Humans have a natural instinct to consider planning for the future, how their money will  be spent, how they will live, etc.

This is the same way people consider how their life would be like when they grow old. There will most likely be nursing home costs to settle, and these bills are expensive.

But the sad reality is that most people fail to buy long-term care insurance or stash money away to foot the bills.

To be frank, nursing home costs are very expensive and it’s agonizing to watch your hard-earned money going down for your long-term care. Of course, these are funds you would feel more fulfilled passing down to your dependent loved ones.

However, there is Medicaid, a government provision that settles the cost of your long-term care in New York. But to be eligible for Medicaid in New York, you must have limited assets. What this basically means is that people who are financially strong with substantial income source cannot benefit from Medicaid. So how do you ensure that your “substantial income” doesn’t get eaten uo by your long-term care instead of passing down to your loved ones?

The answer is Medicaid Asset Protection Trust (MAPT)

What is a Medicaid Asset Protection Trust and how does it work in New York?

Typically, asset protection is a legal strategy that allows you to shield your assets from liabilities, such as tax, lawsuits, debts, etc. New York state planning attorneys often turn to irrevocable trusts to offer you asset protection. That is because all assets kept in an irrevocable trust leave your ownership and become sole property of the trust. Therefore, you, your creditors, nor the court can touch those assets to settle any claim against you since the assets are no longer yours (literally).

It’s the same way with a Medicaid Asset Protection Trust.

To determine if you qualify for Medicaid, Medicaid will take a look into your assets and any asset transfers you have recently done. But those assets you’ve retitled into the MAPT will not be counted as part of your estate (things you own). So if the value of assets outside the trust falls below the eligibility threshold, you would qualify for Medicaid. This will enable you leave your wealth for your loved ones (you name them as beneficiary of the asset protection  trust), while having your nursing home and medical costs covered by Medicaid.

Benefits of using Medicaid Asset Protection Trust in New York

Ok, you may be thinking, “why don’t I just transfer my wealth outright to my loved ones now that I’m alive instead of creating a MAPT?

There are multiple reasons why having a MAPT is the best option.

1. Medicaid eligibility has a look back period of 5 years. What this means is that, your transfers and gifting will be traced for the last 5 years. If it’s discovered that you have made substantial transfers or gifts to beneficiaries, you would be denied Medicaid. However, it may be possible to retitle your home into your child’s name and make a Child Caregiver Exemption if the child becomes your caregiver. There are pros and cons of this strategy, and you should always consult a New York estate planning attorney.

2. When you transfer assets outright to a beneficiary, you won’t really be protecting those assets as you would obviously think. Let’s say you bequeath your house to your child. Should that child marry and get divorced, they may lose half the value of that property. Their creditors can come knocking, and the property would be gone in the twinkle of an eye.

But when you keep and transfer same assets in a MAPT, you are sure no creditors, bitter spouses, lawsuit, or Medicaid can lay claim to them.

3. Tax benefits. Having a Medicaid Asset Protection Trust is also better than an outright transfer when it comes to tax.

Some people will consider transferring a home to a child while reserving a life estate for themselves. Should your child sell the property, you would lose money on the capital gains exclusion.

On the other hand, property kept in a MAPT will usually have a higher value when you die because housing cost is ever on the increase.  So should your child sell after your death, the price will be based on the value at your death, not at the time the MAPT was created.

4. You continue to enjoy your income and MAPT assets

Although the assets in a Medicaid Asset Protection Trust are no longer yours, you still receive some benefits. You would not be allowed to sell any investments but will still receive your income normally.

The trust assets are no longer in your ownership but you are still relatively in your control because you are the one who writes out the trust’s terms and selects a trustee who will manage the assets.

Our estate planning attorneys can help you

Our estate planning and elder law attorneys New York can help you plan towards the future using the right strategies. To ge help, contact us today.