Jennifer Roberts

A Medicaid Asset Protection Trust is a valuable tool that can be used to meet Medicaid's asset limit when the applicant has excess assets. These trusts are designed to protect Medicaid applicants' assets from being counted when assessing their eligibility. Simply put, if an applicant has excessive assets, they can be transferred to a trust, in order to guarantee the applicant's eligibility. This type of trust helps applicants who otherwise would not be eligible for Medicaid. This will help the applicants receive proper care in nursing homes or at home. The assets that are transferred to the trust are no longer considered owned by the applicant. Consequently, this Medicaid Asset Protection plan protects the assets for the applicant's children or for other relatives, making it a win-win for the applicant and his or her family.

There are many types of trusts, but not all of them are Medicaid compliant. For instance, revocable living trusts, also known as family trusts, are very different from MAPTs and are not Medicaid compliant. These trusts are not eligible because they are revocable, meaning they can be canceled or altered. Yes, the assets are protected, but Medicaid still considers the assets as belonging to the applicant. These trusts allow the money to be used for long-term care costs, so the applicant won't be accepted by Medicaid. If the applicant wants to meet Medicaid's requirements, the assets must be “spent down”.

This article will discuss how Medicaid Asset Protection works and the importance of having a Medicaid Asset Protection Trust. Keep in mind that there are also other trusts relevant to Medicaid eligibility, but they will not be discussed in this article. Let's start:

Why are MAPTs important for a senior citizen?

Every state runs its own Medicaid program, according to federally set guidelines. The program varies by state, but not a lot. There is wiggle room for each state to set its own rules. For instance, the general limit for eligibility purposes for an elderly person applying for long term care from Medicaid is $2,000. Keep in mind that this limit is general - many states have slightly different limits (some states have lower, while others higher limits). Not all assets are counted – some are considered exempt (uncountable) – for instance, the primary residence, the vehicle, personal jewelry, and others. Even in this situation, many senior citizens fail to meet this asset limit and cannot afford their cost of care. Therefore, it's very important to have a tool that can easily “spend down” the applicant's assets, in order to make him or her eligible for Medicaid.

How do MAPTs work?

To better understand how MAPTs work, it's important to understand the terminology. Here's a quick guide:

the creator of the trust – this is the person who creates the trusts and will apply for Medicaid; the person can be referred to by various names, such as grantor, settlor or trustmaker

the trustee – this person is the manager of the trust; the creator of the trust and his or her spouse cannot be the trustee; usually, the trustee is a close family member, for instance, an adult child or a sibling; the trustee must respect the rules of the trust, follow the guidelines precisely and manage the trust according to the rules set forth by the trust; for instance, the trustee can use the trust's funds only under special circumstances

the beneficiary – this is the person (or persons) who will benefit from the trust after the trustmaker passes away; in order for the trust to be Medicaid compliant, the beneficiary must be someone other than the creator of the trust; if the trustmaker is also the beneficiary, the trustmaker may have access to the assets, so Medicaid will reject the application (Medicaid would consider the applicant as available to pay for the long term care and support);

The Medicaid Asset Protection plan must also be irrevocable. This means that the trust cannot be altered, changed or canceled. As soon as the assets are transferred into the trust, they no longer belong to the creator of the trust, and no changes can be made to the ownership. On the other hand, if the trust is revocable, the trustmaker is the owner of the assets, according to Medicaid. This is because the trustmaker still has control over the assets held in the trust, so the assets will be counted towards Medicaid's limit.

The benefits of a Medicaid Asset Protection Trust

The main advantage of a MAPT is the ability to “spend down” an applicant's assets in order to meet Medicaid's asset limits. Another advantage of these types of trusts is the protection offered to the beneficiaries listed in the trust. Simply put, the assets are safe from Medicaid estate recovery. In other words, when the Medicaid recipient passes away, the state will attempt to collect reimbursement for long-term care. If the assets are part of a MAPT, the state will not be able to recover the assets.

What type of assets can go into a MAPT?

There are various assets that can be placed into a MAPT. Even the applicant's home (primary residence) can be placed into a MAPT, and the applicant can continue to live in it. In some cases, the home can even be sold and the trust can buy a new one. However, there are exceptions to this rule. For instance, Michigan doesn't allow the inclusion of homes in the MAPT, and it is counted towards Medicaid's limit.

There are other assets that can be placed in Medicaid Asset Protection plans. For instance, other real estate properties, savings and checking accounts, bonds, stocks, mutual funds, and CDs. Although possible, financial and legal experts don't recommend transferring retirement accounts in MAPTs, due to tax implications. If the assets produce income (for instance rental income), the trustmaker can collect it. Only the principal is protected by the trust; any income created by the trust can be collected by the trustmaker. However, keep in mind that Medicaid has income limits as well (as of 2019, most states have a limit of $2,313 per month).