Medicaid Asset Protection Trust Pros and Cons
What is a Medicaid Asset Protection Trust?
A Medicaid Asset Protection Trust (MAPT) is a vehicle used to protect an individual’s assets from the excessive and rising costs of long term and nursing home care. A MAPT is an irrevocable trust. When prepared properly, and done in advance of the need for long term care, these trusts can be invaluable, allowing an individual to protect their assets and still receive Medicaid benefits to pay for these long term care costs.
When an individual has available assets above the Medicaid resource allowance, the law permits, under certain circumstances, the transfer of resources to this type of trust.
Not every asset needs to be transferred, as there are certain assets which are exempt resources and thereby not counted by Medicaid. There are strategic decisions made regarding which assets to the transfer to a Medicaid Asset Protection Trust.
Once assets are transferred to the MAPT the Grantor (the creator) is no longer permitted to receive the principal of the trust or have any benefit from the trust principal. Therefore, it is important for the creator to undersatnd that they are giving up control and flexibility when they create this Trust. It may, therefore, be perfectly acceptable to place a house into a Medicaid Asset Protection Trust because the creator can stll continue to live in the house and will not feel any real loss of control. However, the trust creator may have a difficult time transfering liquid assets to such a Trust because transferring the cash restricts their freedom and independence. The real question, in such situations becomes: Do you want freedom or do you want a government subsidized aide to help you with your activities of daily living? If the latter is more important to you, then you may want to opt for the Medicaid Asset Protection Trust
Why Do You Need A Medicaid Asset Protection Trust?
In New York, Medicaid places resource limits on an individual’s assets as a condition to becoming eligible for long term care benefits. Particularly, the resource limit for nursing home care benefits for 2022 is $16,800. So does that mean that if you have more than that amount you will not qualify for Medicaid for nursing home care? Medicaid Asset Protection Trusts benefit people who would otherwise be ineligible for Medicaid due to their assets being higher than the Medicaid resource limit. Those individuals who transfer assets to a Medicaid Asset Protection Trust under the requisite rules and regulations can become eligible for Medicaid benefits, thus curtailing the excessive long term care costs. Once the required prerequisites are met, and the trust is funded with the individual’s assets, these assets will no longer be considered as owned by the individual and as a result not countable by Medicaid.
What are the Advantages of a Medicaid Asset Protection Trust?
As a result of instituting this type of planning, you will be able to preserve your assets for your children, other relatives, or other intended beneficiaries and not spend down your assets on a nursing home. While you can transfer ownership of your assets outright to your beneficiaries, you may wish to utilize a trust instead because the trust provides protection against certain life events. The Trust can protect your assets from your beneficiaries creditors should they be in financial trouble or the subject of a lawsuit. It can also protect the assets from availability in case one of your beneficiaries is the subject of a divorce.
While you do need to part with control over the assets placed into the trust, you can maintain the right to live in your home and to the income from the trust assets. As a result of the right to live in the home, the Grantor maintains property tax exemptions, like STAR.
Another benefit to the Medicaid Asset Protection Trust is that it provides tax benefits. The trust maintains the step-up in basis for assets with a low basis, if sold during your lifetime. When the trustee sells the asset the capital gains exclusion will be maintained. This would otherwise be lost upon sale, if the asset were transferred outright.
What are the Disadvantages of a Medicaid Trust?
Once assets are transferred to the MAPT, the Grantor (the one who created the trust) is no longer permitted to receive the principal of the trust nor may the principal be used for his/her benefit. The Grantor of a Medicaid Trust must name someone other than the Grantor or the Grantor’s spouse as Trustee. The Grantor will no longer have the control over the assets in the trust. The trust designates a Trustee who will be the person managing the assets in the trust on behalf of the Grantor. As a result, the Grantor will lose some independence and may become reliant on the Trustee or family members to provide for any of their needs or expenses. For some this is an issue and for others it is not. However, the Grantor can retain the right to remove or replace a trustee and can retain a limited power of appointment which gives the Grantor the right to change the beneficiaries of the Trust.
What If you Don’t Have a MAPT?
If you do not have a Medicaid Asset Protection Trust does that mean that you cannot protect your assets from Medicaid? No. There are other techniques that you may be able to avail yourself to, however to maximize the preservation of assets, it is important to plan well in advance. Some clients ask when a good time is to execute a Medicaid Asset Protection Trust and feel that they are well and therefore it is too soon to plan. That is the ideal time to plan and prepare such a trust is while you are well and healthy. As the saying goes, the early bird gets the worm.
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