In this article...

This article discusses different questions relating to the Medicaid Asset Protection Trusts, including:

  • What is a Medicaid Asset Protection Trust
  • What Are the Benefits of Medicaid Asset Protection Trusts?
  • What Are Medicaid Asset Protection Trusts and How Do They Work?
  • Medicaid Asset Protection Trust Benefits
  • The Medicaid Asset Protection Trust's Flaws
  • Creating a Medicaid Asset Protection Trust vs. Gifting Assets
  • What Assets Should Be Placed in an Asset Protection Trust?
  • What Are the Differences in Medicaid Asset Protection Trust Rules by State?
  • Is it necessary to hire an attorney to set up a Medicaid Asset Protection Trust?
  • What Does It Cost to Establish a Medicaid Asset Protection Trust?
  • Medicaid Asset Protection Trust Alternatives

Assisted living care can be extremely expensive.  Fortunately, if you qualify for Medicaid, the government will foot the bill for this care. Medicaid Asset Protection Trusts exist to help you into your elder years and keep you safe and protected. This article discusses different questions relating to the Medicaid Asset Protection Trusts, including:

  • What is a Medicaid Asset Protection Trust
  • What Are the Benefits of Medicaid Asset Protection Trusts?
  • What Are Medicaid Asset Protection Trusts and How Do They Work?
  • Medicaid Asset Protection Trust Benefits
  • The Medicaid Asset Protection Trust's Flaws
  • Creating a Medicaid Asset Protection Trust vs. Gifting Assets
  • What Assets Should Be Placed in an Asset Protection Trust?
  • What Are the Differences in Medicaid Asset Protection Trust Rules by State?
  • Is it necessary to hire an attorney to set up a Medicaid Asset Protection Trust?
  • What Does It Cost to Establish a Medicaid Asset Protection Trust?
  • Medicaid Asset Protection Trust Alternatives

Medicaid Asset Protection Trusts (MAPT)  

When an applicant has excess assets, Medicaid Asset Protection Trusts (MAPT) may be a useful planning tool for meeting the asset cap. Simply put, these trusts prevent an applicant's assets from being counted against Medicaid eligibility. This form of trust allows someone who may otherwise be Medicaid-ineligible to become Medicaid-eligible and receive the treatment they need, whether at home or in a nursing home. The assets in this form of trust are no longer considered the applicant's property. MAPTs also safeguard properties for one's children and other family, making them a win-win situation for Medicaid applicants and their families. Medicaid Asset Protection Trusts are also known as Medicaid Planning Trusts, Medicaid Trusts, or Home Protection Trusts informally.  

It's crucial to realize that there are many forms of trusts, and not all of them are Medicaid-compliant. For example, family trusts, also known as revocable living trusts, are not the same as MAPTs. Since the trust wording makes it revocable (meaning the trust may be revoked or altered) or allows money in the trust to be used for the Medicaid applicant's long-term care expenses, family trusts are generally ineffective in shielding money and assets from Medicaid. As a result, in order to qualify for Medicaid, funds in this form of trust will have to be "spent down" to reach the asset cap.  

  

Irrevocable funeral trusts, also known as burial trusts, are used to set aside small sums of money for funeral and burial expenses. There are also income trusts that qualify (or qualified income trusts, abbreviated as QITs). This is important to note since MAPTs and QITs can be easily confused. Although MAPTs protect one's assets and encourage one to reach the asset cap, QITs (also known as Miller Trusts) allow someone who earns too much to qualify for Medicaid. Unfortunately, not all states permit QITs.  

Would you like to talk to someone about how an asset trust can help you or a loved one apply for Medicaid while keeping their assets?  

What If I Told You... You can reserve the right to live in your home for as long as you live if you transfer it to a Medicaid asset protection trust.  

What Are the Benefits of Medicaid Asset Protection Trusts?  

While each state's Medicaid program follows federal guidelines, there is "wiggle room" under those broader guidelines for each state to set its own rules. In general, an elderly person applying for long-term care Medicaid has a $2,000 asset cap for qualifying purposes. However, depending on the state in which one lives, this asset cap could be lower or higher. Although certain higher-value properties, such as a primary home, a motorcycle, and wedding rings, are normally considered excluded (uncountable), many applicants are already over the asset cap but unable to afford their care. As a result, any funds in excess of the asset cap must be “spent down” or a planning strategy, such as a Medicaid Asset Protection Trust, implemented to help the applicant qualify for the care they need.  

