What Are Medicaid Asset Protection Trusts?
Entrusted Legacy Law
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Jan 27, 2023
Pennsylvania - Greater Pittsburgh Area
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Medicaid is a state- and federally funded health program for
lower-income persons of all ages. For applicants who fall into certain
categories, Medicaid imposes specific rules on how much income and resources
they can have and still qualify for benefits.
Each state has different rules for how much an applicant may
have in income and assets to qualify for Medicaid. To qualify for Medicaid, you
must fall under your state’s corresponding limit, which can be as low as $2,000
for an individual and $3,000 for a married couple.
These resource limits can also vary depending on whether a
person applies for institutional or nursing home care, community-based
services, or regular Medicaid.
If your assets are above the resource limit that would allow
you to qualify for Medicaid, you may be able to engage in planning that will
allow you to qualify for Medicaid. This planning often involves establishing a
Medicaid Asset Protection Trust (MAPT) or an equivalent planning device
permitted under your state’s laws.
When a MAPT or similar trust is properly drafted and
implemented, it can protect your assets from Medicaid while enabling you to
qualify for this benefit.
How Does a MAPT Work?
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.
A MAPT must be in writing and properly acknowledged. You
must also pick a trustee (not yourself) to manage the trust and its assets. The
trustee can be a family member whom you trust.
In addition, assets to be put in the MAPT actually need to
be transferred. In the case of real estate, you must transfer the deed to the
trust. Stocks and bonds must be registered in the name of the MAPT.
A MAPT must be created with sufficient time to avoid running
afoul of Medicaid lookback periods. When it comes to qualifying for Medicaid,
transfers to trusts are subject to a 60-month lookback period. That is why this
type of planning should be done before the need for Medicaid arises, preferably
as early as possible.
While you no longer own assets after they’re transferred to
a MAPT, and assets may not revert to you, you can still benefit from these
assets. For example, if you transfer your home to a MAPT, you may still be able
to live there.
In other situations, income generated from the trust
principal may be paid to you (although you cannot liquidate or withdraw the
principal). However, note that this income can be counted as available income
for purposes of Medicaid eligibility.
Can You Protect Your Home With a MAPT?
People frequently wish to use a MAPT to protect their homes
because it’s their biggest asset. Although Medicaid may not “count” your home
as an asset that falls within your resource limit, this doesn’t mean that your
home is safe from Medicaid.
For example, the home isn’t exempt from Medicaid’s estate
recovery program. Following a person’s death, Medicaid usually tries to recover
what it paid for their care by filing a lien against the person’s estate. This
often includes the family home. A proper planning strategy, which may include
using a MAPT, can avoid this scenario.
MAPTs also offer a certain degree of flexibility. For
example, if you need to downsize to a smaller home, the MAPT can sell the
house, receive the proceeds of the sale, and then purchase an apartment where
you may reside. The new property is still protected from Medicaid, and the
lookback doesn’t start over.
There are also some other features of MAPTs that lessen the
sting of “irrevocability.” You may retain the power to change the trustee or
beneficiaries of the trust.
Assets That Can Be Placed in a MAPT
Many types of property can be placed in a MAPT to help you
qualify for Medicaid. Examples include:
- Bank
accounts
- Stocks
and bonds
- Mutual
funds
- Brokerage
accounts
- Certificates
of deposit
- Real
estate (subject to some exceptions)
- Other
investments
However, there are some assets you cannot place in a MAPT.
For example, many retirement plans, IRAs, and other retirement resources cannot
be transferred to a trust. They would have to be liquidated first. In addition,
in some states, transferring your home into a MAPT may not protect it from
Medicaid.
The fees associated with preparing a MAPT can be costly,
ranging from a few to several thousand dollars. Every person’s situation is
unique, and you shouldn’t assume a MAPT is suitable for you without speaking
with a qualified elder attorney.
An elder law attorney in your area can consider how a MAPT may affect other benefits you receive, your overall estate plan, its tax consequences, and much more.
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