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CATEGORIES:  Elder Law, Medicaid Planning, Crisis Planning, Advance Planning, Asset Protection, Trusts, Nursing Home, Long Term Care, Elder Care Attorney, Medicaid Estate Recovery, Winston Salem, North Carolina, NC.

A MAPT MAY PROTECT A HOME WITH A MORTGAGE FROM MEDICAID ESTATE RECOVERY

It’s often essential to protect an older person’s home from Medicaid Estate Recovery, particularly if the older person could eventually need Medicaid to pay for long term care. As part of an elder law “proactive planning” process, a home with a mortgage can be placed in a “Medicaid Asset Protection Trust,” or “MAPT,” to keep it out of the reach of Medicaid Estate Recovery, while still allowing the senior(s) to remain in the home and the mortgage to be paid normally.

Because the MAPT is a “grantor trust,” where the senior who sets it up still benefits from the home, under the Garn-St. Germain Depository Institutions Act of 1982, placing the home in the MAPT does not trigger the “due on sale clause” contained in most mortgages.

OTHER COMMON REAL ESTATE ASSET PROTECTION STRATEGIES WILL NOT WORK WHEN A MORTGAGE IS INVOLVED

Homes with mortgages may be excluded from some other types of elder law creditor protection strategies (such as gifting or life estate deeds.) Because of the due on sale clause, and other provisions in their mortgage contract, homeowners with mortgages may not be able to sell or transfer their home prematurely during their lifetimes while the mortgage remains in place. If they do, their entire mortgage balance may become immediately due and payable at once.  An analysis under the Garn-St. Germain Act would be needed first to determine if a given real estate transfer would or would not trigger the mortgage due on sale clause.

A MAPT MAY BE USEFUL FOR TRANSFERRING APPRECIATED ASSETS TO CHOSEN HEIRS

When appropriate, seniors may utilize a MAPT to create a “nest egg” of protected assets that they want safely passed down to their heirs, potentially free from Medicaid Estate Recovery following the senior’s death. The MAPT works well with assets, such as real estate, which have increased in value during the senior’s lifetime, because the senior’s chosen heirs will receive a stepped-up capital gains tax basis in any assets transferred to the chosen heirs at death.

This means that the chosen heirs will not have to pay capital gains taxes for asset appreciation during the senior’s lifetime, which saves the children or other heirs from having to pay potentially thousands of dollars in unnecessary capital gains taxes.

PROPER USE OF THE MAPT FOR PROTECTING A HOME WITH A MORTGAGE REQUIRES PROACTIVE PLANNING

Even though using a MAPT may provide a potential option for protecting a home (or other real estate) with a mortgage from Medicaid Estate Recovery, the home should be placed in the MAPT at least 5 years in advance of needing Medicaid to pay for long term care. Using the MAPT to protect a senior’s home with a mortgage from Medicaid Estate Recovery remains an important tool in the elder law proactive Medicaid planning process.

A MAPT may be limited in protecting against creditors other than Medicaid. The grantor’s ability to live in the home benefits the Grantor, which legally could make the MAPT principal available to other creditors in North Carolina creditor actions, and could make the MAPT principal available in federal bankruptcy proceedings. Irrevocable trusts which do not benefit the Grantor directly, such as the StepAPT, may better protect assets from the claims of all creditors.