Medicaid Home Trusts

Last updated: August 20, 2020
medicaidplanner Staff asked 2 months ago

Does Putting Your Home in a Trust Protect it from Medicaid?

1 Answers
medicaidplanner Staff answered 2 months ago

Yes, putting your home in a trust can protect it from Medicaid, but it is extremely important to mention that not all trusts will serve this purpose. In other words, 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). (More information about MERP is below). 
 
A Medicaid Asset Protection Trust (MAPT) is used to protect assets, including one’s home, from Medicaid and preserve them as inheritance for family. When a MAPT is created, the trustmaker (the future Medicaid applicant) is no longer the owner of the assets contained in the trust, given the trust is irrevocable (meaning the terms of the trust cannot be canceled or changed). (To be clear, assets in a revocable trust are not protected from Medicaid). It is important to mention that the trustmaker cannot name himself / herself as a beneficiary, as this would mean he / she has 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. As a side note, a trustmaker can continue to live in his / her home even when it has been placed in a MAPT. 
 
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. During this timeframe, 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 penalized with a period of Medicaid disqualification. (There are two exceptions to the 60-month look back period. California has a 30-month look back period, and New York’s Community Medicaid, the program through which long term home and community based services is available, will have a 30-month look back period beginning October 1, 2020). 
 
To be clear, MAPTs protect more than one’s home. This type of trust 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. That said, not all assets are counted towards the asset limit, and in most cases, the home is one such asset. 
 
In order for the home to be exempt (not counted), the Medicaid applicant must live in it, or have “intent” to live in it again, and have a home equity interest (the amount of the home’s value owned by the applicant) under a specific value. (In most states, the home equity limit is approximately $595,000 or $893,000). The home is exempt without any applicant requirements 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 the Medicaid beneficiary’s long term care costs after his / her death. Since one’s home is not protected from Medicaid’s estate recovery program, 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 trust for the purpose of protecting one’s home from Medicaid can be complicated, as the rules surrounding a Medicaid asset protection trust 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

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