What Are Medicaid Asset Protection Trusts?

Paper cutouts of a family with a house, covered by an umbrella labeled 'Medicaid.'Medicaid is a state- and federally funded health program for lower-income persons of all ages. For applicants who fall into certain categories, Medicaid imposes specific rules on how much income and resources they can have and still qualify for benefits.

Each state has different rules for how much an applicant may have in income and assets to qualify for Medicaid. To qualify for Medicaid, you must fall under your state’s corresponding limit, which can be as low as $2,000 for an individual and $3,000 for a married couple.

These resource limits can also vary depending on whether a person applies for institutional or nursing home care, community-based services, or regular Medicaid.

If your assets are above the resource limit that would allow you to qualify for Medicaid, you may be able to engage in planning that will allow you to qualify for Medicaid. This planning often involves establishing a Medicaid Asset Protection Trust (MAPT) or an equivalent planning device permitted under your state’s laws.

When a MAPT or similar trust is properly drafted and implemented, it can protect your assets from Medicaid while enabling you to qualify for this benefit.

How Does a Medicaid Asset Protection Trust Work?

A Medicaid Asset Protection Trust is an irrevocable trust created during your lifetime. The primary goal of this type of trust 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.

A Medicaid Asset Protection Trust must be in writing and properly acknowledged. You must also pick a trustee (not yourself) to manage the trust and its assets. The trustee can be, for example, a family member whom you trust.

In addition, assets to be put in the Medicaid Asset Protection Trust actually need to be transferred. In the case of real estate, you must transfer the deed to the trust. Keep in mind that you must register stocks and bonds in the name of the MAPT as well.

Note that you must create a MAPT with sufficient time to spare, to avoid running afoul of Medicaid lookback periods. If you plan to try qualifying for Medicaid, keep in mind that transfers to trusts are subject to a 60-month lookback period. This is why you should start planning for Medicaid before the need arises, preferably as early as possible.

While you no longer own assets after they are transferred to a Medicaid Asset Protection Trust, and assets may not revert to you, you can still benefit from these assets. For example, if you transfer your home to a MAPT, you may still be able to live there.

In other situations, income generated from the trust principal may be paid to you (although you cannot liquidate or withdraw the principal). However, note that this income can be counted as available income for purposes of Medicaid eligibility.

Can You Protect Your Home With a MAPT?

People frequently wish to use a Medicaid Asset Protection Trust to protect their homes because it is their biggest asset. Although Medicaid may not “count” your home as an asset that falls within your resource limit, this does not mean that your home is safe from Medicaid.

For example, the home is not exempt from Medicaid’s estate recovery program. Following a Medicaid recipient’s death, the Medicaid agency in their state usually tries to recover what it had paid for their care by filing a lien against the deceased’s estate. This often includes the family home. However, a proper planning strategy, which may include using a Medicaid Asset Protection Trust, can avoid this scenario.

Medicaid Asset Protection Trusts also offer a certain degree of flexibility.

For example, if you want to downsize to a smaller home, you can use the Medicaid Asset Protection Trust to sell the house and receive the proceeds from the sale. The MAPT can then purchase the smaller home or apartment where you choose to reside. This protects the new property from Medicaid. In addition, the lookback period does not start over.

Recall that a MAPT is irrevocable, which means you cannot change it once you have established it. However, some features of MAPTs can help lessen this sting of “irrevocability.” For one, you may retain the power to change the trustee or beneficiaries of the trust.

Assets That You Can Place in a Medicaid Asset Protection Trust

You can in fact place many types of property in a MAPT to help you qualify for Medicaid. Examples include the following:

  • Bank accounts
  • Stocks and bonds
  • Mutual funds
  • Brokerage accounts
  • Certificates of deposit
  • Real estate (subject to some exceptions)
  • Other investments

However, there are some assets you cannot place in a Medicaid Asset Protection Trust. For example, you cannot transfer many retirement plans, IRAs, and other retirement resources to a trust. You would have to liquidate them first. In addition, in some states, transferring your home into a MAPT may not actually protect it from Medicaid.

Consult With an Elder Law Attorney

The fees associated with preparing a MAPT can be costly, ranging from a few thousand to several thousand dollars. Every person’s situation is unique, so do not assume a MAPT is or isn’t suitable for you. Be sure to speak with a qualified elder attorney before making any decisions.

An elder law attorney in your area will have the necessary expertise on Medicaid Asset Protection Trusts. They can walk you through how such a trust may affect other benefits you receive. These trusts may also impact your overall estate plan, its tax consequences, and much more.

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Questions? Contact us at Chambliss, Bahner & Stophel, P.C.

Chambliss, Bahner & Stophel, P.C.
Liberty Tower | Suite 1700 | 605 Chestnut Street | Chattanooga , TN 37450
Phone: 423.756.3000