An irrevocable trust known as a Medicaid Asset Protection Trust (MAPT) safeguards assets like the family home during the application process for Medicaid long-term care benefits. To qualify for Medicaid, your assets must be under a certain level, and home equity often exceeds this threshold.

Advance estate planning is critical because you can’t just transfer the title of your family home to your children right before you consider long-term nursing care. Medicaid will deny coverage under its five-year lookback rule. Transferring home ownership to your children may also be a bad idea because it makes the assets available to their creditors. It can also create challenges when determining who pays for home upkeep.

Owning a home jointly with your children does not protect it. Medicaid considers all jointly held assets when evaluating whether you exceed the asset limit for Medicaid eligibility.

How does a MAPT work?

A MAPT is an irrevocable trust. This is key. Once created, you typically cannot modify an irrevocable trust. Once you fund your MAPT with assets like your family home, the trust becomes the owner of those assets. Since you no longer own the assets, they are not counted when determining whether your asset total falls under the Medicaid asset limits.

If you are applying for long-term care, the Medicaid asset limit is typically $2,000. There are also income restrictions to consider. However, asset and income limits vary by state.

Effective January 1, 2024, California no longer has an asset or income limit for Medi-Cal eligibility when applying for institutional or nursing home care. New York residents applying for long-term care in a nursing home must have income under $1,732 per month and assets under $30,182.

Because of Medicaid’s five-year lookback policy, a MAPT will not work for a person applying for long-term care within the next five years. Discuss alternatives to a MAPT with your estate planning attorney if you will need long-term care more immediately.

What are the benefits of a MAPT?

A MAPT provides an option for people who want to protect their assets for their beneficiaries while still remaining eligible for Medicaid long-term care assistance.

Following the death of an individual age 55+ who received Medicaid-funded long-term care, states will attempt to gain reimbursement for long-term care costs that the state paid for the benefit of the individual. Since the family home is typically the most valuable asset remaining at the end of life, Medicaid Estate Recovery Programs will seek repayment from the equity in the home. However, there are many complexities and caveats to consider, such as whether the spouse is still alive and whether grown children live in the home.

The trustee will manage and own the investment accounts in your MAPT, but you can still benefit from the income these accounts generate. The trust can sell and purchase assets without restarting the lookback period. For example, your MAPT trustee could sell your family home and purchase a condominium.

You can also continue to live in your family home while the MAPT owns it. Generally, the trust documents will state that you have the right to live in your home rent-free but will pay all expenses and taxes associated with the home.

MAPTs also allow you to designate beneficiaries, minimize estate taxes, and offer capital gains tax advantages. Assets are revalued at the time of the trustee’s death when determining capital gains taxes instead of using the purchase price for valuation.

What are the potential drawbacks of a MAPT?

Advance planning is necessary to avoid violating the Medicaid five-year lookback period. The best time to consider a MAPT is when you (and your spouse) are healthy and considering options for estate planning. The lookback period varies by state. For example, since California no longer has a Medicaid eligibility asset limit, there is no longer a lookback period.

Creating a MAPT can be expensive, with fees ranging from $2,000 to $12,000. They may not be cost-effective for families with assets valued at under $100,000. If your asset value is too high to qualify for Medicaid benefits, you must weigh the cost of a MAPT against the monthly cost of long-term care.

If you fund your irrevocable MAPT with your home and other assets, you no longer own them. It is essential to consider the cash flow and tax implications of using a MAPT.

Medicaid does not cover every nursing home or long-term care facility. When deciding whether a MAPT is the best trust option for you, it is important to consider your care options. Your estate planning attorney can help you evaluate the pros and cons of a MAPT, the potential implications of a MAPT on your income, and the potential tax implications.

If you have questions about your options for Medicaid Asset Protection or want to learn about how to protect your assets and property with a comprehensive set of estate planning tools, contact us.