Estate Planning, Healthcare, Personal Finance

How a Medicaid Asset Protection Trust Can Help Protect Your Wealth

by Alli Thomas

Sep 11, 2019

You’ve worked your entire life to build the wealth you have, so the last thing you want is to have to hand it over if you wind up needing long-term care.


I’ve seen this happen to many people—and it’s heartbreaking. They’ve worked hard and saved, only to lose the fruits of their labor to nursing homes—not to mention forfeiting their chance to leave assets to their heirs.


One way to avoid paying for nursing home costs is to apply for Medicaid. But there are certain qualifications you must meet in order to do this.


How is Medicaid eligibility determined?


Your non-countable assets (those that would not be included in paying for care) and countable assets (those that could be used to pay for care) determine your eligibility for Medicaid. According to the American Council on Aging, the income limit for long-term care in most states in 2019 for a single applicant is $2,313 per month (or $27,756 per year).


Examples of countable assets include cash, retirement plan accounts, taxable investment accounts, checking and savings accounts, certificates of deposit, and any real estate you own besides your principal residence).


In many cases, most people would be disqualified from receiving Medicaid after adding up all their countable assets.


If you’re over the asset limit and can’t qualify for Medicaid, you may be advised to “spend down” your countable assets, either by paying off bills, gifting money to family and friends, making charitable donations, or using countable assets to invest in non-countable assets. Examples of how to legally do this include:


  • Paying off large debts (like car loans or mortgages)
  • Buying medical equipment not covered by insurance (such as hearing aids or glasses)
  • Renovating your home to improve safety and accessibility (adding a first-floor bedroom or bathroom)
  • Purchasing an annuity
  • Purchasing an irrevocable funeral trust (up to a certain dollar amount)
  • Decreasing the cash value or canceling life insurance policies with cash values of more than $1,500 (but the cash the policyholder receives must be spent on non-countable assets)


The most important thing to remember is that all of these must be done outside of Medicaid’s five-year lookback period (unless you’re in California, where the lookback period is only 30 months).


Is there a way to avoid having to spend down your assets if you want to qualify for Medicaid? Yes!


You could consider creating a Medicaid Asset Protection Trust (MAPT). This is a legal structure that must be carefully planned for in advance of an individual applying for Medicaid. But, if done correctly, assets in an MAPT are not considered to be owned by the Medicaid applicant—and are therefore not countable in determining Medicaid eligibility.


This type of trust also shields assets for the applicant’s beneficiaries, which makes the MAPT a valuable estate-planning tool.


Medicaid Asset Protection Trust Basics

1. There are several parties involved in starting an MAPT:

  • The trustmaker is the person who creates the MAPT.
  • The trustee manages the assets in the trust. This person cannot be the trustmaker nor the trustmaker’s spouse. Adult children or other family members can be appointed trustee on MAPTs.
  • The beneficiary is the person (or people) who benefit from the trust after the trustmaker dies. The primary beneficiary of the MAPT must be someone other than the trustmaker.


2. It’s an irrevocable trust—once established, it cannot be changed nor cancelled. After the assets are transferred into the MAPT, they no longer belong to the trustmaker.


3. Assets in the MAPT are also sheltered from Medicaid estate recovery. This means that the state cannot take the MAPT’s assets after the Medicaid recipient dies.


4. The MAPT must be funded at least five years before you plan to apply for Medicaid. Otherwise, you will violate the Medicaid look-back period.


5. The cost to establish an MAPT can range from $4,000 to $20,000. There may also be an annual administrative fee of up to $2,000. However, an MAPT may still be a bargain in the long term: the average monthly cost of a private room in a nursing home is about $8,300. And remember the value that an MAPT can offer as an estate-planning tool.


Because of Medicaid’s five-year lookback period, it’s best to investigate an MAPT (and other Medicaid planning strategies) well in advance of needing them. Interested in learning more? Click here to set up a no-cost, no-obligation conversation with one of our financial advisors.

Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k) administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

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