Medicaid Asset Protection Trusts (MAPT) are irrevocable trusts that can be valuable tools for Medicaid planning. First of all, let’s focus on what an irrevocable trust is. Revocable trusts can be changed by the trust creator, irrevocable trusts require a third party to be changed. When an irrevocable trust is established, there is a trustee appointed and beneficiaries named. The trustee manages all assets and decisions regarding the trust.
Medicaid Asset Protection Trusts need to be established when there is no immediate healthcare crisis and the creator has no plans to apply for Medicaid. A MAPT Is NOT an option for someone immediately applying for Medicaid. The trust will allow a person to protect all of their assets if they plan in advance, by putting them into this type of irrevocable trust when they are healthy and of sound mind.
It’s a trust that should be considered for clients nearing retirement, those who have passed retirement age or those who see the need for Medicaid years down the line.
The biggest benefit of the Medicaid Asset Protection Trust is that it allows someone to qualify for Medicaid in the future while protecting their assets. It offers an alternative to expensive long-term care insurance and avoids completely using up all assets for long-term nursing home or assisted living stays.
Placing assets into a trust also helps avoid gift taxes. Often, clients will gift their homes and other assets to family members to try to reduce their holdings to help qualify for Medicaid. Those assets may be subject to a gift tax. The trust may help avoid that.
Medicaid’s Five-Year Look Back Period
Why isn’t this a good option for anyone planning to apply for Medicaid now? Because of Medicaid’s five-year look back period. Medicaid can look back over a period of five years in Indiana and most other states when running the financial analysis to determine if you qualify for coverage. Medicaid checks to ensure no assets were sold or given away for less than they are worth in order for an applicant to meet the asset eligibility limit. For Medicaid purposes, the transfer of assets to a Medicaid asset protection trust is seen as a gift and violates the look back rule. This can result in a period of Medicaid ineligibility.
Those creating a MAPT will need to create the trust, transfer assets into the trust and then avoid applying for Medicaid for at least five years. After that, the client will be fully protected and qualify for Medicaid.
If you or a loved one could benefit from doing some medicaid planning, please don’t hesitate to contact Applegate & Dillman Elder Law.