A Medicaid Asset Protection Trust (MAPT) Does Much More than Just Protect Assets for Medicaid Eligibility!

By: Anthony J. Enea, Esq.

Over the last thirty (30) years, the Medicaid Asset Protection Trust (MAPT) has been the primary vehicle used to shelter assets from the cost of long term care and allow the creator(s)/grantor(s) to access the Medicaid program once the look back period (ineligibility period) has expired. As of this writing, there is a sixty (60) month look back period for Nursing Home Medicaid in New York. Presently, there is no look back for the home care Medicaid (Community Medicaid) program in New York. However, if and when the enacted law is implemented, the look back period will be thirty (30) months for home care Medicaid.

While the above is generally the primary reason a MAPT is utilized, the following are additional benefits the creator(s) of a MAPT will reap:

• The assets transferred to a MAPT are protected against the claims of the creditors of the creators and the beneficiaries of the trust, unless the creator(s) knew of a claim or potential claim against them at the time the trust was created and funded. If they knew of the claim the transfer of assets to the trust could be deemed a fraudulent conveyance subject to the claims of their creditor(s). Additionally, if a child and/or grandchild is the ultimate beneficiary of the trust, the trust could contain a continuing trust for their lifetime or until they have attained a certain age or met other specified conditions. Thus, the beneficiary would not receive possession of their share of the trust until they reached said specified age or never; however, they could receive income and/or trust principal at the discretion of the trustee(s).
  Additionally, the trust can contain a provision that, irrespective of what the trust states as to when outright distributions are to be made, the trustee can withhold making the distribution if they believe it is not in the best interest of the beneficiary to do so. For example, the trust states the beneficiary gets their share at age forty (40). However, at the time the beneficiary has attained age forty (40) they are in the midst of a divorce proceeding, in litigation, a bankruptcy and/or they suffer from a psychiatric illness, physical infirmities, drug or alcohol addiction which would make the distribution imprudent, then in that event, the funds could, in the trustees discretion, remain in trust for the beneficiaries.
• Regardless of whether or not one applies for Medicaid nursing home and/or Medicaid home care services, the assets titled to the MAPT can be distributed to the beneficiary(ies) outside of probate. As such, the trust assets can pass to the beneficiary without the need for any time consuming and expensive Probate proceeding (if one has a Last Will) or an administration proceeding (if one dies without a Last Will) and with assets in their name alone on their date of death. The Last Will has to be accepted into Probate by the Surrogate’s Court of the County where the decedent resided in order for the Will to be considered valid. If there is no Last Will the decedent’s estate would need to be administered and letters of administration issued by the Surrogate’s Court to the person who has applied to be the Administrator. In a Probate proceeding, letters testamentary are issued to the named Executor(s) of the Last Will;
• The creator of the MAPT can reserve a “life estate” in any real property and improvements (raw land, house, condo and co-op apartment) owned by the trust. If the creator(s) of the MAPT retains the right to the use, possession and enjoyment (including the right to income) for their lifetime with respect to said property or retains the right to designate who will possess said “life estate,” then under Section 2036(a) of the Internal Revenue Code the property transferred to the trust will be included in the taxable estate of the creator(s) of the trust at its full fair market value on their date of death. Thus, the real property/co-op and/or securities/bonds owned by the trust will go to the beneficiaries at their full stepped up fair market value on date of death; and not the property(ies) original cost basis. This will result in the beneficiaries avoiding any capital gains taxes if the property and/or securities are sold by the beneficiaries for the date of death fair market value or less;
• A MAPT can also be drafted in such a way as to make the trust for IRS purposes an “Intentionally Defective Grantor Trust” (IDGT). An IDGT makes the grantor/creator of the trust responsible for paying any income taxes on any interest, dividends and/or capital gains created by the trust. For all intents and purposes the creator of the MAPT is the owner of the trust assets for income tax purposes. This allows the creator of the MAPT to be able to receive benefits such as the personal residence exclusion ($250,000 single, $500,000 married) for capital gains taxes if the primary residence of the creator of the trust is a trust asset and is sold during the lifetime of the trusts creator(s). Additionally, the trust creator(s) can receive any Senior Citizens, STAR and/or Veterans tax exemptions they are eligible for;
• Finally, the MAPT, without creating any issues for Medicaid, can be prepared in such a way as to allow the creator to change their mind as to whom the ultimate beneficiary(ies) of the trust shall be by exercising a limited power of appointment reserved in the trust; and can be prepared to allow the creator(s) to remove and replace the Trustees of the Trust. This allows the creator to retain significant powers even though the Trust is Irrevocable.

In conclusion, the above illustrates the multitude of benefits the creator of a MAPT can derive by creating same. The MAPT continues to be a versatile Medicaid and Estate Planning tool.

Anthony J. Enea is the managing attorney of Enea, Scanlan and Sirignano, LLP of White Plains, and Somers New York. He focuses his practice on Wills, Trusts, Estates and Elder Law. Anthony is the Past Chair of the Elder Law and Special Needs Section of the New York State Bar Association (NYSBA) and is the past Chair of the 50+ Section of the NYSBA. He is a Past President and Founding member of the New York Chapter of the National Academy of Elder Law Attorneys (NAELA). Anthony is also a Past President of the Westchester County Bar Foundation and a Past President of the Westchester County Bar Association. He is fluent in Italian. He can be reached at 914-948-1500 or at [email protected].