Pros and Cons of a Medicaid Asset Protection Trust

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 will not 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 is not 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 are not 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 do not have full access to the trust’s assets because of how it is structured. This also means their creditors do not 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 will not 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 does not cover all facilities. For example, many assisted living facilities are not 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 are not suitable for everyone.

Call us at 989-356-6128 to schedule a Long Term Care Planning Conference with an experienced Elder Law attorney and paralegal to review your specific situation and needs. We can discuss how a MAPT may affect other benefits you receive, your overall estate plan, its tax consequences, and whether it is right for you. If you or a loved one is facing the prospect of long term health care in a nursing home, assisted living or in your own home, we highly recommend you consult with us to learn about your options for planning your care and preserving your assets.

If you have specific questions about your situation or would like to learn more, reach out to the team at WBH here.

Read more articles:

The Tax Consequences of Selling a House After the Death of a Spouse

If your spouse dies, you may have to decide whether or when to sell your house. There are some tax considerations that go into that decision.  The biggest concern when selling property is capital gains taxes.  A capital gain is the difference between the "basis" in...

Take These Three Steps When Your Child Turns 18

If your child has reached the teenage years, you may already feel as though you are losing control of her life. This is legally true once your child reaches the age of 18 because then the state considers your child to be an adult with the legal right to govern his or...

How Much Should a Trustee Be Compensated?

Serving as a trustee of a trust can be a huge responsibility, so trustees are entitled to compensation for their work. The amount of compensation depends on the type of trustee and the complexity of the trust.  Depending on the trust, a trustee’s duties can include...

What Are Veterans Death Benefits?

Although death benefits are available to veterans, as well as their families and veterans who did not engage in combat, less than half of those who are eligible for death benefits use them, according to the American Association of Retired People. Available veterans...

Claiming Social Security Benefits at Age 70

If you are about to turn 70, congratulations on reaching a big milestone.  And if you also have delayed claiming Social Security retirement benefits up till now, you are joining a select group -- only 6.5 percent of Social Security recipients put off collecting their...

In 2022, Social Security Beneficiaries Will See the Biggest Increase in 39 Years

The year was 1983: The U.S. invaded Granada. A gallon of gas cost 96 cents. Michael Jackson’s ‘Thriller’ video premiered. That year was also the last time that Social Security recipients saw a cost-of-living increase steeper than the one just announced for 2022. This...

Medicaid’s Attempt to Ensure the Healthy Spouse Is Not Impoverished: The CSRA

Medicaid law provides special protections for the spouses of Medicaid applicants to make sure the spouses have the minimum support needed to continue to live in the community while their husband or wife is receiving long-term care benefits, usually in a nursing home....

Should You Prepare a Medicaid Application Yourself?

Navigating the Medicaid application process can be complicated, especially if you are applying for long-term care benefits. Hiring an attorney to help you through the process can be extremely helpful. Whether you should prepare and file a Medicaid application by...

The Difference Between Elder Law and Estate Planning

Elder law and estate planning serve two different--but equally vital--functions. The main difference is that elder law is focused on preserving your assets during your lifetime, while estate planning concentrates on what happens to your assets after you die.  Elder...

When Can Someone Be Declared Legally Incompetent?

If a loved one is experiencing memory loss or suddenly making poor decisions, you may be in a situation where it becomes necessary to ask the probate court to appoint a guardian and/or a conservator for them. This is a complicated process, so we strongly encourage our...