Medicaid and Medi-Cal Asset Protection Trusts: Safeguarding Your Assets for Long-Term Care
As Americans live longer, long-term healthcare needs are becoming more common. For many, Medicaid and Medi-Cal, which is California’s state-specific Medicaid program, can provide crucial assistance with the high costs of nursing home care, expensive treatments for chronic conditions, and help with the costs of prescription medications. However, the eligibility requirements for these programs are strict. Due to Californias high property values many individuals struggle to qualify due to the value of their home and other personal assets. One way to ensure that your loved ones can access these benefits without selling your house or other hard-earned assets is through a Medicaid or Medi-Cal Asset Protection Trust (MAPT).
What Is a Medicaid/Medi-Cal Asset Protection Trust?
A Medicaid Asset Protection Trust (MAPT) is a legal tool designed to help individuals qualify for Medicaid or Medi-Cal benefits without depleting their assets. These trusts keep you assets protected from Medicaid’s asset limits which ensures they don’t count against eligibility when you apply for long-term care benefits. In essence, an MAPT allows individuals to qualify for benefits while preserving their assets for their families.
However, many people mistakenly believe they can simply transfer assets, like their family home, to their children and avoid estate planning. This can create problems:
Five-Year Look-Back: Medicaid and Medi-Cal have a five-year look-back period. If you transfer assets within this period, the transfer may be subject to penalties, which could delay your benefits.
Risks of Transferring to Children: If you transfer your home to a child, you risk that the asset could be divided in the case of divorce or seized by creditors if the child encounters financial trouble. Additionally, you lose control over the home, which could create unintended consequences down the line.
MAPTs can help you avoid these issues by legally protecting your assets, including your primary residence, from being counted against you for Medicaid or Medi-Cal eligibility.
How Does a MAPT Work?
For a MAPT to be effective, it must be established and funded at least five years before you apply for Medicaid or Medi-Cal long-term care benefits. Once the trust is created, the assets within it, including the family home, are no longer counted toward the eligibility limit. As long as the trust owns the assets, Medicaid or Medi-Cal cannot claim those assets, and they will not be used to cover long-term care costs.
For example, if you place your home in an MAPT, you can continue living in the home as long as you wish, even though the trust technically owns it. If you transfer investment assets into the trust, you can still receive income from those investments, but you cannot sell them without incurring consequences, as MAPTs are typically designed as “income-only” trusts.
MAPTs are irrevocable, meaning that once assets are placed in the trust, you cannot regain control of them. This is an important consideration, as it requires a long-term plan for the assets and how they will be distributed to family members or other beneficiaries after your death. Irrevocable trusts are complex and can have unintended legal and financial effects on you and your family, it is best to speak to an estate planning lawyer before creating an irrevocable trust to see if it is right for you.
Protection Beyond Medicaid Eligibility
MAPTs don’t just protect assets from Medicaid and Medi-Cal eligibility requirements—they also offer protection against other financial risks, such as lawsuits or creditor claims. If a family member inherits property from an MAPT, the property will be shielded from any of their creditors. Additionally, the trust can prevent the property from going through probate, allowing it to pass directly to the beneficiaries without court involvement.
Moreover, if you have a surviving spouse, the MAPT can ensure that they can remain in the family home without losing it to Medicaid estate recovery after your passing. Federal law allows a well spouse to retain ownership of the home and a limited amount of assets without impacting their Medicaid eligibility.
What About the Family Home?
In some cases, transferring the family home to a surviving spouse or child may make sense, especially to protect it from Medi-Cal’s estate recovery process. Specific rules allow the home to be transferred without penalty to:
A child under age 21 who is blind or disabled
A trust for a disabled individual under age 65
A sibling who has lived in the home for at least two years and has an equity interest
A “caretaker child” who has cared for the Medicaid applicant for at least two years, preventing the need for nursing home care
If you sell the home while receiving Medicaid benefits, the proceeds may be required to cover nursing home costs, potentially making you ineligible for further benefits.
Life Estate vs. MAPT
Some people consider creating a life estate to retain rights to live in their home while protecting it from Medicaid recovery. However, this strategy comes with risks. If the home is sold while the individual is receiving Medicaid, the value of the life estate may need to be reimbursed to Medicaid. Speaking to an estate planning lawyer is the best away to help you evaluate those risks.
Why Choose a Medi-Cal Asset Protection Trust?
Medi-Cal Asset Protection Trusts (MAPTs) offer multiple advantages for those looking to protect assets while qualifying for Medi-Cal benefits. For Californians, a MAPT can help shield assets from Medi-Cal estate recovery, prevent the state from coming after your estate, and ensure that a surviving spouse or children inherit the property without facing Medicaid-related financial penalties.
Furthermore, a MAPT can:
Protect the family home from being seized to pay for nursing home costs
Allow you to remain in your home for life
Prevent the estate from going through probate
Make MAPT assets non-countable, ensuring that children or beneficiaries inherit without jeopardizing their government benefits
Medi-Cal Eligibility and MAPTs
In California, there are income and asset limits for Medi-Cal eligibility. For 2021, an individual can keep up to $2,000 in assets, while the well spouse can retain up to $130,380. If assets exceed these limits, a Medi-Cal Asset Protection Trust can help make the excess assets non-countable, ensuring eligibility for Medi-Cal long-term care benefits.
However, the state of California has a 30-month look-back period. During this time, they review any asset transfers to ensure they were made properly. If gifts or transfers exceed the allowable limit, it could result in a delay in Medi-Cal eligibility. Still, with proper planning, a MAPT can help individuals qualify in the month they enter a skilled nursing facility, even if the transfers were made years earlier.
Consult an Estate Planning Attorney
Creating a Medi-Cal Asset Protection Trust is a complex process that requires careful planning and expert legal guidance. While they offer significant benefits, there are strict rules and regulations that must be followed. The costs of establishing a MAPT can also be prohibitive for smaller estates, typically making them more suitable for those with assets exceeding $100,000.
Working with an experienced estate planning attorney can help you navigate the complexities of creating a MAPT. An attorney can guide you through the legal requirements, ensure the trust is set up correctly, and help protect your assets for future generations.
If you’re considering a Medi-Cal Asset Protection Trust, the attorneys at Bassin Law San Francisco Estate Planning & Elder Law can provide expert advice and help you create a plan that ensures your eligibility for Medi-Cal benefits while preserving your estate for your beneficiaries. Contact us today at (415) 753-6200 to learn more.