Pros and Cons of a Medicaid Asset Protection Trust
Entrusted Legacy Law
Mar 03, 2023
Pennsylvania - Greater Pittsburgh Area
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A Medicaid Asset Protection Trust (MAPT) is one option a person may consider to protect their assets from Medicaid and nursing homes or long-term care.
What Is a MAPT?
A MAPT is an irrevocable trust created during your lifetime. The primary goal of a MAPT is to transfer assets to it so that Medicaid won't count these assets toward your resource limit when determining whether you qualify for Medicaid benefits. However, creating an irrevocable trust comes with a certain lack of control over the assets you transfer to this trust. Before making such a significant decision, consider some pros and cons to see if this long-term care strategy is right for you.
Benefits of a MAPT
1. You Can Still Benefit From the Assets of a MAPT
Although transfers of assets to a MAPT cause you to relinquish your ownership and control of them, the finality of the arrangement isn't as harsh as it sounds.
In creating a MAPT, you select a person (trustee) who manages the trust assets for your benefit. So, if you transfer investment accounts to the MAPT, you can still receive the income generated from these investments. If you transfer your home, you can still live there. In exchange for giving up control of your assets to a MAPT, your assets no longer count against you for Medicaid eligibility purposes.
2. Your Assets Are Safe From Medicaid and Other Long-Term Care Creditors
Once your assets are in a MAPT and other criteria are met, Medicaid can’t seize them or ask you to spend them down to pay for your nursing home or long-term care costs. These assets also aren't subject to Medicaid’s estate recovery program.
As a result, your heirs can benefit from the assets without the interference of Medicaid or liens it could otherwise file against your estate after you pass.
3. You Can Choose Your Beneficiaries
A MAPT also functions as an estate planning tool. This is because you can designate who receives what remains of the trust upon your passing. The beneficiaries you choose will receive the assets per the terms of the trust agreement, and the chances of a probate court getting involved are diminished.
In addition, you may be able to retain what is called a “limited power of appointment.” This allows you to change who the beneficiaries of the MAPT will be, should your wishes or family circumstances change.
4. Assets Are Protected From Your Beneficiaries’ Creditors
Even though you can designate a MAPT’s beneficiaries now, those beneficiaries don't have full access to the trust’s assets because of how it's structured. This also means their creditors don't have access to it. And, if your child is a beneficiary and is going through a messy divorce, neither does their spouse. You can also designate how bequests to beneficiaries can be used.
5. Protection From Capital Gains Taxes
A properly drafted MAPT preserves the full capital gains tax exclusion on the primary residence (currently $250,000 per spouse). Later, when a person’s beneficiaries sell the home, it would be valued at the market price at the date of gifting and not at the original purchase price. This can avoid or significantly minimize the capital gains tax that your heirs may owe.
Drawbacks of MAPTS
1. Timing Is Everything
For a MAPT to function as intended, it needs to be created in advance to avoid the Medicaid lookback period. In most states, this is five years for nursing home or institutional care. In some states, there may also be a lookback period for community Medicaid care (home aides, local programs, etc.).
If less than five years have elapsed since you created your MAPT, you may still be responsible for some or all of your long-term care costs until sufficient time has passed.
2. Income From MAPT Is Countable by Medicaid
Although assets in a MAPT may not be “countable” by Medicaid toward your resource limit, these assets may still generate income. If this income is payable to you, it may cause you to exceed the income limit permitted in your state.
If this happens to you, you may have other options, such as utilizing a pooled income trust, or may decide you will contribute partially toward your care.
3. Giving Up Control Is Non-Negotiable
A trust won't qualify as a MAPT if you retain control other than the limited power of appointment that may be permitted in your situation. You must accept that a person you select to act as trustee will manage the trust, distribute funds and income from the trust, and also be the effective owner of the assets.
In addition, creating a MAPT but not transferring assets to it is ineffective. You need to fully commit to the concept for it to benefit you.
4. Setting Up a MAPT Is Costly
Creating and implementing a MAPT is a complex legal task requiring many hours of work and expenditures made on your behalf. In addition, because MAPTs are tied to individual state and federal laws, the expertise of a qualified Medicaid attorney is essential.
You should expect that this expertise comes at the cost of several thousand dollars or more. However, your potential savings could be exponentially greater for you and your family. For this reason, the price is often well worth it.
