What Are Medicaid Asset Protection Trusts?

Medicaid imposes strict rules on how much money and assets an applicant can have. To qualify for Medicaid, you must fall under the asset limit, which is $2,000 in most states, as per federal guidelines. In New York, the asset limit in 2023 is $30,182.

Even with greater than the above asset limits, however, you may be able to get on Medicaid with proper legal planning. A popular strategy to protect your resources and still become eligible for Medicaid long term care benefits is by establishing a Medicaid Asset Protection Trust (MAPT). When you transfer your assets in a MAPT, Medicaid will not count the money in the trust toward its resource limit.

Related reading:

Using Medicaid Asset Protection Trusts to Transfer Assets

After you create a Medicaid Asset Protection Trust, you no longer own the assets within it for Medicaid purposes, allowing you to qualify for Medicaid following an applicable lookback period. People who are currently healthy but don’t have enough income or resources to private pay for the potential cost of their future long term care needs, and don’t have any or adequate long term care insurance may likely need to access Medicaid in the future to pay for their long term care needs. Without planning, they may end up spending down all their resources on the cost of their care before accessing Medicaid to continue to pay for their care, or, they may be proactive and choose to plan in advance to protect their assets so that they won’t need to be used to pay for their care and the assets won’t be considered countable resources for Medicaid eligibility. It is important to plan early so that by the time you need long term care, the transfers you have made to your trust will be beyond the lookback period of the application. The federal lookback period for Medicaid long term care is five years prior to the application. New York imposes a five year lookback for nursing home care, and while they recently imposed a 30 month lookback for community care (i.e. home care, assisted living), the lookback is not expected to be imposed on community care at least until April 1, 2024.

MAPTs must be drafted to be irrevocable for you to qualify for Medicaid because it means that you no longer own or control these assets. Once you make the trust, the assets are no longer for your own use. (Notwithstanding, with proper drafting, there are ways to revoke such a trust should it become necessary or desired.)

In contrast to MAPTs, many types of revocable trusts are often ineffective in protecting assets for Medicaid eligibility. Retaining control, such as being the trustee, having the ability to withdraw funds for yourself, and keeping the right to revoke your trust in the language of the trust agreement would result in Medicaid counting the contents of your trust as part of your resources.

What Can You Place in a Medicaid Asset Protection Trust?

As part of your Medicaid planning strategy, you can place many types of assets in a MAPT, including:

  • Checking and savings accounts
  • Stocks and bonds
  • Mutual funds
  • Certificates of deposit
  • Real estate (including your primary residence in New York and most states)

You should not put any retirement accounts in your trust. In New York, retirement accounts such as 401(k)s or IRAs are not counted as resources as long as they are in “payout status,” basically in most cases, as long as you are taking required minimum distributions. In New York, this is actually an additional source of funds above the Medicaid resource limit. You are allowed to make withdrawals beyond the minimum distribution, when and if necessary.

In addition, you should not transfer your checking account into which your social security or pension get deposited.

A crucial aspect of using the MAPT strategy is not only determining what should go into the MAPT, but how your assets outside the trust are held as well to ensure full protection.

Another thing to keep in mind when proceeding with Medicaid planning is that it is not all or nothing. You don’t have to transfer all of your non-retirement assets into the trust. You can decide how much you are comfortable transferring into the trust and therefore protecting, and how much you want to leave out of the trust for your continued control and use. Of course, whatever you leave out of the trust may not be protected and if and when you need long term care you will either need to utilize further Medicaid planning strategies to protect the assets still in your name that are above the Medicaid resource limit, or you may have to first spend that down on your care before becoming Medicaid eligible.

Creating a Medicaid Asset Protection Trust

So what is a Medicaid Asset Protection Trust? Basically, as with any trust, it is an agreement that creates a new legal entity. There are three parties involved in a MAPT: the grantor, the trustee, and the beneficiary. When you create a trust, you become the grantor, the person who places assets into the trust. The trustee manages the trust according to the instructions that the grantor set forth in the trust agreement and the beneficiary, or most often multiple beneficiaries, will receive your assets.

If you want your MAPT to ensure you qualify for Medicaid, you must name someone other than yourself or your spouse as the beneficiary of trust assets. Designating yourself as the beneficiary would mean giving yourself assets, which Medicaid would count toward its asset limit. You can designate yourself and/or your spouse as beneficiary of only the income generated by trust assets, but the income will be counted by Medicaid as your income for Medicaid budgeting purposes, so this should be considered carefully.

You can select your children, parents, or other loved ones, as beneficiaries during your lifetime, known as your “lifetime beneficiaries.” Your trustee can be permitted to make distributions to your lifetime beneficiaries which prevents assets placed in trust to be locked in the trust during your lifetime. You also choose who will be the trust beneficiaries after your lifetime. Often, these are the same people as your lifetime beneficiaries. A great advantage of the trust is that your beneficiaries can get distribution of the trust assets when you pass away without having to go through the probate process to transfer the assets.

What happens with your home?

If you place your primary residence in a MAPT then you can reserve your exclusive right to live in the home during your lifetime retaining all real estate tax discounts and exemptions that you would be entitled to prior to your transfer to the trust. While you retain the right to live in the home and preserve the tax advantages of owning your residence, the equity in the home is owned by the trust and therefore protected for Medicaid purposes. By following a procedure carefully with the right guidance, you can certainly sell your home and buy a new home all within the trust, without resetting the “lookback” period.

Benefits and Drawbacks of Medicaid Asset Protection Trusts

Medicaid Asset Protection Trusts offer several benefits to individuals planning to apply for Medicaid:

  • MAPTs preserve generational wealth, safeguarding assets for family members.
  • After you pass away, the state cannot take your assets from your beneficiaries to reimburse them for your long-term care, as MAPTs avoid probate.
  • Since long term care costs and particularly nursing home fees can be exorbitant, MAPTs can save your family money, as they let you qualify for Medicaid (once the applicable lookback period has ended).
  • Establishing and funding a MAPT will allow the assets that you fund into your MAPT to avoid the probate process, which will make administration of your estate much faster, less costly, and keep it private and out of the control of any potential uncooperative family members.

The drawbacks of MAPTs include the following:

  • Once you establish a MAPT, you forfeit the control of your assets. You really need to “trust” your “trustee.”
  • Once you establish a MAPT, you forfeit the use of your assets. If you need money, you cannot take money out of a trust account. However, your trustee will be able to distribute money to your beneficiaries.
  • The fees associated with preparing a MAPT are more costly than simply preparing a will that may address who will get your assets after your lifetime, (but don’t protect those assets if you need long term care during your lifetime).

The Medicaid Asset Protection Trust is a main strategy, but not the only strategy when it comes to Medicaid planning. Further, it must be executed and implemented properly in order for it to actually be effective. It is crucial that it is established and administered under the close guidance of an elder law attorney that is familiar with these trusts as well as the Medicaid long term care eligibility process.  In addition, there are situations where this planning is not necessarily the right strategy and therefore, as with any legal strategy, your particular situation, including the risks and benefits, should be carefully reviewed by an elder law attorney before proceeding.

We would love to help you protect your hard-earned assets and begin the Medicaid asset protection planning process. Contact us today.