Establishing a Medicaid Asset Protection Trust

Establishing a Medicaid Asset Protection Trust

When planned correctly, a Medicaid Asset Protection Trust (MAPT) can offer significant benefits to elders seeking to plan for their long-term care and protect their assets for their loved ones’ benefit.

Unfortunately, individuals attempting to establish a MAPT often encounter planning and funding difficulties – which is where the expertise of an elder law attorney is needed. Below, estate planning and elder law attorney Samantha McCarthy offers her insights on how MAPTs can be used to their best effect.

To begin with, could you please explain the meaning of a Medicaid Asset Protection Trust and its significance in elder law?

A Medicaid Asset Protection Trust (MAPT) is an irrevocable trust which is designed to protect assets from being counted as available resources for purposes of Medicaid eligibility. These trusts provide a powerful tool in long-term care planning and allow an opportunity to protect assets such that they may pass to a client’s loved ones rather than being considered available resources to pay for long-term care in a nursing home.

How can these trusts potentially help to preserve Medicaid eligibility?

Through effective MAPT planning, clients can protect and preserve up to 100% of the available equity in assets. The most common assets that are funded to MAPTs are real estate, but these trusts are able to hold most types of non-retirement assets.

Due to the way MAPTs work, assets are retitled in the name of the trust once it is drafted and executed, and the trustee manages those assets in the way the grantor has laid out in the trust. Since the title to such assets is no longer in the name of the grantor, five years after the trust has been established and the assets funded to the trust, those assets are no longer considered available to pay for long-term care. They are therefore are preserved and able to pass to the beneficiaries under the trust rather than escheat to the state to pay for or reimburse the state for long-term care and Medicaid costs.

What necessary steps must be taken in establishing a Medicaid asset protection trust?

In order to establish a Medicaid asset protection trust, a client must carefully evaluate their available assets, the potential need for future long-term care, the timeline of such need for care, and engage in a thorough discussion related to their goals and objectives for their assets both during their lifetime and upon their passing. Once assets are funded into a Medicaid asset protection trust, they should not be accessed for the benefit of the grantor. Therefore, careful consideration must be given regarding what assets to place into a MAPT and how such assets will be managed both in the near future as well as the long term.

Clients must also give careful consideration to the five-year lookback rule imposed by Medicaid. This is a period of time during which any assets that have been transferred for less than fair market value are subject to a penalty imposed by the state Medicaid agency, therefore creating a period of time in which Medicaid coverage is not available and the client/Medicaid applicant must therefore privately pay for long-term care services. Because there is no consideration for the transfer to a trust, these transfers to a MAPT are considered a gift, and are therefore subject to the five-year lookback rule.

Through effective MAPT planning, clients can protect and preserve up to 100% of the available equity in assets.

Accordingly, if clients are uncertain regarding their health or ability to stay out of a nursing home for at least five years after establishing a MAPT, then this type of trust may not be the best option for them. Even if it is determined that a MAPT is not the best fit, there are still last-minute options that can be employed with proper planning and legal advice which will allow clients to save at least a portion of their otherwise available assets and still become qualified for Medicaid services.

If a client has determined that establishing a MAPT is in their best interest, then consulting with an experienced and knowledgeable elder law attorney is essential to ensure the trust is appropriately drafted and funded so that it meets the requirements of both the state and federal rules.

What significant laws and regulations should be considered as part of this process?

Trusts are subject to a plethora of laws and regulations, including, but certainly not limited to, state and federal laws regarding establishing and administering trusts, IRS rules and regulations regarding taxation of trusts, and state-specific tax laws regarding gifting, estate and inheritance taxes. However, as it relates to Medicaid asset protection trusts, the most important laws and regulations to be considered are those established by the United States Department of Health and Human Services, Centers for Medicare & Medicaid Services, as well as the specific state agency charged with administering and enforcing the Medicaid rules and regulations – which in Rhode Island is the Department of Human Services, Office of Health and Human Services.

Because Medicaid is a federal program mandated to the states, which the states can legislate around, both the federal and state laws and regulations must be considered carefully when engaging in Medicaid planning, including establishing and funding MAPTs. Without the appropriate terms and conditions as required by such laws and regulations, a trust could, on its face, seem to provide asset protection, but not actually accomplish such purpose when evaluated by the state agency. We often see clients who believe they have irrevocable Medicaid Asset Protection Trusts but, upon review, are missing many key provisions required by the state and federal government. As a result, the protection initially sought may be lost.

Are there any significant pitfalls that can occur when setting up a trust? How might these be circumvented or best prepared for before they arise?

While setting up a trust can feel complicated and overwhelming, working with an experienced estate planning and elder law attorney can make all the difference. Common pitfalls that arise when setting up a trust include not thinking through all of the possible scenarios, including the “what-ifs”, and “if this, then that”, as well as not giving adequate consideration to the individuals designated as trustee and the powers of the trustee. Additionally, and arguably most importantly, the biggest downfall we see with trusts is that clients do not always understand how to correctly fund them and retitle assets or update beneficiary designations to make sure the trusts are effective and accomplish their goals. Without proper funding, a trust is only an expensive piece of paper. Correct trust funding can provide asset protection, tax avoidance and a streamlined process for survivors, as well as probate avoidance.

Under what circumstances might you recommend a Medicaid asset protection trust to a client? What might cause you to advise against this?

A trust of some sort is recommended for most clients who own real estate and have goals of providing for their loved ones in a meaningful way. However, what type of trust is appropriate differs depending upon the client’s specific situation, including their goals, assets, care needs, and overall health.

In general, trusts are a helpful tool to avoid probate and ensure assets pass without significant delay or difficulty upon one’s death. Revocable trusts maintain power in the grantor to manage their own assets and affairs. As a result, while they provide probate avoidance, they do not protect assets for long-term care planning and Medicaid purposes.

On the other hand, a Medicaid Asset Protection Trust includes the benefits of probate avoidance that a revocable trust includes, but also has the added benefit of protecting assets from Medicaid liens after the expiration of five years from the time the trust was established and funded. The detriment, however, is that in order to ensure maximum asset protection, MAPTs must be Irrevocable, and the grantor should not be the trustee. Therefore, the grantor must have a trusted family member or friend whom they are comfortable appointing as trustee to manage the assets in the way the grantor has directed through the trust.

Therefore, a MAPT is not right for everyone. Specifically, in situations where it is not clear that the grantor has a period of at least five years before the need for long-term care is likely to arise, either because of age or health condition, then an irrevocable asset protection trust may not be the best option. Additionally, if the grantor does not have a trusted person whom they can designate as trustee to manage the trust in lieu of the grantor, then this type of trust may not be the best way for the client to accomplish their goals.

Trust planning is complex and there are many types of trusts available. The correct type of trust depends upon a number of factors, and the same planning techniques are not appropriate for everyone.


Samantha McCarthy, Founder

McCarthy Law LLC

19 First Avenue, East Greenwich, RI 02818

Tel: +1 401-541-5540



Samantha McCarthy founded McCarthy Law with a goal of making a meaningful impact in the lives of others. Currently residing in Smithfield, Rhode Island, and licenced to practice law in both Rhode Island and Massachusetts state courts, she has been recognised by the Feinstein Center for Pro Bono & Experiential Education for her extensive public interest legal work and commitment to public service. She prides herself on being approachable and compassionate, and believes in developing relationships with her clients that allow both parties to grow and learn.

McCarthy Law LLC is an estate planning and elder law firm that assists clients with the creation of estate plans, advice on elder care issues, and aid with long-term care and Medicaid planning. The firm’s goal is to build relationships with clients where they feel listened to, understood and cared for.

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