Louisiana Medicaid Asset Protection Trusts Explained:

A Medicaid Asset Protection Trust (“MAPT”) is one kind of irrevocable trust intended to safeguard assets in order to qualify for Medicaid.  Nursing homes and other long-term care facilities are usually not covered by standard health insurance, so people must either pay for them out of pocket or qualify for Medicaid, which has requirements related to income and asset limits.  Medicaid only covers your long-term care if you are below the asset limits.  Any assets beyond the asset limit would first need to be liquidated and used for your care.  However, if assets are moved to a MAPT, they are protected and are no longer regarded as available resources for Medicaid eligibility purposes after the five-year lookback period.

Since MAPTs indicate that you no longer own or control these assets, they must be written to be irrevocable in order for you to be eligible for Medicaid.  The assets are technically no longer yours after you create the trust.

Revocable trusts are frequently ineffective at safeguarding assets for Medicaid eligibility, in contrast to MAPTs.  Medicaid would recognize the contents of your trust as part of your resources if you maintained control, such as being the trustee, being able to take money out for yourself, and having the authority to cancel your trust in accordance with the terms of the trust agreement.

Who Benefits from a Medicaid Asset Protection Trust?

Once a Medicaid Asset Protection Trust is established, the assets in the trust are no longer yours for Medicaid purposes, making you eligible for Medicaid after the five-year lookback period.  Individuals who are healthy now but lack the funds or means to cover the possible cost of their long-term care needs privately, as well as those who lack sufficient or any long-term care insurance, may eventually need to use Medicaid to cover their long-term care expenses.

You might be proactive and decide to plan ahead to protect your assets so that they won’t need to be used to pay for your care and that the assets won’t be countable resources for Medicaid eligibility, or you might wind up using up all of your resources on the cost of your care before applying for Medicaid to continue paying for your care.  Planning ahead will ensure that the transfers you have made to your trust will be past the application’s lookback period by the time you require long-term care.  For Medicaid long-term care, the federal lookback period is five years before the application.

Funding the MAPT:

A Medicaid Asset Protection Trust can contain a variety of assets as part of your Medicaid planning strategy, such as:

• Checking and savings accounts (but not the account that social security or a pension is deposited)
• Stocks and bonds
• Mutual funds
• Certificates of deposit
• Real estate (including your primary residence)

By putting your principal residence in a MAPT, you can keep all of the real estate tax breaks and exemptions you would have received before transferring it to the trust, as well as the exclusive right to live there for the duration of your life.  The equity in the house is owned by the trust and is therefore safeguarded for Medicaid purposes, but you still have the right to live there and maintain the tax benefits of home ownership.  You can even sell your house and purchase a new one within the trust without having to restart the “lookback” phase if you follow the right process.

Creating a Medicaid Asset Protection Trust:

A MAPT is an agreement that creates a new legal entity.  A MAPT involves three parties: the grantor, the trustee, and the beneficiary.  When you create a MAPT, you become the grantor, the person who contributes assets to the trust.  The beneficiary, or frequently several beneficiaries, will inherit your assets after your death, and the trustee administers the trust in accordance with the directives provided by the grantor in the trust agreement.

You must designate a beneficiary for trust assets other than yourself or your spouse if you want your MAPT to guarantee your Medicaid eligibility.  Giving yourself assets by designating yourself as the beneficiary would count against Medicaid’s asset cap.  If you name yourself the beneficiary of only the income from trust assets Medicaid will treat this income as your income for budgetary purposes, so you should carefully consider this.

Known as “lifetime beneficiaries,” you can name your parents, kids, or other loved ones as beneficiaries while you are still alive.  In order to keep assets held in trust from being locked up throughout your lifetime, your trustee may be allowed to distribute funds to your lifelong beneficiaries.  Additionally, you decide who will benefit from the trust after your death.  These are frequently the same individuals who will be your lifetime beneficiaries.  When you pass away, your beneficiaries can get distribution of the trust assets without having to go through the probate process, which is a huge benefit of the trust.

