A Medi-Cal Asset Protection Trust, or MAPT, is a specific legal tool that protects your assets from being counted toward Medi-Cal eligibility. In this way, you can qualify for long-term care benefits without depleting your savings or selling your home.
Introduction to Medi-Cal and the Need for Asset Protection
Medi-Cal is California's version of Medicaid. Both are state- and federally-funded health insurance programs for low-income individuals including the elderly who may need long-term care. Most people believe that Medicare will pay for nursing homes or long-term care. The truth is, Medicare only pays for a limited number of days of short-term care in a nursing facility following a hospital stay.
The truth is that most long-term care nursing homes or assisted living needs to be privately paid for unless you are eligible for Medi-Cal. But the kicker is that Medi-Cal has very rigid financial eligibility criteria: You can only have practically no assets and very low income. In most cases, that is accomplished by spending down the majority of one's life savings just to get qualified. This is where a Medi-Cal Asset Protection Trust comes in so handy.
The Purpose of a Medi-Cal Asset Protection Trust
A Medi-Cal Asset Protection Trust lets your assets, like a home or even savings, not be looked at when establishing your Medi-Cal eligibility. Otherwise, you may need to spend down most of your assets in order to qualify for Medi-Cal. It stops the assets from being considered yours for Medi-Cal qualification purposes.
Once this is transferred into the trust, these assets no longer count against Medi-Cal's asset limit-in other words, as of today, $2,000 for an individual, though the limit can be higher for a couple. So you can protect more of your property for your heirs and have eligibility for long-term care.
How Medi-Cal Asset Protection Trusts Work
As their name suggests, MAPTs are irrevocable trusts; that is to say, you cannot take assets out or change the terms after having placed them in the trust. The irrevocability is important because Medi-Cal does not look to assets held in an irrevocable trust when determining eligibility. To the extent that you have placed your assets in such a trust, you have divested yourself of ownership in those assets and thus rendered them invisible for Medi-Cal purposes.
Here's how it works:
Creation of the Trust: As the grantor, you hire an attorney to create a MAPT. You must appoint a trustee to manage the assets you transfer into the trust. The trustee can be a trusted family member, professional fiduciary, or institutional trustee.
Asset Transfer: You transfer your assets such as your home, savings accounts, or investments to this trust. You no longer have direct control of the assets beyond this point. It is managed by the trustee according to the terms set forth in the trust document.
Look-Back Period: Medi-Cal has a five-year look-back period. What this means is that any of the assets transferred into the trust within the five years prior to your application for Medi-Cal may still be considered countable, thus making it difficult for your eligibility to be determined right away and perhaps resulting in penalties. In any case, it is vital to plan well in advance of when you may need long-term care.
Trust Income and Distributions: Though the underlying assets are safe, the income that is derived from those assets, such as rental income from a residence or dividends from investments, may be deemed available to you for Medi-Cal eligibility purposes. It is important that an attorney guide you through how the income is treated from within the trust.
Benefits of a Medi-Cal Asset Protection Trust
There are a lot of reasons it makes sense to create a MAPT, which explains why it's such a popular option for people doing long-term care planning:
Asset Protection: The best benefit a MAPT offers is asset protection from Medi-Cal's asset limits. Once you transfer your assets into the trust, you no longer own the assets, and therefore can protect them for your heirs.
Medi-Cal Eligibility: By protecting your assets, you can meet Medi-Cal's financial requirements for long-term care benefits without going through the spend down of your lifetime savings. This is very important since the cost of nursing home care in California is extremely high, averaging from $8,000 to $10,000 per month.
Estate Planning Benefits: You can ensure that, if you put assets in a MAPT, they will pass to your beneficiaries at your death, without the need for those assets to go through probate. Probate may take months or even years and is an expensive process, so your heirs will save money and time by avoiding probate.
Avoiding Medi-Cal Recovery: Upon the death of a Medi-Cal recipient, the state has the right to recover long-term care costs from the recipient's estate. This is commonly referred to as Medi-Cal Estate Recovery. However, all assets placed in a MAPT are immune from recovery, which means your heirs won't have to sell the family home or liquidate other assets to repay Medi-Cal.
Tax Benefits: A MAPT sometimes has some tax benefits. For example, appreciated assets placed in the trust may get a step-up in basis upon one's death, thus potentially reducing capital gains taxes for heirs.
The Look-Back Period and Penalties
One of the major considerations in creating a MAPT is what is known as the five-year look-back. This means that Medi-Cal will look into any form of asset transfers made within the five years preceding your application for benefits. If the assets were transferred to the MAPT, Medi-Cal may impose penalty periods, in which you will not be eligible for the benefits.
The penalty is based on the dollar amount of the assets transferred. For example, if you transfer $100,000 to a MAPT and the average monthly cost of care in your area is $10,000, you will be ineligible for benefits for 10 months ($100,000 ÷ $10,000 = 10 months).
Understanding Irrevocable Trusts and Control Over Assets
One of the biggest fears people have in deciding on a MAPT is its irrevocable nature-that is, once it is put in place, you can't easily change it. This can be the toughest thing for you to decide, especially in those situations where there is a strong attachment to the assets placed into the trust.
