One currently-effective planning technique before or during a disability crisis is to transfer assets into a ‘Medi-cal Asset Protection Trust (MAPT). In MAPT, the trust maker may retain the right to all of the trust income for life while irrevocably giving up the right to receive or benefit from any of the trust principal. The assets in the trust are not available to pay for the cost of the trust maker’s LTC.
By using a Medi-cal Asset Protection Trust, a senior can preserve capital and still qualify for MAPT, but only after expiration of the look-back period for the transfer to the trust [which can be as much as 60 months (5 years)].
The ‘penalty period’ starts from the date the applicant applies for MAPT and would be eligible but for the disqualifying transfer. Its length is determined by dividing the state’s average daily private pay nursing home cost into the total of the transfers made during the look-back period.
For the MAPT trust strategy to work, insurance, an income stream, or other assets must be sufficient to pay for LTC if needed during the waiting period before applying for MAPT.
A Medi-Cal Asset Protection trust can allow the trustee to distribute principal during the trust maker’s lifetime for the benefit of the trust maker’s spouse, children, or other designated beneficiaries, just not to or for the benefit of the trust maker. Many trust makers choose to maintain the right (called a Special Power of Appointment) to change the current or ultimate beneficiaries of the MAPT trust by ‘reappointing’ the assets to different family members at a later date.
If a Medi-Cal Asset Protection Trust is not desired, it is still possible to make ‘outright’ gifts of property, wait until the look-back period expires, and then apply for MAPT or use other planning techniques to qualify for an MAPT at the earliest possible date.
Protecting the Home
If the home is the only asset to protect, a deed to children or others with a retained life estate for the client will protect both the property and the client’s MAPT eligibility upon expiration of either 60 months from the date of the conveyance or the applicable ‘penalty period.’ As with other advanced planning strategies, because the penalty period begins only after the applicant has applied for MAPT and is otherwise eligible, other LTC funding should be available to get past the look-back period.
Even if the need for LTC is imminent or immediate, sophisticated MAPT planning opportunities can be employed to protect a substantial portion of your assets. Carefully working within the MAPT transfer rules can allow individuals to provide security for themselves and a legacy to their families, while ensuring that they will remain eligible to receive LTC under MAPT when necessary.
Counseling individuals on their Long Term Care options, including the availability of Long Term Care insurance, is an integral part of comprehensive wealth planning.