This is What You Need to Know About Medicaid Asset Protection Trusts

Setting up a Medicaid Asset Protection Trust can help your parent qualify for New York’s Community Medicaid Program, which allows them to ‘age in place.’

By NYMetroParents Staff November 5, 2020

Many parents today are having children later in life (according to a 2018 Pew Research Center report), which means grandparents are older as well. These parents are often referred to as the “sandwich generation,” because they are struggling to help their parents when they still have young children at home. The stress of being a caregiver to a parent while juggling work and caring for a 10-year-old is…challenging, to say the least. As an adult child, the more you are aware of the challenges and available options for your parents, the better you are able to help them structure a plan for the future that fits their particular needs and preferences.

What is Aging in Place?

Oftentimes, seniors have an overwhelming preference to grow old in their own home and community while retaining a high level of autonomy and independence; this preference is commonly referred to as Aging in Place. This means adult children need to anticipate the activities their parents will need help with, such as preparing meals, shopping, household chores, and—down the line—bathing and mobility. An estate planning attorney can facilitate multi-generational family meetings to discuss Aging in Place options in an open and supportive atmosphere. The goal is always for seniors to live safe, productive, independent lives and avoid a nursing home as long as possible (or avoid it altogether). Full-time personal care assistance can cost upwards of $9,000 per month, and when no planning is done, families can spend hundreds of thousands of dollars on care, leaving the well spouse impoverished. So, how can you help your parents plan for such costs?

One option to consider is New York State’s Community Medicaid program, which will help your parent to Age in Place. This joint state-federal program entitles seniors to long-term care in their homes if they meet certain disability and asset guidelines. For the purposes of this program, seniors can be determined disabled if they need assistance with multiple activities of daily living (ADLs). These ADLs include bathing, grooming, toileting, shopping, mobility, and transfer (moving from the bed to a chair, for example). After an evaluation by a medical professional, the agency will determine how many hours of care your parent needs. This can range from 4-24 hours per day and up to 7 days a week.

Does your parent need a Medicaid Asset Protection Trust?

The biggest hurdle for seniors to qualify for New York State’s Community Medicaid is an applicant can have no more than $15,750 of assets in their sole name. Some assets are exempt—such as retirement accounts, life insurance policies with cash surrender value of $1,500 or less, and usually (but not always) the residence. The applicant’s spouse can retain up to $128,640 in assets in his or her name without having to pay toward care. If your parents’ assets are higher than this, they need to start planning early by creating a Medicaid Asset Protection Trust.

A Medicaid Asset Protection Trust allows your parents to protect assets (such as investment accounts and real property) by retitling them in the name of the Trust. Your parents need to balance how much they need to live and how much they are comfortable transferring to the Trust. A transfer to the Medicaid Asset Protection Trust is essentially a gift to the beneficiaries of the Trust, most often children and grandchildren. This type of planning must be done in advance, and the transfer of assets must be done at least 2½ years before home care is needed. This is because Medicaid employs a “look back” period when someone applies for Medicaid long-term care. For example, 2½ years of financial documentation is required to apply for Community Medicaid to show no assets have been transferred out of the applicant’s name during that time period. For every approximately $13,000 transferred, Medicaid will not cover the cost of care for 1 month. There are some exempt transfers, including transfers to a spouse or a child with disabilities who meets certain guidelines.

The most important consideration in deciding the appropriateness of a Medicaid Asset Protection Trust is the cohesiveness of the family; the parent must feel comfortable giving up control of assets and believe that the chosen trustee is the appropriate person to take on the responsibility. This is because this type of Trust removes your parents’ property outside of their control—they must choose a trustee other than themselves and do not have access to Trust principal. However, they can retain certain rights over the Trust. If they own a home, they can retain the right to live in the home rent-free for their entire life. They can also retain the right to all income generated from assets in the Medicaid Asset Protection Trust, the right to change beneficiaries, and the right to change the trustee. This ensures they are not left at the mercy of a trustee gone rogue.

Helping a parent plan for their later years can lighten the stress on the adult children and other family members. While not all plans will look the same, addressing these issues head-on before there is an emergency is in the best interest of parent, adult child, and the rest of the family.