Medicaid Asset Protection Trusts (MAPTs)

Elder Law Attorneys in New York

New York Elder Law Attorneys Using MAPTs as an Estate Planning Tool

In an ideal world, everyone would have the knowledge and foresight to create a plan now for possible nursing home costs in the future. In reality, however, most people fail to purchase long-term care insurance or to save enough funds to cover the bills for long-term care, whether the stay is brief or a permanent move.

Long-term care is expensive, and you do not want to watch your hard-earned savings dwindle to pay for a nursing home or home care. For this reason, many people turn to Medicaid to cover their bills. Medicaid eligibility in New York requires limited assets; so does this mean you have no choice but to spend all of your money paying for a nursing home or rid yourself of assets to qualify for Medicaid? Fortunately, our elder law attorneys have different tools to help you qualify for benefits while preserving your assets. One such tool is a Medicaid Asset Protection Trust (MAPT).

If you would like to discuss the benefits of MAPTs or discuss estate and long-term care planning in general, please do not wait to call the law firm of Goldfarb Abrandt & Salzman LLP in New York at (212) 387-8400.

Benefits of MAPTs

Medicaid does examine your assets and any recent asset transfers to determine eligibility, though some assets are not counted for this purpose, such as assets in a MAPT. This type of trust can shield your assets from Medicaid, allowing you to preserve them to pass on to your family. A MAPT is an irrevocable trust, so once you transfer assets to the trust ownership, you cannot under most circumstances transfer them back. But once the trust owns your assets, Medicaid cannot count it as an asset you own or that may be seized to cover your costs. Once you pass away, the successor trustee will distribute the assets to your beneficiaries in accordance with your wishes.

There are reasons why transferring assets through a MAPT can be preferable to transferring ownership directly to a child or another beneficiary while you are living. For example, if you want to preserve your family home for your child’s benefit, you may be tempted to simply transfer the home into your child’s name right away. If after a couple of years, you apply for Medicaid to cover long-term institutional care, Medicaid will look back at past transfers and deny coverage. If your child lives with you in a caretaking role, it may be possible to transfer the home based on the Child Caregiver Exception. You should discuss the pros and cons of using this exception rather than transferring the asset to a MAPT with a skilled elder law attorney.

Additionally, when you transfer ownership directly, other circumstances can then threaten that asset. Your son may get divorced and may lose half the value of the house in the process. If your son racks up a lot of debt, the creditors can come after the house in an effort to collect payment. You son may also get into financial trouble and may mortgage the house for cash. With a house in a MAPT, you know that embittered spouses or aggressive creditors cannot affect its value.

MAPT Tax Benefits

Some people may consider transferring a home to a child but reserving a life estate in it for themselves. This can raise some issues, however. If the child sells the home while you are still alive, Medicaid will take the value of the life estate to impact future eligibility.

In addition, a life estate will cause a parent to lose a significant amount of the capital gains exclusion if their primary residence sells. They would only qualify to receive a pro rata share depending on the value of the life estate compared with the value of the entire residence. If the parent lives in a nursing home and the children want to avoid a sale to prevent Medicaid reimbursement, the house could sit unused for years, requiring funds for upkeep with little to no benefits.

When properly established, a MAPT will allow the capital gains tax exclusion to apply to the entire primary residence. Furthermore, a property that appreciates over time in a MAPT will have a higher stepped-up cost basis as the value will be determined on the date of the parent’s death instead of on the date of an earlier transfer to a child. This can result in the reduction or elimination of capital gains taxes on the future sale of the property.

Continued Control of MAPT Assets and Income

When you form a MAPT, you can continue to receive income and your home as your residence just as you did before you established the trust and transferred ownership. Even though the MAPT owns the assets, you do still receive some benefits. While you will not be able to sell investments in the MAPT, you can keep receiving income from them. This is because a MAPT is often an income-only trust.

Because a MAPT is irrevocable, you do have to part with the ownership of the assets you transfer. However, you still retain some control over them. You have the power to designate trustees who will control the assets.

How Our New York Elder Law Attorneys Can Assist You

The elder law lawyers at Goldfarb Abrandt & Salzman LLP have many tools to help clients qualify for Medicaid to cover long-term care expenses while still protecting some assets. We examine each unique situation and help to implement a long-term care plan that makes sense for you and your family. Contact us online or call (212) 387-8400 for more information if you would like to learn more about any type of estate planning matters.