How Do I Protect My Home From Medi-Cal Recovery?

To protect your home from Medi-Cal recovery in California, keep it out of your probate estate. For anyone who dies on or after January 1, 2017, the state’s Department of Health Care Services (DHCS) can only recover Medi-Cal costs from assets that pass through probate. A home that transfers to your heirs through a trust or a transfer-on-death deed never enters probate, so DHCS has no claim against it.¹ The right tool depends on your family situation, the taxes your heirs will face when they eventually sell, and how much control you want to keep during your lifetime.

DHCS pursues recovery in two situations: the beneficiary was 55 or older when they received services, or the beneficiary was permanently living in a nursing facility at any age.² Before SB 833 took effect in 2017, the state could reach assets in trusts and joint accounts. Under current law, only probate assets are exposed.³ That single rule is the foundation of every protection strategy.

When Your Home Is Already Safe

In some family situations, DHCS is barred from filing a recovery claim at all, and no planning is required. Recovery is blocked if the Medi-Cal beneficiary is survived by:

A spouse or registered domestic partner. The bar is permanent for that claim, though a new claim can arise later against the surviving spouse’s own estate if they also received Medi-Cal and the home ends up in their probate estate.⁴
A child who was under 21 at the time of death.⁵
A child of any age who is blind or permanently disabled under the federal Social Security Act definition.⁵

Whoever handles the estate claims the exemption on the DHCS form and attaches proof, such as a marriage certificate, birth certificate, or disability determination letter.

Transfer-on-Death Deed

California’s revocable transfer-on-death (TOD) deed is the simplest tool for keeping a home out of probate. You record a deed naming a beneficiary who will receive the property at your death. The deed has no effect during your lifetime, and you can revoke it at any time without anyone’s permission.⁶

Because the home passes directly to your named beneficiary, it never enters probate, and DHCS cannot reach it under the post-2017 rules. You keep full ownership and control while you are alive. You can sell, refinance, or change your mind about the beneficiary. The statutory form and county recording fees make this far cheaper than a trust. The trade-off: a TOD deed handles one property. It does nothing for other assets, and it offers none of the broader estate planning benefits a trust can provide.

Living Trust

Putting your home into a trust is the strategy most estate planning attorneys recommend, and it works for the same reason a TOD deed does: assets held by a trust pass to beneficiaries without probate.

Revocable Living Trust

With a revocable living trust, you keep full control. You serve as trustee, manage the home however you like, and can amend or dissolve the trust whenever you choose. At your death, the successor trustee distributes the home to your beneficiaries outside probate, which puts it beyond Medi-Cal recovery for deaths on or after January 1, 2017.³ A revocable trust also covers any other assets you transfer into it, which is useful if you have investment accounts, a second property, or other holdings you want to pass efficiently.

Irrevocable Trust

An irrevocable trust goes further. You permanently give up ownership and control, and a separate trustee manages the home for your beneficiaries. It also avoids probate and blocks recovery, but you cannot sell the home, borrow against it, or take it back. This makes sense when asset protection concerns extend beyond avoiding estate recovery; for most homeowners, it is more restriction than the situation calls for.

Either type of trust only works if you actually retitle the home into the trust’s name. A trust that exists on paper but never holds title protects nothing. Attorney fees for a Medi-Cal asset protection trust generally range from a few thousand dollars to $12,000 or more, depending on the complexity of your estate and whether crisis planning is involved.

Other Transfer Methods and Their Risks

A few other approaches move a home outside of probate. Each works technically and each carries a risk families often don’t see until it’s too late.

Joint Tenancy

Adding a child or another person to the title as a joint tenant with right of survivorship means the property automatically passes to the survivor at your death. It also gives that person a present ownership interest right now. If your co-owner is sued, divorces, or files for bankruptcy, their creditors may reach the property. You also lose the ability to sell or refinance without their agreement.

Life Estate

A life estate deed lets you live in the home for the rest of your life while transferring the remainder interest to your heirs. Ownership passes automatically at death, no probate involved. The remainder holders have a legal interest immediately, so their creditors, tax liens, and bankruptcy proceedings can attach to the home while you are still living there. You cannot be evicted, but a lien on the house is a serious problem if you ever need to sell or borrow against it.

Outright Gift

You can deed the home to your children outright. That removes it from your estate and from Medi-Cal’s reach. You also no longer own your home. You live there at the new owner’s discretion, and if the relationship deteriorates or the new owner has financial trouble, your housing is at risk. Most elder law attorneys treat this as the option of last resort.

The Tax Consequences That Actually Decide the Choice

Which transfer method you use doesn’t just affect Medi-Cal recovery. It determines the tax bill your heirs face when they eventually sell. The difference can be six figures.

Stepped-Up Basis at Death

When someone inherits property, federal tax law resets the tax basis to the property’s fair market value on the date of death.⁷ If you bought the home for $100,000 and it is worth $700,000 when you die, your heir’s basis becomes $700,000. Selling shortly after for $700,000 produces no capital gains tax.

Property that passes through a revocable living trust, a TOD deed, or joint tenancy (for the deceased owner’s share) qualifies for this stepped-up basis. It is one of the most valuable tax benefits in estate planning.

