On June 2, 2008, further amendments to SB 483, California’s attempt to implement the Federal Deficit Reduction Act of 2006, were made. I am happy to report that the previous disclosure, which I discussed in last month’s article, was struck from the bill. My sources tell me that this was due to the fact that the disclosure already is mandated under previous legislation. So if you do business in California, make sure you use it.

The following provision was added: “This bill would express the intent of the Legislature that its provisions shall apply prospectively to any individual to whom the bill applies commencing from the date regulations adopted pursuant to this bill are filed with the Secretary of State.”

So for all of you who have asked me when will this take affect, the earliest possible date, assuming the bill gets signed into law, would be from January 1, 2009 forward. In other words, all planning done prior to January 1, 2009, could be grandfathered. Be careful. There are various provisions that discuss redetermination. I hope that doesn’t mean that on redetermination, they can undo what was done prior to January 1, 2009. We will have to wait and see.

Of additional note and controversy is the provision dealing with home equity. For years, the home was an exempt asset. It was not counted for purposes of Medi-Cal if the applicant intended to return home, regardless of value. For purposes of avoiding recovery, the home could be gifted away, placed in a special trust, or disposed of in other ways. Under DRA if a person’s equity in their home was greater than $500,000 or $750,000, their application would be denied.

Most importantly, SB 483 states the following:
“An individual is not eligible for medical assistance for home and facility care if his or her equity interest in the principal residence exceeds $750,000. No later than December 31, 2011, and each year thereafter, this amount shall be increased based on the percentage increase in the consumer price index for all urban consumers, rounded to the nearest $1,000.”

Subsequently, your clients will not be eligible for home or facility care Medi-Cal if the equity interest in their home is greater than $750,000. In California, equity interest is the key term. Equity under proposition 13 could be the 1968 value at 2 percent per year thereafter or $135,000 of assessed value versus $1,200,000 appraised value.

The second part of the definition includes the word “encumbrance.” As currently written, seniors will be preyed on. What is necessary is to add the clarification of, “…and limited to,” the language as follows:

“The appraised value of the principal residence will be determined by, and limited to, a qualified real estate appraiser who has been retained by the applicant or beneficiary, less any encumbrances of record.”

Lastly, the home equity provision of section 4 has several exceptions to it. Therefore, it is important that you take a look at the bill and familiarize yourself with those exceptions.

Clarification of encumbrance shields consumers from lenders who are running rampant throughout California, preying on our clients. This modest change is completely within the intent of DRA and will provide critically important protections required by thousands of seniors and the disabled.

Don’t miss David Hollander at Senior Market Advisor Expo, Aug. 20-22. Visit www.seniormarketexpo.com for details.