How Can I Protect Assets From Nursing Home Expenses?


How Can I Protect Assets From Nursing Home Expenses?

A common question from clients who anticipate needing long-term care is: can I protect my assets, such as a family farm or business, from being sold to pay for my long-term care expenses?

One possible method of doing just that is a Medicaid Asset Protection Trust (“MAPT”), which is a specialized irrevocable trust that can be used in Medicaid planning situations.  The fundamental purpose of creating a MAPT is preventing assets from being considered “countable resources” on the grantor’s Medicaid assistance application.

Once a grantor creates a MAPT, the next step is transferring specific assets to the trust to be protected.  The MAPT – not grantor – will be the owner of those assets, and five years later, the assets would not be countable when determining Medicaid eligibility.  The MAPT also protects the assets against creditors of the grantor and beneficiaries.

During the life of the grantor, the MAPT remains intact.  The income from the MAPT can be distributed either to the grantor or to the eventual beneficiaries.  Upon the death of the grantor, the assets can then be distributed to the grantor’s children or other beneficiaries in the manner desired by the grantor.  The grantor has great flexibility in structuring how the assets are ultimately transferred.

The MAPT is irrevocable meaning that the grantor must give up the power to revoke or amend the MAPT.  Typically, when a grantor gives away property the beneficiaries receive an unfavorable “carryover basis.”  The MAPT is designed, however to allow the assets to receive a “stepped up” income basis upon the death of the grantor, which can greatly reduce the amount of income tax eventually paid by the family.  In establishing the MAPT, the grantor can also decide who will be taxed on the income each year.

Assets can certainly be given outright, not involving a MAPT.  Outright gifts have the advantages of being simple with minimal costs.  So, why complicate things with a trust?  The short answer is that gift transaction costs are only part of what needs to be considered. Many important benefits that can result from gifting in trust are forfeited by outright gifting.  These benefits are why some individuals choose to utilize MAPTs in Medicaid planning.

If you believe that you or your family could be benefited by establishing a MAPT, please contact Clark Mize & Linville’s attorneys who specialize in trusts and estate planning.

Written by:   Joshua C. Howard

Jessica L. Stoppel

Related Practice Area:            Elder Law

Wills, Trusts and Estate Planning