The Medicaid Asset Protection Trust (MAPT) is a technique commonly used by elder law attorneys. It consists of an irrevocable trust, usually set up by a parent of parents sixty-five and older. One or more of the adult children are named as “trustees” to manage the trust for the benefit of the “beneficiaries” who remain the parents during their lifetimes. For example, the parents retain the right to the exclusive use and enjoyment of the home and the income from all of the trust assets. The establishment and “funding” of the trust, i.e. retitling the home and the investments in the name of the trust, starts the five year look-back period running. After five years, those assets become exempt and are protected from the costs of long-term care.
Once the MAPT is established, there are certain things the parties can and cannot do. Below are a list of the “Do’s and Don’ts” concerning the MAPT.
Do’s
- Do make all transfers to your trust, as advised by the law firm, in a timely manner.
- Do use trust assets to make major repairs and improvements on Grantor’s residence or rental property.
- Do take dividends and income on trust assets on at least a quarterly basis (if not, they are considered additions to principal and create a new look-back on the money not taken every year).
- Do call the law firm when you wish to make a gift from the trust to any of your beneficiaries.
- Do call the law firm when a Grantor needs Medicaid benefits or dies.
- Do call the law firm when personal or financial circumstances change significantly.
- Do call the law firm if you wish to change trustees or undo the trust.
- Do provide your homeowner’s insurance company with the “letter of instruction”, including a copy of the trust for real property transferred to the trust, to add the trustees as “additional insureds” (supplied by the law firm).
- Do provide your CPA or tax preparer with the “letter of instruction” regarding the trust tax return (supplied by the law firm).
- Do choose your trustee carefully to avoid the expense (and unpleasantness) of changing the trustee.
- Do contact the elder law firm if you want to refinance, take a reverse mortgage or take out a home equity line of credit (“HELOC”) on real property in the trust.
Don’ts
- Don’t use trust assets to pay telephone or utility bills.
- Don’t use trust assets to pay personal expenses.
- Don’t use trust assets to purchase an automobile (since all the assets in the trust will be exposed to liability if there is a car accident).
- Don’t take principal or capital gains from trust assets.
- Don’t transfer IRA’s or 401(k)’s to the trust.
- Don’t allow beneficiaries to return to the trust or the Grantor any gifts made from trust assets.
- Don’t make additional transfers to the trust without advising the law firm.
- Don’t use trust assets for payment of real estate taxes and homeowner’s insurance on Grantor’s residence (permitted for rental property).