Are earnings from a Medicaid Asset Protection Trust counted as income by Medicaid? If so, how does it affect eligibility?
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 his / her benefits. This is because 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. First, this type of trust is commonly used as a Medicaid planning tool for applicants who have countable assets over Medicaid’s limit, which generally speaking, is $2,000. (Please note that some higher valued assets, such as one’s home and vehicle, are usually not counted towards the asset limit. To see state-by-state asset limits and asset exemptions, click here.) However, not only does this planning strategy help one to meet Medicaid’s asset limit, it also protects assets from Medicaid’s estate recovery program and preserves them for family inheritance.
In a nutshell, 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 (30-months in California) in which Medicaid considers all asset transfers immediately preceding the date of one’s 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.
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, he / she is 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 one located near you here.
Now 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. In 2020, generally speaking, the income limit for long-term care Medicaid is $2,349 per month. Since income limits do vary based on the state in which one resides, 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 are required to give the majority of their income to Medicaid to go towards the cost of their care. To be clear, nursing home residents are only able to retain a small personal needs allowance. In some cases, the Medicaid applicant may also be able to transfer some, or all, of his / her income to his / her non-applicant spouse as a monthly maintenance needs allowance.