How Medicaid Asset Protection Trusts Work

AKA Irrevocable Trusts for Medicaid

Medicaid Asset Protection Trusts (MAPTs) are irrevocable trusts that protect a Medicaid applicant’s assets from being counted for eligibility purposes. MAPTs enable people who would otherwise be ineligible for Medicaid to receive Medicaid coverage for the custodial long-term care they need, either at home or in a nursing home.

It's important to be aware of the Medicaid look-back period: The government looks to see if you had any assets that were gifted, transferred, given away, placed in a MAPT, or sold for less than their fair market value over a specific timeframe. In most states, the look-back period is five years, but there are a couple of exceptions.

Benefits of creating a MAPT include protecting assets while still qualifying for Medicaid, with the assets in the MAPT not included in the estate for the calculation of Medicaid recovery, estate tax, or probate. Some of the cons of a MAPT include not being the trustee; the advanced timing required to create a MAPT (five years, in most states); and potential effects on quality and choice of care.

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How Medicaid Pays for Nursing Home Care

Long-term care in a nursing home can be expensive. In 2024, the average cost for a semi-private room was $8,641 per month, increasing to $9,872 per month for a private room.

When you consider the average Social Security payout is about $1,900 per month, this leaves seniors struggling to afford the care they need. Obviously some retirees have other sources of income in addition to Social Security, but the cost of long-term care can be a big lift for all but the wealthiest.

Nearly all Americans age 65 or older are covered by Medicare, which pays for medical treatment. But Medicare does not cover long-term care (assistance with daily living). So it's no surprise that so many people turn to Medicaid for help. Medicaid does cover long-term care, and more than six out of ten nursing home residents are covered by Medicaid.

But to qualify for Medicaid if you're 65 or older, there are both income and asset limits. That means an older person will generally need to exhaust their assets (and also have a low income) to qualify for Medicaid coverage.

For people who are under age 65, Medicaid eligibility is based on your income (an ACA-specific version of MAGI). But if you're 65 or older, Medicaid eligibility also depends on your assets/resources. In 2024, in most states, you must have $2,000 or less in total countable assets and earn less than $2,829 per month in income to qualify.

Not everything you own will necessarily count towards your Medicaid eligibility for long-term care. It is important to understand what does and does not count. Keep in mind that Medicaid programs are run by the state and each state may have criteria that vary from what is listed below.

Countable Assets

Countable assets include:

  • Bank accounts
  • Certificates of deposit
  • Life insurance policy with a face value over a certain amount (varies by state, but often $1,500)
  • Property (additional real estate that is not for rent)
  • Stocks and bonds
  • Vehicles (additional vehicles less than seven years old)
  • 401(k)s and IRAs (countable in most states, but this can also vary depending on whether the account is currently in payout status, meaning distributions are being made to the owner each month )

Non-Countable Assets

These assets are not counted:

  • Your primary residence (There are equity limits, and you must either be living in the home or your spouse must be living there if you've moved into a nursing home.)
  • One vehicle
  • Life insurance policy with low face value (typically $1,500)
  • Personal property (e.g., art, furniture, jewelry)
  • Pre-paid funeral and burial expenses

Keep in mind that any payouts you receive from a 401K or IRA or income you receive from a rental property will affect your Medicaid eligibility. They will count towards your income limit.

If you have too many assets, you may need to spend some of them down before you can be eligible for nursing home care.

What assets should not be in a trust?

Discuss your circumstances with a tax advisor who specializes in elder law and asset management. Be aware that transferring retirement accounts (401ks and IRAs) into a MAPT will likely count as a withdrawal from those accounts, which has tax implications.

The Medicaid Look-Back Period

Since many people want to preserve their assets for their spouse, children, or future generations, Medicaid planning becomes very important.

Some people will try to give their assets away or transfer them to friends and family, but that could pose its own problems. That is where the Medicaid look-back period comes into play.

The government looks to see if any assets were gifted, transferred, given away, or sold for less than their fair market value. Most states look back 60 months (five years), although California's look-back period is only 30 months and will be zero months by mid-2026. And New York uses a 30-month look-back period for community Medicaid, meaning the applicant won't be living in a nursing home. New York is also working to switch to a 30-month look-back period for nursing home Medicaid as well.

If any assets were gifted, transferred, etc. during the look-back period (generally the five years before the person applies for Medicaid), Medicaid can impose a penalty period during which eligibility for Medicaid will be delayed, even if the person's current financial circumstances would otherwise make them eligible for Medicaid. So the general rule of thumb is that you have to sort out any sort of Medicaid planning asset management at least five years before you end up needing Medicaid to cover the cost of long-term care.

