What is a Medicaid Asset Protection Trust?

For many couples, planning for long-term care can be an intimidating task. Roughly 70% of people over the age of 65 will spend time in a nursing home, and the average length of stay is almost years. When the average cost of nursing home care is close to $10,000 a month, planning for long term  care is more important than ever. One of the most important elements of that planning is understanding your options, including what a Medicaid Asset Protection Trust (MAPT) is, and how it can assist you and your loved ones. This Medicaid planning tool provides a solution to safeguard certain assets from being lost through the Medicaid application process, and Medicaid Estate Recovery after death. With MAPTs, families can ensure their hard-earned savings aren’t sacrificed if they require long-term care, such as a nursing home placement. In this article, I will discuss what you need to know about these trusts, so that you and your family can make informed decisions about your estate plan in light of possible future health needs.

The Role of Medicaid in Long-Term Care

Medicaid is a government program that helps individuals and families pay for healthcare expenses, including long-term care. It is the primary payer of long-term care services in the United States, and covers over 3 million Ohioans. Many families need Medicaid benefits in order to gain access to pricey long term care services. However, qualifying for Medicaid can be challenging, as it has strict income and asset limits, and many complicated rules. So if you have assets and need Medicaid benefits in the near future, you may need to work with a Medicaid attorney on a spend-down plan.  But if you don't need long-term care in the immediate future, additional legal options are available to you. One of the many strategies we use in our office is a Medicaid Asset Protection Trust.

How a Medicaid Asset Protection Trust (MAPT) Works

A MAPT is an irrevocable trust designed to protect your assets from being counted as resources when applying for Medicaid benefits. Medicaid considers the trust assets unavailable if they were placed in the trust five years before applying for Medicaid. Under a MAPT, you transfer ownership and control of your assets to the trust during your lifetime. You will also appoint a trustee to manage the assets according to the terms you outline in the document. If the MAPT contains assets that were placed in the trust five years before applying for Medicaid benefits (the Medicaid “look back” period), then the transferred assets are protected, and the government cannot force you to spend those assets on long-term care. Additionally, the assets properly placed in the trust will be off limits to Ohio's aggressive Medicaid Estate Recovery program, which expects to be paid back after you die. A MAPT differs from many other types of trust because it is irrevocable. It cannot be changed or revoked in most circumstances, although the use of a Trust Protector gives some flexibility.

Some common examples of assets put into these types of trusts are:

• Real estate (such as the family home)
• Bank accounts
• Stocks and bonds
• CDs
• Personal valuables (like expensive jewelry and fine art)

When it comes to which assets to place in the trust, you shouldn't place any assets in there that you will need for your lifetime (houses are an exception to this rule of thumb). There are some assets that you cannot place in a MAPT, such as most retirement plans. This funding part of the process is quite complicated and requires the advice of a knowledgable Medicaid attorney.

Benefits of Medicaid Asset Protection Trusts

Aside from protecting assets and helping individuals qualify for Medicaid benefits, a MAPT comes with several other advantages as well. Some of these include:

• Control and flexibility in managing assets. You can control who inherits and how beneficiaries use assets. For example, you can stagger distributions so that the trust beneficiaries receive their allotment gradually over time or specify that the funds will be used for specific purposes (like educational expenses or a wedding). You can also specify that beneficiaries only receive their inheritance after reaching certain life milestones.
• Protection from creditors. MAPTs can protect assets from your creditors and your beneficiaries' creditors.
• Tax benefits. MAPTs offer tax benefits that aren’t available if you use a life estate or an outright transfer. The MAPT preserves a capital gains tax break from the sale of a primary residence. Through a limited power of appointment, it can also preserve a step-up cost basis, which is important for highly appreciated assets in the trust. If an individual gifts assets outright during their lifetime then the step-up in cost basis will be lost and potentially expose the recipient to capital gains tax at sale.

Disadvantages of Medicaid Asset Protection Trusts

There are also some potential drawbacks to using a MAPT, such as:

• Incorrect timing. For a MAPT to function as intended, it needs to be created in advance of the five-year Medicaid lookback period. 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, although there are various strategies for dealing with this.
• Loss of overt control. A trust will not qualify as a MAPT if you retain control over the assets. You must accept that the 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.
• Setting Up a MAPT Can Be Costly. Creating and implementing a MAPT is a complex legal task and the experience of a qualified Medicaid attorney is essential. A complete Medicaid plan can cost several thousand dollars. However, the potential savings could be exponentially greater for you and your family. A sound Medicaid plan can help you keep your life savings in the family and out of the hands of the government or nursing home. For this reason, the price is often well worth it.

It’s important to consider all options and potential outcomes before implementing a MAPT.

How to Create a Medicaid Asset Protection Trust

Creating a MAPT requires the assistance of an experienced estate planning and Medicaid attorney. Specific language must be written down in the trust for your assets actually to be protected. The process involves:

• Determining what assets will go into the trust: You and your attorney will review your assets and determine which ones can be placed in the trust.
• Designating beneficiaries: You'll need to name who will receive assets from the trust when you pass away. Many people list their children, family members, friends, charities and other trusted parties.
• Appointing a trustee: This is the individual or entity who will manage the trust assets according to your wishes. They are responsible for making decisions about investments and distributing assets. You cannot appoint yourself as a trustee for this type of trust, so many people choose a trusted family member. The trustee has a fiduciary duty, meaning they must act in the best interest of the beneficiaries.
• Drafting the trust document: Your attorney will draft a legally binding document that outlines the terms and conditions of the trust.
• Funding the trust: Once created, you will move your designated assets into the trust. For example, you may need to transfer your house to the trust.

While you no longer legally own assets after they are transferred to a MAPT, you can still benefit from these assets. For example, if you transfer your home to a MAPT, you may still live there, and you can even sell your home to downsize to a smaller place, or one closer to the grandkids. Ultimately, creating a MAPT can provide peace of mind, knowing that your assets will be protected for your family and loved ones. 

So, if you think a Medicaid Asset Protection Trust might be right for you, give us a call at 614-334-6850, or email us at info@LBesq.com, to set up a time to talk.