A parent dies, the house has no trust on it, and the family starts a probate expecting a slow and irritating process. What blindsides them is the letter. If that parent received Medi-Cal benefits, the state of California can file a claim against the estate to be repaid. The family finds out during the probate they were already dreading.
Everything below is California law. Medi-Cal is California’s Medicaid program, and while federal law requires every state to run some form of estate recovery, what’s recoverable, when, and how much varies substantially state to state. Jason Gaudy, an estate planning and probate attorney at Gaudy Law in Upland, California, runs both a planning practice and a probate department, so he sees the claim arrive.
How does the state find out at all?
Because the estate is required to tell them.
Gaudy explains that one of the jobs his probate department performs is sending notice to public agencies. The Franchise Tax Board gets notice, to check whether there are unpaid taxes. The California Department of Health Care Services gets notice too, specifically to determine whether the person was on Medi-Cal. If they were, he says, in certain circumstances the department can file a claim against the estate to get repaid.
Nobody hides anything. The notification is part of the process. Probate is a public, court-supervised proceeding, and the disclosure obligations that come with it are what put the estate on the state’s radar.
How big can the claim be?
Gaudy is careful here: it depends, and it doesn’t happen often. But when it does happen, the numbers are real. “I’ve seen them as high as $60,000,” he says, and he mentions $10,000 claims as well.
He also names what bothers him about it. Consider a family whose parents never got a trust: maybe they didn’t have the wherewithal, maybe they couldn’t afford one. That family is already paying for a probate. Now they may be paying a repayment claim on top of it. The households least equipped to plan are the ones the process hits hardest.
Why does a trust usually keep the state out?
There used to be an entire specialty around this. Gaudy describes a period when attorneys focused on complicated Medi-Cal planning, because families would realize after a death that the state was coming after the property, and people responded by transferring property out of the parent’s name, which triggered a look-back period of three to five years.
What changed, in his description, is the trigger. He points to guidance published on the California Department of Health Care Services website: unless a property is in an estate, they can’t go after it.
The practical translation, and it’s his: if the property is in a trust when the owner dies, the Department of Health Care Services usually doesn’t and usually cannot come back after it. A funded living trust means the real estate never becomes part of a probate estate in the first place.
He treats this as one item on a longer list. There are, he says, ten reasons to have a living trust. This is one of them. Others include privacy, cost, and the fact that a trust avoids probate’s roughly one-year timeline entirely. The trust does not erase taxes. It changes what has to be reported to whom.
California’s $750,000 small-estate option
For families already past the point of planning, Gaudy describes one shortcut that exists in California: a small-estate probate available where the asset is a primary residence valued up to $750,000. It skips the long probate process, and it skips what he calls the creditors’ period (the phase with all those required notifications).
Two honest limits. He says it isn’t a perfect process, because creditors can still potentially come after the children. And the $750,000 threshold is California’s own; every state sets its own small-estate limits and procedures, and many are far lower. It is a repair, not a plan. His clear preference is avoiding probate altogether, which he calls simple to do.
What surprises him is how often families think they’ve done it and haven’t. The culprit is usually an online document that was never funded, or a paralegal-prepared trust with the deed never transferred. Those are the files that end up in his probate department anyway. See why DIY online trusts often backfire.
What this means if you’re planning a 1031 exchange
The through-line is titling. A probate estate is exposed to public notice, creditor claims, and in California a Medi-Cal recovery claim. Whether a property lands in one is determined by how it’s held on the day the owner dies, not by what the will says. That applies just as much to replacement property acquired in an exchange as to the house someone has owned for forty years. Owners who exchange into passive interests specifically to simplify things for their family are worth pointing at the DST guide and, separately, at an estate attorney to confirm the new asset is actually titled into the trust. The exchange handles the tax deferral. It does not handle the transfer at death.
Watch: Medi-Cal Can Come After Your Parents' Estate: How a Trust Protects the Family with Jason Gaudy, Gaudy Law
Educational only. Not legal, tax, or investment advice. Jason Gaudy is licensed in California; rules vary by state. Consult your own advisors.