What is a Medicaid Asset Protection Trust (MAPT) and How Does It Work?
Known as an irrevocable “income only” trust, the MAPT names someone other than you or your spouse as the trustee, usually one or more adult children, and limits you to the income. The principal must be unavailable in order for it to be protected. Medicaid Asset Protection Trusts are ideal for the family home as well as for assets the client is only taking the income from or is simply reinvesting. The client’s lifestyle is not generally affected since they continue to receive their pension and Social Security checks directly, they keep the exclusive right to use and occupy the home and they preserve all the property tax exemptions on the home. The trust may sell and trade assets through the trustee. Nevertheless, the parent retains some measure of control by reserving the right to change the trustee in the event of dissatisfaction for any reason.
Transfers to the MAPT are subject to a look-back period of up to five years for facility care and a new two and a half year look-back period for home care services. This means, for example that if assets are transferred to the MAPT, and the client needs nursing home care any time after five years have passed, the assets in the trust are protected. Nevertheless, it always pays to get started, since you get credit for the time you accumulate, even if you don’t make the five years. For example, if the client needs nursing home care, say, after only four years, then they would only have to pay for the one year that’s left on the look-back.
The Medicaid Asset Protection Trust is also flexible. You may sell the home, the money is paid to the trust, and the trust may buy a condominium, for example. The condo is still protected since it is owned by the trust and the five year look back does not start over since nothing was transferred to the trust. The trust simply sold one asset and purchased another, as it is permitted to do.
The trust may buy, sell and trade stocks and other assets. IRA’s and other qualified plans stay out of the trust since the principal of all such retirement plans are exempt from Medicaid. These types of assets also avoid probate as they go directly to the designated beneficiaries at death.
The MAPT is called “irrevocable” because you, the grantor, may not revoke it yourself. However, in New York we may still revoke the MAPT provided all the named parties agree in writing. Since this is most often just you and your immediate family, it is generally not difficult to revoke an “irrevocable” trust.
