Trusts and Estates

Ca. Trs. & Estates Quarterly Volume 10, Issue 3, Fall 2004


Peter S. Stern, Esq.* and Neil A. Harris, Esq.**

Since our previous Incapacity Alert,1 the Department of Health Services ("DHS") has introduced, then withdrawn, a number of changes to Medi-Cal procedures affecting eligibility, transfers, annuities and recovery. As of October 1, 2004, we have new emergency recovery regulations affecting annuities sold after September 1, 2004, but still do not have regulations implementing the 1993 Omnibus Budget Reconciliation Act transfer provisions (42 U.S.C. 1396p(c)).

The proposed regulations implementing the transfer portions of the Omnibus Budget Reconciliation Act that the Department circulated informally in the fall of 2003, and which carried a March 1, 2004 implementation date, were never sent to the Office of Administrative Law. Instead, DHS circulated a more Draconian set of proposed regulations in January of 2004, but again failed to have them promulgated under the State’s official rulemaking procedures.

The Department finally sought to implement changes to the Medi-Cal rules in May 2004, when it opted for legislation rather than regulation and used a "spot bill" (Assembly Bill 2102) during the budget deliberations to effectuate a number of changes. The legislation would have greatly restricted the sale of annuities, imposed recovery on annuities, established stringent transfer principles that would have abolished California’s longstanding respect for exempt property, and imposed numerous restrictions on the use of "first party" special needs trusts (trusts funded with assets belonging to the Medi-Cal recipient). The active intervention of concerned practitioners, spearheaded by San Francisco’s California Advocates for Nursing Home and the state’s National Academy of Elder Law Attorneys chapters, alerted legislators in both the Assembly and Senate and caused DHS to abandon the effort in June 2004.

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