The important thing to consider, though, is that while it may be the case that you won't be in direct control over your assets, per se, the trustee that you set up will be managing those assets in your best interest. In that respect, you can still benefit indirectly from the trust, where the trustee could use the trust assets to pay for your care or any living expenses, and even distribute some of the assets to your loved ones, depending on the terms of the trust.
Because you no longer own them, however, they are not considered part of your estate for purposes of Medi-Cal eligibility. It is this irrevocability that provides protection of your assets from spend-down to meet Medi-Cal's stringent eligibility requirements.
Who Should Consider a Medi-Cal Asset Protection Trust?
Not everyone needs a MAPT. The typical estate planning tool, the MAPT, is designed for those individuals who are concerned about the high costs of long-term care and want to preserve their valuable assets from being spent on it.
Here are some indications that you may want to consider a MAPT:
You have considerable assets: If you own a house or other substantial savings, a MAPT can enable you to protect those assets for your heirs.
You will be requiring long-term care: If either you or your spouse is expected to need long-term care in the coming years, you will find that setting up a MAPT will facilitate qualifying for Medi-Cal benefits without having to lose your assets.
You want to leave an inheritance: If leaving your fortune behind for your children or other loved ones is important to you, a MAPT allows you to do this and still qualify for governmental assistance.
You have a good support system: Because a MAPT requires the naming of a trustee to manage your assets, it's important that you have someone trustworthy who can assume the responsibility on behalf of the trust.
Alternatives to a Medi-Cal Asset Protection Trust
While a MAPT is a formidable tool for asset protection, it's by no means the only option out there. Here are a few you may want to consider:
Spend-Down Planning: This is spending your excess assets on items that benefit you, such as home improvements or paying off debt, or buying exempt assets, such as a more expensive home. In this way, you may be able to meet Medi-Cal's asset limits without giving your assets away.
Gifting: You can gift assets to family members with the view of being poorer on paper, but this is a strategy that needs much care because there is a five-year look-back period; any gifts within five years from the month of Medi-Cal application may be penalized.
Long-term care insurance: Some people purchase long-term care insurance, which can be used to pay for nursing home care. This option may be expensive, and a person needs to purchase a policy well before needing care because the premiums increase substantially with age.
Pooled Trusts: Pooled trusts are managed by not-for-profit companies where people with disabilities or seniors would place their assets to shield them and qualify for Medicaid. These trusts can be an acceptable option for those who do not have enough means to establish a MAPT, because of the expense.
Annuities: Certain annuities can be designed in a manner such that, while generating income, they shelter assets from Medi-Cal qualification.
California's Medi-Cal Recovery Rules
One of the primary problems most individuals face when applying for Medi-Cal is Medi-Cal Estate Recovery. The state usually tries to recover the amount it paid for the recipient's long-term care upon his or her death by filing a claim against the deceased person's estate. This may lead to something as dramatic as the loss of a family home or other assets that are forced into sale.
However, assets held in a MAPT are exempt from Medi-Cal recovery. Once your assets are transferred into the trust, they no longer become a part of your estate. Therefore, Medi-Cal cannot attach any claims for reimbursement from those assets when you die. To that end, it's considered a tool for long-term care planning. Since your money is being taken out by expenses, you won't be a burden on your family.
How to Create a Medi-Cal Asset Protection Trust
Following is how a MAPT may be created:
Hire a Qualified Elder Law Attorney: A qualified elder law attorney with extensive experience and knowledge in California's Medi-Cal regulations is who you want to hire for creating a MAPT. They can help determine whether or not it would be advisable to create a MAPT for you and help in creating one for you.
Draft the Trust Document: The attorney will prepare a trust document that would spell out the terms of the trust, the duties of the trustee, and how the assets in the trust are to be managed and distributed.
Funding Assets into the Trust: Once the trust is set up, you are required to transfer assets into this account. This could be in the form of your house, savings, investments, and other forms of property that are of a high value. This attorney will, therefore, help you with the logistics in funding assets into this trust.
Appoint a Trustee: You need to appoint a trustee who will manage the assets within the trust. This could be a family member, a professional trustee, or an institutional trustee. Choose one which you are sure can sensibly manage your assets.
Plan for Future Changes: While you cannot revoke a MAPT, you can still make provisions for how the assets are to be managed and distributed in the future. This might include directives to the trustee and a plan for asset distribution to heirs following your death.
Conclusion
One of the most effective and powerful ways to protect your assets from being used to pay for long-term care involves what is called a Medi-Cal Asset Protection Trust. With this, one can transfer all of his assets into an MAPT and still satisfy all the particular eligibility requirements set forth by Medi-Cal without losing one's home, savings, or other valuable property.
In fact, creating a MAPT is a somewhat complex process that requires long-range planning and a correct legal course; it is the best way for people who anticipate long-term care to gain peace of mind in the future, protect their assets, and distribute them among loved ones.
If one is considering a Medi-Cal Asset Protection Trust, the planning must be done early, with the guidance of an experienced elder law attorney who can guide him through all the intricacies of California's Medi-Cal regulations to make sure his assets are protected for the future.
