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Everything You Need to Know About Creating a Medicaid Asset Protection Trust

A Medicaid Asset Protection Trust is a critical long-term care planning tool that allows aging individuals to qualify for Medicaid when they otherwise would not be able to do so.

 

Medicaid Asset Protection Trust

 

Medicaid Asset Protection Trusts, also known as Irrevocable “Income Only” Trusts or Medicaid Trusts, are intended to protect assets while still qualifying people for Medicaid long-term care. To protect assets, the trust must be established 2.5 years before the need for home care Medicaid or five years before the requirement for nursing home care.

A Medicaid Trust must have a Trustee named as someone other than the Grantor or the Grantor’s spouse. Although the Grantor relinquishes authority, the Grantor retains the ability to remove and replace any trustee, as well as a limited authority of election that permits the Grantor to alter the beneficiaries of the Trust. 

If the Grantor owns a home, they can keep the right to live in it rent-free for the rest of their lives – and the spouse has the same right. This “life estate” permits the grantor to keep any property tax exemptions, such as STAR. At the grantor’s death, any assets in the trust receive a full step increase in basis, preventing capital gains tax.

Best Trust for Medicaid Trust Assets Protection

 

Best Trust for Medicaid Trust Assets ProtectionA Medicaid Asset Protection Trust is exactly what it sounds like: a trust designed to keep assets from being counted in the calculation of Medicaid eligibility.

A MAPT permits a person to qualify for Medicaid long-term care benefits while shielding assets from depletion if long-term care is required. A household’s assets must fall below a particular threshold to be eligible for Medicaid. The rules regarding asset levels are stringent, and there is a five-year look-back period to determine eligibility.

As long as the trust is established and assets are transferred five years before the donor applies for Medicaid lengthy healthcare expenses, Medicaid will not blame the donor for transferring assets. The presence of the trust will not affect Medicaid eligibility.

Medicaid Asset Protection Trust Analysis

 

Medicaid Asset Protection Trust AnalysisThe Medicaid Asset Protection Trust is adaptable. You can sell the house, the money goes to the trust, and the trust can use the money to buy a condominium, for example, in the name of the trust to keep it safe. The trust has the authority to buy, sell, and trade stocks and other assets.

Because the principal of all such retirement plans is free from Medicaid, IRAs and other eligible plans are excluded from the trust. These assets bypass probate since they pass straight to the specified beneficiaries upon death.

The MAPT is referred to as “irrevocable” since you, the grantor, are not permitted to withdraw it. However, in New York, we can still cancel the MAPT if all of the stated parties agree in writing. Because it is usually simply you and your close family, it is not difficult to revoke an “irreversible” trust. The MAPT is a type of irrevocable trust that holds your assets and thus will no longer be counted when one applies for Medicaid benefits.

We can assist you in determining the best asset protection techniques to use. We can also adapt your asset protection methods to work in tandem with your estate plan to enable a smoother transition.

Make an appointment with our team of asset protection attorneys in Colorado immediately to start protecting your assets. To learn more about Medicaid asset protection trusts, call us at (303) 218-6633 (Denver area) or (970) 820-0090 (Fort Collins area) for a free consultation on your case.

At the Legacy Law Group, we believe in long-term collaborations with our clients, selling relationships and not documents. We don’t bill by the hour for trust funding and encourage communication about all aspects of the estate planning process.

Ethics of Medicaid Asset Protection Trust and Medicaid Benefits

 

Ethics of Medicaid Asset Protection Trust and Medicaid BenefitsThe following are some of the most prevalent critiques leveled about Medicaid planning:

  • “Medicaid is only for the poor and vulnerable, and anyone with enough money to pay lawyers to hide their assets should not be considered for Medicaid eligibility.”
  • “Medicaid planning is a type of elder abuse. Many elders in nursing homes lack the competence to engage in Medicaid planning, and their offspring choose to do so on their behalf, even though there is a conflict of interest. They’re only attempting to seize their parents’ assets.”
  • “Medicaid planning is an excellent method of discouraging personal responsibility.”
  • “If there are no checks on Medicaid planning, it might bankrupt the Medicaid system.”

Consider this: most people who go through Medicaid planning have spent their entire lives paying into the system, and now they’re faced with the prospect of spending their entire savings for long-term care. What makes that reasonable? Why shouldn’t they be able to take anything out after paying their entire lives, and why should they have to go bankrupt to have medical care?

These long-term care expenditures not only have the potential to jeopardize a person’s ability to leave anything to their spouse and other family members, but they also have the potential to entirely deplete a person’s savings throughout their lifetime.

The fact is that healthcare prices in the United States are excessive, and Medicaid planning is one of the few options for some people to genuinely afford nursing home care for a lengthy period of time.

How Much Does a Medicaid Asset Protection Trust Cost?

 

How Much Does a Medicaid Asset Protection Trust CostThe cost of establishing a Medicaid Asset Protection Trust ranges widely. Although the initial cost may appear to be excessive, a MAPT saves customers money in the long term. This is because the average monthly cost of nursing home care in the United States exceeds $7,750, and a MAPT protects you from needing to pay for nursing home care out of pocket (and other long-term care costs).

When evaluating the cost, numerous things must be considered. To begin with, some lawyers do not solely practice MAPTS. Instead, they assembled a package. A pour-over will, powers of attorney, advance health care directive (living will), and HIPAA medical information releases may be included in addition to the MAPT.

Estate planning may be difficult and time-consuming, especially if you have a significant net worth (HNWI), which is why you need the help of high-net-worth estate planning lawyers. Not only are the complexities of estate planning very complex, but the sector is also continuously changing, making it tough to stay up.

Tax Consequences of Medicaid Asset Protection Trust

 

Tax Consequences of Medicaid Asset Protection TrustThe typical Medicaid trust is a grantor trust for income and estate tax purposes. The grantor trust regulations arose as a result of high-income earners attempting to reduce their income tax liability by distributing their earnings to numerous trusts over which they retained control.

Because each trust was deemed a separate entity, the earners were subject to reduced tax brackets by spreading their income out rather than all income being taxed to one individual. The IRS eventually caught on to this strategy, forming the grantor trust laws.

According to the grantor rules, if the grantor, that is, the trust’s founder, retains certain “strings” of control over the trust, such as the right to a principal or the authority to modify the beneficiaries, then all income from those trusts must be declared on the grantor’s individual tax return.

How Does a Medicaid Asset Protection Trust Work?

 

How Does a Medicaid Asset Protection Trust WorkA Medicaid asset protection trust assists individuals and families in planning for future Medicaid eligibility while simultaneously safeguarding their assets. Medicaid asset protection trusts are a crucial estate planning tool.

These trusts allow a Medicaid applicant to transfer ownership of countable assets into the trust’s name, converting them to exempt assets. A Medicaid asset protection trust must be irrevocable, which means that the grantor cannot cancel or modify the trust.

The individual or couple who establishes the Medicaid asset protection trust is known as the grantor.

The grantor and their spouse are not permitted to serve as trustees, but they may choose other family members as trustees, such as their adult children. A trustee is an individual in charge of administering and overseeing the trust’s assets. The trust specifies the trustee’s procedures when managing the trust.

To learn more about estate planning and Medicaid asset protection, call us without hesitation at  (303) 218-6633 (Denver area) or (970) 820-0090 (Fort Collins area) and receive a free consultation. Let the Legacy Law Group guide you through all the complexities that follow during such processes and help you on your way!

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