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In my recent webinar with AshBer, we took a closer look at Medicaid Asset Protection Trusts (MAPTs), specifically when they make sense and when they don’t. It’s a topic that always gets attention, and based on the number of attendees and questions, this session was no exception.
One of the first points I made is that MAPTs are often misunderstood. When attorneys first learn about them, the reaction is usually the same: this is a powerful tool that can protect assets from long-term care costs. While that’s true, it’s also true that a MAPT is not a one-size-fits-all strategy.
A MAPT is not a default elder law document. It’s a highly specific planning tool that works well in the right situation but can create significant problems if used incorrectly.
At its core, a MAPT is an irrevocable trust designed to remove assets from countable Medicaid resources. It’s typically structured as a grantor trust so the client still receives favorable tax treatment, including a step-up in basis at death.
Where MAPTs tend to work best is in pre-planning. Clients who are relatively healthy, have a longer time horizon, and have sufficient assets to fund the trust while still maintaining flexibility outside of it are strong candidates. They are also particularly effective for certain types of assets, especially real estate. Family farms, vacation homes, and even primary residences can benefit from being placed in a MAPT, particularly when appreciation and long-term preservation are priorities.
On the other hand, there are several situations where a MAPT may not be a good fit. The biggest issue is the five-year lookback period for long-term care Medicaid benefits. Once assets are transferred into a MAPT, that transfer is treated as a gift, which means the client must make it through five years without relying on those assets. That requires careful planning. If too much is placed into the trust and not enough is left outside of it, it can quickly create a liquidity problem.
A mistake I see too often is putting everything into the trust without leaving enough to live on or pay for care. When that happens, the trust is technically working, but the overall plan fails. This is especially true when most of the client’s assets are tied up in retirement accounts, where the tax consequences of repositioning those funds can outweigh the benefit.
Control is another major factor. When we say irrevocable, we mean it. The grantor does not have access to principal and, in many cases, should not expect access to income depending on how the trust is structured and how the state treats it. For some clients, that loss of control is a deal breaker, and it should be.
Family dynamics also play a larger role than many people expect. In many cases, a child is serving as trustee, and if there are trust or communication issues between family members, that can create problems down the road.
In the webinar, I also discussed what I refer to as a “partial MAPT.” Instead of moving everything into the trust, a portion of the assets is protected while the rest remains available for flexibility and to cover the lookback period. In most cases, that balanced approach leads to a better outcome than an all-or-nothing strategy.
The takeaway is simple. Our job is not to sell a tool. It is to solve the client’s problem. A MAPT is one option among many, and depending on the facts, other strategies may be more appropriate.
If you missed the webinar, I would encourage you to watch the full session, where we walk through these concepts in more detail and answer a number of great questions from attendees.
You can view the webinar recording here.
