Long-term care insurance is the preferred option for protecting assets from nursing home costs. When the client is turned down for long-term care insurance, or is unable to afford the premium, the next best option is the Medicaid Asset Protection Trust (MAPT).
Known as an “income only” trust, the MAPT names someone other than you or your spouse as the trustee, usually one or more adult children, and limits you to the income. The principal must be unavailable in order for it to be protected. These trusts are ideal for the family home as well as for assets the client is only taking the income from or is simply reinvesting. The client’s lifestyle is not generally affected since they continue to receive their pension and Social Security checks directly, they keep the exclusive right to use and occupy the home and they preserve all the tax exemptions on the home. The trust may sell and trade assets through the trustee. Nevertheless, the parent retains some measure of control by reserving the right to change the trustee in the event of dissatisfaction for any reason.
The MAPT is subject to a look-back period of up to five years. This means that if assets are transferred and the client needs nursing home care any time after five years have passed, the assets in the trust are protected. Nevertheless, it always pays to get started, since you get credit for the time you accumulate, even if you don’t make the five years. For example, if the client needs nursing home care, say, after only four years, then they would only have to pay for the one year that’s left.
The Medicaid Asset Protection Trust is also flexible. You may sell the home, the money is paid to the trust, and the trust may buy a condominium, for example, in the name of the trust so it is still protected. The trust may buy and sell and trade stocks and other assets. IRA’s and other qualified plans stay out of the trust since the principal of all such retirement plans are exempt from Medicaid. These types of assets avoid probate as they go directly to the designated beneficiaries at death.