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After working most of your life and finally paying off your mortgage, the last thing you want is to see the assets you’ve accumulated through years of diligence fall into the government’s hands because you required long-term care either at home or in a nursing home. There is a way—a perfectly legal and legitimate way—to shield those assets and protect your children’s inheritance. But there’s no time to lose. One of the ways in which we protect assets is by creating a Medicaid Asset Protection Trust (MAPT).
With a MAPT, you can protect your assets from the cost of long-term care. But there is a hitch: the trust must be created sixty (60) months before nursing home care is necessary. Currently, in New York, there is no lookback for transfers made before you apply for home care (Community Medicaid). However, this may change. In 2020, regulations were changed to apply a thirty (30) month lookback for Community Medicaid for any transfers made after October 1, 2020. The State has not yet imposed that lookback and has delayed applying it until at least 2025. At the time of the writing of this article, we are unsure if this new lookback will ever be implemented. To be safe, planning early is imperative and the key to asset protection and preservation.
Why You Need a Medicaid Asset Protection Trust
Let’s back up a second to discuss why you may need Medicaid. Both home care and nursing home care are extremely expensive (roughly $15,000 a month), and few people can afford to pay those rates over the long haul. Ultimately, they will rely on the Medicaid benefits to which they are entitled. In fact, approximately 72% of all nursing home costs in New York are covered by Medicaid. That means if you are in a nursing home paying privately, you are in the minority.
Under the 2024 Medicaid resource allowance, the applicant can have $30,182.00. If you have assets that exceed that amount, there could be a spenddown. If you do nothing, you could lose your home and investment assets. If you establish a MAPT – and stay out of a nursing home for sixty (60) months – those assets are out of the government’s reach and will ultimately be available for your beneficiaries.
A Medicaid recipient can have non-qualified assets up to $30,182.00, retirements accounts in an unlimited amount (provided those accounts are set up for a specific monthly distribution), an irrevocable pre-paid burial, and a car. If the Medicaid recipient is receiving Community Medicaid, the recipient can own their primary residence; however, if the primary residence is in the recipient’s individual name at death, there will be recovery for the benefits paid by Medicaid during the recipient’s life. This recovery can be avoided if the primary residence is held in a MAPT when the recipient passes.
How Medicaid Asset Protection Trusts Work
Although situations differ, what happens most often is an aging person or couple, as part of sound estate planning, will consult with an elder law or trust and estate lawyer to weigh the benefits and drawbacks and determine if a MAPT makes sense and which assets should go into the trust (some assets, such as an IRA, 401k, or 403b, are already protected retirement accounts, so there’s no benefit to putting them in a trust). The trust funding is a crucial part of this process. Another important consideration is who should be appointed trustee. Often, the trustee is an adult child or other relative or friend who you can trust to follow your wishes.
What happens if your house is in a trust, and you decide to move? No problem. The trustee can sell the house and then the proceeds can be used to buy another home or simply invested to pay you income from the trust. Similarly, if you put your stock investments in the trust, the trustee can buy and sell securities in the trust. The new home and the new stock stays in the trust. The grantor of the trust keeps all the income, and the principal is protected.
Trusts can be legally complicated, and if you do decide to investigate a MAPT, it would be wise to consult with an attorney who specializes in that area of law and keeps a close watch on statutory changes that may affect the operation of the trust. Mistakes and oversites can have devasting unintended consequences. It may be difficult or impossible—and it will certainly be expensive—to revise a trust. Better to get it nailed down just right from the start.
