How Medicaid Planning Trusts Protect Assets and Homes from Estate Recovery

Last updated: February 01, 2024


What are Medicaid Asset Protection Trusts (MAPT)?

Medicaid Asset Protection Trusts (MAPT) can be a valuable planning strategy to meet Medicaid’s asset limit when an applicant has excess assets. Simply stated, these trusts protect a Medicaid applicant’s assets from being counted for eligibility purposes. MAPTs enable someone who would otherwise be ineligible for Medicaid to become eligible and receive the care they require, be that at home or in a nursing home. Assets in this type of trust are no longer considered owned by the Medicaid applicant. MAPTs also protect assets for one’s children and other relatives, which is a win-win for Medicaid applicants and their families. Medicaid Asset Protection Trusts are also called Medicaid Planning Trusts, Medicaid Trusts, or less formally, Home Protection Trusts.

There are many different types of trusts and not all of them are Medicaid compliant. For instance, family trusts, commonly called revocable living trusts, are different from MAPTs. Generally, family trusts are not adequate in protecting money and assets from Medicaid because the language of the trust makes it revocable (meaning the trust can be cancelled or altered) or allows for money in the trust to be used for the Medicaid applicant’s long-term care costs. Therefore, assets in this type of trust would have to be “spent down” to meet Medicaid’s asset limit.

This page is about Medicaid Asset Protection Trusts. There are several other types of trusts that are relevant to Medicaid eligibility, but they will not be covered in this article. Irrevocable Funeral Trusts, also known as burial trusts, are generally used to protect up to $15,000 in assets for funeral and burial costs. There are also Qualifying Income Trusts, also called Qualified Income Trusts (QITs) or Miller Trusts. This is mentioned to avoid persons confusing MAPTs with QITs. While MAPTs protect one’s assets and allows them to meet the asset limit, QITs allow one who is over the income limit to become income-eligible for Medicaid purposes. Not all states allow QITs.

California Medicaid (Medi-Cal) eliminated their asset limit effective 1/1/24. Medicaid applicants can have unlimited assets, and therefore, Medicaid Asset Protection Trusts are not relevant for one to qualify for Medicaid.

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Why Are Medicaid Asset Protection Trusts Important?

While each state runs its Medicaid program within federally set guidelines, there is “wiggle” room for each state to set its own rules within those larger guidelines. Generally speaking, the asset limit for an elderly individual applying for long-term care Medicaid is $2,000. This asset limit can be lower or higher depending on the state in which one resides. See state-specific asset limits. While some higher valued assets are usually considered exempt (uncountable), such as one’s primary residence, a vehicle, and wedding rings, too often applicants are still over the asset limit, but still cannot afford their cost of care. Therefore, any assets that exceed the asset limit need to be “spent down” or a planning strategy, such as a Medicaid Asset Protection Trust, needs to be put into place to help the applicant qualify for the care they require. Persons can utilize our Calculator to determine the approximate value of assets that must be spent down to become Medicaid-eligible.


How Do Medicaid Asset Protection Trusts Work?

To get a better grasp of Medicaid Asset Protection Trusts, one must understand the associated terminology. The individual who creates the MAPT is called a grantor, trustmaker, or settlor. There is also a trustee, who manages the trust and controls the assets within it. The trustee must be someone other than the trustmaker or their spouse, but can be an adult child or another relative. The trustee must adhere to trust rules, which are very specific as to how trust money can be used. For instance, it should be strictly prohibited for funds to be used on the trustee. A beneficiary is also named and is the person who will benefit from the trust after the trustmaker passes away. For the trust to be Medicaid exempt, the beneficiary must be someone other than the trustmaker. If the trustmaker were also the beneficiary, they would have access to the assets, and Medicaid would consider them available to pay for their care and supports.

The trust must be irrevocable for exemption from Medicaid’s asset limit. This means that the trust cannot be cancelled or changed. Once the assets are transferred into the trust, they no longer belong to the trustmaker, nor can the trustmaker regain ownership of them. If the assets are in a revocable (can be changed or terminated) trust, Medicaid considers the assets to still be owned by the Medicaid applicant. This is because they still have control over the assets held in the trust. Therefore, the assets are counted towards Medicaid’s asset limit.

  MAPTs cannot be used to shelter or reduce assets if the applicant is immediately applying for Medicaid.

Planning well in advance of the need for long-term care Medicaid is the best course of action when considering a Medicaid Asset Protection Trust. MAPTs are not suitable for persons who need Medicaid immediately or within a short period. This is because MAPTs are a violation of Medicaid’s Look-Back Period if not set up at least 5 years before one applies for long-term care Medicaid. There are other planning strategies for those who need Medicaid currently or in the near future.


Benefits of a Medicaid Asset Protection Trust

Putting assets in a Medicaid Asset Protection Trust not only allows one to meet Medicaid’s asset limit without “spending down” assets, but also protects the assets for the beneficiaries listed by the trustee. This means the assets are safe from Medicaid Estate Recovery. In simplified terms, when a Medicaid recipient passes away, the state in which the individual lived and received Medicaid benefits, attempts to collect reimbursement for which it paid for long-term care. This is done via the deceased’s estate. However, if one’s home and other assets are in a MAPT, the state cannot come after those assets. More about Medicaid Estate Recovery.


Shortcomings of a Medicaid Asset Protection Trust

Planning well in advance of the need for Medicaid, if at all possible, is the best course of action. Medicaid Asset Protection Trusts are ideal for persons who are healthy and don’t foresee needing long-term care Medicaid in the near future. This is because MAPTs violate Medicaid’s Look-Back Period, which immediately precedes one’s date of Medicaid application.

