Menu burger Close thin Facebook Twitter Google plus Linked in Reddit Email
Tap on the profile icon to edit
your financial details.

Big, happy family

A Medicaid asset protection trust (MAPT) can be useful for estate planning if you believe you or your spouse will need long-term care at some point. Transferring assets to this type of trust can allow you to qualify for Medicaid to pay for long-term care while preserving your savings. If you don’t have a long-term care insurance policy in place, you may consider adding a Medicaid trust to your estate plan. Understanding how this type of trust works can help you decide if it’s right for you. Work with a financial advisor to create a comprehensive estate plan that provides for a special-needs spouse after you die.

Medicaid Asset Protection Trust, Explained

Medicaid trusts serve one very specific purpose: protecting your assets if you or your spouse requires long-term care. These trusts are designed to fill a gap that may exist if you don’t have long-term care insurance and you want to avoid draining your assets to pay for nursing home care.

While Medicare covers a number of healthcare expenses for seniors aged 65 and older, long-term care in a nursing home is not one of them. Medicaid, on the other hand, does pay for long-term care but there’s a catch. You must be financially eligible to qualify for Medicaid.

Each state is responsible for administering its Medicaid program. But generally, qualification is based on two things:

  • Income, which can include money you earn from working, distributions from retirement plans, Social Security retirement or disability benefits, pension distributions and annuity payments
  • Assets, which can include things like savings accounts, taxable investment accounts, real estate or land

If you’ve worked hard to save and invest and accumulated substantial assets, you may not be able to get Medicaid for long-term care. Or at least, you won’t be able to qualify without first spending down some of those assets. A Medicaid asset protection trust allows you to avoid that scenario.

How a Medicaid Trust Works

A Medicaid trust is a type of irrevocable trust. That means once you create the trust and transfer assets into it, you can’t take those assets back out again. The types of assets you may choose to transfer to a Medicaid asset protection trust can include:

  • Qualified retirement accounts, including a 401(k) or IRA
  • Vehicles
  • Personal assets, including jewelry, heirlooms and other valuables
  • Certain life insurance policies

You could also transfer a home to a Medicaid trust if it’s your primary residence or your spouse’s primary residence. This type of transfer can be tricky, depending on what the home is worth and how much equity you’ve accrued, so you may want to talk to an estate planning or Medicaid planning attorney first.

Some assets may not affect your Medicaid eligibility if they’re below the limits specified for your state. For example, bank accounts, CDs, money market accounts and taxable investment accounts may not factor in if the total combined balance is under a certain amount. You’d need to check the limits on countable assets in your state to determine whether you’re over or under the allowed threshold.

Benefits of Establishing a Medicaid Trust

Medicaid documents

A Medicaid asset protection trust is similar to other trusts, in that a trustee is named to manage trust assets. The trust can also have one or more beneficiaries. The beneficiaries would be able to receive assets in the trust or benefit from the income they generate. Transferring eligible assets to a Medicaid trust allows you to avoid the spend-down requirement to qualify for coverage. If you have too many assets to qualify for Medicaid based on your state’s guidelines, you’d be required to use some of them to cover long-term care or other medical expenses to become Medicaid-eligible.

This is problematic for two reasons. First, it shrinks the size of the estate you have to pass on to a surviving spouse, adult children or other beneficiaries. And second, selling off certain assets could have tax implications if you’re required to pay capital gains on the sale. A Medicaid trust allows you to avoid both of those scenarios.

There’s also another benefit if your state actively enforces Medicaid estate recovery. This practice allows states that pay long-term care costs through Medicaid to try and get some of that money back from the recipient’s estate once they pass away. There are some exclusions allowed. For instance, states may not try to recover assets from a disabled surviving spouse or minor children. But having a Medicaid trust in place can ensure that you don’t have to worry about estate recovery being an issue.

Special Considerations for Medicaid Trusts

While Medicaid asset protection trusts can be helpful in estate planning, there are a few things to keep in mind. One of the most important is the look-back period.

The Medicaid look-back period is a period of time in which any transfer of assets to a Medicaid trust would still be included in eligibility considerations. In most cases, this look-back period extends five years back from the time you or your spouse entered a nursing home. So if you’re interested in using a Medicaid trust to protect assets then you may want to create one sooner rather than later to avoid look-back period complications.

The next thing to keep in mind is that once assets go into a Medicaid trust, that transfer is permanent and irrevocable. So you need to be fairly certain that establishing a Medicaid trust makes sense for you and that you’re comfortable with the permanent transfer of assets.

Finally, it’s important to consider the cost of creating and maintaining a Medicaid trust. Establishing a trust can be more expensive and time-consuming than drafting a will or a living will. If you don’t have a lot of assets, say less than $100,000, then creating a Medicaid trust may not make sense. Talking to a financial advisor or estate planning attorney can help you decide if this is the best way to protect your assets.

The Bottom Line

Gavel on documentMedicaid trusts can help you keep more of your wealth in the family to pass on for future generations, should you or your spouse need long-term care. Considering the expense involved with nursing home care, it may be worth looking into the benefits of a Medicaid asset protection trust. However, it’s also helpful to weigh how likely you or your spouse may be to need long-term care as you age.

Tips for Estate Planning

  • Consider talking to a financial advisor about long-term care and what that might mean for Medicaid planning If you don’t have a financial advisor yet, finding one doesn’t have to be difficult. SmartAsset’s financial advisor matching tool makes it easy to connect with professional advisors in your local area. You can get your personalized advisor recommendations in minutes just by answering a few simple questions. If you’re ready, get started now.
  • Purchasing a long-term care insurance policy can be another solution when planning how to pay for nursing home care. This type of insurance policy can pay out benefits to cover long-term care. Some long-term care policies also include a life insurance component. This affords double protection since if you don’t need the long-term care coverage your loved ones could receive a death benefit when you pass away. Long-term care coverage tends to be cheaper the younger and healthier you are when you purchase it, which is something to keep in mind as you shop around for policies.

Photo credit: ©, © Drozd, ©

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
Was this content helpful?
Thanks for your input!