Medicaid Asset Protection Trusts in New York

Understanding Medicaid Asset Protection Trusts

A Medicaid Asset Protection Trust is a specialized form of irrevocable trust designed to address the rules governing Medicaid eligibility and long-term care. It is not simply an irrevocable trust with a different name. New York Medicaid rules look at the actual terms of a trust when determining whether trust property is considered available to the person who created it.

For a revocable trust, New York Medicaid guidance generally treats the entire trust as the creator's resource. For an irrevocable trust, if there are circumstances under which payment can be made to or for the benefit of the creator, the portion of the trust from which that payment could be made may be treated as an available resource. A MAPT is therefore intentionally structured to limit the creator's access to particular trust property. That loss of access is an essential part of the planning. A person cannot generally place assets into a trust, retain unrestricted access to those same assets, and simultaneously expect Medicaid to treat them as unavailable.

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Learn more about Medicaid Planning here.

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How a Medicaid Asset Protection Trust Works

The person creating a MAPT transfers selected assets to the trust. A trustee is then responsible for holding and administering those assets according to the trust agreement. Because the trust is irrevocable, the creator generally gives up rights that would ordinarily be retained with a revocable living trust. The exact rights retained depend on how the trust is designed.

For example, a MAPT may be structured so that the creator can receive certain trust income while being prohibited from taking trust principal back for personal use. The distinction between income and principal can be critical in Medicaid planning. The trust may also identify beneficiaries who will ultimately receive the property after the creator's death and establish rules governing the trustee's management of the property during the creator's lifetime. The goal is to balance long-term care planning with the creator's other estate-planning objectives. A MAPT must therefore be considered as part of the entire estate plan rather than as a standalone Medicaid document.

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What Assets Can Be Placed in a Medicaid Asset Protection Trust

A MAPT can potentially hold several types of property. Common examples may include:

• A home

• Other real estate

• Bank accounts

• Non-retirement investment accounts

• Certain other financial assets

• Other property appropriate for the particular trust

The fact that an asset can be transferred to a trust does not necessarily mean it should be. Different assets have different tax, ownership, income, liquidity, and Medicaid consequences. Retirement accounts, for example, require separate analysis and generally cannot simply be retitled into an irrevocable trust during the account owner's lifetime without potentially significant tax consequences. The family home also deserves particular attention. For many people considering long-term care planning, the home is one of their largest assets. A properly designed MAPT may be used to hold a residence while preserving certain rights for the creator, depending on the trust structure. Real estate transferred to the trust must actually be conveyed to it. Signing a trust agreement without completing the necessary deed or other transfer does not place the property into the trust. The same principle applies to financial assets. Funding should be treated as an essential part of the planning process.

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Control, Income, and Access to Trust Assets

One of the most important decisions when creating a MAPT is determining what rights the creator will retain.

Clients sometimes assume that transferring property to a trust means they must surrender every connection to it.

That is not necessarily the case. A properly structured trust may permit the creator to retain certain rights while restricting access to principal. Depending on the plan, retained rights might involve income generated by trust property or particular rights associated with the creator's residence. But retaining too much control or access can undermine the Medicaid objective. New York Medicaid guidance states that when an irrevocable trust can make payments to or for the benefit of its creator, the portion from which those payments could be made may be considered an available resource. 

This makes the distribution provisions particularly important. A MAPT is not intended to function like an ordinary checking account from which the creator can withdraw principal whenever desired. Before assets are transferred, the person creating the trust should understand what access is being surrendered, what rights are being retained, and how future financial needs will be handled.

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The Medicaid Look-Back Period

Timing is one of the most important aspects of Medicaid asset protection planning. For Medicaid coverage of nursing facility services in New York, transfers of assets can be reviewed during a 60-month look-back period. New York Department of Health guidance confirms that individuals seeking Medicaid coverage of long-term nursing home care can be subject to review of asset transfers during the 60 months preceding the applicable eligibility period. Transferring property to a MAPT can constitute a transfer for Medicaid purposes. That means creating and funding the trust does not necessarily make the transferred assets immediately protected for nursing home Medicaid eligibility. If a transfer occurs within the applicable look-back period, it may result in a period during which Medicaid will not pay for nursing facility services unless an exception or other rule applies. This is why Medicaid planning is often most effective when completed while the person is healthy and before nursing home care is imminent. It is also why the statement that someone must create a MAPT “five years before entering a nursing home” is an oversimplification. The actual Medicaid analysis depends on the timing and nature of transfers, when institutional care begins, when Medicaid coverage is sought, and whether any exceptions apply.

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Medicaid Asset Protection Trusts and the Broader Estate Plan

A MAPT should be coordinated with the person's will, powers of attorney, beneficiary designations, other trusts, real estate, financial accounts, and tax planning. The trust can also affect what happens to property after death. Assets properly owned by the trust generally continue to be governed by the trust rather than passing under the creator's will. That can potentially provide probate-planning benefits for trust-owned assets in addition to the Medicaid-planning objective. However, Medicaid eligibility, probate avoidance, estate recovery, income taxation, capital gains, and estate taxation are separate legal and tax issues. A strategy that works for one purpose should not automatically be assumed to produce the desired result for every other purpose. New York also has Medicaid estate-recovery rules. The Department of Health specifically addresses interests in revocable and irrevocable trusts when determining what may be subject to recovery after a Medicaid recipient's death. 

