Understanding the Pros and Cons of Medicaid Asset Protection Trusts

You’ve spent your life working to amass wealth in the hopes of having some money to live on during your retirement. If you’re like most people, you also want to pass on some of that wealth to your children and grandchildren. However, there is always the threat of chronic illness and the need for long-term care looming on the horizon. What happens if you need to be hospitalized for an extended period of time, or to live in an assisted living facility or nursing home?

If you don’t have the right estate planning in place, that wealth may be dissipated by you and your spouse’s healthcare needs. This is why so many folks, even the wealthiest, may need to take advantage of MassHealth, the Massachusetts Medicaid program. As a result, many people set up Medicaid Asset Protection Trusts (MAPT). In the following, we will explore how to set up a MAPT, examine the costs and benefits, and explain how an attorney can help you with the process.

What Is a Medicaid Asset Protection Trust?

A MAPT is a form of irrevocable trust designed to shield your assets, while making sure you qualify for Medicaid. The goal is to prevent your assets from being counted toward the Medicaid eligibility requirements. It also shields the assets from being depleted to pay for services that can be covered by Medicaid instead. However, unlike a revocable trust, you cannot withdraw your assets from the MAPT. In addition, MassHealth has strict rules that must be followed so that you can qualify for Medicaid when the time comes.

The first consideration is timing. The assets must be transferred into the MAPT at least five years before you apply for coverage. This is known as the five-year look-back rule. Any assets that were transferred less than five years before you apply will be counted toward your Medicaid eligibility. If you do not make the transfer correctly, you may have too many assets to qualify for Medicaid. This means that you or your family will have to use funds to pay for your care until you are past the five year lookback period.

You also need to have a third party trustee manage all of the assets. This needs to be done in accordance with Medicaid rules. You will no longer have the power to manage any of the assets that you place into the MAPT, nor will you have direct ownership of the assets.

Pros and Cons of a Medicaid Asset Protection Trust

The main benefit of a MAPT is that it will allow you to qualify for Medicaid without depleting your personal assets. Without this type of trust, you have to pay out of pocket for any expenses not otherwise covered by Medicare, supplemental health insurance or long-term care insurance. This could result in most of your nest egg being taken to pay for long-term care. Instead, these expenses will be paid for by Medicaid.

Having this type of trust will still allow you to live your life. If you need to move, your trustee can sell a house held by the trust and use the funds to buy another home. Similarly, if you have an adult child living with you to help take care of your needs, you may be eligible to transfer your home to your child under the Child Caregiver Exception. One of the requirements is that your adult child has been living with you for at least two years before you enter a nursing home or assisted living facility.

There are some drawbacks of placing your assets into a MAPT. First, you will lose direct control over them. Instead, the trustee will have control over the assets. So, if you have stocks and bonds and you would like to sell them because of market conditions, all you can do is request that the trustee take this action. It is in his or her sole discretion over how to proceed.

You also cannot transfer IRA accounts, 401Ks or other qualified plan assets to a MAPT. You should review these accounts with an experienced professional to consider the consequences for Medicaid asset and income eligibility.

Before setting up the trust, you will need to plan for the eventual transfer of the assets to your family members upon your death. This is a crucial part of using a MAPT for your estate planning purposes.

Call an Experienced Attorney to See if a Medicaid Asset Protection Trust Is Right for You

As you can see, setting up a MAPT is very technical. There are very specific rules governing how MAPTs are formed and operate. Failure to follow the rules can negatively impact your Medicaid eligibility. You can contact SederLaw to help you set up a MAPT that complies with the rules of MassHealth. We can help you with all of your estate planning needs to make sure your assets and rights are properly protected.