With the cost of long-term care increasing yearly, many families have turned to the Medicaid program for financial assistance. However, not everyone can qualify for Medicaid benefits. Fortunately, careful estate planning that leverages tools like Medicaid Asset Protection Trusts can help. Working with an experienced elder law attorney can help protect your options and family wealth.
Understanding Medicaid Asset Protection Trusts
A Medicaid Asset Protection Trust (MAPT) is an irrevocable trust that helps individuals and couples qualify for Medicaid benefits for long-term care and protects their assets from counting towards resource limits that may disqualify them from benefits. By placing assets in a MAPT, an individual or married couple can ensure they qualify for Medicaid while leaving those assets in the care and management of a trusted individual or organization.
Like all other trusts, a grantor creates a MAPT. The grantor also selects an individual or organization to serve as the trustee and designate one or more beneficiaries to receive distributions of income and principal from trust assets per the terms of the trust document.
Financial Eligibility Requirements and Medicaid Planning
Although each state operates its Medicaid program within federal guidelines, states have some flexibility to establish their own rules within those parameters. Typically, the asset limit for an individual applying for long-term care Medicaid is $2,000. In Washington, single individuals applying for Medicaid long-term care benefits may own up to $2,000 in countable assets. Depending upon the Medicaid program, a single person may have monthly income of up to $11,584, such as for the COPES program, which is waiver program. Don’t confuse that income level with the categorically needy income level of $2,901, which is often cited as Washington’s income threshold for single persons. The income threshold depends upon the program.
Married couples, where only one spouse applies, may keep assets of $2,000, plus a community spousal resource allowance of an additional $68,301 to $157,920 in countable assets. Further, only the income of the Medicaid applicant spouse is considered when determining eligibility. The income of the non-Medicaid spouse or “well-spouse” is irrelevant to their spouse’s eligibility.
Certain assets are exempt, meaning not countable, such as a primary residence, a vehicle, and personal property, like wedding rings. However, many applicants still exceed the asset limit while remaining unable to afford the cost of care. To qualify, any assets exceeding the limit must either be “spent down” or managed through a planning strategy, such as a Medicaid Asset Protection Trust, or a Medicaid Asset Preservation Strategy® to ensure eligibility for the needed care.
How Does a MAPT Work?
A MAPT’s primary benefits come from the fact that assets placed in an irrevocable trust no longer count as part of a grantor’s estate. Because grantors cannot amend or dissolve an irrevocable trust, they lose the right to recover any assets placed in the trust. Individuals and couples may place various assets they own that might put them over the resource limits for Medicaid eligibility, such as real estate, savings accounts/CDs, investments, life insurance policies, or annuities. However, a MAPT best works with early planning; Medicaid uses a five-year lookback rule to count any assets transferred for less than fair value as part of an applicant’s estate, which may impose a penalty that delays the start of Medicaid benefits. Depending on how a person structures their MAPT, they may also use the trust to shield assets from Medicaid recovery after their death.
Benefits of Medicaid Asset Protection Trusts
Setting up a MAPT can provide an individual or couple and their family members with various benefits, such as:
- Enabling eligibility for Medicaid benefits should an individual or couple require long-term care due to severe disability or advanced age
- Avoiding liquidation of assets like real estate or investments to fund long-term care
- Protecting family wealth and facilitating inheritances to succeeding generations without the expense of probate
Who Needs a MAPT?
Individuals or couples may consider setting up a MAPT if they anticipate requiring long-term care, such as home-based/community services or nursing home care, and have significant assets that may disqualify them from Medicaid benefits. Families may also consider having a MAPT to protect generational wealth, as securing Medicaid benefits for loved ones who need long-term care can avoid the need to liquidate assets.
Contact an Estate Planning Attorney Today
When you undertake long-term care planning, a Medicaid Asset Protection Trust can become a critical tool to help ensure you have the resources you need for your later years or should a health emergency occur. Contact ELG Estate Planning today for an initial consultation with our legal team to learn more about MAPTs and their suitability for your needs and estate planning goals.