5. Potential Effects on Care
It’s important to realize that while the MAPT strategy is designed to preserve assets and wealth, it assumes that a person will rely on Medicaid to pay for a portion of their care. However, Medicaid doesn't cover all facilities. For example, many assisted living facilities aren't licensed as assisted living programs and only accept private pay residents. Thus, relying on Medicaid could affect the choice and quality of care a person may receive.
The pros and cons discussed above are not exhaustive, and there may be other ones that apply to your situation. Investing in a MAPT is a highly fact-specific process, and MAPTs aren't suitable for everyone.
You should speak with us to discuss how a MAPT may affect other benefits you receive, your overall estate plan, its tax consequences, and whether it's right for you.
This article is a service of Sharek Law Office, LLC. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Life and Legacy Planning Session, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Life and Legacy Planning Session and mention this article to find out how to get this $750 session at no charge. Please note this is educational content only and is not intended to act as legal advice.
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Elder Law 100 Pinewood Lane Suite #303, Warrendale, Pennsylvania, 15086Our Firm Prepares You for Life What makes our firm different is that we were built with the needs of growing families in mind. We understand you are BUSY, you are growing, you are planning for a life of prosperity and you value ease, convenience and efficiency. You are raising children, and caring for elderly parents, while also working hard to build your own nest egg for a lifetime of support. You want to know youve made the best decisions for your family and that your plan will work when your loved ones need it most. You want to make sure your minor children would be raised by the people you choose, and never by anyone you wouldnt want, and that your teens and adult children are properly prepared to care for you and what you leave behind. You want to feel confident that youve made the right choices, and handled everything so that you arent leaving behind a mess, when something happens. That is our focus as well. Weve developed unique systems to give you the same access to a Personal Family Lawyer as was previously only available to the super-wealthy, so you can have the guidance you need to build and maintain a life of prosperity and wealth. And, to keep your family out of court and out of conflict, which is the greatest risk to the people you love and all you have created, even if youve already worked with a traditional lawyer or created documents online. Our Team Is Here for You We encourage communication with our clients. In fact, weve thrown out the time clocks so you never have to be afraid to call with a quick question. Everything we do is billed on a flat-fee basis, agreed to in advance, so there are never any surprises. We have a whole team to serve you. When you call our office to ask your quick question, you wont have to wait hours or days for a phone call back. Youll get your question answered, right away. And, if you need to schedule a more in-depth legal or strategic call with your Personal Family Lawyer, a call will be scheduled when you're both available and ready for the call so we can make the very best use of your time and not waste your time by leaving voicemail after voicemail back and forth. And, we ensure the most important details of your planning are followed through on and your plan continues to work throughout your lifetime. We have a funding coordinator to ensure your assets are owned the right way throughout your lifetime and none of your assets will end up going through a long, expensive court process or being lost to the state because they were missed after your death. Weve created unique membership programs to keep your plan up to date year in and year out as well as give you access to our Trusted Team of Legal Experts for guidance on ANY legal or financial matter. One day you will need a lawyer. I dont know why and I dont know when, but when you do, you will be grateful you can call on us and well be here to advise you or get you out of a jam. We Help You Transfer Your Life and Legacy Lastly, we believe your financial wealth is only a small part of your overall Life and Legacy Planning which is made up of your far more valuable and most often lost upon incapacity or death intellectual, spiritual and human assets. These assets are what make you who you are, and sum up whats most important to you. And, a survey of inheritors has revealed that what they care about even more than inheriting your money, is inheriting these intangible assets. Most estate plans only focus on the transfer of your financial wealth to the next generation. Most people have such great intentions of passing on the intangible, but very few ever get around to it. Its just not a priority, until its too late. How much do you know about your grandparents values? Their most prized personal possessions? How they felt about you? What they had learned during their lifetime? If you are like most people, you know very little. Thats why we build the capture and passage of these most valuable assets into every estate plan we create. Not only will we help you pass on your money, but also your values, your insights, your stories and your experience the truly valuable assets your loved ones care about the most. Weve developed a tool that allows us to capture and pass on your whole family wealth, including your Intellectual, Spiritual and Human assets. I cant go into all of the details here, but well definitely talk about it when you come in for your Life and Legacy Planning Session.