What Is a Medicaid Asset Protection Trust?

Taking out a Medicaid asset protection trust (MAPT) is one of the leading strategies for protecting your assets if you need long-term care. Also called a Medicaid planning trust, Medicaid trust or home protection trust, an MAPT is a legal entity that holds title to transferred assets. 

If you’re considering taking out an MAPT, it’s critical to understand how they operate and compare to other trusts.

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How Does a Medicaid Asset Protection Trust Work to Protect Assets?

An MAPT is a valuable tool in preserving assets from the costs of long-term care. An individual who wants to qualify for Medicaid benefits but has excess assets can set up an MAPT. They are then known as the trustor or grantor.

The trustor transfers the control of assets to a person or company known as the trustee. The trustee manages the MAPT and its assets for the trust period. During this period, the trustor can claim the income from the MAPT but not the principal. For example, they might receive the interest from funds deposited in a bank, but they could not withdraw the deposited amount. 

Additionally, the MAPT is irrevocable. This means it cannot be changed or canceled, and assets held in it cease to be the trustor’s property. However, the trustor can remove and replace the trustee at any time. When the trustor places their assets into an MAPT, it triggers Medicaid’s look-back period of 60 months, except for California, where it’s 30 months. 

Once this period passes, Medicaid can’t count the assets in the trust. That means Medicaid can’t use them in estate recovery procedures. Instead, the assets are protected for the people the trustor names as beneficiaries. Then, when the trustor passes away, the assets go to the beneficiaries without probate.

How Much Does a Medicaid Asset Protection Trust Cost?

The cost of establishing an MAPT typically ranges from $2,000 to $12,000. Although the amount might seem high, remember that an MAPT saves trustors paying out-of-pocket for nursing home care and other extended-care arrangements. With the average nursing home costing more than $7,750 a month, the long-term savings can be substantial.

The price of MAPTs varies depending on the services a lawyer offers. Contracting the services of a lawyer who creates standalone MAPTs may be more affordable. However, most lawyers provide MAPTs as part of a larger package. 

Some of the items lawyers typically bundle with MAPTs include:

• Pour-over wills
• Powers of attorney
• Advance health care directives (living wills)
• HIPAA medical information releases

The more items in your package, the more you’re likely to pay. Some of the factors that can impact the price you’ll pay include:

• Your marital status
• Your location
• Your lawyer’s experience
• The assets going into trust
• If you need a crisis plan

What Are the Pros of a Medicaid Trust?

An MAPT helps you meet Medicaid’s countable asset limit without selling your home, other properties, or investments. These assets are also protected while you’re in long-term care and safe from Medicaid estate recovery. 

Medicaid cannot use the assets kept in the MAPT to recover costs for your care. This protection is crucial if you want to leave an inheritance to family members.

The capital gains tax exclusion applies to any primary residence kept in an MAPT. If the property appreciates over time, this gain may mean your beneficiaries pay little to no capital gains taxes if they sell the home in the future.

What Are the Cons of a Medicaid Trust?

Establishing an MAPT requires considerable planning to avoid violating the look-back period. Anyone who creates an MAPT and applies for Medicaid within five years (2.5 years in California) could face financial penalties. Perhaps this isn’t a concern if you’re healthy and unlikely to need care soon. But there’s always a risk that situations change, and you may need Medicaid earlier than you think. 

However, at the opposite end of the spectrum, establishing an MAPT far in advance while you’re fit and healthy may also represent issues. Once you transfer your assets to an MAPT, you no longer have access or control over them. Also, remember that while you can put assets into your MAPT at any time, doing so can re-trigger the look-back period.

For this reason, many people retain some assets, even after establishing the MAPT, to maintain their financial independence. 

What Are Alternatives to a Medicaid Asset Protection Trust?

Bear in mind that an MAPT is just one option for protecting your assets. Some alternatives include:

• Gifting assets to friends and family members
• Transferring assets to a spouse
• Establishing an income trust or funeral trust
• Taking out long-term care insurance
• Creating Medicaid compliant annuities or promissory notes
• Setting up a caregiver agreement

If you worry about what will happen to your assets if you ever require long-term care, it’s worth considering an MAPT. While it’s not the only option for protecting your assets, it can be a great option if you’re unlikely to need care in the short term. Weigh the pros and cons and consider speaking to a lawyer experienced in estate planning to determine if an MAPT is right for you.