You are getting a little older and wiser, and are thinking about what is really important. The family album you have tucked within your mind (and review there often before drifting off to sleep) has grown a lot, and now there are grandkids birthdays with giggles and smiles bundled in there too… The memories are wonderful, but you are hoping to leave even more for your family…
A Medicaid Asset Protection Trust (MAPT) may represent the best way in North Carolina to protect those assets that you want to share with your children and grandchildren. Even if you have significant assets and don’t think you will ever need Medicaid to assist with long term care if you need it, a MAPT-style irrevocable trust can more securely lock what’s important away now for them, and guard against high health costs of all types. A MAPT may better protect essential family assets against those financial risks that can “just happen” in an uncertain world.
In the Piedmont Triad region of North Carolina, skilled professional nursing care, whether in a facility (“nursing home”) or at home, may cost between $7,000 to $10,000+ per month. Senior government “Medicare” health insurance only pays up to 100 days of such care at a decreasing reimbursement rate, but regulations frequently allow Medicare insurance providers to get “off the hook” and stop paying much earlier than the 100 day limit. As lifespans increase, and adult children frequently outlive their own parents (often by many years), those best laid plans may not be enough, savings may get short, and a care recipient without good long term care insurance (which most do not have) may need the government Medicaid program to take over long term care expenses.
The Medicaid program originally arose out of the public welfare system, with extensive anti-poverty origins. Passed on July 30, 1965 along with Medicare, by President Lyndon B. Johnson as part of his “Great Society” initiatives, the Medical Assistance Program (Medicaid) was designed to allow the states to receive federal funding for healthcare services provided to different categories of needy people.
Because the United States has not strategically planned aging well, aging-associated medical costs are so high, and good alternatives for ill aging people may no longer be available, Medicaid for the “Aged Blind and Disabled” in North Carolina is now accessed by many middle class, and even upper middle class families. If skilled nursing care is needed, the Medicaid program now finances approximately 51% of that care, with Medicaid paying 62% of U.S. nursing home care expenses.
The poor frequently do not have the lobbying power that wealthier sectors of society enjoy. Public insurance programs like Medicare allow users to keep their family assets that are not paid into premiums. Medicare’s earlier use by a more advantaged sector of society on average, has enabled this program to be better defended over time, with more reasonable results. Medicaid, originally designed for the poor, retains harsher trade-offs.
Medicaid Estate Recovery, required by federal law in all 50 states, requires state governments to count the dollars spent on Medicaid recipients. In general, if significant value (a senior’s home for example) is left in the Medicaid recipient’s estate after the senior passes away (or if the senior is married, after the senior’s spouse passes away), federal law requires the state to attach the Medicaid bill to the estate during probate proceedings. A home may need to be sold to pay all or part of the Medicaid bill, with the adult children or other intended heirs then unable to receive what then goes to the state. Attempts to limit such harsh results by creating affordable federal government-sponsored long term care (LTC) insurance have historically failed.
THE MEDICAID ASSET PROTECTION TRUST
A MAPT is a legal tool designed to more reliably assure that a senior’s assets will reach the senior’s intended heirs or beneficiaries, such as the senior’s children or grandchildren, and will not be potentially lost to future aging costs or later financial problems. Donating properly to a MAPT is designed to remove that donation out of the donor’s estate for creditor liability purposes (future creditors will likely not be able to reach those assets), while keeping those assets protected against creditors that children, grandchildren, or other beneficiaries may encounter, either at the time of donation, or in the future.
The history of asset protection in North Carolina, the United States, and in Europe is hundreds to thousands of years old, and evolved as citizens gradually won rights to lead better lives, and keep more assets away from their rulers (insuring more prosperity for themselves, their heirs, and extended families.) The asset protection trust law that developed in Europe over time transferred to colonial America. Thomas Jefferson, the principal author of the U.S. Declaration of Independence, used an asset protection trust to keep his daughter Martha Randolph’s inheritance secure, and away from Martha’s indebted husband’s creditors.
