Medicaid assistance could be a vital lifeline for individuals who develop expensive medical conditions. Without Medicaid assistance, you could be left to incur steep medical expenses all on your own. Expenses such as nursing home care can drain someone’s entire life savings, leaving their surviving spouse with very little after their partner is gone. One way to stay ahead of this issue is to set up a Medicaid Asset Protection Trust, although this option may not be for everyone.

What Is a Medicaid Asset Protection Trust?

A Medicaid Asset Protection Trust (MAPT) is a type of irrevocable trust that can take ownership of your assets, thus preventing them from being counted against your Medicaid eligibility. MAPTs are irrevocable trusts, meaning once you transfer assets into the trust, you no longer own or control the asset, the trust does. Irrevocable trusts are very difficult, if not impossible, to amend. Once you put an asset into a MAPT, you are essentially parting with that asset forever.

You will name beneficiaries for the MAPT, as you would with any other trust. These beneficiaries will then inherit the assets from the trust according to the terms you laid out in the MAPT.

Since the trust takes ownership and control of the asset, the asset is no longer seen as yours. You cannot benefit from nor use the asset. Since you essentially forfeit the asset for your life, the government will not be able to see this asset and count it against your Medicaid eligibility.

How Does It Work?

If you decide to take this step and create a MAPT, you will fund the trust with the assets that you are looking to shield. You will forfeit ownership and control of these assets. The trust itself would assume ownership. Your assets would then be distributed to your heirs in accordance with the parameters you outline in the trust.

When applying for, and while on, Medicaid, there are strict income limits by which the recipients must abide. For example, a single New Jersey resident who is over 65 years old cannot have an income exceeding $2,742 per month and must have assets under $2,000. These exact numbers can change based on variables such as age and marital status, but nevertheless those numbers may serve as a good benchmark for gauging just how low this threshold is.

You would fund the trust sufficiently to get yourself compliant with these criteria. Remember, you cannot transfer any assets within the five-year look-back period. To ensure that this process is done properly and that proper precautions are taken, we recommend speaking with an experienced estate planning attorney.

Why Is This Important?

This is important because if the proper planning is not done, then your Medicaid eligibility could suffer. With the five-year Medicaid look-back period, it is imperative that you plan for this ahead of time. If you transfer these assets away from yourself within the five-year timeframe, the government will see the transfer. This could cause you to be ineligible for benefits.

Assets that can count against your Medicaid eligibility include: 1) cash; 2) stock investments; 3) retirement accounts; 4) savings accounts; and 5) secondary homes, to name a few. There is an exception made for primary residences. In order to qualify for this exemption, the applicant must live in the home or have an intent to return home. Your equity in the home can also not exceed $1,033,000 in 2023.

There is another exception, this one for married couples. The non-applying spouse can retain 50% of the couple’s assets, up to $148,620. If the non-applying spouse’s 50% share equals less than $29,724, then 100% of the assets can be kept by that spouse, up to $29,724 total.

This process takes a lot of planning and execution. In order to do this effectively, you must be able to think years down the road and going through with a plan such as creating a MAPT could require some sacrifice on your behalf while you are still well.

Can You Amend a MAPT?

While you can amend a MAPT in very narrow circumstances, it is best to operate under the assumption that you cannot. In New Jersey, the requirements to amend an irrevocable trust are that the trustee and all named beneficiaries give consent, and that the modification not upset the material purpose of the trust.

In a sense, this means that the trust can be amended so long as everyone involved consents to the change. But even if they consent, the change cannot upset the material purpose of the trust. That phrase is open for interpretation and could lead to uncertainties regarding one’s ability to make certain amendments to the trust. It is likely the amendment cannot remove any assets from the trust.

While it may be possible to amend the trust, it would be very difficult to achieve even the smallest change. It is better to count on not being able to make any changes. That is why it is critically important that you work with an experienced attorney who can help you think this through and get it right the first time.

How Can Rosenblum Law Help?

Rosenblum Law’s estate planning team is experienced, professional and deeply knowledgeable. While all estate plans are important, setting up a Medicaid Asset Protection Trust requires immense planning and consideration. The permanence of irrevocable trusts commands a high degree of thought and certainty. At Rosenblum Law, we pride ourselves on our diligence. We will work through this entire process with you, making sure every what-if is considered. To learn more about whether a Medicaid Asset Protection Trust could be right for you, call Rosenblum Law at 888-235-9021 to schedule a free consultation.

Rabbi Adam (Chananya) Rosenblum, Esq. is the founding attorney and principal of Rosenblum Law, which has provided over two decades of legal service to the community at large.

In addition to serving as principal of Rosenblum Law, he is involved in a number of volunteer and charitable endeavors, ncluding mentorship, giving weekly Torah classes and running educational trips for Jewish outreach organizations.