The 5 W’s (and How) of Medicaid Asset Protection Trusts

NYC Estate, Probate, Medicaid, Trust, Will Lawyer

The Medicaid Asset Protection Trust (“MAPT”) is an estate planning tool frequently used by elder law attorneys to preserve their clients’ assets while still qualifying them for Medicaid benefits. The MAPT is a type of an irrevocable trust, commonly set up by individuals approaching the golden years. Below is a list of the 5 W’s – What, Who, When, Where, Why and the How concerning the MAPT.

What is a Medicaid Asset Protection Trust?

A Medicaid Asset Protection Trust is a device that can be used for many purposes including, most importantly, the protection of assets if and when the creator of the trust needs to apply for Medicaid. This type of trust is distinct from other irrevocable trusts in that the creator of the trust cannot have access to the principal of the trust. Only by restricting the creator’s right to the principal can the Medicaid Asset Protection Trust truly safeguard assets from the prying hands of Medicaid agencies. The trust can, however, provide that any income the principal assets of the trust produces are to be distributed to the creator or their spouse. An elder law attorney drafting this trust will have to be extra careful when assigning income to the creator since this income is counted as a resource by Medicaid when determining eligibility.

By way of illustration, if you own a house, this asset is termed “principal,” while if you rent the upstairs apartment to a tenant, the rent you receive on a monthly basis from the tenant is “income.” Although the creator is prohibited access to the principal, he or she is entitled to the use of the home for life (life estate). Once the trust is set up (signed and notarized), the creator cannot sell the house or transfer ownership to someone else – only the trustee is vested with such powers.

Who is Involved?

A MAPT is typically structured in a way in which the creator names his adult children as the “trustees” of the trust, and they in return control and manage the trust for the benefit of their parent(s) during the remainder of their life. The creator or the creator’s spouse cannot be the trustee of the trust for the purpose of Medicaid eligibility. In a common scenario, the trust will provide that the parents are entitled to any income derived from the assets held by the trust and to the use and exclusive possession of the home during their lifetime. Assets held by the trust may be sold and transferred only through the trustee. Nonetheless, the creator maintains a certain measure of power by retaining the authority to change the trustee of the trust in the case the creator is unhappy with the trustee he or she initially selected.

When Should You Set-Up A MAPT?

The Medicaid Asset Protection Trust is ideal for individuals who own a home and/or assets that derive a sufficient income (ie dividends from stocks). Contrary to popular belief, the method of placing assets into a trust and relinquishing control does not have a substantial affect on the individual’s lifestyle. The creator continues receiving his retirement and Social Security checks while occupying the family home for the rest of his life.

For people applying for Medicaid or thinking of applying, it is advisable to set up a MAPT as soon as possible since the formation starts the clock for the infamous five-year look back period. In order for the clock to start running, the assets must be transferred into the trust. The “funding” of the trust is satisfied when title is transferred from the creator’s name to the name of the trust. Once the MAPT is established and five years have gone by, the trust assets are exempt from being applied towards long term care.

Where Can You Set-Up a MAPT?

Deciding whether a Medicaid Asset Protection Trust is suitable for your needs is a drawn-out process that must be handled with precision. An elder law attorney must take several factors into consideration such as your income, health, age, assets, household structure, and how you want your assets to be distributed upon your death. Contact a local elder law attorney to learn how you can protect your assets and still qualify for quality healthcare. A lawyer specializing in elder law and Medicaid in New York State should be able to adequately guide you through this complex decision. 

Why Should You Form a MAPT?

The formation of a Medicaid Asset Protection Trust has several essential components to it. One of the major pitfalls of the MAPT is that its creation may render the creator ineligible for Medicaid benefits for a period of time. The ineligibility time frame will hinge on the transfer date (when assets were transferred to the MAPT) and the worth of the assets. Upon the expiration date of ineligibility, the assets that were transferred into the trust are secured and the applicant will not be required to “spend down” the assets in order to qualify for Medicaid. Medicaid will not factor in trust assets when calculating the applicant’s available income and resources. Additionally, the transfer of assets into an irrevocable Medicaid Asset Protection Trust can qualify both spouses for Medicaid during the remainder of their lives.

How can you set up?  

Don’t be in a hurry, but do hurry if Medicaid benefits have been on your mind. Don’t hurry in a sense where you hire an attorney that does not specialize in Medicaid and estate planning. More and more people in New York State are setting up trusts on a misguided connotation. Allow yourself the time to research the topic and make an informed decision. Knowledge is always good. With smart planning, Medicaid benefits can be available to almost anyone.