What is a Medicaid Asset Protection Trust (MAPT)?

Many people think they can avoid any formal estate planning and still become eligible for Medicaid. The biggest mistake people make is transferring assets to children, typically, the family residence. Several problems are created:

  • If the transfer takes place three years before you need to enter a nursing home, Medicaid will deny coverage in a five year look back.
  • If an adult child lives with their parent for at least two years before nursing home is needed, it may be possible to transfer the home based on the Child Caregiver Exception.
  • The house is now in the child’s name. If the child divorces, the value of the house may be divided between her and her ex. Or, if there is a financial problem, the house is an asset and creditors could put a lien on the house. 

A Medicaid Asset Protection Trust is exactly as it sounds—a trust designed to protect assets from being counted for Medicaid eligibility. 

An MATP allows a person to qualify for long term care benefits from Medicaid, while protecting assets from being depleted if long-term care is needed. To qualify for Medicaid, household assets must be under a certain level. Rules about asset levels are strict, and there is a five year look back period to see if an individual qualifies. 

As long as the trust is created and assets transferred five years before the donor applies for Medicaid long-term care benefits, Medicaid will not penalize the donor for transferring assets, and the trust’s existence will not impact Medicaid eligibility. 

Assets placed in a Medicaid Asset Protection Trust are not considered countable for Medicaid.  Once the trust owns assets, Medicaid cannot count the asset and the asset cannot be seized to reimburse long term costs. 

When a MAPT protects the primary residence, the homeowner continues to live in their home just they did before the trust was established and ownership transferred to the trust. 

If investment assets are transferred to the trust, the former owner may not sell the investments, but may continue to receive income generated from the investments. This is because a MAPT can be designed as an income-only trust.

Qualified plans and/or IRA accounts cannot be transferred to a trust, so liquidation of some or all of the applicant’s retirement tax-deferred accounts may be the only way to fund the MAPT. 

All MAPTs are irrevocable trusts, so once any assets are placed in the trust, the grantor loses control of the assets.

Do not transfer assets into a MAPT without a long-term plan for the assets and their eventual transfer to other family members. 

A MAPT is not the only way to protect the family home from Medicaid.

To protect the home from Medicaid “estate recovery,” and protect the surviving spouse’s ability to stay in the family home, sometimes it makes sense to transfer the home to the well spouse. Certain assets are not considered countable for Medicaid eligibility. Under federal law, a well spouse may own and remain in the family home. A limited amount of assets may be retained by the spouse, but the limits are strict. 

There are certain individuals who the house could be transferred without penalty:

  • A child under age 21 who is blind or disabled, 
  • A trust for the “sole benefit” of a disabled individual under age 65,
  • A sibling who has lived in the home for two years before the Medicaid applicant’s move into a nursing home who already owns an equity interest in the home, or
  • A “caretaker child,” a child of the Medicaid applicant who has lived in the house for at least two years before the applicant moved into the nursing care facility and provided care that allowed the person to stay home instead of being moved into a facility.

If the house is sold by the person on Medicaid benefits while in a nursing home, they will become ineligible for Medicaid and the proceeds of the sale of the house may have to be used to pay the nursing home bills.

A life estate is another strategy that people try to become eligible for Medicaid, but with some risks associated with it. If home is placed in a life estate and then sold while the owner is still living and receiving Medicare, the value of the life estate may need to be reimbursed to Medicaid.

Before establishing an MAPT, consider:

Neither the grantor nor the grantor’s spouse may be a beneficiary of the trust principal. The trustee and/or beneficiaries must be on the same page in terms of how the asset will be used, maintained, and when it may be sold or if the intent is for it to be given to an heir.

The MAPT is usually drafted to preserve the donor’s ability to occupy the property for the trust for his or her lifetime, and the ability to change the beneficiaries who will receive the trust property. 

In some states, the grantor may legally serve as their own trustee, but that may create additional scrutiny of the trust. If the property generates income, any income received would need to be forwarded to the nursing home.

Tax implications are all unique, depending upon the situation. 

If you have questions about preparing for Medicaid, contact us at 516-307-1236.