What Are Medicaid Asset Protection Trusts and How Do They Work?  

Understanding the terms associated with Medicaid asset management trusts is critical to gaining a greater understanding of the trusts. First, there's the individual who creates the MAPT. Grantor, trustmaker, and settlor are some of the terms used to describe this person. The trustee is the trust's manager and is in charge of its properties. Adult children and other relatives may be designated as trustees, but neither the trustmaker nor their spouses are allowed to be trustees. They must follow the trust's guidelines, which are very strict in terms of how the money may be spent. Using trust funds for the trustee, for example, should be strictly prohibited. There is also a beneficiary or beneficiaries, who are the person(s) who will benefit from the trust after the trustmaker has died. The primary beneficiary of the trust must be anyone other than the trustmaker in order for it to be Medicaid excluded. When the trustmaker is also the beneficiary, he or she has access to the funds, which Medicaid may deem available to pay for his or her treatment and supports.  

In order to be excluded from Medicaid's asset cap, the trust must also be irrevocable. This means the trust can't be cancelled or altered. Once assets are moved into a trust, they no longer belong to the trustmaker, and he or she cannot reclaim them. Medicaid considers the assets to be still held by the Medicaid claimant if they are in a revocable (changeable or terminated) trust. This is due to the fact that the individual who established the trust retains control over the trust's assets. As a result, the assets are included in the Medicaid asset cap.  

If the patient is applying for Medicaid right away, MAPTs cannot be used to shelter or minimize properties.  

If you think you'll need long-term care, start planning now. When it comes to a Medicaid Asset Protection Trust, Medicaid is the better option. This trust is not appropriate for people who want Medicaid right away or within a short period of time. This is because MAPTs are a breach of Medicaid's look back period if they are not set up until within the 5-year mark (2.5 years in some states). However, for those who want Medicaid now or in the near future, there are other options. Learn about Long-Term Medicaid Care in our article.

Medicaid Asset Protection Trust Benefits  

The assets in a Medicaid asset protection trust not only allow you to reach Medicaid's asset cap without "spending down" your assets, but they also secure the assets for the trustee's named beneficiaries. This ensures that the assets will not be subject to Medicaid estate recovery. In simple terms, when a Medicaid patient dies, the state in which the person resided and earned Medicaid benefits seeks reimbursement for the long-term care it provided. This is achieved through the estate of the deceased. The state, on the other hand, cannot seize a person's home or other belongings while they are in a MAPT. Talk to an attorney to find out more about Medicaid estate recovery.  

The Medicaid Asset Protection Trust's Flaws  

If at all practicable, planning ahead of time for the need for Medicaid is the safest course of action. Medicaid asset management trusts are perfect for healthy people who don't expect to use Medicaid in the near future. This is due to the fact that MAPTs are in violation of Medicaid's look-back period. In most states, this is a 60-month period.  During the look-back period, Medicaid verifies that no assets were sold or given away for less than their true value in order to meet the asset eligibility cap. Transferring funds to a Medicaid asset management trust is considered a gift for Medicaid purposes. As a result, the look back rule is broken. This can lead to a time of ineligibility for Medicaid.  As a result, a MAPT should be designed with the assumption that Medicaid will not be needed for at least 5 years in most states.  

Because of the high fees associated with establishing a Medicaid Asset Protection Trust ($2,000 – $12,000), they are rarely used with assets under $100,000. There are other options if a family has to decrease their assets to qualify for Medicaid in amounts less than $100,000.  

Creating a Medicaid Asset Protection Trust vs. Gifting Assets  

Although gifting assets provides more flexibility and does not entail any legal work, it also violates Medicaid's look back law. As previously stated, as a consequence, this results in a time of Medicaid ineligibility. As with MAPTS, gifting can take place 5 years before the need for Medicaid in most states.  Furthermore, capital gains taxes are a common issue when it comes to gifting.  

What Assets Should Be Placed in an Asset Protection Trust?  

