This is What You Need to Know About Medicaid Asset Protection Trusts
Setting up a Medicaid Asset Protection Trust can help your parent qualify for New York’s Community Medicaid Program, which allows them to ‘age in place.’
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A Medicaid Asset Protection Trust allows your parents to protect assets (such as investment accounts and real property) by retitling them in the name of the Trust. Your parents need to balance how much they need to live and how much they are comfortable transferring to the Trust. A transfer to the Medicaid Asset Protection Trust is essentially a gift to the beneficiaries of the Trust, most often children and grandchildren. This type of planning must be done in advance, and the transfer of assets must be done at least 2½ years before home care is needed. This is because Medicaid employs a “look back” period when someone applies for Medicaid long-term care. For example, 2½ years of financial documentation is required to apply for Community Medicaid to show no assets have been transferred out of the applicant’s name during that time period. For every approximately $13,000 transferred, Medicaid will not cover the cost of care for 1 month. There are some exempt transfers, including transfers to a spouse or a child with disabilities who meets certain guidelines.
The most important consideration in deciding the appropriateness of a Medicaid Asset Protection Trust is the cohesiveness of the family; the parent must feel comfortable giving up control of assets and believe that the chosen trustee is the appropriate person to take on the responsibility. This is because this type of Trust removes your parents’ property outside of their control—they must choose a trustee other than themselves and do not have access to Trust principal. However, they can retain certain rights over the Trust. If they own a home, they can retain the right to live in the home rent-free for their entire life. They can also retain the right to all income generated from assets in the Medicaid Asset Protection Trust, the right to change beneficiaries, and the right to change the trustee. This ensures they are not left at the mercy of a trustee gone rogue.
Helping a parent plan for their later years can lighten the stress on the adult children and other family members. While not all plans will look the same, addressing these issues head-on before there is an emergency is in the best interest of parent, adult child, and the rest of the family.