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 MAPT Work?
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.
A MAPT 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 a family member whom you trust.
In addition, assets to be put in the MAPT actually need to be transferred. In the case of real estate, you must transfer the deed to the trust. Stocks and bonds must be registered in the name of the MAPT.
A MAPT must be created with sufficient time to avoid running afoul of Medicaid lookback periods. When it comes to qualifying for Medicaid, transfers to trusts are subject to a 60-month lookback period. That is why this type of planning should be done before the need for Medicaid arises, preferably as early as possible.
While you no longer own assets after they are transferred to a MAPT, 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 MAPT 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 person’s death, Medicaid usually tries to recover what it paid for their care by filing a lien against the person’s estate. This often includes the family home. A proper planning strategy, which may include using a MAPT, can avoid this scenario.
MAPTs also offer a certain degree of flexibility. For example, if you need to downsize to a smaller home, the MAPT can sell the house, receive the proceeds of the sale, and then purchase an apartment where you may reside. The new property is still protected from Medicaid, and the lookback does not start over.
There are also some other features of MAPTs that lessen the sting of “irrevocability.” You may retain the power to change the trustee or beneficiaries of the trust.
Assets That Can Be Placed in a MAPT
Many types of property can be placed in a MAPT to help you qualify for Medicaid. Examples include:
- 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 MAPT. For example, many retirement plans, IRAs, and other retirement resources cannot be transferred to a trust. They would have to be liquidated first. In addition, in some states, transferring your home into a MAPT may not protect it from Medicaid.
The fees associated with preparing a MAPT can be costly, ranging from a few to several thousand dollars. Every person’s situation is unique, and you should not assume a MAPT is suitable for you without speaking with a qualified elder attorney.
An elder law attorney in your area can consider how a MAPT may affect other benefits you receive, your overall estate plan, its tax consequences, and much more.