TABLE OF CONTENTS
- What IS a Medicaid Asset Protection Trust?
- Why should I create a Medicaid Trust?
- Must a Medicaid Asset Protection Trust always be ‘Irrevocable’?
- Will I lose all the assets that I transfer into an Irrevocable Medicaid Asset Protection Trust?
- What is an 'Irrevocable' Trust?
- What is the objective of a Medicaid Trust?
- What is a "Medicaid 5-year Look-back ”?
- What is a "Medicaid Penalty Period"?
- How is the Medicaid Penalty Period Calculated?
- Can my improper asset transfers during the Medicaid 5-year Look-back cause problems for my heirs?
- What are other important factors I should consider when deciding if a Medicaid Trust is right for my Estate Plan?
- Should you consider a Medicaid Trust for your Estate Plan?
What IS a Medicaid Asset Protection Trust?
In Minnesota, a Medicaid Asset Protection Trust is an Irrevocable Trust designed to remove a Medicaid applicant’s ownership of non-exempt assets so that person-in-need can qualify for Medicaid’s long-term in-patient healthcare coverage.
(An irrevocable Medicaid Asset Protection Trust is often referred to as a 'MAPT' or 'Medicaid Trust' - all 3 terms are describing the same asset protection tool)
If a person-in-need qualifies for Medicaid, 100% of their long-term in-patient healthcare costs may be paid by Medicaid. This is an extremely valuable benefit for anyone facing the ever-rising costs of long-term in-patient healthcare.
A MAPT is often the best option to protect the assets of anyone who may eventually need long-term managed healthcare – such as from a nursing home or assisted-living facility – while still maintaining Medicaid eligibility. Medicaid requires that if the Medicaid applicant’s assets are not protected, they must be used first to pay for the person-in-need’s healthcare before Medicaid will provide any financial assistance.
Medicaid is only available to those whose income and assets are below very specific statutory limits. All Medicaid applicants will have their assets and income scrutinized via means-testing. Therefore, a MAPT is an indispensable part of long-term healthcare planning because 5-years after transferring assets into the Trust, ALL of those Trust assets become INACCESSIBLE to Medicaid for use in their mean-testing calculations. Essentially, those assets are removed from the person-in-need’s financial estate.
Some may say the downside of a MAPT is that the person-in-need will no longer own, or have full control of, most assets placed into the Trust. But one needs to consider that it is BECAUSE those assets are inaccessible to the person-in-need that they are ALSO inaccessible to Medicaid!
Additionally, please know that the person-in-need CAN still retain certain rights over the assets placed in the Trust, such as the right to use and live in their home as long as they wish (which can be for the remainder of their lifetime if they never do need long-term in-patient healthcare), and they CAN receive any income generated by the Trust.
PLEASE NOTE: 5-years after transfer into the MAPT those assets within the Trust are NOT available to Medicaid for means-testing calculations, HOWEVER, the income generated by the assets IS available for mean-testing calculations.*
*There are OTHER methods available to also remove any excess income from the person-in-need’s financial estate, such as a Pooled-Income Trust – but that is a separate topic not covered in this article.
What is an ‘Irrevocable’ Trust?
The term ‘Irrevocable Trust’ is used to describe an Estate Planning Tool designed so that it cannot be modified or terminated once executed.
The Grantor (the person who sets up the Trust), having transferred assets into the Trust, effectively removes all of his/her rights of ownership to the assets and the Trust. This is the opposite of a Revocable Trust.[I must note that there are circumstances where an ‘Irrevocable’ Trust can be modified – or even terminated; however, the exceptions that allow this are few and are very narrow so few will qualify for such modification or termination.]
Therefore, careful planning is needed when preparing for and setting up an Irrevocable Trust.
Must a Medicaid Asset Protection Trust always be ‘Irrevocable’?
Yes, a MAPT must always be ‘Irrevocable’.
Furthermore, and just as importantly, for the Irrevocable MAPT to actually protect its assets from Medicaid, the assets must be transferred into the Trust at least 5 years (60 months) before the potential Medicaid applicant files any Medicaid application.
What does an Irrevocable Medicaid Asset Protection Trust do?
A MAPT removes ownership over certain assets whose value would otherwise disqualify a potential MN Medicaid applicant from Medicaid’s long-term inpatient healthcare coverage.
Will I lose all the assets that I transfer into an Irrevocable Medicaid Asset Protection Trust?
The answer depends on what your definition of ‘lose’ is.
Will you lose ownership of the property or assets placed into the MAPT? Yes.
However, will you lose all your rights to all of the assets placed in the MAPT? No. For example, even if you transfer ownership of your home into a MAPT, you can still retain the right to live in the home for the remainder of your lifetime (such as if you are fortunate in never need long-term inpatient healthcare). Additionally, you can still benefit from any income produced by the MAPT.
