Medicaid is the primary government program that offers long-term care benefits (such as assistance with dressing, eating, transferring in and out of bed, walking etc). In order to be elibigle for these benefits in your home or in a nursing home, you must meet both medical and financial elibility requirements. Most people erroneously believe that you must be broke to meet the financial eligibilty requirements. This is not true. In fact, pre-crisis planning for long-term care benefits can protect you from having your wealth disqualify you from receivign Medicaid long-term care benefits. Medicaid Asset Protection Trusts (MAPTS) are the fundamental pre-crisis planning tool so long as you not need Medicaid long-term care benefits within the next five years. (If you need Medicaid long-term care benefits now, then you are in crisis mode. And the strategies you would employ to quailfy for Medicaid without going broke would not include transfering your assets to a MAPT.) Below we discuss the scope of Medicaid and how MAPTs can be used a pre-crisis planning technique.
Background on Medicaid
Most people know Medicaid to be the state- and federally funded health program for lower-income persons of all ages. However, most people do not know that Medicaid is also the program to pay for long-term care (which is not considered healthcare). Because Medicaid was intended for the neediest of us, Medicaid imposes specific rules on how much income and resources the needy can have and still qualify for benefits. Hence most people think that you have to go broke in order to qualify for Medicaid benefits.
Each state has different rules for how much an applicant may have in income and assets to qualify for Medicaid. To qualify for Medicaid, you must fall under your state’s corresponding limit, which can be as low as $2,000 for an individual and $3,000 for a married couple.
These resource limits can also vary depending on whether a person applies for institutional or nursing home care, community-based services, or regular Medicaid.
If your assets are above the resource limit that would allow you to qualify for Medicaid, you may be able to engage in planning that will allow you to qualify for Medicaid. Pre-crisis planning often involves establishing a Medicaid Asset Protection Trust (MAPT) which should be created and funded five-years before appling for Medicaid.
If properly drafted and funded five years before applying for benefits, a MAPT can enable you to qualify under the eligibility rules (the front-end) and protect your assets from Medicaid recovery rules on the back-end.
How Does a MAPT Work?
A MAPT is an irrevocable trust created during your lifetime. The primary goal of a MAPT is to transfer assets to it so that Medicaid will not count these assets toward your resource limit when determining whether you qualify for Medicaid benefits.
A MAPT must be in writing and properly acknowledged. You must also pick a trustee (not yourself) to manage the trust and its assets. The trustee can be a family member whom you trust.
A MAPT must be created with sufficient time to avoid running afoul of Medicaid lookback periods. When it comes to qualifying for Medicaid, transfers to trusts are subject to a 60-month (five-year) lookback period. That is why this type of planning should be done before the need for Medicaid arises, preferably as early as possible.
In addition, assets to be put in the MAPT actually need to be transferred before the 5-year look-back period. In the case of real estate, you must transfer the deed to the trust. Stocks and bonds must be registered in the name of the MAPT.
While you no longer own assets after they are transferred to a MAPT, and assets may not revert to you, you can still benefit from these assets. For example, if you transfer your home to a MAPT, you may still be able to live there.
In other situations, income generated from the trust principal may be paid to you (although you cannot liquidate or withdraw the principal). However, note that this income can be counted as available income for purposes of Medicaid eligibility.
Can You Protect Your Home With a MAPT?
People frequently wish to use a MAPT to protect their homes as it is their biggest assett and they want their loved-ones to inherit the family home. When examining any asset, including your home, under the Medicaid rules, you must consider both eligibility requirements (front-end) and the recovery rules (back-end). For example, if your home is under the equity limit then Medicaid may not “count” your home as an asset that falls within your resource limit. However, not being counted as a resource does not mean that your home is safe from Medicaid. You must also consider the estate recovery rules. These rules impose on every every state, including the District of Columbia, a requirement - after the Medicaid beneficiary dies - to recover from the beneficiary's estate what Medicaid had paid for the beneficiary's care.
Following the estate recovery rules, a home may or may not be exempt from recovery. In some circusmtances the home will be exempt if there is a surviing spouse or disabled child still living in the home. However, if there is no applicable exemption to the circumstances in place, then the Medicaid recovery program may impose a lien on the family home in the course of trying to recover that amount of money Medicaid paid for the beneficiary's care. A proper planning strategy, which may include using a MAPT, can avoid this scenario.
MAPTs also offer a certain degree of flexibility. For example, if you need to downsize to a smaller home, the MAPT can sell the house, receive the proceeds of the sale, and then purchase an apartment where you may reside. The new property is still protected from Medicaid, and the lookback does not start over.
There are also some other features of MAPTs that lessen the sting of “irrevocability.” You may retain the power to change the trustee or beneficiaries of the trust.
Other Assets That Can Be Placed in a MAPT
Many types of property can be placed in a MAPT to help you qualify for Medicaid. Examples include:
The fees associated with preparing a MAPT can be costly, ranging from a few to several thousand dollars. Every person’s situation is unique, and you should not assume a MAPT is suitable for you without speaking to us. If you want to discuss how a MAPT may be included in your estate plan, its consequences and much more, then please contact us now.