Estate Planning Articles, Medicare News and Healthcare Updates

How a Medicaid Asset Protection Trust Can Help Protect Your Wealth

by Alli Thomas

Jan 6, 2023

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 in a nursing home or an assisted living facility. One way to avoid paying out of pocket for long-term care costs is to apply for Medicaid, but there is a strict asset and income limit that makes most retirees ineligible for Medicaid benefits for long-term care.

One strategy for meeting Medicaid’s eligibility requirements is creating a Medicaid Asset Protection Trust (MAPT). While this type of trust offers significant asset protection benefits, due to Medicaid’s lookback period, it needs to be set up well in advance of applying for coverage.

Assets in a Medicaid Asset Protection Trust are not considered to be owned by the Medicaid applicant and therefore don’t count for determining Medicaid eligibility. This type of trust also shields assets for the applicant’s beneficiaries, which makes Medicaid Asset Protection Trusts valuable estate planning tools.

How is Eligibility for Medicaid Nursing Home Coverage 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 for Nursing Homes.

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 primary residence).

According to the American Council on Aging, a single applicant is permitted up to $2,000 in countable assets to be eligible in most states, while married couples with both spouses applying are permitted $4,000. There are also limits on home equity amounts. Additionally, for 2022, single applicants must have income under $2,523 per month. For married couples with both as applicants, that limit applies on a per-person basis for a total of $5,045 per month.

There are separate limits for married couples where only one spouse is applying. Additionally, each state has its own requirements and there are separate limits for blind and disabled individuals, so you’ll want to speak with a financial advisor to determine which rules apply to you.

How to Meet Medicaid Eligibility Requirements

If you’re over the asset limit and can’t qualify for Medicaid benefits, 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.

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).

Examples of how to do this legally 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 Medicaid Asset Protection Trust is an alternative to spending down your assets.

Medicaid Asset Protection Trust Basics

Here’s what you need to know about this estate planning tool:

There are several parties involved in starting a Medicaid Asset Protection Trust:

  • The trustmaker is the person who creates the trust.
  • 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 Medicaid Asset Protection Trusts.
  • The beneficiary is the person (or people) who benefit from the trust after the trustmaker dies. The primary beneficiary of the Medicaid Asset Protection Trust must be someone other than the trustmaker.

It’s an irrevocable trust

The Medicaid Asset Protection Trust is an irrevocable trust. This means that once established, it cannot be changed nor cancelled. The assets transferred into the trust no longer belong to the trustmaker.

Trust assets are sheltered from Medicaid estate recovery.

This means that the state cannot take the trust’s assets after the Medicaid recipient dies.

The Medicaid Asset Protection Trust must be funded at least five years before you plan to apply for Medicaid. 

Otherwise, you will violate the Medicaid look-back period.

The cost to establish a MAPT can range from $4,000 to $20,000.

There may also be an annual administrative fee of up to $2,000. However, a Medicaid Asset Protection Trust may still be a bargain in the long term compared to paying out of pocket for long-term care. According to a survey by Genworth, the average cost of a private room in a nursing home facility in 2021 was $9,034 per month – and these costs are increasing every year.

Because of the cost of long-term care, high likelihood that you will need long-term care, and Medicaid’s lookback period, it’s best to investigate whether a Medicaid Asset Protection Trust (or another Medicaid planning strategy) is right for you well in advance as part of a comprehensive financial planning process.

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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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