Carryover Basis on Lifetime Gifts

When you give property away during your life, the recipient takes your original basis.⁸ Using the same numbers, if you gift a $700,000 home you bought for $100,000, your child’s basis is $100,000. Selling for $700,000 produces $600,000 in taxable gain. The federal primary residence exclusion of up to $250,000 (or $500,000 for married couples filing jointly) helps only if the child has actually lived in the home as a primary residence for at least two of the previous five years, and even then, a large bill often remains.⁹

Outright gifts and life estate deeds both trigger carryover basis. This is the hidden cost that makes these strategies less attractive than they look on the surface.

Proposition 19 and Property Tax

California voters passed Proposition 19 in 2020, and it changed the property-tax picture significantly. A child who inherits a family home can preserve the parent’s low property tax assessment only if the child uses the home as their own primary residence within one year of the transfer and files for the homeowners’ or disabled veterans’ exemption within that same year. Even then, if the market value exceeds the parent’s assessed value by more than $1,044,586 (the adjusted threshold for transfers between February 16, 2025 and February 15, 2027), the excess is added to the child’s taxable value.¹⁰

If the child doesn’t move in, or uses the property as a rental, the home is reassessed at current market value. In neighborhoods where values have climbed over decades, property taxes can jump from a few thousand a year to tens of thousands. That reality shapes whether keeping the home even makes financial sense for the heirs.

Transfer Timing and Medi-Cal Eligibility

Many families hesitate to transfer a home because they worry it will disqualify them from Medi-Cal long-term care coverage. California historically used a 30-month look-back period: transfers for less than fair market value within 30 months of applying triggered a period of ineligibility.

That changed on January 1, 2024. Under current DHCS guidance, counties no longer calculate ineligibility periods for asset transfers made on or after that date when processing long-term care applications.¹¹ For transfers made before January 1, 2024, the maximum penalty period remains 30 months from the date of the transfer.

This substantially reduces the eligibility risk of transferring your home now. Policy can change, so confirm the current rules with an elder law attorney or your county eligibility office before you act.

Hardship Waiver If a Claim Is Filed

If DHCS files a recovery claim against your family member’s estate, the person handling the estate can request that the claim be reduced or waived by filing an Application for Hardship Waiver (DHCS Form 6195). DHCS sends the form with the initial claim notice, and you generally have 60 days to submit it.

California regulations define several situations that qualify as substantial hardship:¹²

Receiving the inheritance would let you stop relying on public assistance or medical aid.
The estate property is part of a business, farm, or ranch, and recovery would destroy your primary source of income.
You are aged, blind, or disabled; you lived continuously in the home for at least a year before the beneficiary’s death; and you cannot obtain financing to repay the state (you must apply for a loan and provide the denial letter).
You lived in the home and provided care for two or more years that prevented or delayed the beneficiary from entering a nursing facility, documented in writing by a licensed medical provider.
You originally transferred the property to the deceased without compensation and are now inheriting it back.
You need the equity to make the home livable or to afford food, clothing, shelter, or medical care.

One limit matters: the regulations say a hardship waiver does not apply when the deceased or the applicant deliberately used estate planning to shelter assets from recovery.¹² The waiver exists for genuine financial hardship, not as a fallback when a planning strategy fails. If DHCS denies the waiver, you can request an estate hearing to appeal.

Choosing the Right Approach

The choice usually comes down to balancing simplicity, cost, control, and taxes. A revocable living trust gives the broadest protection, keeps you in control, and preserves the stepped-up basis for your heirs. It costs more and requires you to actually retitle assets. A TOD deed handles a single home cheaply and does the core job of avoiding probate, but it doesn’t touch anything else you own. Joint tenancy and life estates work on paper but expose your home to somebody else’s creditors and problems. Outright gifts avoid probate but cost you the home, the stepped-up basis, and your security.

Proposition 19 adds a layer for families to think through. If your heirs plan to sell, reassessment doesn’t matter much. If they want to keep the home as a rental or second property, the higher tax bill can turn the inheritance into a burden. An elder law attorney who regularly handles Medi-Cal planning can weigh your age, health, family circumstances, and the home’s value, and recommend the option that protects the property without creating tax problems or giving up more control than you need to.

1
Department of Health Care Services (DHCS). Estate Recovery Program
2
California Legislative Information. California Code Welfare and Institutions Code WIC 14009.5
3
DHCS. SB833 Changes to Estate Recovery Effective January 1
4
Department of Health Care Services. Estate Recovery Exemptions
5
California Department of Health Care Services. Medi-Cal Estate Recovery Informational Brochure
6
California Legislative Information. California Code Probate Code PROB 5642
7
Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
8
Office of the Law Revision Counsel. 26 USC 1015 – Basis of Property Acquired by Gifts and Transfers in Trust
9
Internal Revenue Service. Sale of Your Home
10
California State Board of Equalization. Property Tax Savings: Transfers Between Parents and Children
11
California Department of Health Care Services (DHCS). Transfers of Assets Beginning January 1, 2024, and Treatment of Transfers Occurring Prior to January 1, 2024
12
Cornell Law School. California Code of Regulations Title 22, 50963 – Substantial Hardship Criteria