Federal Medicaid law treats contributions to an irrevocable MAPT like it treats gifts out of a Medicaid applicant’s estate; both are subject to Medicaid’s 5 year look-back rules. If a Medicaid applicant (or his or her spouse) has gifted out of the applicant’s estate within 5 years prior to the Medicaid application, Medicaid issues a potentially costly “gift sanction” to that applicant, where that applicant will be disqualified during the “Medicaid penalty period” from receiving Medicaid long term care benefits for a certain number of months. North Carolina uses a penalty divisor [$6,818 in 2020] to determine the number of months a Medicaid gift sanction recipient must private pay a skilled care facility or provider, before Medicaid will pay.
For example, a North Carolina Medicaid applicant receiving nursing home care, who has either gifted $100,000 to a child, or donated $100,000 to an irrevocable trust benefiting that child, three years before applying for Medicaid long term care benefits, must private pay that nursing home for $100,000 / $6810 = 14.68 months before being eligible for Medicaid benefits.1
WHEN SHOULD I CONSIDER A MAPT?
- You do not have any significant creditor obligations, or a liability event has not occurred against you that would create a reasonably foreseeable creditor obligation;
- Your family is stable, your beneficiaries care about you, and are mature decision makers;
- You have enough assets to provide for your own current and future retirement and care needs, so that you would otherwise consider making a gift(s) of your assets to children, grandchildren, or other beneficiaries;
- You like to plan early, and you (and your spouse) are still relatively healthy;
- You have been diagnosed with a progressive disorder that may eventually require skilled nursing care, but you have enough assets for you (and your spouse) so that you do not believe that either of you will need Medicaid (remember that a MAPT can protect a family against most types of future financial creditors, not just Medicaid);
- You have been diagnosed with a progressive disorder that may lead to, or has required, skilled nursing care, but you have enough assets or long term care insurance to pay for care for up to 5 years. 2
- You own real estate (a family farm or ranch, beloved vacation home or rural recreational property) not just financially valuable, but emotionally valuable also, that you want to protect for the family long term;
- You want to make sure that the children or grandchildren will have enough for their future education;
- You want to make sure to provide for a special needs child or grandchild (a MAPT may include special needs trust provisions for a special needs or disabled beneficiary.)
WHY DONATING THROUGH A MAPT MAY BE SMARTER THAN GIFTING
- Unlike with gifting, a MAPT may be structured so that a senior or senior couple may have the enforceable legal right to occupy and use real estate donated to the MAPT as long as they live, while that real estate remains asset protected;
- Unlike with gifting, a properly-structured MAPT can greatly lower future capital gains taxes on appreciated assets donated to the MAPT, or on assets which appreciate during the senior’s remaining lifetime after being donated to the MAPT, if children or grandchildren later sell those assets (step-up in basis);
- Unlike with gifting, the written terms of the MAPT, created by the senior donor(s), dictate how a donation to the MAPT must be used by children and grandchildren. Family or professional trustee(s) chosen by the senior asset donors, will be left in charge to make sure that donated assets are used wisely over time as the donors intended;
- Unlike with gifting, assets which remain in the MAPT continue to be protected against future creditor problems that beneficiary children or grandchildren could encounter. In this way, a beloved family farm or favorite mountain or lake home may be protected well into the future for children and grandchildren.
IF I ALREADY HAVE SOME HEALTH PROBLEMS, OR AM ALREADY AGE 65, 70, OR ABOVE, CAN A MAPT POTENTIALLY STILL BE HELPFUL?
A large percentage of seniors never use Medicaid or other government long term care programs. Even though approximately 52% of people turning age 65 will need some type of long term care services in their lifetime, that figure implies that 48% do not. Of those who need long term care, approximately 48% need such care for one year or less. Even though 37% of people will need some type of nursing facility or assisted living care, the majority of us will remain home as we age. And when we do remain home, where 65% of us will need some type of care, the majority of home care we receive, 59%, will be unpaid care (very frequently by family members) not covered by Medicaid. 3
In addition, because private pay residents are typically much more profitable for skilled nursing facility owners and investors (or provide more operating and infrastructure revenue to non-profits), the more upscale facilities may not accept Medicaid-financed residents (with much lower reimbursement rates) at all. Many other better quality facilities maintain a required private pay period (one year for example) before they will allow a private pay resident to convert to Medicaid financing. Available “Medicaid beds” are in very short supply, with facilities accepting more Medicaid residents often associated with lower-quality care, frequently because they are not able to afford as many nurses and CNAs (certified nursing assistants) or other nursing aids.
