If you sell a home in a Medicaid Asset Protection Trust and buy another lesser value home one, should you keep the proceeds in the Trust?
Yes, if your home is in a Medicaid Asset Protection Trust (MAPT) and you sell it to purchase a less valuable one, the proceeds should be kept in the trust. Selling the original home and buying one that is less costly does not impact Medicaid’s look back rule.
As further explanation, it is important to discuss both Medicaid’s look back rule and Medicaid Asset Protection Trusts. The look back rule is a period of 60-months in which the Medicaid agency “looks back” on all asset transfers for 60-months from the date one applies for long-term care Medicaid. There is one exception; California only has a 30-month look back period. This look back rule is intended to discourage Medicaid applicants from giving away their assets or selling them for under fair market value in order to meet Medicaid’s asset limit for qualification purposes.
Generally speaking, most states have a $2,000 asset limit for long-term care Medicaid. (State specific asset limits can be found here). While there are several higher valued assets that are not counted towards Medicaid’s asset limit, any countable assets that are above the asset limit must be “spent down” in order for the applicant to meet the asset limit. If an applicant has gifted assets or sold them for less than they are worth during the look back period, it is the assumption of the Medicaid agency that this was done in order to meet the asset limit. This comes with a penalty; a period of Medicaid ineligibility.
Medicaid Asset Protection Trust is a Medicaid planning tool that allows a Medicaid applicant to protect assets from Medicaid’s asset limit, sheltering them as inheritance for family. This is because assets in a MAPT do not count towards Medicaid’s asset limit, meaning they do not have to be “spent down” for qualification purposes.
Please note that a Medicaid applicant’s home is generally protected from the asset limit, up to a specific equity value, but it is not protected from Medicaid’s Estate Recovery Program (MERP). Essentially, a MERP attempts to collect reimbursement for funds in which it paid for long-term care for a Medicaid recipient following his / her death. A home is not safe from MERP, and is therefore, commonly put in a Medicaid asset protection trust to protect it for family as inheritance.
In order for a MAPT to be Medicaid compliant (and exempt from Medicaid’s asset limit), the trust must be irrevocable, which means the terms cannot be cancelled or altered. The Medicaid applicant, also called the trustmaker, names a trustee, often an adult child or another relative, who manages the trust. Basically, when assets, including one’s home, are transferred into a MAPT, the assets are no longer considered owned by the trustmaker, and furthermore, because the trust is irrevocable, the trustmaker cannot regain ownership of the assets. This is why the assets in a MAPT do not count towards the asset limit.
Please note that even when a house has been transferred to a MAPT, the Medicaid applicant can continue to live there for the remainder of his / her life. The home can also be sold, given the trustee authorizes the sale. However, the proceeds of the sale must be paid to the trust. The trustee can then purchase a new, less expensive home, in the name of the new trust, and the new home, like the original home, will be owned by the trust. The purchase of the new home does not reset the date for the 5-year look back period (2.5 years in California).
One word of caution: A Medicaid asset protection trust must be established 5 years (2.5 years in California) prior to the trustmaker applying for long-term care Medicaid. This is because the creation of a MAPT is a violation of Medicaid’s look back rule and can result in Medicaid disqualification. Therefore, for seniors who have not set up a MAPT and require Medicaid right away or in the near future, transferring their home and other assets to a MAPT as a Medicaid planning strategy is not an option.
Creating a MAPT can be tricky, and if not done correctly, can violate Medicaid’s look back period, resulting in Medicaid disqualification. If you or a loved one are considering this option, it is strongly suggested that a professional Medicaid planner be sought for guidance. Find one here.
**It is important to note that in Michigan, a Medicaid asset protection trust does not protect a Medicaid applicant’s home. Put differently, the home will be counted towards Medicaid’s asset limit.