Medicaid is a loan program, not a welfare program. Medicaid requires states to have estate recover programs, meaning, your house may be taken during probate following your death.
A medicaid asset protection trust or MAPT is a mechanism that protects assets from being counted toward (or held against you) when applying for medicaid.
It’s worth noting, if an adult child lives with their parent for at least 2 years before a nursing home is necessary, it’s possible to transfer the real property based on the child caregiver exception.
To qualify for medicaid long-term care benefits, household assets must be under a certain level. As long as the person has transferred the assets to the trust 5 years before applying for medicaid, medicaid will not use the assets against them for purposes of the medicaid application.
When a person has transferred their home to and MAPT, the trust becomes the owner, but the trust creator continues to live there.
If a person has transferred investment assets (stocks/bonds) to the trust, the trust creator may continue to recover income created by the investments, but is not allowed to sell the investments. The MAPT is often designed to be income only.
IRA accounts cannot be transferred to a trust. Instead, the funds must be liquidated. Whether the assets are then converted and placed into the trust is up to the individual planning along with the strategy considerations of an attorney.
MAPTs are irrevocable medicaid trust assets and cannot be sold or removed from the trust once transferred.
An MAPT is not the only way to protect the family home from Medicaid. It’s important to talk to an elder law attorney (or estate planning attorney) to better understand all of your rights and options.
Overview
A revocable trust contains assets that are countable assets transferred to the trust and do not help with the medicaid application process.
An irrevocable medicaid trust is the route to go if you are attempting to ensure you will qualify for medicaid. An irrevocable medicaid trust has a 5 year look back period, so once the trust is created, you will have to wait before applying for medicaid.
If you transfer a life insurance policy to a medicaid trust, you must survive 3 years, or else those funds are subject to taxes as they will return to your estate.
What is a Medicaid Asset Protection Trust?
These are also know as an irrevocable trust, or an income only trust. As outlined above, a medicaid trust prevents medicaid from considering certain assets so long as they have been properly transferred into the trust and the 5 year look back has been satisfied.
How Medicaid trusts work?
For the trust to be valid, it must be established before the need for care. If the care needed is home care medicaid, then the trust must be created at least 2 and 1/2 years before the services are received. If the care needed is in home nursing care, the trust must be created 5 years before the start of services.
MAPT’s are irrevocable. Any assets in the trust are considered “gifts” to the beneficiaries.
Benefits of Establishing a Medicaid Trust
You will be able to save a substantial portion of your estate and not have your assets considered by medicaid when you apply for care.
Special considerations for Medicaid Trusts
One of the most important aspects is that the Trust is irrevocable. As outlined above, once the assets are placed in trust, often, the trust creator no longer has the ability to control or sell these assets and instead can only collect the income.
Protect assets from nursing home costs
As it is discussed in this article, there are several ways to protect assets from future costs. One is to buy Long term care insurance. Certainly another is to control your health to avoid the need for long term care. Other suggestions are discussed throughout this article. If you’re looking to better understand if you need a nursing home , or if you should consider other options first, this article outlines the different types of care and provides some suggestions.
Medicaid Five year look back period
The assets must sit in trust for at least 5 years before they are beyond the scope of the medicaid application.
Play according to the rules
Medicaid rules are tight, tough and strict. It’s highly recommended that you seek legal counsel when attempting to create a medicaid trust to protect assets. It’s also recommended that you talk to an attorney before filling out a medicaid application.
How do Capital Gains Tax play a role in this?
You’re also going to need to think about capital gains tax here too and that’s important. You always want to play by the rules and pay your fair share of taxes to the IRS. The tax implications of all of this are going to be important for you to understand. If you’re paying your capital gains taxes and understand all the property tax exemptions, retirement accounts and overall just have control over whether you’re transferring assets to the right place, you’ll be in a much better place.
The best route you can take is talking with financial advisors about your savings accounts, transfer assets to the right type of account and overall just make sure you have a primary residence in the place you want and your other assets too. As we get older it’s important to really think through your life estate and life insurance policies which can come quick as we age. It’s highly recommended that you work through your planning strategies and plan ahead with the right people on your team to make sure you’re getting what’s needed for your long term vision.
The dangers of long-term care insurance
Traditional long term care insurance works like auto or home insurance, requiring the person to pay premiums on a monthly your annual basis. You choose the level of coverage and your policy dictates what services you will receive upon making a claim. Generally, you will qualify for the coverage when you can no longer perform regular daily activities (this usually involves a test). If you stop paying the premiums and then the need arises, you lose the eligibility. Like all insurance policies, your costs are subject to increase.
Hybrid insurance is a policy that combines long term care (LTC) with something else, like life insurance or possibly an annuity. If you have life insurance included in your hybrid and use some of your LTC, it will reduce the value of the life insurance policy.
Frequently, when a person buys a LTC policy, it never gets cancelled, modified or otherwise changed. So, before you decide to buy a LTC policy, consider your long term needs, your long term financial picture, your age and relative health, your ultimate goals and all the possible insurance options. It’s highly recommended that you talk to an attorney, especially and elder law lawyer when deciding whether or not to purchase a LTC policy as part of your medicaid planning.
Conclusion
As part of an overall long term care strategy, a person should consider and MAPT, and QIT, LTC insurance and any similar such options that will protect assets and reduce long term costs.
FAQs
What is a Medicaid trust Ohio?
As of 2022, the maximum total monthly income from all sources (Social Security, pensions, rent, dividends) that a person applying for Medicaid may have is $2,523.
If the Medicaid applicant has income greater than this amount, and they still want to apply for medicaid, they will need to form a Qualified Income Trust (“QIT”).
A QIT is a legal instrument used in Ohio for Medicaid eligibility purposes. Any income over the $2,523 limit placed in trust, will not be considered for Medicaid application purposes.
The basic requirements for creating a medicaid trust in Ohio are similar to other states. There are a significant number of attorneys practicing in this speciality and can offer guidance on this process.
What is a Medicaid trust New York State?
A Medicaid Asset protection trust in New York must follow the same basic requirements as discussed in this article. It must be irrevocable, and must qualify under the look back period of 5 years.
The key considerations for creating and MAPT in New York are: How will the transfer of the assets, from being personally held into a trust, be treated by Medicaid? And, how will the income from the trust be treated by Medicaid?
(1) How will the transfer of assets into the trust be treated? And (2) How will the assets in the trust and the income from the trust be treated by Medicaid?
Can you spend money from an irrevocable trust?
A person seeking to spend proceeds from an irrevocable trust and still qualify for medicaid must pay close attention to the rules. Certainly, you may consider a qualified income trust. It’s recommended you talk with a senior law or elder law attorney before making any decisions.
