In estate planning, there are a number of ways that a trust can be used. Most trusts are created to help you protect your assets, avoid probate, and make sure that your heirs are provided for after you pass away. In the meantime, qualifying for Medicaid means that you will have to be “impoverished,” with no more than $2,000 in countable assets.
Part of estate planning involves “spending down” your assets. This does not mean that you will immediately give away all your money, house, cars, jewelry and other property. Rather, before you need Medicaid, you can transfer your assets into a trust. This holds your assets for you and allows you to utilize them, but also ensures that your children or other heirs will be able to inherit whatever you have in your trust without going through the process of probate.
Five-Year Lookback
Gifting your property directly to your child or other beneficiaries may not turn out the way you intended. A child could be sued, sell the property or otherwise get rid of it, lose it in a divorce or a creditor, or will the asset to someone else if the child should pass away before you.
Medicaid has a 5-year period prior to your application during which they look at any and all assets that you have, that you have sold, transferred, or gifted. Anything that is found to be an asset that can be used for nursing home care can either trigger a period of ineligibility or require that they be sold to cover the cost of your nursing home care. This is why transferring assets ahead of time, preferably in some form of a trust, the much better vehicle for protecting your assets than simply giving them away.
Using A Trust to Plan for Medicaid
Should you decide to use Medicaid asset protection trust, there are a few things you'll need to understand. The five-year look-back period, of course, must be taken into consideration when planning your trust. If you and your spouse decide to transfer your assets into an irrevocable Medicaid asset protection trust, understand that it can't be changed once you've transferred everything.
This is a very specific type of trust is designed to protect your assets from nursing home expenses. The income from your trust will continue to be paid to both of you for the rest of your lives. If one of you goes into a nursing facility, the income will then be paid to the non-nursing home spouse. After the death of both spouses, all assets in the trust will be distributed to your children or any other beneficiaries.
Additionally, the trust will also keep the assets out of the immediate hands of both parties, so they won't be factored into the costs for nursing home care through Medicaid.
The Wisconsin State Law Library also offers a list of resources for estate planning, including trusts.
Your Wisconsin, California, or Minnesota Medicaid Planning Attorney
Medicaid asset protection trust is a valuable part of your estate planning. However, you should not create one without the advice of a qualified elder law attorney to ensure that your assets are protected, and your wishes are carried out.
For all questions regarding elder law and Medicaid planning, speak with a reputable Medicaid planning attorney with Heritage Law Office of Wisconsin, Minnesota, and California. Attorney Brad Sarkauskas has helped people with estate planning for over 20 years. Contact our office at (414) 253-8500 for a free case evaluation today!
Frequently Asked Questions (FAQs)
1. What is a Medicaid Asset Protection Trust (MAPT)?
A Medicaid Asset Protection Trust (MAPT) is a type of irrevocable trust designed to protect an individual's assets if they need to qualify for Medicaid to cover the costs of long-term care. Assets placed in an MAPT are not counted as part of an individual's net worth when determining Medicaid eligibility. Once assets are placed in this trust, the individual doesn't have control over them but can receive income generated by the trust assets.
2. How does a Medicaid Asset Protection Trust work?
An MAPT works by removing assets from an individual's name and placing them into a trust. This reduces the individual's net worth to help them qualify for Medicaid. The individual, also known as the settlor, cannot directly control or access the assets in the trust. However, they can appoint a trustee who manages these assets on their behalf. They can also specify beneficiaries, such as children or other relatives, who will inherit the assets after the individual's death.
3. What assets can be placed in a Medicaid Asset Protection Trust?
The types of assets that can be placed in an MAPT vary but may include cash, stocks, bonds, real estate, and other types of personal property. It's important to consult with a legal or financial advisor to understand which assets would be best to place in an MAPT, given the individual's circumstances.
4. What is the five-year look-back rule in relation to MAPTs?
The five-year look-back rule is a Medicaid policy that scrutinizes any transfers of assets made by an individual in the five years prior to applying for Medicaid. If an individual has transferred assets for less than their fair market value during this period, they may be subjected to a penalty period during which they are ineligible for Medicaid benefits. This is why it's crucial to establish an MAPT well in advance of needing long-term care.
5. What are the potential drawbacks of a Medicaid Asset Protection Trust?
There are a few potential drawbacks to consider with an MAPT. First, an MAPT is irrevocable, meaning that once assets are placed in the trust, they cannot be taken back out by the settlor. Second, the settlor must give up control of their assets and cannot act as the trustee of the MAPT. Finally, the five-year look-back rule requires careful planning and timing when establishing an MAPT to avoid penalties.