Medicaid Asset Protection Trusts

The Medicaid Asset Protection Trust (MAPT) is a trust that is used primarily to protect your assets and prevent them from being depleted by the costs of long term care as you age, while also qualifying you for Medicaid.

Qualifying for Medicaid

Without getting into the gritty details of rules and exceptions, in order to qualify for Medicaid, your assets generally cannot be more than a very limited amount of cash, your car, and the home you live in. If you have any assets more than this minimal amount, you will not qualify for Medicaid benefits until you "spend down" those assets on the cost of your care first.

In addition to these financial requirements, Medicaid implements a 5 year "look back" period. This means gifts made in the 5 years prior to applying for Medicaid are assessed as a penalty, rendering you ineligible for a number of months based on the value of the gift. To enforce this, Medicaid requests bank statements and other financial records going back for a 5 year period at the time of application. If these records show transfers to trusts or other entities, your eligibility for Medicaid benefits may be reduced or even eliminated.

Why It Is Irrevocable

If you wonder why the MAPT is an irrevocable trust, that is because it has to be. If you leave your assets in one of the revocable trust options, or in no trust at all, Medicaid treats those assets as being controlled by you and, accordingly, requires you to "spend down" the surplus before it will cover any care. Placing your assets into an irrevocable trust, a trust you do not control, is what begins the 5 year look back period. From Medicaid's point of view, anything in an irrevocable trust is not owned by you and will not affect your coverage.

The term "irrevocable" sounds unsettling, as it implies loss of control. Fortunately, an irrevocable trust is not quite as rigid and scary as it might seem. You as the grantor reserve the right to change the managing trustee, meaning if they are not abiding by your wishes, you may appoint someone else. You also may change your beneficiaries. In fact, it is possible to entirely revoke an irrevocable trust under a few flexible scenarios, the easiest of which is having all interested parties (trustee and beneficiaries) sign off on it. You would rarely want to do this, however, as it would mean losing the protections you set the MAPT up for in the first place.

5 Year Look Back & Timing

When you give away assets or place them into a MAPT, you trigger Medicaid's 5 year look back period. Each subsequent time you do this, you trigger the 5 year look back period all over again, meaning it will take even longer before you are eligible for Medicaid benefits. Because of this, it is important for you to take note of where your health is, what direction it is going, and time the transfer and amount appropriately. There are disadvantages to being too soon or too late in setting up the MAPT.

If you divest your assets too soon, you may find you still need some of them while you are living with no assistance. But if you wait too long, it is possible you will be stuck footing the bill for long term care costs while you wait for Medicaid benefits to take effect. It usually pays to get started, however, because you get credit for the portion of the 5 year time period you accumulate. For example, if you need nursing home care 3 years after creating a MAPT, you would only be required to pay for the 2 years that is left.

Income & Asset Redistribution Rules

You may be curious what the assets you place into a MAPT can do or be used for. One of the first things to understand is trust assets are "income only." This means that while you may choose to draw off of any of the dividends, interest, or income resulting from the assets, you may not draw from the principal for yourself. However, you may direct that a portion of the principal is paid out to one of your beneficiaries, for example, if you wanted to make a gift to a child or grandchild for a graduation, wedding, or other reason. While many assets are placed into a MAPT, some do not count against your Medicaid eligibility so should not be placed into this trust.

You may be pleased to learn you can seamlessly redistribute assets inside this trust. If you wanted to sell a piece of real estate inside the trust, including the house you are living in, for example, you can do so. The difference is that the trustee must sign at closing instead of you. Proceeds from the sales of trust assets, including real estate, must be placed inside accounts that the trust has control over. These proceeds may be used for real property or other investments, so long as they are owned and managed by the trust, without triggering the 5 year look back all over again.