By JUDD MATSUNAGA, ESQ.
The U.S. Department of the Treasury proudly recognizes April 1, 2026, as the beginning of National Financial Literacy Month, reaffirming its commitment to expanding financial education and security for all Americans. In furtherance of this vision, this Rafu Shimpo article is to discuss how the average family can make intentional decisions that protect your home, your assets, and your family’s future.
For over 30 years, I’ve been helping families throughout California save tens of thousands in probate fees, and hundreds of thousands in nursing home fees. “How?” you might ask. Great question. Before we discuss “How,” i.e., what you should do, let me first discuss a couple of things you shouldn’t do. That would be: (1) sending your family to probate court; (2) putting your child’s name on your home; and (3) privately paying for nursing home care.
First, what is probate? Probate is a court-supervised process for distributing assets, settling debts, and transferring property title, often necessary for, but not limited to, real estate or bank accounts without beneficiaries. In California, probate is required if a deceased person owned assets solely in their name (without beneficiaries) exceeding $208,850 (for deaths on/after 4/1/25). Solution — a revocable living trust (to be discussed below).
Probate is a legal nightmare and should be avoided. If your estate is valued at $1.5 million upon your death, e.g., $1M house and $500,000 in miscellaneous financial accounts, probate fees would be over $50,000. That’s $50,000 that doesn’t go to your kids. Ask any child if they want to share their inheritance with the probate court, they’re going to say “NO.” It’s a waste of time (1-2 years in Los Angeles County), and a waste of money.
Secondly, some people think they can avoid probate by transferring title to their home to their child(ren) while they are still alive. Ever hear the old English phrase “penny-wise and pound-foolish?” It means to be extremely careful about small amounts of money and not careful enough about larger amounts of money. Don’t be a fool! By transferring the title of your home to your child(ren) while you’re still alive is a “Bozo No-No.” You lose the biggest tax advantage the IRS allows, i.e., the step-up in basis.
“Say what?” you might say. To be clear — the only time the IRS forgives gain is with a transfer on death. As an example, if you paid $100,000 for your home 40 years ago, and it’s worth $1.1 million upon your death and your children sell it so they can divide the proceeds equally, they will have to pay capital gains tax on a $1 million gain. If the capital gain tax rate that year is 20%, then $200,000 goes to the IRS in taxes — not to your children.
However, if you transfer title to your child(ren) upon death, say through a living trust, they receive a “step-up in basis.” That means the IRS forgives the $1,000,000 in gain!!! So if your children sell your home after your death for $1.1 million, and their stepped-up basis is $1.1 million (market value date of death), there is no gain. They pay zero, nothing, zilch, nada in capital gain taxes. That’s a $200,000 SAVINGS!!!
So what should you do? Put your home in a revocable living trust. A living trust avoids probate — that saves the average family close to $50,000 (perhaps much more!). There’s absolutely no disadvantage to you because you appoint yourself the trustee of your own trust. You stay in full control, e.g., if you want to sell your house, you can. Furthermore, if you want to spend all your money, you can. Why? Because you also appoint yourself the “primary beneficiary” of your own trust. Your children are only “contingent” beneficiaries.
“But what if I change my mind? What if I want to add beneficiaries later?” Simple — your living trust is “revocable.” That means that you can change it, update it, or amend it at any time (as long as you still have capacity). “But don’t amendments cost money?” You bet, but only a fraction of what the initial cost is to set up the entire estate planning package. “But I saw a huge L.A. Times ad offering free amendments for life.” It’s a scam. After they take your money, those outfits file for bankruptcy and move on to the next town.
Here’s a common question: parents want to leave an inheritance to their child or children, not to their child’s spouse. More often than not, this is usually brought up by the mother concerning her son’s wife. I would respond that California is a community property state, meaning that wages and earnings of a married spouse are community property, i.e., half belongs to the spouse. However, gifts and inheritances of a married spouse are separate property. In the event of divorce, community property is split. But separate property remains separate.
“But I already have a will,” you might say. Don’t be confused. A will has to be probated. A will goes through the court process that will take 1-2 years. Probate court is where siblings often end up fighting in court. A trust has “will power” (i.e., gives instructions on who inherits what), but avoids the cost and delay of a probate proceeding. The only time you don’t need a living trust is if you don’t own your own home and the total value of your estate is under $208,850.
What do you mean “estate planning package?” Most estate planning attorneys will give you an estate planning three-ring binder with nicely organized tabs. If your living trust was handed to you in an large envelope with several documents stapled together, it’s time to have your trust updated. Today’s estate planning package, in addition to the trust, should contain the following:
A pour-over will, a durable power of attorney for assets, a healthcare power of attorney/advanced healthcare directive, a trust certificate, along with various schedules and instructions.