For that reason, the MAPT should be designed around both lifetime long-term care planning and the intended disposition of property after death.

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Medicaid Asset Protection Trust FAQs

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What Is the Five-Year Look-Back for a Medicaid Asset Protection Trust in New York?

For Medicaid coverage of nursing home care, New York generally applies a 60-month, or five-year, transfer-of-assets look-back period. During the eligibility process, transfers made during the applicable period can be reviewed to determine whether assets were transferred for less than fair market value. Funding an irrevocable trust can be a transfer for purposes of these rules. A transfer within the look-back period does not necessarily mean that someone can never qualify for Medicaid. Rather, depending on the circumstances, the transfer may result in a period during which Medicaid will not pay for nursing facility services. Exceptions and specialized rules can also apply. Because the consequences depend on the dates, assets, family circumstances, and type of Medicaid coverage involved, the look-back should be analyzed before property is transferred.

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Can I Put My House in a Medicaid Asset Protection Trust?

A residence can potentially be transferred to a properly structured Medicaid Asset Protection Trust. For many families, protecting the home is one of the primary reasons they investigate MAPT planning. The transfer generally requires more than signing the trust. Ownership of the real estate must actually be transferred through the appropriate deed and recording process. The trust can be designed to address certain rights concerning the residence, but those rights must be carefully structured so they do not defeat the Medicaid-planning objective. The transfer can also have consequences involving Medicaid eligibility, taxes, estate planning, property ownership, and the eventual disposition of the home. For those reasons, transferring a residence to children outright and transferring it to a properly designed MAPT are not necessarily equivalent strategies.

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Can I Take Money Out of a Medicaid Asset Protection Trust?

Generally, the creator cannot retain unrestricted access to trust principal if the objective is to have that principal treated as unavailable for Medicaid eligibility. New York Medicaid guidance provides that, for an irrevocable trust, if there are circumstances under which payment could be made to or for the benefit of the creator, the portion from which payment could be made may be treated as the creator's resource.  Depending on the structure, the creator may retain rights to certain income while being unable to demand principal. This restriction is one of the most significant differences between a MAPT and a revocable living trust. Anyone considering a MAPT should therefore determine before funding it how much property can realistically be placed beyond the creator's direct access while still leaving sufficient resources available for ordinary and unexpected expenses.

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Can I Be the Trustee of My Own Medicaid Asset Protection Trust?

Whether the creator should serve as trustee requires careful analysis of the powers the trustee will possess and the Medicaid objective the trust is intended to accomplish. Merely using the title “trustee” does not determine Medicaid eligibility. What matters is the legal authority and access created by the trust terms. If serving as trustee gives the creator powers that allow trust principal to be used for the creator's benefit, those powers may undermine the intended Medicaid treatment.

For that reason, MAPTs are commonly structured with another appropriate person serving as trustee. The trustee might be an adult child, another trusted individual, or another suitable fiduciary. The appropriate choice depends on the trust structure, family circumstances, property involved, and the responsibilities the trustee will assume.

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Does a Medicaid Asset Protection Trust Protect Everything From Nursing Home Costs?

No.

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A MAPT is a planning tool, not a guarantee that every asset or every future long-term care expense will be protected.

The result depends on factors including:

• Which assets were transferred to the trust

• When the transfers occurred

• Whether the trust was properly drafted

• Whether the trust was properly funded

• What rights the creator retained

• How the trustee administered the trust

• The type of Medicaid coverage being sought

• Other income and resources

• Marital status

• Applicable transfer exceptions

• Changes in Medicaid law or policy

New York Medicaid rules also distinguish between revocable and irrevocable trusts and examine whether payments can be made to or for the creator's benefit.  A MAPT should therefore be viewed as one component of a broader long-term care and estate plan rather than as an automatic method of making all assets inaccessible to Medicaid.

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Sources & Legal References

New York State Department of Health — Trusts Information

https://www.health.ny.gov/health_care/medicaid/trusts.htm

New York State Department of Health — Transfer-of-Assets Look-Back Period

https://www.health.ny.gov/health_care/medicaid/publications/gis/15ma007.htm

New York State Department of Health — Long-Term Care Eligibility Rules and Transfer Look-Back

https://www.health.ny.gov/health_care/medicaid/publications/gis/14ma016.htm

New York State Department of Health — Expanded Estate Definition for Medicaid Recoveries

https://www.health.ny.gov/health_care/medicaid/publications/adm/11adm8

New York Estates, Powers and Trusts Law Article 7 — Trusts

https://www.nysenate.gov/legislation/laws/EPT/A7

New York Estates, Powers and Trusts Law § 7-1.17 — Execution, Amendment and Revocation of Lifetime Trusts

https://www.nysenate.gov/legislation/laws/EPT/7-1.17

New York Estates, Powers and Trusts Law § 7-1.18 — Funding of Lifetime Trust

https://www.nysenate.gov/legislation/laws/EPT/7-1.18