The “look back” is generally 60-months in all states. With California’s elimination of their asset limit on 1/1/24, there no longer is a Look-Back Period for transactions made on or after this date. New York is another exception and currently has no Look Back Period for long-term home and community based services. The state plans to implement a 30-month Look-Back Period no earlier than March 31, 2024. During the “look back”, Medicaid checks to ensure no assets were gifted or sold for under fair market value. For Medicaid purposes, the transfer of assets to a Medicaid Asset Protection Trust is considered a gift and violates the Look Back Rule. This results in a Penalty Period of Medicaid ineligibility. Therefore, a MAPT should be created with the idea that Medicaid will not be needed for a minimum of 5 years in most states.

Once the assets have been transferred to a MAPT, the trustee no longer has control or access to them. They no longer are considered owned by the individual.

Given the fairly expensive fees associated with the creation of a Medicaid Asset Protection Trust ($2,000 – $12,000), they are typically not used for assets less than $100,000. Should a family need to reduce one’s assets to qualify for Medicaid in amounts less than $100,000, there are other approaches.


Gifting Assets vs. Creating a Medicaid Asset Protection Trust

While there is more flexibility with gifting assets and it does not require any legal work, it also violates Medicaid’s Look Back Rule and results in a period of Medicaid ineligibility as a penalty. Like with MAPTS, gifting should generally occur 5 years in advance of the need for long-term care Medicaid. Capital gains taxes are also a common concern with gifting.


What Type of Assets can go in an Asset Protection Trust?

Various assets can be put into a Medicaid Asset Protection Trust, including one’s home. When a trustee places their home in a MAPT, they can continue to live in it. It is even possible for the home to be sold and the trust purchase another one. There is one exception to this rule. In Michigan, a home is considered a countable asset when placed in a MAPT. This means the home is non-exempt and is counted towards Medicaid’s asset limit.

Other assets placed in MAPTS include real estate other than one’s primary home, checking and savings accounts, stocks and bonds, mutual funds, and CDs. In most cases, transferring retirement accounts (401k’s and IRAs) is not recommended due to tax implications with cashing out the plans and transferring them to a MAPT.

If income-producing assets are placed in the trust, the trustmaker is able to collect the income while the principal remains protected by the trust. However, Medicaid also has income limits, so it’s important that this income does not cause one to have “excess” income. In 2024, most states have an income limit of $2,829 / month for a single senior applying for long-term care. See income limits by state. When a Medicaid applicant is in a nursing home, income produced by the principal generally goes to the nursing home to help pay care costs.


How Do Medicaid Asset Protection Trust Rules Change by State?

Medicaid Asset Protection Trust rules are not only complicated and tend to change frequently, they also differ based on the state. As mentioned above, Michigan considers a home in a trust, even if it is irrevocable, a countable asset. California Medicaid (Medi-Cal), on the other hand, has very lax rules in regards to transferring a home to a trust. In CA, a home, even in a revocable trust, is safe from Medicaid’s Estate Recovery Program. This is very unusual. In most circumstances, revocable trusts do not keep assets safe from Medicaid’s asset limit, nor Estate Recovery. Furthermore, CA can only seek reimbursement of long-term care costs from those assets that go through probate, a legal process where a deceased person’s assets are distributed. If assets have been transferred to a revocable living trust, it is safe from Estate Recovery. This means it will avoid both probate and Estate Recovery and the need for MAPTs are not as great in the state of CA as in other states.

Wisconsin also stands apart from the other states. In WI, trusts that are irrevocable can generally be altered or cancelled if all parties (trustmaker, trustee, and beneficiaries) are in agreement.


Is an Attorney Needed to Set up a Medicaid Asset Protection Trust?

It is imperative that a Medicaid Asset Protection Trust be set up correctly to ensure the assets transferred into the trust are exempt from Medicaid’s asset limit. Since the rules change frequently and vary by state, the trust must be created by someone who is familiar with the MAPT laws in one’s specific state. Incorrectly setting up a MAPT can inadvertently cause one to be ineligible for Medicaid, defeating the purpose of creating one. Therefore, an attorney should be used to set up a Medicaid Asset Protection Trust. Private Medicaid Planners often work with attorneys to keep costs low for their clients.


How Much Does it Cost to Create a Medicaid Asset Protection Trust?

The cost of creating a Medicaid Asset Protection Trust varies significantly from a low of $2,000 to a high of $12,000. While the price might seem high, in reality, a MAPT ends up saving persons money in the long run. This is because the nationwide average cost of nursing home care is over $7,900 / month, and a MAPT prevents one from having to pay out of pocket for nursing home expenses (and other long-term care costs).

When considering the cost, there are a lot of variables. First, some attorneys don’t do MAPTS as a standalone service. Rather they do a package of sorts. This may include a pour-over will, powers of attorney, advance health care directive (living will), and HIPAA medical information releases, in addition to the MAPT. Cost can be impacted by the client’s marital status, the assets being transferred into the trust, and if a crisis plan is needed. Price also varies by geographic location, with the price more costly in urban areas than in rural areas. The experience of the attorney can also impact the cost.


Alternatives to a Medicaid Asset Protection Trust

In addition to Medicaid Asset Protection Trusts, there are other planning strategies to help lower one’s countable assets. This includes “spending down” countable assets on ones that are not counted, Irrevocable Funeral Trusts, and Medicaid Compliant Annuities. There are also planning strategies available to help lower one’s income to become eligible for Medicaid.

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