Medicaid Home Trusts

Yes, putting your home in a trust can protect it from Medicaid, but it is extremely important to mention that not all trusts serve this purpose. Not all trusts are Medicaid compliant, and putting a home into a non-Medicaid compliant trust will not protect it from Medicaid’s Estate Recovery Program (MERP).

A Medicaid Asset Protection Trust (MAPT) is used to protect assets from Medicaid and preserve them as inheritance. This includes one home, while also allowing one to continue to live in it. When a MAPT is created, the trustmaker (the future Medicaid applicant) names a trustee, who manages the trust. Given the trust is irrevocable (the terms of the trust cannot be canceled or changed), the trustmaker is no longer considered the owner of the assets contained in the trust. The trustmaker also names a beneficiary, but cannot name themself. If they did, they would have access to the assets in the trust, and therefore, could use them towards the cost of Medicaid long-term care. Put differently, if the Medicaid applicant was a beneficiary of the MAPT, the assets would not be protected from Medicaid.

One drawback of a MAPT is that it violates Medicaid’s Look-Back Rule, a 60-month period immediately preceding the date of one’s long-term care Medicaid application date. During the “look back”, the Medicaid agency scrutinizes all asset transfers, looking for transfers of gifted assets or assets sold under fair market value. If either of these two actions have occurred during the 5-year “look back”, the Medicaid applicant will be penalized with a period of Medicaid disqualification. See state-specific Look-Back Rules.

MAPTs protect more than one’s home. They also protects assets from Medicaid’s asset limit. Remember, long-term care Medicaid has financial requirements (income and asset limitations) for eligibility purposes. Generally speaking, the asset limit is $2,000 for an applicant and assets over this amount must be “spent down” in order to meet Medicaid’s asset limit. Not all assets are counted towards the asset limit, and in most cases, the home is one such asset.

For the home to be exempt (not counted), the Medicaid applicant must live in it, or have Intent to Return, and have a home equity interest (the amount of the home’s value owned by the applicant) under a state-specific value. The home is exempt, regardless of any other circumstances, if the applicant has a spouse living in it.

Even when the home is not counted towards the asset limit, it is not safe from Medicaid’s Estate Recovery Program (MERP). Every state (and the District of Columbia) has a MERP program in which the Medicaid agency attempts to recover the costs it paid for a deceased Medicaid beneficiary’s long-term care costs. Since one’s home is not protected from MERP, under specific circumstances, Medicaid can force the sale of the home for reimbursement of costs. However, as mentioned previously, putting one’s home in a Medicaid Asset Protection Trust protects the home from Estate Recovery.

Creating a Medicaid Asset Protection Trust for the purpose of protecting one’s home from Medicaid can be complicated, as the rules are not consistent across the states. For example, in Michigan, a house placed in a MAPT is not exempt from Medicaid’s asset limit. Furthermore, even within a state, the rules can change. Incorrectly implementing this planning strategy can result in Medicaid disqualification. When considering a MAPT, or other options, it is highly suggested that one consult a Medicaid Planning Professional for assistance.