When planning for long-term care, it's crucial to understand how Medicaid Asset Protection Trusts (MAPTs) work to avoid potentially costly mistakes. MAPTs are one of the most effective tools for preserving assets while encouraging eligibility for Medicaid benefits. Read on for the top myths about Medicaid trusts and how you can make smarter decisions to protect your assets and your future while applying for Medicaid.
This page at a glance:
- What are MAPTs? MAPTs protect assets like your home and investments, allowing you to qualify for Medicaid for long-term care while preserving benefits for you and your beneficiaries.
- Key benefits: MAPTs help qualify for Medicaid while protecting significant assets from long-term care costs and Medicaid's estate recovery program, allowing you to choose beneficiaries.
- Common misconceptions: Widespread misconceptions about Medicaid's scope, asset protection and the urgency of planning underscore the need for proper, early legal guidance to safeguard assets and ensure eligibility.
Understanding Medicaid Asset Protection Trusts
Medicaid asset protection trusts are also known as "income only" trusts. They work by naming someone other than you or your spouse as the trustee.
For the assets to be protected, those placed into the trust, known as the principal, must be unavailable. These trusts are excellent options for securing assets, such as the home and other income-producing assets, that you or your spouse owns.
With MAPTs, your lifestyle typically won't be affected, as you'll continue to receive your Social Security checks and pension payments directly, your IRA distributions, and you'll have the exclusive right to use and occupy the home.
You'll also preserve all the property tax exemptions on the house, and you can sell or trade assets through the trustee. While it may seem like you're losing control over your assets, you can still change the trustee if you're dissatisfied, thereby retaining control.
Key Benefits of MAPTs
The primary benefit of a MAPT is to enable you or your spouse to qualify for Medicaid coverage while preserving your estate and significant assets so you and your future beneficiaries can still reap the rewards of your hard work.
Here are some of the top advantages:
- Retain asset use and income: While you are transferring your assets to the MAPT, that doesn't mean you no longer benefit from their use. If you transfer your home, you can still live there while you or your spouse qualifies for Medicaid. You can also transfer investment accounts to the MAPT so you can receive the income generated from them.
- Protect assets from Medicaid: Once your assets are in the trust, Medicaid can't ask you to spend them down or seize them for long-term care costs. MAPTs can also help you protect assets from nursing home long-term care. Holdings in the MAPT are not subject to Medicaid's estate recovery program, so your beneficiaries and spouse can continue benefiting from the assets.
- Designate beneficiaries: A MAPT can be an empowering tool in the sense that you can still benefit from your assets, and you can select a trustee whom you care about, like your adult children. The beneficiaries you choose will receive your assets, per the terms of the trust agreement. Upon your passing, your children get what remains of the trust, so you can still take care of them after you're gone.
Common Misconceptions About MAPTs and Medicaid
It's crucial to set up a MAPT correctly to reap the benefits and avoid costly errors. Understanding common misconceptions can help you prepare adequately and increase your chances of qualifying for Medicaid. Here are some common misconceptions about MAPTs and Medicaid:
Medicaid Is Only for Low-Income Individuals
Medicaid does have income and asset limits, but that doesn't mean it's only for impoverished individuals. It's also beneficial for middle-income earners with a home, savings account or investment account, who may risk losing their assets with the costs of long-term care.
MAPTs allow you to legally protect the assets you've worked a lifetime to build while you or your spouse receives long-term care.
Medicare Covers Long-Term Care Costs
According to the National Council on Aging, Medicare covers skilled nursing care for 100 days at a qualified facility. It's not designed to provide ongoing long-term care. If you or your spouse needs ongoing long-term care, Medicaid is usually the primary option.
The deterrent to Medicaid for many people is not being eligible or not wanting to spend down their hard-earned assets. MAPTs can help you qualify for long-term care while still reaping the benefits of your assets.
You'll Lose Your Home if You Apply for Medicaid
Contrary to popular belief, Medicaid doesn't force you to sell your home while you are alive. However, Medicaid can track costs and place a lien on your house after you pass away.
Married couples can transfer their home into a MAPT where the trust can preserve their right of occupancy for the rest of their lives. With the help of an attorney, you can create a properly drafted MAPT that preserves property tax exemptions and capital gains tax exemptions on your primary home sale.
Gifting Assets Helps You Qualify for Medicaid
One of the most common and dangerous myths is that you can gift away assets to qualify for Medicaid. Medicaid has an extremely strict five-year look-back period. Any gifts made within this period can result in penalties or a delay in eligibility, meaning you risk your spouse or yourself not getting access to long-term health care.
Gifting is also not the best choice because it can lead to unforeseen tax issues and risks exposing your assets to the recipient's financial problems, such as poor money management or divorce costs.
Long-Term Care Insurance Is Better Than MAPTs
While long-term care insurance (LTCI) is beneficial, it's not a complete solution. When the time comes that you or your spouse needs long-term care, the policies may have strict underwriting rules, leaving some costs uncovered, even after a significant investment.
LTCI is best used as part of a comprehensive estate plan with professional advice. Medicaid can help you or your spouse receive the long-term care they need if insurance is not sufficient.
MAPTs Cause You to Lose All Access to Assets
MAPTs are legal tools that help an individual qualify for Medicaid. A MAPT is a type of irrevocable trust, which means you can't take back the main assets. However, you retain the right to live in the trust-owned property and to receive the income generated by the trust. If you're not pleased with your trustee choice, you can also change beneficiaries. The MAPT may be revoked at any time with the written consent of all parties.
You Can Wait Until You Need Care to Set up a MAPT
Medicaid's strict five-year "look-back" period means that you need to plan in advance. If you wait until the last minute to set up a MAPT, you may face penalties that delay your eligibility. That's why planning five years ahead is crucial. However, that doesn't mean all hope is lost if you don't plan. While it takes five years to protect all your assets, the time pro rates, so if you need long-term care within the five years, you'll only need to pay for the remaining years.
You Don't Need a Lawyer to Create a MAPT
One of the biggest myths is that you can create a Medicaid trust without a lawyer's help. Any mistakes when making a MAPT can lead to expensive bills and potential loss of assets. An experienced attorney can ensure that your MAPT complies with regulations and aligns with your overall estate and tax plan. They can help you create a MAPT that adequately protects your assets and raises your chances of qualifying for Medicaid without a forced spend-down.
Chat With an Experienced Estate Planning Lawyer at Ettinger Law Firm
At Ettinger Law Firm, we recognize the importance of preserving your assets while providing your loved one with the long-term care they need. Our elder law attorneys are here to help you protect your family's future with the right strategies for your holdings and support needs.
We have 12 New York locations ready to serve you and over 35 years of experience. We offer a no-cost consultation to determine the best ways to help you protect your assets and preserve your estate while applying for Medicaid.
Contact us today or book a no-cost consultation at one of our offices for expert elder law estate planning.