REMEMBER: setting up a MAPT is pre-planning in case you might need long-term in-patient healthcare in the future. A MAPT is not only for those certain to need long-term in-patient healthcare.
Why should I create a Medicaid Trust?
You should consider creating a MAPT if you believe there is a possibility you might need long-term inpatient healthcare in the future – such as assisted living or nursing home.
As you know, long-term inpatient healthcare is expensive. Pre-planning with a MAPT can help ensure your life’s work goes to your heirs and not a healthcare provider.
The top reasons someone might want to create a Medicaid Trust include:
- Having assets that would disqualify a person in need of long-term inpatient healthcare from Medicaid.
- Having a family or health history which might increase the likelihood of later long-term inpatient care, such as:
- Family history of dementia or Alzheimer’s.
- Health history showing a likelihood of a decline which will need professional inpatient care.
- Health history which may make someone not feel safe if living alone.
What is the objective of a Medicaid Trust?
The objectives of a Medicaid Trust typically are:
- Leaving your life’s work to your heirs rather than a healthcare facility.
- Removing assets from your financial estate so you can leave your life’s work to your heirs while still being ‘Medicaid Eligible.’
- Pre-planning to avoid asset transfers during the ‘Medicaid 5-year Lookback, which would result in a ‘Medicaid Penalty Period’.
What is a "Medicaid 5-year Look-back ”?
As the term implies, the Medicaid 5-year look-back starts from the date of any Minnesota Medicaid application and “looks-back” 5 years (60 months).
ALL transfers and gifts by the person-in-need during that time-period are subject to review by Minnesota Medicaid to determine Medicaid eligibility.
Medicaid is looking for “improper” transfers of assets (basically any transfer that may have been made to preserve assets “in contemplation of” applying for Medicaid benefits).
The most common improper transfers include:
- Giving away an asset to someone who is not an exempt recipient;
- Selling an asset for less than its fair market value;
- Adding a person’s name to an asset (for example: adding children as joint owners on a property deed);
- Purchasing an annuity which is not Medicaid compliant;
- Paying a child for home care or assistance without a valid personal service contract;
- Making a loan to a friend or family member with a promissory note that is not Medicaid compliant;
- Forgiving a loan or debt; or
- Refusing to take an inheritance that is left through a Will or a Trust.
As part of the Minnesota Medicaid application process, the applicant must be prepared for a full audit of their finances for the previous 5 years.
Financial information required for a Minnesota Medicaid application will likely include:
- ALL bank statements from ALL accounts with the Medicaid applicant’s name attached for the previous 5 years;
- ALL tax statements and payments for the previous 5 years;
- ALL statements for all bills paid over the previous 5 years;
- ALL receipts for the Medicaid applicant’s expenses for the previous 5 years;
- Receipts, receipts, receipts… for the previous 5 years; and
- Statements explaining where all unaccounted-for money or assets during the previous 5 years is/went.
IMPORTANT: any Medicaid applicant must ensure they have ALL the necessary documents BEFORE applying for Medicaid. Not having the proper documents as part of the initial application can result in a lengthy and costly application denial!
Proper preparation of the Medicaid application not only ensures the person-in-need has all the proper documentation needed for the application, but it also allows an opportunity to identify any potential problems that need to be addressed BEFORE the application is submitted.
Identifying and correcting any potential problems before the application is submitted is key to the application’s success and reducing – or hopefully eliminating – any potential Medicaid Penalty Period. Attempting to fix a denied Medicaid application will be many times more costly than proper pre-planning would have been – and may even be impossible! For this reason, it is highly recommended that you contact an Estate Planning Attorney before any Medicaid application is submitted!
Furthermore, the goal of an irrevocable Minnesota Medicaid Asset Protection Trust is a financial pre-planning to ensure ALL of the improper transfer scenarios listed above are avoided. Then, when it comes time to actually apply for Minnesota Medicaid, the person-in-need’s application gets approved the FIRST time.
What is a "Medicaid Penalty Period"?
The Medicaid Penalty Period is the period of time a Medicaid applicant will be ineligible for Medicaid long-term inpatient healthcare benefits – likely due to “improper transfers” during the 5-year look-back period.
If Medicaid determines that improper transfers were made by the Medicaid applicant during the 5-year look-back period, the applicant likely won’t be barred from receiving Minnesota Medicaid forever. However, only after that penalty period has expired can the person-in-need re-apply for Medicaid assistance.
How is the Medicaid Penalty Period Calculated?
Minnesota Medicaid will total up the value of all improper transfers then divide that number by a “Divestment Penalty Divisor” (an amount set by the Minnesota Legislature – typically ends up being slightly below the monthly average rate for nursing home care in Minnesota). Currently, the Divestment Penalty Divisor for Minnesota is $7,228 (effective June 1, 2018).
