Legal Ploys Let Middle Class Get Medi-Cal Nursing Care : Aid: Complex ‘estate planning’ satisfies eligibility rules, shields assets after death. Some call maneuvers unfair.

A growing number of middle-class elders are using sophisticated “estate planning� techniques to obtain government-funded nursing home care intended for the needy while retaining comfortable homes, expensive cars and hundreds of thousands of dollars in other assets.

Using the advice of attorneys who specialize in such planning, many older people are able to obtain years of nursing home care paid for by tax dollars and still leave substantial estates to their heirs.

The result, welfare officials say, is that increasingly scarce tax dollars meant for the poor are going instead to the financially comfortable.

Government officials are attempting to tighten regulations to prevent abuse of the federal Medicaid program designed for the poor, known as Medi-Cal in California. But lawyers continue to find ways around the restrictions to help clients whose assets are far above Medi-Cal eligibility requirements.

No laws are being broken by such estate planning, but disparate tales emerge.

There is, for example, Robert J. Cervantes, a Montebello man who had about $200,000 in the bank. With the aid of a lawyer, he was able to arrange for Medi-Cal to pay for several months of his wife’s nursing home expenses. And there is Richard Burch of Tulare, a poor man who didn’t engage in estate planning and is now in danger of losing the home his father left him to Medi-Cal bill collectors.

Kim Belshe, director of the California Department of Health Services, said she is concerned that Medi-Cal has “loopholes that allow more affluent people to have care financed by the taxpayers. Medi-Cal is supposed to be a safety net for the indigent and we need to ensure that our tax dollars are financing care for the truly poor.�

Medi-Cal rules, simply stated, say an individual can have no more than $2,000 in the bank to qualify for assistance. There are different and complex rules for couples, and all recipients are allowed to possess certain “exempt� assets.

Shifting Assets

While estate planning is a respected method of organizing assets in old age, experts say attorneys specializing in Medi-Cal law are using techniques to artificially reduce assets of the well-to-do so they can qualify for tax-supported nursing home care. This involves transferring and sheltering assets and spending funds on items such as cars, homes or home repairs that are exempt from Medi-Cal income limits.

At least one law firm in California stages seminars and publishes newsletters on how the middle-class and even the wealthy can qualify for nursing home care paid for by tax dollars.

Besides health care professionals, these seminars attract an audience of elderly people, many of whom have recently learned to their despair that they face staggering nursing home bills that are not covered by either their private insurance policies or by Medicare, the national medical insurance policy for the elderly.

Medi-Cal picks up the tab for 64% of the 103,000 nursing home patients in California. The annual cost to taxpayers is nearly $2 billion.

There are no figures on how many people engage in estate planning to obtain tax-supported care, but Brian Burwell, an East Coast consultant who has conducted studies on the phenomenon for the federal government and the insurance industry, said it is a nationwide practice that has been growing since the 1980s. Areas of high activity, he said, include Los Angeles and New York, where there are concentrations of wealth.

“Medicaid planning is a serious public policy issue, and it is definitely a growing business,� Burwell said.

Los Angeles attorney Zoran K. Basich is a Medi-Cal specialist who travels up and down the state giving lectures on how to qualify for tax-supported nursing home care.

At a videotaped session in Santa Ana last year, the flamboyant and assertive Basich tossed teddy bears to members of the audience as he proclaimed that Medi-Cal benefits are not meant only for the poor.

“It is not a poverty program,� Basich said. “In fact, it is a planned program. [If] you plan yourself on Medi-Cal, there’s no problem at all. The problem is most people don’t know that. . . .

“This is something you’ve paid into all your life [by paying state and federal taxes],� he continued. “You’ve spent your whole lifetime working and paying taxes.�

Basich grinned with pleasure as he told his audience of an elderly woman client who bought a new red Lexus that was considered an exempt asset under Medi-Cal rules.

A home, too, is exempt under Medi-Cal, but after the recipient’s death the property is subject to claims by state bill collectors seeking to recover government-paid nursing home costs. There are, however, ways to avoid such claims.

Using exemptions and other arcane provisions of the regulations, Basich said he can--for a $15,000 fee--qualify an affluent elderly couple for Medi-Cal coverage of nursing home expenses, assure them of a decent standard of living and protect their assets and home for their heirs. He said his firm handles about five such cases per month.

A growing number of attorneys nationwide practice “elder law� and offer Medicaid estate planning advice, but most present a lower profile than Basich and some say they charge much lower fees.

“There’s a pretty solid network of elder law attorneys who exchange a great deal of information,� said Mack Porterfield, chief of Medi-Cal’s financial recovery section.

The practice of using a program designed for the poor to help the financially comfortable raises serious ethical questions, but attorneys say they are duty-bound to protect their clients’ interests.

“If their objectives are to protect their life savings and secure support for someone in long-term care, that’s what I have to do,� said Gregory Wilcox, president of the Northern California Chapter of the National Academy of Elder Law Attorneys.

Wilcox said his typical estate planning client seeking Medi-Cal eligibility owns a house and has $100,000 in savings and that none has as much as $500,000 in the bank.

Tale of Two Families

Such estate planning also illuminates the desperation of the elderly middle-class when faced with expensive long-term nursing home care, attorneys say.

That is what Robert Cervantes was facing three years ago when his wife, Amelia, had to go into a nursing home because of Parkinson’s disease and dementia.

Cervantes soon learned what many elderly Americans find out the hard way: his insurance plan did not cover long-term nursing home care. When Amelia went into a nursing home it was for the long haul and at a potentially ruinous cost of $36,000 per year.

