Many people still believe that Medicare will cover all of their healthcare needs after the age of 65. Although Medicare covers much of one’s general health care, if you need to move into a nursing home, only a portion of the first ninety days of your stay will be covered.  So how do you pay for this care?  Unless you have long term care insurance (something that is increasingly difficult to obtain because of limited carriers, high premiums and stringent health requirements) you are stuck paying for the cost of your care out of your own pocket.  And, with that cost reaching as much as $150,000 annually, the result can be catastrophic, evaporating the savings of all but those of considerable wealth.

One possible solution is to give all of your assets to your children thereby qualifying for medical assistance or Medicaid.  In doing so, however, you would lose total control and would be completely dependent on your children to take care of you.  Even if you love and trust them to spend the money on your care rather than their personal needs, what happens if one or both of them have issues with creditors or spouses and get sued or divorced? In such circumstances, your assets would be exposed and could be lost entirely.

Instead of gifting your assets to your children,  what if you were able to place your assets in a safe place where they could be protected and grow and you could receive all the income during your lifetime, control who gets the assets at your death, and still qualify for Medicaid if needed?  If this sounds enticing, then the creation of a Medicaid Asset Protection Trust (“MAPT”) may be the answer for you.

Similar to transfers made via a gift, transfers made to a MAPT during the 5 year period immediately prior to application for Medicaid are subject to a penalty.  Accordingly, the strategy is most often used for those who are unlikely to need to enter a nursing home for at least 5 years or who have sufficient assets to pay for such care for a 5 year period. The MAPT, however, may be designed so that your Trustee is authorized to make distributions of principal to the beneficiaries (usually the adult children), during your lifetime which distributions then could be could be used by them to pay for your healthcare, if needed.

Although principal may be accessed through the beneficiaries as stated above, in designing a MAPT, it is essential that the transferor of the assets (you), has no right to receive any of the principal.  If there are any potential circumstances under which distributions of principal could be made to you, then you will be deemed to have access to the principal and will not be eligible for Medicaid.

Whether or not the Medicaid Asset Protection Trust is appropriate for you can only be determined after a comprehensive review and discussion with an Elder Law Attorney who will evaluate your unique personal situation including, family dynamics, financial considerations and personal health and make a personal recommendation.

Clifford M. Cohen has been practicing law for nearly 40 years and is admitted to practice in the District of Columbia, Maryland, Florida, Massachusetts and Illinois. Contact our offices today to receive your free consultation with a qualified and experienced Elder Law and Estate Planning Attorney.