The more money that changed hands, the longer the waiting period. It could take months or years to become eligible for Medicaid nursing home coverage. This can be troublesome for anyone needing custodial care in the near future.

Revocable vs. Irrevocable Trusts

The strategy is to turn your countable assets into non-countable assets. Some people look to trusts as a way to accomplish this goal. Unfortunately, not all trusts are created equally. You need to understand the difference between a revocable and an irrevocable trust.

With a revocable trust, you still have access to your assets and retain control to change or cancel provisions of the trust. Medicaid will see this kind of trust as a countable asset.

An irrevocable trust, on the other hand, is one where someone else, a designated trustee, takes the reins. You cannot touch the assets or amend provisions for the trust in any way.

The trustee is not required to distribute any assets to you, even for the purposes of health care. The day your assets are transferred into an irrevocable trust, they become non-countable for Medicaid purposes.

Unfortunately, those assets are seen as a gift and are subject to the Medicaid look-back period. After five years (in states other than New York and California), transferred assets will no longer subject you to penalties or delayed eligibility for Medicaid's long-term care benefits.

Planning in advance, before you need nursing home care, provides the most advantages.

How to Set Up a Medicaid Asset Protection Trust

It is recommended that an attorney set up the MAPT because it must be set up correctly to ensure the assets transferred into the trust are exempt from Medicaid's asset limit.

Rules change frequently and vary by state, so it's essential to work with a local attorney who specializes in elder care, Medicaid asset management, and MAPTs.

Pros and Cons

There are advantages and disadvantages to using an irrevocable trust as part of your Medicaid plan.

Beyond converting your countable assets to non-countable assets, there are other benefits to having an irrevocable trust that relate to estate planning.

Upon your death, Medicaid reserves the right to recover funds paid on your behalf. They can go after your remaining assets, even assets that were not initially countable, like your house.

However, your state cannot recover from the estate if you are survived by a spouse, have a child under age 21, or have a blind or disabled child of any age. When your spouse dies, so long as you do not have children who meet the criteria above, the state can still go after your estate.

An irrevocable trust can protect your assets against Medicaid estate recovery. Assets in an irrevocable trust are not owned in your name, and therefore, are not part of the probated estate.

When you or your spouse (if they are part of the trust) pass away, any assets put into an irrevocable trust are not included in the estate for the calculation of Medicaid recovery, estate tax, or probate.

One of the downsides of a MAPT is it can be a risky venture. As much as you believe the person you assign as a trustee will manage the assets in your best interests, there is nothing to stop that person from spending down the funds for their own gain. You need to be confident about your decision because you will not have legal recourse in the event that occurs.

Other potential downsides to creating a MAPT include:

Timing: In most states, the MAPT needs to be created at least five years before needing long-term care to avoid the Medicaid look-back period or you may still be responsible for some or all of your long-term care costs. For those looking to establish Medicaid long-term care eligibility in the short term, the look-back period is a major obstacle.

Income from MAPT: Although assets in a MAPT may not be “countable” by Medicaid, if the income generated is payable to you, it may cause you to exceed the income limit permitted in your state.

Costs: Legal fees to set up and implement a MAPT can be costly because it is a complex process requiring many hours of work. The cost varies significantly from a low of $2,000 to a high of $12,000, but it could save a lot of money in the long run given the cost of nursing home care.

Effects on Care: Medicaid does not cover all care facilities, so relying on Medicaid could affect the choice and quality of care a person receives. Nursing homes that don't accept Medicaid tend to be more expensive, although they may also provide a higher quality living experience. To live in one of these facilities, you'll either need to pay in cash, or have a private long-term care insurance policy that covers the cost.

Alternatives to a Medicaid Asset Protection Trust

In addition to MAPTs, other planning strategies can lower countable assets. Some options include:

  • “Spending down” countable assets on ones that are not counted by Medicaid (such as using money in a bank account to modify your home to be wheelchair accessible)
  • Irrevocable Funeral Trusts
  • Medicaid Compliant Annuities

Regardless of the option you're considering, it's recommended that you speak with an attorney who specializes in elder law and Medicaid estate planning.

Summary

Medicaid planning can be very complicated. Setting up an irrevocable trust like the MAPT is an option, but there are many factors to consider before doing so.

Transferring your assets into a trust can make them non-countable for Medicaid eligibility, although they could be subject to the Medicaid look-back period if the trust is set up within five years of your Medicaid application.

Due to the pros and cons, as well as the complexity involved in creating a MAPT, it may be in your best interest to discuss these and other Medicaid planning options with an elder law attorney in your state.

10 Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
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By Tanya Feke, MD
Tanya Feke, MD, is a board-certified family physician, patient advocate and best-selling author of "Medicare Essentials: A Physician Insider Explains the Fine Print."