“Why do I need a power of attorney?’ you might ask. If you become incapacitated, e.g., stroke, dementia, Alzheimer’s, etc., and you haven’t appointed a trusted friend or family member to be your attorney-in-fact, the court could appoint a stranger to be your legal guardian (or conservator). You don’t want that.
There are several publicized examples where court-appointed guardians will steal from the estate. Netflix has a movie, “I Care a Lot” (2020) starring Rosamund Pike, about a con woman who makes a living as a court-appointed guardian, seizing and selling the assets of vulnerable elderly people.
Last on my list of Financial Awareness Month is privately paying for long-term care. Long-term care costs represent an underappreciated financial threat facing many Americans today. According to a recent U.S. Department of Health and Human Services report, nearly 7 in 10 seniors will need long-term care. Many seniors think that their spouse will take care of them, or that their kids will take care of them, and the kids think Medicare takes care of everything. Not so.
In fact, Medicare will only pay for short-term care, for a maximum of 100 days, and only after a qualifying hospital stay of three nights or more. What’s more, the 100 days is somewhat misleading — Medicare will pay the first 20 days full coverage, the next 80 partial coverage with the supplemental insurance (e.g., Blue Cross, United Healthcare, etc.) covering the balance through the 100th day. But once you reach day 101, Medicare coverage ends and you will be responsible for 100% of the costs of long-term care.
Worse, if the doctors start mentioning things like “custodial care” or “not responding to care,” it means that the supplemental insurance isn’t going to pay through the 100th day. That means you’ll be getting billed a “co-pay” of $150-$350 per day. After that, if you or your loved one still needs long-term care, your out-of-pocket (privately paying) is $12,000-$30,000 per month. You might say, “It sounds like it’s not about my mom’s best of care, it’s about money!” I agree.
You might say, “I can’t afford to pay $12,000 per month. I’ll be penniless in a year.” Wait — there’s good news!!! You can get Medi-Cal (Medicaid in non-California states) to pay for your long-term care. You might say, “But the lady at the hospital said I don’t qualify for Medi-Cal because I have too much money.” Partially true. Medicare is an entitlement, i.e., as a U.S. citizen, you get Medicare at age 65 even if you’re a multi-millionaire.
Medi-Cal, however, is not an entitlement, it’s based on need. You have to qualify for Medi-Cal. As of Jan. 1, 2026, the asset limit will be $130,000 for an individual and $195,000 for couples, plus $65,000 for any additional household members. Here’s the key — assets that are considered exempt and will not be counted.
Exempt assets include the primary residence, one car, term life insurance, burial plot, prepaid irrevocable burial plan, household goods and personal effects, jewelry. IRAs and work-related pensions can be exempt if the person is receiving periodic payments of interest and principal.
In 2026, Medi-Cal will begin to consider transfer penalties for individuals who transfer properties on or after Jan. 1, 2026 for the purposes of becoming eligible for Long-Term Care Medi-Cal, to cover a stay in a skilled nursing facility. So if you transfer (or gift) excess non-exempt money or property for less than fair market value, you might be hit with a “three-year waiting period” (California actually uses a 30-month penalty period). Bottom line — don’t make gifts if long-term nursing home care might be needed in the next 30 months.
If your property puts you over the 2026 asset limit, you may “spend down” countable, non-exempt property by “spending down.” Spending down means reducing excess non-exempt assets by buying exempt assets. Some examples of ways to reduce assets include:
- Purchase exempt assets (ex. Purchase a home, or a bigger home)
- Pay off your home mortgage
- Purchase a car, or pay off your auto loan
- Pay medical bills
- Make repairs to the home, or purchase new furniture
- Pay off your other debts
- Buy clothes or items for yourself or your home (can include gift cards)
In conclusion, if you have excess assets and you don’t want to spend down because the money is gone, i.e., you want to keep money as money, there is a legal way to transfer excess, non-exempt money to trusted family members without triggering a three-year waiting period. It’s complicated, but legal to do.
Contact your friendly neighborhood Medi-Cal planning attorney to find out how. While you’re at it, make sure that everything is protected from a state recovery claim upon death — also legal to do.
Judd Matsunaga, Esq., is the founding partner of the Law Offices of Matsunaga & Associates, specializing in estate/Medi-Cal planning, probate, personal injury and real estate law. With offices in Torrance, Hollywood, Sherman Oaks, Pasadena and Fountain Valley, he can be reached at (800) 411-0546. Opinions expressed in this column are not necessarily those of The Rafu Shimpo.