The Irrevocable Medicaid Asset Protection Trust (MAPT) is regularly used by elder law attorneys to protect one’s assets from the cost of long-term care. The transfer of assets to a MAPT triggers a 5-year “lookback” period for nursing home Medicaid (NHMA), during which period one is ineligible to receive NHMA benefits. (Currently, the transfer does not cause a period of ineligibility for home care Medicaid, however, this may change in the future as a 2.5-year lookback period is still expected to be implemented.) Once the lookback period has expired, the assets that have been transferred to the MAPT are fully protected for Medicaid purposes. Although long-term care planning is the primary reason one would utilize a MAPT, there are still many other advantages of having one:
- It Protects Against Creditors
Medicaid liens, claims, and ineligibility (after the expiration of the lookback period) are prevented. When assets are transferred to a MAPT, those assets are not only shielded from other creditors of the trust creator but also from the beneficiaries’ creditors.
- It Avoids Probate
As with any trust, the MAPT avoids the need for probate with respect to assets that have been retitled in its name. Conversely, if you die with assets in your name alone and have a Last Will and Testament (LWT), they cannot be distributed to your beneficiaries until your LWT has been admitted to probate in the Surrogate’s Court—a proceeding that is public, lengthy, potentially expensive, and rife with complications. The MAPT provides a quicker, simpler, and private way for your assets to be distributed following your passing without the necessity of Court intervention.
- It Preserves Real Estate Tax Exemptions & Step-Up in Cost Basis
The MAPT can be drafted to preserve the principal residence exclusion and real property tax exemptions (e.g., STAR, Senior Citizens, Veterans) of the trust’s creator. The MAPT also provides the trust’s beneficiaries with a step up in cost basis to the fair market value of trust assets as of the date of death of the trust’s creator, thus reducing or even eliminating capital gains taxes.
- It Allows You to Retain Elements of Control
Unlike other types of irrevocable trusts, the MAPT allows its creator to retain elements of control, such as the ability to change the Trustees and/or modify the dispositive scheme of the trust.
Notably, the MAPT does not accomplish estate and/or gift tax planning, per se, as the assets within the MAPT are still includible in one’s taxable estate at death. However, spouses looking to avoid the NY estate tax and utilize a MAPT for reasons noted above might consider each creating their own separate MAPT (one per spouse) and dividing their assets equally among the two MAPTs as a planning strategy that is effective for the NY estate tax.
The MAPT is a versatile and valuable estate planning device that offers many benefits in addition to Medicaid protection. Consult your local Trusts & Estates attorney to determine whether a MAPT makes sense as you plan for your future.
