Earnings from a Medicaid Asset Protection Trust

Last updated: May 19, 2024
Medicaid Long Term Care | Questions and AnswersCategory: EligibilityEarnings from a Medicaid Asset Protection Trust
medicaidplanner Staff asked 4 years ago

Are earnings from a Medicaid Asset Protection Trust counted as income by Medicaid? If so, how does it affect eligibility?

1 Answers
medicaidplanner Staff answered 4 years ago

Yes, if a Medicaid applicant receives earnings from a Medicaid Asset Protection Trust (MAPT) it will be counted as income by Medicaid. Unfortunately, receiving income from a MAPT can cause a Medicaid applicant to be denied Medicaid benefits or result in a Medicaid recipient losing their benefits. Medicaid has an income limit, and receiving earnings from a MAPT can push a Medicaid applicant / beneficiary over the limit.

Before we dive further into the original questions, it can be helpful to briefly discuss Medicaid Asset Protection Trusts. MAPTs are commonly used as a Medicaid planning tool for applicants who have countable assets over Medicaid’s limit, which generally speaking, is $2,000. Some higher valued assets, such as one’s home and vehicle, are usually not counted towards the asset limit. See state-by-state asset limits and exemptions. MAPTs not only help one to meet Medicaid’s asset limit, they also protect assets from Medicaid’s Estate Recovery Program and preserve them for family inheritance.

Assets are placed in the MAPT, which is irrevocable, meaning the terms of the contract cannot be changed or cancelled. The future Medicaid applicant creates the trust, names a trustee to manage it, and also names beneficiaries. With the creation of the trust, the trustmaker no longer has access to the assets in the trust, and the assets are no longer considered owned by him / her. Therefore, Medicaid does not count the assets in the trust towards the asset limit.

One must proceed with caution when creating a Medicaid Asset Protection Trust; this planning strategy must be implemented well in advance of the projected need for Medicaid. This is because MAPTs violate the Medicaid Look-Back Rule, a 60-month period in which Medicaid considers all asset transfers immediately preceding the date of one’s long-term care Medicaid application. This is done so that Medicaid applicants do not give away assets or sell them for less than fair market value in order to meet the asset limit. Violating the Look-Back Period is cause for Medicaid denial / delay. See state-specific Look-Back Rules.

Now, back to the earnings from a MAPT. While the trustmaker (the Medicaid applicant / beneficiary) has no access to the principal of the trust (these are the assets owned by the trust) in a Medicaid-compliant MAPT, they are able to receive the income (earnings) produced by the principal. That said, some states may count the entirety of the assets in the trust as assets if earnings are taken from a MAPT. While this is thought to be a rare exception, it is best to consult with a Medicaid Planner Professional in your state prior to collecting earnings from a MAPT. Find a Planner near you.

Remember, income from a MAPT is counted towards Medicaid’s income limit, and therefore, it could cause an applicant to be over Medicaid’s income limit and be denied Medicaid eligibility. Income limits vary based on the state in which one resides, and therefore, it is best to check state-specific eligibility limits.

Another important consideration is if the trustmaker receives income payments from the trust and resides (or may in the future reside) in a Medicaid-funded nursing home. Medicaid nursing home beneficiaries can only retain a small Personal Needs Allowance from their income. The majority of their income must go towards the cost of their nursing home care. In some cases, the Medicaid applicant may also be able to transfer some, or in some cases, all of their income to their non-applicant spouse as a Monthly Maintenance Needs Allowance.

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