California Medi-Cal Estate Recovery Rules After AB 116 – What Families Actually Owe in 2026

Current as of July 2026

Your mother spent her last three years in a skilled nursing facility, with Medi-Cal covering most of the cost. She just passed away. Her home is in a revocable living trust. A neighbor tells you the state will “take the house.” A cousin says there’s a lien. Your mother’s former caregiver insists you need to sell immediately. All three are wrong, and the reason they’re wrong comes down to two pieces of California legislation that most families (and many attorneys) still haven’t absorbed.

The asset test is back

For nearly three years, from January 2024 through December 2025, California’s Medi-Cal program had no asset limit for most applicants. The federal government permitted states to eliminate resource tests during and after the COVID-era continuous coverage period, and California took that option aggressively. A person could have $500,000 in a bank account and still qualify for Medi-Cal based solely on income.

That ended on January 1, 2026.

AB 116 (Stats. 2024, ch. 13, § 59) reinstated California’s Medi-Cal asset test, effective the first day of 2026. The new resource limits are:

• $130,000 for an individual applicant
• $195,000 for a couple

These figures apply to “countable resources,” which generally include bank accounts, investment accounts, cash value life insurance above $1,500, and non-exempt real property. They do not include the applicant’s primary residence (subject to equity limits), one vehicle, personal belongings, irrevocable burial trusts, or assets held in certain exempt trusts. The limits are set by the Department of Health Care Services (DHCS) and are subject to future adjustment.

For families doing estate planning now, this means asset protection and Medi-Cal eligibility planning is once again a live concern. The three-year window without resource limits created a false sense of security that assets simply don’t matter for Medi-Cal. They matter again.

What California can recover after death

This is where most families panic, and where the law is more protective than people assume.

Under 42 U.S.C. § 1396p(b), every state participating in Medicaid must operate an estate recovery program to recoup benefits paid on behalf of recipients age 55 and older. States can recover from the “estate” of the deceased recipient. But the critical question is: how does the state define “estate”?

Federal law gives states two options. They can limit recovery to the “probate estate” (assets that pass through probate court), or they can pursue the broader “augmented estate” (which can include trust assets, joint tenancy property, life estate interests, and other nonprobate transfers).

California chose the narrower path. SB 833 (Stats. 2016, ch. 442) amended Welfare and Institutions Code § 14009.5 to limit Medi-Cal estate recovery to property in the probate estate only. DHCS cannot pursue recovery against:

• Assets held in a revocable or irrevocable trust
• Property held in joint tenancy (which passes by right of survivorship)
• Life insurance proceeds payable to a named beneficiary
• Retirement accounts with designated beneficiaries
• Real property transferred by transfer-on-death deed

This is not a technicality. It is the explicit policy choice California made. The practical consequence: if your parent’s home was held in a living trust at the time of death, DHCS cannot recover against it. If it was held in the decedent’s name alone with no trust, no joint tenant, and no TOD deed, it passes through probate and becomes subject to recovery.

What “probate estate” actually means

The probate estate consists of assets that require a court-supervised probate proceeding (or a small estate affidavit under Probate Code § 13100) to transfer. In practical terms, it is property titled solely in the decedent’s name at death with no beneficiary designation, no joint owner, and no trust holding.

For a person who did comprehensive estate planning, funded their trust, and titled assets properly, the probate estate is often zero or close to it. For a person who did no planning, the probate estate may be everything they owned.

This creates an asymmetry that matters enormously: the same person, with the same Medi-Cal benefits received, may owe nothing or hundreds of thousands of dollars in recovery depending entirely on how their assets were titled at death.

The recovery process

DHCS does not file liens against property during the recipient’s lifetime (unlike some states). Recovery happens after death. The Department files a claim in the probate proceeding, just as any other creditor would, and the claim is subject to the same priority rules under Probate Code § 11420.

If there is no probate (because assets passed through trust, joint tenancy, or beneficiary designation), there is no proceeding in which to file a claim, and no recovery occurs. DHCS has no authority under current law to force a probate open solely to pursue a recovery claim against nonprobate assets.

There are also hardship waivers available under Welfare and Institutions Code § 14009.5(d), and recovery is deferred while a surviving spouse, a disabled child, or a child under 21 is alive and living in the home.

Common misconceptions

“Medi-Cal puts a lien on the house.” Not during the recipient’s lifetime under current California law. There is no pre-death lien program for community Medi-Cal benefits.

“They can go after the trust.” Not under SB 833’s probate-estate-only limitation. If the home was properly funded into a trust before death, it is not part of the probate estate.

“We need to sell before they come after it.” There is no deadline pressure. If assets are outside the probate estate, there is nothing to “come after.” If assets are inside the probate estate, the claim is handled within the probate proceeding itself, with statutory priority rules and hardship exemptions.

“The asset test means my parent can’t qualify.” Not necessarily. The $130,000/$195,000 limits are for countable resources. Exempt assets (primary home, one car, personal property, prepaid burial) do not count. Many seniors qualify even with the test back in place, particularly if they have done advance planning to restructure countable assets into exempt or trust-held form.

Planning implications

The reinstatement of the asset test under AB 116 makes Medi-Cal planning relevant again for families with moderate assets. The continued probate-estate-only recovery rule under SB 833 makes the form of ownership the decisive factor in whether the state recovers anything at all.

The planning takeaways:

1. Fund the trust. A revocable living trust that is properly funded (meaning assets are retitled into the trust’s name) removes those assets from the probate estate and from DHCS recovery reach. An unfunded trust protects nothing.
2. Use beneficiary designations. Bank accounts, brokerage accounts, and retirement accounts with proper pay-on-death or transfer-on-death designations bypass probate entirely.
3. Consider a transfer-on-death deed. For real property not held in trust, a revocable TOD deed (Probate Code § 5600 et seq.) removes the property from probate at death without a present transfer.
4. Don’t confuse eligibility planning with recovery planning. Reducing countable assets below $130,000/$195,000 is an eligibility question. Keeping assets out of the probate estate is a recovery question. They are related but distinct, and the tools differ.
5. Review existing plans. Anyone who created an estate plan during the 2024-2025 no-asset-test window may not have focused on trust funding or Medi-Cal implications. Those plans need a second look now that the asset test is back.

The interaction between these two statutes, AB 116 restoring the gate and SB 833 limiting what happens after someone passes through it, defines the current landscape. Families who understand both are in a position to plan. Families who understand neither are the ones standing in a probate court watching DHCS file a six-figure claim against their parent’s home.

Related: Medi-Cal and Your Living Trust: The 2026 Rules · The Small Estate Affidavit in 2026 · Trust Administration

This page is general information about California law, not legal advice for your situation, and reading it does not create an attorney-client relationship.