When the crisis occurred, the Cervanteses were in their early 70s and believed themselves financially secure. They had worked and saved all their lives. Robert put in 35 years for Chevron, finishing in 1981 as a plant operator at a salary of $500 a week. Taking advantage of the company’s stock purchase plan, he had diligently salted away for the future. Amelia had worked as a machine operator at an envelope company. For years, the couple put off purchases of items like new furniture and instead made double mortgage payments on their modest but comfortable two-bedroom Montebello house with its unusual natural rock facade. They also raised a daughter, Sandra Conolly, who in recent years has lived with her parents, helping to care for her mother and now her father, whose health is failing.

When Amelia went into the nursing home, the Cervanteses owned their home free and clear, had about $200,000 in stocks and savings and received Social Security benefits.

Clearly, the couple did not qualify for Medi-Cal. Or did they?

Afraid that the nursing home bills would impoverish her father, Conolly urged him to see attorney Basich regarding Medi-Cal eligibility.

“I guess you would consider us middle class,� said Conolly, a cosmetologist, “but my dad saved all his life so that he and Mom would have something. Medi-Cal is for all of us who need help.�

One of the first things Basich did was arrange a court hearing to put all of the couple’s joint assets into Robert’s name alone. Under government regulations designed to prevent impoverishment of one spouse when the other is in a nursing home, Robert was entitled to $74,000 in savings plus his home and a car. But Robert had considerably more savings than that. Attorneys advised him that he could buy a more expensive home, which would be an exempt asset under Medi-Cal regulations. He could also put excess funds into extensive remodeling of his house. Or he could buy an annuity, certain kinds of which are exempt under Medi-Cal rules.

Robert chose an annuity that pays a small monthly income, but he was slow in following Basich’s advice so it took a year and a half to shelter his assets. Medi-Cal eventually declared Amelia eligible for benefits and paid for her nursing home care during the last six months of her life. She died in June, 1994.

Again following Basich’s advice, Robert has found a way to leave his home to his daughter--protected from Medi-Cal bill collectors--even if Robert himself receives tax-supported nursing home care in the future. This was done through setting up what is called a “life estate� with a “remainder� going to Conolly. Under the mechanism, Conolly, not Robert, technically owns the house, so there is nothing for bill collectors to go after upon his death.

“I feel perfectly fine about it,� said Conolly, when asked if she had any ethical qualms about using the Medi-Cal program to pay for her mother’s care. “I feel that we protected my inheritance as well. My mother and dad wanted to leave me something.�

“She’s my one and only one,� added Robert Cervantes. “Who else can I turn to?�

State officials are using new federal regulations to tighten rules governing annuities as exempt assets, but the effect on those who have already purchased such plans is uncertain.

Moreover, new state legislation would be needed to file financial claims against homes that are being passed on to heirs of Medi-Cal recipients under life estates, according to state officials. There is no such legislation on the horizon, said Porterfield of Medi-Cal’s financial recovery section.

While attorneys find ways to protect middle-class assets, the children of many poor Medi-Cal recipients stand to lose family homes to the state.

When Gwenneth Burch died at 74 last year, he left his house to his only child, Richard.

It was a modest bequest. The little cinder block house sits off a dirt road on a dry acre and a half of rural poverty in Tulare at the edge of the Central Valley.

The well is going dry and went out for a time last year, so there’s not enough water for even a small garden. The roof leaks and the rear of the house is covered by a blue plastic tarp.

Still, this is the Burch family home and a refuge from the travails of Los Angeles where Gwenneth was thrown onto the unemployment rolls when cutbacks in federal contracts took away his electrical engineering job in the early 1970s.

After several years of struggling, Gwenneth’s wife Evelyn inherited a small amount of money and the couple bought the Tulare house for $15,000 and moved north in 1976. Richard was a teen-ager at the time.

The Burches continued to scrape by, picking up money by working swap meets, but at least they were out of Los Angeles, had a home of their own in the country and, when he turned 62, Gwenneth was able to collect a small Social Security benefit.

Then, in 1988, Evelyn was stricken with cancer and soon Gwenneth’s wife of 50 years was gone. As often happens in such cases, Gwenneth’s health went downhill fast.

He suffered a stroke and then another. Richard, who by then was in his 30s and married, tried to take care of his father, but Gwenneth had to enter a nursing home and, because he had no money, Medi-Cal paid the bills.

Gwenneth died in March, 1994, and five months later, state bill collectors notified Richard that they were filing a claim of $94,000 against his father’s estate to recover Medi-Cal expenditures. The house and land were appraised at $30,500 in 1989.

Richard, a short, soft-spoken man who has a partially disabled shoulder from an industrial accident, works at a mini-mart and earns $14,000 a year. His wife, Donna, a friendly woman with a ready smile, is an unemployed laundress.

The couple recently stood outside their home and showed a visitor where the ashes of Gwenneth and Evelyn had been scattered under the shiny green leaves of two chinaberry trees in the front yard. The surrounding grass and weeds were yellow and brittle.

“I had flowers here,� said Donna, pointing to the side of the house, “but I ran out of water and they all died on me.�

She and Richard keep the inside of the house immaculate. The block walls of the sparsely furnished living room are painted a gleaming white and the wood floor is polished to a gloss.

The couple would like to borrow money to make repairs to the home, but they are afraid of losing the property to the state.

“We don’t want to make any improvements,� said Richard, “because the ax could drop any time.�

Attorney Richard Amandes of nearby Visalia has filed a hardship claim on behalf of the Burches in an attempt to keep the ax from falling.

Couldn’t Richard Burch have avoided this predicament with estate planning?

“People who make 14 grand a year,� answered Amandes, “they don’t do estate planning.