What is the Purpose of a Medicaid Trust?

A Medicaid Trust, or Medicaid Asset Protection Trust (MAPT), allows individuals to qualify for Medicaid and preserve their assets for their beneficiaries, such as children or other heirs. This type of trust is particularly important for those who may need long-term care, such as nursing home services, which are almost always extremely expensive. In fact, most people cannot possibly afford these costs. They need Medicaid to pay the bill.

Many people don’t know they need MAPTs until a St. Petersburg estate planning lawyer meets with them and determines their needs. All trusts, and especially Medicaid trusts, require considerable advance planning. A lawyer can create a MAPT in as little as one office visit. This tiny investment of time pays very big dividends for settlors (people who make trusts) and their beneficiaries.

The Purposes of Medicaid Trusts

One of the primary purposes of a Medicaid Trust is to protect a person’s assets from being used to pay for long-term care. Nursing home care can cost upwards of $100,000 per year, and Medicaid eligibility is based on financial need.

Without proper planning, most people must spend down (liquidate) their assets to qualify for Medicaid. This process usually leaves little or nothing for the next generation.

A properly structured Medicaid trust kills two birds with one stone. It preserves assets and contains instructions for passing these assets on to designated beneficiaries.

When settlors transfer assets into an irrevocable trust, and a MAPT is an irrevocable trust that cannot be altered, such assets are no longer counted as part of the person’s financial resources.

However, and this is big, there is a look-back period—currently five years in most states—during which any transfers to such a trust are scrutinized. If the transfer occurred during this period, it could be considered fraudulent and delay or deny eligibility. So, as mentioned, early planning is crucial.

Assets placed in a Medicaid Trust, or any other trust for that matter, can also bypass the probate process when the person dies. Probate can be time-consuming and costly, often taking months or even years to resolve. Additionally, probate is a public process. Trusts save time and money, and also preserve privacy.

MAPTs also protect homes from Medicaid’s harsh rules. Medicaid does not count the primary residence as an asset at least in most cases. But after death, the state may place a lien on the property to recover costs paid by Medicaid (known as estate recovery). A Medicaid trust protects the home from estate recovery actions, ensuring it stays in the family.

Peace of mind may be the most important purpose of a Medicaid trust. These individuals will be able to receive the care they need without impoverishing themselves or burdening their loved ones financially. It also allows them to make thoughtful, proactive decisions about how their estate should be handled.

Key Features of a Medicaid Trust

A few final words about the nuts and bolts of Medicaid trusts, because MAPTs are different from other kinds of trusts in a few important ways.

Once assets are transferred to the trust, the individual cannot take them back or directly access them. Irrevocability is necessary to ensure the assets are not counted for Medicaid purposes.

The trust is managed by a trustee, typically a trusted family member, who has control over how the assets are used, although not for the direct benefit of the person who created the trust. However, since MAPTs are irrevocable, trustee powers are limited in some ways.

Although the settlor relinquishes all control of assets in the trust, s/he may still receive income generated by the trust (e.g., interest or dividends), but not the principal. This arrangement allows some financial support while preserving the underlying assets.

Contact a Thorough Sarasota County Lawyer

The essential estate planning process isn’t as complicated as many people believe it is. For a confidential consultation with an experienced estate planning lawyer in Lakewood Ranch, contact Drude Tomori Law. Virtual, home, and after-hours visits are available.