Nursing Home Planning: Using a Medicaid Asset Protection Trust

A Medicaid Asset Protection Trust, or MAPT, is a trust vehicle that allows you to protect your assets from Medicaid when you go into a nursing home. To explain, 52 percent of people turning age 65 will need some kind of long term care in their lifetimes. Long term care is expensive, costing an estimated $48,000 and $90,000 a year in Minnesota. While some people with means can afford this, many others will rely on Medicaid to cover the costs.

Medicaid coverage comes with certain strings attached. For example, in Minnesota you cannot have assets greater than $3,000. If you do, you will be required to either spend them down, or pay the excess back to Medicaid . Furthermore, Medicaid places a limit on a person's monthly and annual earnings, varying depending on size of household. So what if you want to use Medicaid but also have assets that you want to leave for your grandchildren?

Medicaid Asset Protection Trust.

The answer is to use a Medicaid Asset Protection Trust, or MAPT. A MAPT is an irrevocable trust in which you can place your assets. As an irrevocable trust, the grantor cannot change the terms of the trust once formed. (A grantor is the person who forms the trust.) Once the assets are placed in the MAPT, the income from the assets can be used by the grantor. And the assets can distributed to the other beneficiaries of the trust after the grantor passes. This avoids Medicaid payment obligations. (Note: if you do move into a nursing home, the income from the trust might be collected by the home to pay for care.) Because of the rigidity of the trust, you will not be able to access its funds even if needed. This means that you should be sure to have a sufficient cushion of assets outside the trust that can be accessed up to the time one moves into long-term care.

There is a catch, however. That catch is the five year lookback period. This means, generally, that Medicaid can claw back certain funds given away to a trust or other person. Medicaid can do this for the five years preceding your going into a nursing home. It does this to help pay for the cost of Medicaid. So it's important to establish the MAPT at least five years before you enter long-term care.

Some assets will not affect your eligibility for Medicaid. These include, for example, certain retirement accounts, personal belongings, a car, and a house (with limitations). However, your checking and savings accounts, certificates of deposits, money market investment accounts, and other real property should go into the trust.

Are there other strategies that can be used?

Yes and no. First, it is important to note that a MAPT is distinctly different than a Revocable Living Trust. In order to shield assets from Medicaid, the trust must be irrevocable. This means that the terms of the trust cannot be changed after formation. A Revocable Living Trust can be altered, making it worthless to shield assets from Medicaid.

Some people, instead of placing assets in a MAPT, will gift their assets to their children. They're going to get them after you die anyways, so what's the harm in doing so early? The kids can agree to allow Mom or Dad to continue living in the house until they need to use long-term care. There are a few problems with this strategy, however. First, such a gift will have tax implications as there are limits to the annual gift tax exemption. Second, unsurprisingly, the children and parents may have very different views on what is expected from the house. Third, there is generally no legal obligation for the children to support the parent once the gift has been given. Fourth, if the child gets sued, then the house (which is not homesteaded), may be up for grabs.

Some people attempt to avoid Medicaid altogether. They may buy long-term care insurance to cover the costs of the nursing home or other facility. The problem with this is that it can be prohibitively expensive, especially if purchased when older and only a few years out from needing to use it.

In the end, for many people, a Medicaid Asset Protection Trust is the best alternative to protect their assets when considering long-term care.