Thus seniors and their families desiring higher-quality skilled nursing care can expect to finance some significant portion of that care themselves. Medicaid will credit the time spent private paying a skilled nursing facility before applying to the Medicaid program as time already spent paying off any possible Medicaid gift sanction (issued, for example, because of a donation(s) to a MAPT within the prior 5 years.) In other words, seniors who are going to private pay a facility anyway to receive higher-quality care, will be concurrently already “paying off” any possible Medicaid gift sanction attributable to gifts made to a MAPT, or directly to family members, prior to entering that facility.
Once any discrete donation an individual or couple has transferred to a MAPT (without Medicaid being used for long term care expenses) has “aged” within the MAPT for five years, that donation is then “safe” from becoming a Medicaid gift sanction issue again. For example, a couple in their late 60s, Matt and Jane, established a MAPT benefitting their two adult daughters on January 1, 2020. They donate $50,000.00 to the MAPT on March 15, 2020, $15,000 on December 28, 2021, then $15,000.00 on December 29, 2022. If Jane unexpectedly developed cancer and needed Medicaid to start paying for skilled nursing facility care on April 7, 2027, the $50,000 year 2020 donation, and the $15,000 2021 donation, or $65,000 total, would be “safe” from causing a Medicaid 5 year look-back problem, and can likely continue to be safely stored in the MAPT for the benefit of Matt and Jane’s two children. 4
The more a MAPT is front loaded, or funded early, the safer those early donations will be against creating a later Medicaid gift sanction. Although each family situation is different, A MAPT may prove useful in many cases. An experienced elder law attorney can review details and provide valuable advice specific to you and your family.
WHAT IF I MISCALCULATE AND NEED MONEY BACK FROM THE MAPT TO PAY FOR FUTURE CARE?
- Medicaid allows others such as the Medicaid applicant’s children, to voluntarily “cure” a gift sanction by gifting back assets;
- A MAPT may be designed so that the trustee and family beneficiaries can later voluntarily decide to “unwind” the MAPT, and then gift back needed assets to the senior donors, as long as those assets have remained in the MAPT;
- Even if the MAPT is not unwound, assets that a lifetime beneficiary receives from the MAPT may free up enough of that beneficiary’s own assets to allow the beneficiary to gift back assets to the senior donor, in order to cure a Medicaid gift sanction.
- Note that the number of days is determined here by multiplying .68 x 31 days = 21.08 = 21 days, i.e. the Medicaid applicant must private pay the nursing home for 14 months and 21 days before he or she would qualify for Medicaid benefits.
- In North Carolina, a Medicaid program called “Special Assistance” may also pay for lower level “assisted living” care. Although income must go to the facility, a Medicaid for skilled nursing care applicant in NC does not have a similar monthly income cap. Medicaid’s Special Assistance program for lower level assisted living care challenges applicants with monthly income restrictions low enough that many people with enough assets to contemplate establishing a MAPT have correspondingly high monthly income also, and will not qualify for Special Assistance.
- A patchwork of Medicaid-financed home care skilled nursing assistance may be available in North Carolina, through the PACE or CAP programs. What’s available depends on the senior’s county of residence. In Forsyth County (the author’s county of residence) for example, CAP-DA home care is technically available, but a current applicant may wait one year or more to receive such services, with the skilled nursing staffing needed to run this program effectively in short supply. CAP services may be much more available in adjoining (and more rural) Yadkin County.
- This conclusion assumes that the family will be able to private pay less than three months of facility care, in order to pay off any Medicaid gift sanction created because of the $15,000 MAPT donation made less than 5 years before Jane entered the skilled nursing facility on April 7, 2017.