For example, let’s say Minnesota Medicaid makes a determination that during the Medicaid 5-year look-back period the Medicaid applicant improperly transferred a cabin and a boat, as well as forgave a $15,000 debt, totaling $105,250 in improper transfers. Minnesota Medicaid would then take $105,250 and divide it by $7,228.
105,250/7,228 = 14.6. Therefore, the Medicaid applicant would be ineligible for Medicaid benefits for a period of approximately 14 months and 18 days due to improper asset transfers during the Medicaid 5-year look-back period.
In this scenario, since the average cost for a semi-private room in Minnesota nursing home currently is $7,361 per month, the Medicaid applicant would have to private pay approximately $107,471 for their long-term in-patient care during the 14-month, 18-day Medicaid Penalty Period!
This is also a good opportunity to point out some think that Medicaid will “go after” a person-in-need’s assets if they can’t pay for nursing home care, but that isn’t the case. Medicaid will simply determine the person-in-need is ineligible for Medicaid benefits.
HOWEVER, during the Medicaid Penalty Period the nursing home bills will still continue to accumulate!
Those bills are with the nursing home facility – NOT Medicaid. Therefore, it will be the nursing home facility, NOT Medicaid who will seek to recover payment for those outstanding healthcare bills.
The nursing home facility will look to see where the improper transfers went, then take action to recover those assets from whoever received them – even if whoever received them no longer has the cash/assets.
We all know nursing home care isn’t free, and so nursing home facilities will do whatever they can to ensure they are compensated for their services.
As you can see, the Medicaid 5-year look-back period and the Medicaid Penalty Period are not the same, but they work hand-in-hand.
Can my improper asset transfers during the Medicaid 5-year Look-back cause problems for my heirs?
Something else to consider is not only will improper transfers during the Medicaid 5-year look-back period make a Medicaid applicant ineligible for Medicaid benefits for the duration of the Medicaid Penalty Period, but such transfers can also put the recipients of those improper transfers in hot water.
For example, a long-term healthcare facility looking for payment could potentially seek to place a lien on improperly transferred real estate or they could potentially file a civil court claim against the recipients of other improperly transferred assets!
Don’t let this happen to you or your heirs!
What are other important factors I should consider when deciding if a Medicaid Trust is right for my Estate Plan?
Here are some important facts to help you be more informed about planning for long-term healthcare:
- 1 in 3 Seniors dies with Alzheimer's or other dementia.
- In 2016, the average monthly cost for long-term health care in Minnesota was $7,391 - and the cost is only going up!
- The 3 most common ways to pay for your long-term in-patient healthcare are:
- Long-term Healthcare Insurance;
- Medicaid; and
- Private Pay (aka YOUR assets).
- The need for long-term inpatient care comes not only from slowly deteriorating health but can also be due to a sudden traumatic event – such as a fall or stroke.
- Medicare is NOT long-term inpatient healthcare coverage. At most, Medicare will only cover the first 100 days of long-term inpatient care.
- IF you have a Medicare Supplement Planyou will have 100% coverage for the first 100 days of long-term care.
- IF you do NOT have a Medicare Supplement Plan, Medicare will only provide 100% coverage for the first 20 days of your long-term care, then you will be required to pay a $160.50 per day co-pay for days 21-100 (2017).
- REGARDLESS, Medicare long-term care coverage ENDS after day 100.
However, as long as you qualify for Medicaid, your ENTIRE cost of medical care, including long-term nursing home costs, can be covered.
Should you consider a Medicaid Trust for your Estate Plan?
For anyone who may potentially face long-term in-patient care at any time in the future, pre-planning using a MAPT is vitally important.
Furthermore, one should consider that such potential can come from slowly deteriorating health or a sudden traumatic onset – such as a fall or stroke.
REMEMBER: for a MAPT to provide full asset protection, assets must be transferred into the Trust at least 5-years BEFORE the need for long-term in-patient healthcare arises.
DON'T DELAY! If you try to wait until the last minute to see if you might not need long-term in-patient healthcare, it will likely already be too late if the need does arrive – and a significant portion, if not all, of your life's work, can be lost to the healthcare facility.
If you think long-term in-patient care may ever be an issue for you, Contact Me today to discuss protecting yourself and your heirs by placing assets into a MAPT.
You will find that my services are among the most affordable anywhere in Minnesota. And i can assist you regardless of where in MN you live.
Still have questions? Ready to get started?
Contact the Maki Law Firm today for your FREE Consultation!
PLEASE NOTE: I applaud your seeking out of Estate Planning information, but this article is for informational purposes only and is not a substitute for actual consultation with a qualified attorney.
You should not act on anything you read here without first consulting myself or another Minnesota Estate Planning attorney. Small details in your unique situation can result in a drastically different outcome.