Advantages of Medicaid Asset Protection Trusts:

Wealth Preservation:

MAPTs safeguard assets for family members, preserving generational wealth.

Estate Recovery Avoidance:

When properly set up, a MAPT can shield your house and other assets from Medicaid’s posthumous estate recovery attempts.

Cost Savings:

Because MAPTs allow you to qualify for Medicaid (after the necessary lookback period has ended), they can save your family money because long-term care expenditures, especially nursing home fees, can be extremely high.

Probate Avoidance:

By creating and supporting a MAPT, you can keep the assets you invest in it out of the probate system, which will speed up and lower the expense of administering your estate while also keeping it private and out of the hands of any potential hostile family members.

Supplemental Funds Are Still Available:

The trust can nevertheless provide a supplemental income to make your life much more comfortable even though the funds are no longer in your name.  In addition to improving your lifestyle with easier transportation, more clothes, books, excursions, dining out, and other pleasures, these reimbursements can help cover unanticipated medical costs.

Asset Protection from Creditors:

In addition to keeping Medicaid from accessing your trust funds, transferring assets into a MAPT shields them from your other creditors and possible legal action.

Furthermore, your beneficiary’s inheritance will be shielded against creditors, including an ex-spouse in the event of a divorce, because the money would stay in the trust after your death.  Additionally, you can specify the beneficiary’s use of the trust, such as for home mortgage repayment or education.

Tax Benefits:

Because the trust takes your assets out of your taxable estate, your MAPT can be set up to reduce estate taxes.  Only people with large estates should be concerned about this.

By permitting assets to be revalued at the time of the trustor’s death, a MAPT can provide capital gains tax benefits through the “step-up in basis,” which may lower or eliminate capital gains tax for heirs.

Designating a Beneficiary of the Trust:

Additionally, a MAPT significantly reduces the need for probate by allowing you to name the beneficiary who will inherit the trust’s remaining assets upon your death.

Disadvantages of Medicaid Asset Protection Trusts:

Loss of Control:

You lose control of your assets once you create a MAPT.  You must truly “trust” your “trustee.”  You lose the ability to use your assets.  You cannot withdraw money out of a trust account if you need it.  Nonetheless, your beneficiaries will be able to receive payments from your trustee.

Giving up direct control over the assets placed in a MAPT can be unnerving for some people.  Even if you can profit from the trust, you might not be prepared to commit to the fact that you will not be able to alter the trust’s capital.  In certain situations and for certain individuals, the term “irrevocable” is unacceptable.

The 5-Year Look-Back Can Work Against You:

A MAPT might not be a practical option if you have not begun estate planning early enough or if you become incapacitated too soon.  I the look-back rule has been broken, there will be a penalty period before eligibility is determined.

Income From a MAPT Is Countable:

Even though assets in a MAPT might not be included in Medicaid’s asset limit, they might nevertheless produce enough revenue to push you over the income cap.

Cost and Complexity:

Establishing a MAPT involves ongoing costs of trust management.  Many clients want to keep their estate planning as simple as possible.

MAPTs Are Inappropriate for Some Assets:

Retirement and pension plans usually don’t operate well in MAPTs, but real estate and liquid assets do.  In general, 401(k)s and IRAs have detrimental tax effects.

Medicaid Does Not Cover All Long-Term Care:

Assisted living homes, which many clients prefer to nursing homes, are not covered by Medicaid.  A MAPT trust won’t help if you choose long-term care in a private, high-end assisted living facility.

Louisiana Medicaid Asset Protection Trust Attorneys:

We are a Gretna law firm that has served the New Orleans area since 1980.  Our experienced Medicaid asset protection trust lawyers are well versed at creating all types of trusts including MAPTs.  Our expert estate planning team can analyze your circumstances to determine whether a MAPT is right for you and help guide you through the process.  We take pride in offering a personal and trusted experience.  Call us today for a free consultation and find out why so many of our clients come back to us.