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Laura Blumenstiel, JD Jan. 24, 2024

For elderly couples, planning for long-term care can be an intimidating task. One of the most important elements of that planning is understanding what a Medicaid Asset Protection Trust (MAPT) is and how it could affect you and your loved ones. This financial tool provides an advantageous solution to safeguard assets from being taken away through the Medicaid process. With MAPTs, families can ensure their hard-earned savings aren’t drastically diminished if they require long-term care or assistance, such as a nursing home placement.

In this article, we will discuss all you need to know about MAPTs so that you and your family can make informed decisions about your finances in light of possible future health needs.

Medicaid's Role in Long-Term Care

Medicaid is a government program that helps low-income individuals and families pay for healthcare expenses, including long-term care. It is the primary payer of long-term care services in the United States and covers over 3 million Ohioans, including eligible seniors aged 65 and above.

However, qualifying for Medicaid can be challenging as it has strict income and asset limits. Many families need Medicaid benefits to avoid wiping out their life savings. If you have significant assets and still need Medicaid benefits, you may need to work with an estate planning attorney on a spend-down plan.

Many people applying for Medicaid believe they can give their assets away to family members and instantly qualify for benefits. This is not the case. Giving away assets improperly can result in denying Medicaid benefits for some time. When you apply for Medicaid, the county Jobs and Family Services Department will require you to provide bank statements and other financial records from five years prior. This is known as the “lookback period”. You must explain any transaction that appears to be an improper transfer.

If you don't need long-term care in the immediate future, more legal options are available to you. An experienced estate planning attorney can help create a plan that minimizes your financial burden. One of the many strategies we use in our office is a Medicaid Asset Protection Trust.

How a Medicaid Asset Protection Trust (MAPT) Works

A MAPT is an irrevocable trust designed to protect your assets from being counted as resources when applying for Medicaid benefits. Medicaid considers the trust assets unavailable, which doesn’t count toward your eligibility limits. Under a MAPT, you transfer ownership and control of your assets to the trust during your lifetime. You will also appoint a trustee to manage the assets according to the terms you outline in the document. If the MAPT contains assets for five years before applying for Medicaid benefits, then all of the transferred assets are protected, and the government cannot force you to spend those assets on long-term care.

Some common examples of assets put into these types of trusts are:

  • Real estate (such as the family home)

  • Bank accounts

  • Stocks and bonds

  • Brokerage accounts

  • CDs

  • Vehicles

  • Personal valuables (like jewelry and fine art)

There are some assets you cannot place in a MAPT. For example, many retirement plans cannot be transferred over. They must be liquidated first.

A MAPT differs from other types of trust because it is irrevocable. It cannot be changed or revoked without the beneficiaries' consent.

Benefits of Medicaid Asset Protection Trusts

Aside from protecting assets and helping individuals qualify for Medicaid benefits, a MAPT comes with several other advantages as well. Some of these include:

  • Control and flexibility in managing assets. You can control who inherits and how beneficiaries use assets. For example, you can stagger distributions so that the trust beneficiaries receive their allotment gradually over time or specify that the funds will be used for specific purposes (like educational expenses or a wedding). You can also specify that beneficiaries only receive their inheritance after reaching certain life milestones.

  • Protection from creditors. MAPTs can protect assets from your creditors and your beneficiaries' creditors.

  • Tax benefits. MAPTs offer tax benefits that aren’t available if you use a life estate or an outright transfer. The MAPT preserves a capital gains tax break from the sale of a primary residence. Through a limited power of appointment, it can also preserve a step-up cost basis, which is important for highly appreciated assets in the trust. If an individual gifts assets outright during their lifetime then the step-up in cost basis will be lost and potentially expose the recipient to capital gains tax at sale.

Disadvantages of Medicaid Asset Protection Trusts

There are also some potential drawbacks to using a MAPT, such as:

  • Incorrect timing. For a MAPT to function as intended, it needs to be created in advance of the five-year Medicaid lookback period. If less than five years have elapsed since you created your MAPT, you may still be responsible for some or all of your long-term care costs until sufficient time has passed.

  • Income from a MAPT may count toward Medicaid eligibility. Although assets in a MAPT aren't counted, those assets may still generate income. If this income is payable to you, it may cause you to exceed the income limit permitted in Ohio. If this happens to you, you may have other legal options. However, you may also decide to partially contribute toward your care with said income.

  • Loss of overt control. A trust will not qualify as a MAPT if you retain control over the assets. You must accept that the trustee will manage the trust, distribute funds and income from the trust, and also be the effective owner of the assets. In addition, creating a MAPT but not transferring assets to it is ineffective. You need to fully commit to the concept for it to benefit you.

  • Setting Up a MAPT Can Be Costly. Creating and implementing a MAPT is a complex legal task and the experience of a qualified Medicaid attorney is essential. A complete Medicaid plan can cost several thousand dollars. However, the potential savings could be exponentially greater for you and your family. A sound Medicaid plan can help you keep your life savings in the family and out of the hands of the government or nursing home. For this reason, the price is often well worth it.

  • Potential Effects on Care Choices. It’s important to note that the MAPT strategy assumes that a person will rely on Medicaid to pay for a portion of their care. However, Medicaid does not cover all facilities. Thus, relying on Medicaid could affect the choice and quality of care a person may receive.

It’s important to consider all options and potential outcomes before implementing a MAPT.

How to Create a Medicaid Asset Protection Trust

Creating a MAPT requires the assistance of an experienced estate planning attorney. Specific language must be written down in the trust for your assets actually to be protected. The process involves:

  • Determining what assets will go into the trust: You and your attorney will review your assets and determine which ones can be placed in the trust.

  • Designating beneficiaries: You'll need to name who will receive assets from the trust when you pass away. Many people list their children, family members, friends, charities and other trusted parties. You can also serve as a beneficiary, however, there are restrictions and when and how you can receive benefits to ensure Medicaid eligibility.

  • Appointing a trustee: This is the individual or entity who will manage the trust assets according to your wishes. They are responsible for making decisions about investments and distributing assets. You cannot appoint yourself as a trustee for this type of trust; many people choose a trusted family member. The trustee has a fiduciary duty, meaning they must act in the best interest of the beneficiaries.

  • Drafting the trust document: Your attorney will draft a legally binding document that outlines the terms and conditions of the trust.

  • Funding the trust: Once created, you will move your designated assets into the trust. For example, you may need to transfer the deed of your house to the trust. Stocks and bonds must also be registered in the name of the MAPT.

While you no longer legally own assets after they are transferred to a MAPT, you can still benefit from these assets. For example, if you transfer your home to a MAPT, you may still live there.

Ultimately, creating a MAPT can provide peace of mind, knowing that your assets will be protected while potentially reducing costs associated with long-term care. So, if you think a Medicaid Asset Protection Trust is right for you, be sure to consult one of our experienced estate planning attorneys. They can help you navigate the complex legal requirements and draft a trust meeting your needs and goals. Make sure also to review your plan regularly and make any necessary updates as laws and personal circumstances change. Give us a call at 614-389-9711.

Want to learn more about long-term care planning? Download our free eBook, Aging with Confidence, here.

About the Author

Having earned her law degree in 1997, Laura Blumenstiel has nearly three decades of legal experience. She is deeply committed to providing compassionate and effective legal services for our clients. Each day, she finds fulfillment in meeting with clients and meticulously crafting trusts and estate planning documents. Additionally, she works diligently on estate administration through probate court proceedings. She's passionate about helping individuals and families plan for the future and guiding them through the probate process during difficult times. She strives to make a genuine connection with all her clients.