Understanding Medicaid trusts
We often hear from clients who want to protect their assets while ensuring they can qualify for government benefits if long-term care is ever needed.
One of the most effective tools for this type of planning is a Medicaid asset protection trust (often called a “Medicaid trust” or a “MAPT”). A Medicaid trust is a special kind of irrevocable trust designed to protect certain assets from being counted as “available” when applying for Medicaid long-term care benefits. Below is an overview of how these trusts work, why they may be useful, and some important limitations to keep in mind.
How a Medicaid Trust Works
Irrevocable: Once assets are placed in the trust, you no longer legally own them — the trust does. This means you cannot take them back for personal use, though you can continue to benefit indirectly.
Trustee: You appoint someone you trust (often a child or close relative) to manage the trust assets.
Use of assets: While you cannot receive the principal (the money or property placed into the trust), the trust can provide income to you (for example, interest or dividends).
Timing: Medicaid has a five-year “look-back” period for nursing home coverage and no look-back period for home care coverage. This means that for nursing home coverage, the assets transferred into the trust within five years before applying for Medicaid could still be counted and potentially delay eligibility. Ideally, you will want the assets to be in the trust for five years before applying for nursing home coverage.
Why a Medicaid Trust Can Be Useful
Asset protection: Property such as your home or investment accounts can be preserved for your family, instead of being spent down on nursing home costs.
Medicaid eligibility: By removing assets from your name, you may qualify for Medicaid long-term care benefits that you otherwise would not qualify for.
Estate planning benefits: Properly drafted Medicaid trusts can still allow your heirs to receive a step-up in basis for tax purposes, reducing capital gains if they later sell the property.
Control & peace of mind: While you give up direct ownership, you still choose who manages the assets and who ultimately inherits them.
Limitations to Keep in Mind
Loss of control: Generally, you cannot take money or property back from the trust. Medicaid can count assets towards eligibility which you control or can access.
Access to principal: You cannot use the trust principal for your own direct benefit (for example, you personally can’t dip into the trust to pay for services not covered by Medicaid). However, your trustee can use the assets for your benefit.
Look-back period for nursing home coverage: Transfers must be made at least five years before you apply for Medicaid nursing home to be fully protected. Planning early is critical.
Trustee selection: Choosing the right trustee is essential. This should be someone responsible, trustworthy, and capable of handling financial matters.
Financing limitations: Once your primary residence is transferred to the trust, you can no longer refinance, obtain a home equity line of credit, nor a reverse mortgage.
Is a Medicaid Trust Right for You?
A Medicaid trust can be a powerful planning tool, but it isn’t for everyone. It requires giving up some control, careful consideration of family dynamics, and a willingness to plan ahead. We work closely with families to help decide if a Medicaid trust fits into their overall estate and long-term care plan. We will guide you through the pros and cons and tailor the trust to your unique circumstances.
Fischer Harbage is an estate and tax planning law firm built for the way people actually live today. With offices in Brooklyn and Manhattan, we serve clients throughout the tri-state area.