A Medicaid Asset Protection Trust may be used to hold a variety of properties, including one's residence. A trustee may continue to reside in his or her home after it is placed in a MAPT. It is also possible for the trust to sell the house and purchase a new one. There is one exception to this law, however. When a home is put in a MAPT in Michigan, it is called a countable asset. To put it another way, the house is non-exempt and counts against Medicaid's asset limit.  

Other properties included in MAPTS are non-primary residence real estate, checking and savings accounts, stocks and bonds, mutual funds, and CDs. Transferring savings accounts (401ks and IRAs) is not recommended in most situations due to the tax ramifications of cashing out and transferring the plans to a MAPT.

If income-producing assets are deposited in the trust, the income will be collected by the trustmaker. To put it another way, the trust protects the principal while the trustmaker earns the income generated by the principal. However, since Medicaid has benefit caps, it's important that this income does not push anyone over the cap. Many states have a monthly income ceiling of $2,382 for a single senior filing for long-term care as of 2021. When a Medicaid applicant is in a nursing home, the income generated by the principal is usually used to help pay for the nursing home's treatment.  

What Are the Differences in Medicaid Asset Protection Trust Rules by State?  

Medicaid Asset Protection Trust laws are not only confusing and constantly changing, but they often vary depending on the state you live in. As previously stated, Michigan considers a home in a trust to be a countable asset, even though it is irrevocable. In contrast, California Medicaid (Medi-Cal) has very loose guidelines when it comes to moving a home to a trust. In California, a home is excluded from Medicaid's asset cap and is protected from estate recovery, even if it is held in a revocable trust. This is a unique situation. Revocable trusts, in most cases, do not protect assets from Medicaid's wealth cap and estate recovery. Furthermore, in California, the state can only request compensation for long-term care expenses from assets that go through probate (the formal method of distributing a deceased person's assets). Estate recovery is not possible if properties have been moved to a revocable living trust. This ensures that it would avoid probate and estate recovery, and the need for MAPTs in California is not as large as in other states.  

Wisconsin is also distinct from the rest of the states. Irrevocable trusts in Wisconsin can usually be changed or canceled if both parties (trustmaker, trustee, and beneficiaries) agree.  

Is it necessary to hire an attorney to set up a Medicaid Asset Protection Trust?  

A Medicaid Asset Protection Trust must be properly set up in order for the assets transferred into the trust to be removed from Medicaid's asset cap. As previously stated, the rules are subject to change and differ by state. This necessitates the establishment of trust by someone who is familiar with the MAPT laws in one's particular state. Also keep in mind that, in order to avoid violating Medicaid's look back clause, this form of trust must be established well in advance of the need for Medicaid. Inadvertently setting up a MAPT in the wrong way will make you ineligible for Medicaid, undermining the intent of having one in the first place. As a result, establishing a Medicaid Asset Protection Trust should be done with the help of an attorney. To keep costs down for their clients, private Medicaid planners also collaborate with lawyers.  

What Does It Cost to Establish a Medicaid Asset Protection Trust?  

The cost of setting up a Medicaid Asset Protection Trust varies greatly, ranging from $2,000 to $12,000 or more. Although the cost can seem high at first, a MAPT actually saves people money in the long run. This is because the total cost of nursing home treatment in the United States is over $7,750 a month, and a MAPT protects you from having to pay for nursing home care out of pocket (and other long-term care costs).  

There are several factors to consider when calculating the cost. To begin with, some attorneys do not exclusively practice MAPTS. Rather, they put together a package. In addition to the MAPT, this may include a pour-over will, powers of attorney, advance health care directive (living will), and HIPAA medical information releases. The cost depends on whether the client is single or married, the assets transferred into the trust, and whether or not a crisis plan is needed. Furthermore, price varies by geographic region, with urban areas typically being more expensive than rural areas. The expense is also affected by the attorney's experience.  

Medicaid Asset Protection Trust Alternatives  

There are other planning tools to help lower one's countable assets besides Medicaid asset management trusts. Funeral trusts and annuities are examples of these. There are also methods for lowering one's income in order to qualify for Medicaid. Learn about the Medicaid Lookback Period here.  

Request a consultation with an Illinois Medicaid Attorney. Call our office at (630) 324-6666 or schedule a consultation with one of our experienced lawyers today. You can also fill out our confidential contact form and we will get back to you shortly.

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