primary residence” within one year of the transfer. Again, that’s why I said this will work 20% (1 in 5) of the time. But if that’s the case, here’s an opportunity to guarantee avoiding recovery. My legal advice is to transfer title of the house to the child now while we still have Prop 19. That could save upwards of $10,000 each and every year in property taxes should they ever change Prop 19.
“What do you mean change Prop 19?” you might ask. Prop 19 is a California proposition. So is Prop 13. Other states don’t have a Prop 13 because it’s a California proposition. In other states, every time there is a change in ownership, property tax is reassessed to market rates. California is heading that way soon.
Younger politicians are always looking for new ways to raise revenue, and they’re looking at property tax. Many, if not most, of the Prop 13 supporters are dead or in nursing homes (passed in 1978). Prop 13 is no longer an “untouchable subject” of California politics.
In conclusion, legislators write, debate, and pass new laws every year. The L.A. Times (May 30, 2025) reports that Gov. Newsom wants to help balance the budget by bringing back the asset test for Medi-Cal, drastically reducing the cost to the state. Some aging Rafu Shimpo readers may want to get their Medi-Cal cards now and become “Medi-Medi” before the law is changed, bringing back the “asset test.”
And after watching the Medi-Cal laws change back and forth over the last 30 years, it is possible (likely) that Medi-Cal can also bring back the laws regarding Medi-Cal recovery, i.e., your revocable living trust won’t protect it (pre-2017 laws). Also, they can change Prop 19, no longer allowing reassessment exclusions for parent-child transfers that are the primary residence of both parent and child.
Therefore, some members of the Rafu Shimpo community might want to consider transferring title of their home to their child now. If you end up in a nursing home, the state cannot make recovery against your child’s home. If the child lives in the home with you, the property tax is not reassessed. And if the child doesn’t plan on selling the home in his or her lifetime, it doesn’t matter if there’s no forgiveness of gain, or step-up in basis upon your death.
But don’t do anything without first consulting your attorney.
Judd Matsunaga, Esq., is the founding partner of the Law Offices of Matsunaga & Associates, special-izing in estate/Medi-Cal planning, probate, personal injury and real estate law. With offices in Torrance, Hollywood, Sherman Oaks, Pasa-dena and Fountain Valley, he can be reached at (800) 411-0546. Opinions expressed in this column are not nec-essarily those of The Rafu Shimpo.