Need a MAPT in New Jersey?

With the steep cost of long-term healthcare and the unpredictability of when it may be necessary, the prospect of needing long-term, around-the-clock care can be daunting. 

The median monthly cost of an assisted living community in the U.S. is $4,500. A  nursing home can be even more expensive, with a median monthly cost of $7,908, and this rate is higher if you want a private room. All told, long-term care costs can add up to more than $100,000 per year. In other areas such as New York City, the cost of assisted living facilities are even higher, ranging from about $5,000 to $17,000 per month.

Many of those who require long-term care end up spending most of their money on it  and are unable to pass wealth down to the next generation of their family. Additionally, Medicaid clients are subject to the Medicaid Estate Recovery Program (MERP), under which assets in their estate, such as their home, may be seized after they die to cover the costs of their care. 

Medicaid will pay for long-term care, but only for those who meet the requirements. The asset limits are very low, rendering large populations of people ineligible. For example, the Medicaid asset limit for a senior who is single is $2,000.  

Fortunately, there is a creative way of planning around this using a Medicaid asset protection trust (MAPT) . A MAPT is a special trust that can hold someone’s assets out of their estate while still allowing them to benefit from those assets.

For those who are particularly likely to require expensive long-term health care in the future, a MAPT may be a viable option. Read on to understand why a MAPT may be beneficial, and why it is not the best option for everyone. If you decide that a MAPT is best for your situation, an experienced estate planning attorney at Rosenblum can help you create one.

What Is a MAPT?

A Medicaid asset protection trust is a form of irrevocable trust that essentially shields someone’s assets to help them qualify for Medicaid. 

Medicaid is a joint federal and state program for people that helps people with limited income and resources pay for medical costs. The threshold for Medicaid eligibility is very low. For example, in New Jersey, the Medicaid monthly income limit for a single senior that includes nursing home care is $2,829 a month as of 2024. Especially during later stages in life and retirement, income is usually low while assets are generally higher. However, the asset limit to be eligible for Medicaid is still very low. The Medicaid asset limit that includes nursing home access for single seniors in NJ is $2,000. The same services for married couples filing together has an asset limit of $3,000. 

There are exemptions as to what assets can be counted toward the asset limit, such as a primary home, personal belongings, and an automobile. There is also the intent to return home rule, meaning that if someone is in a nursing home but intends to return home, their home will still be exempt from the asset limit. The intent to return home will preclude any sale of the home to pay healthcare costs during the client’s lifetime, leaving the door open to the possibility that they will return home. Depending on the specifics, there is still a significant chance that a lien could be placed on the home after the client’s death to recover Medicaid expenses, particularly in states like New Jersey. Regardless of whether an individual qualifies for the intent to return home rule, they will still be subject to the MERP. This program reimburses the care costs of a client after they become deceased by collecting what is left in their estate, which is usually their home. 

There are other important exemptions when there is a “well spouse” living in the home, or a healthy spouse who is married to the individual who requires long-term care. In the Community Spouse Resource Allowance (CSRA), Medicaid allows a greater portion of a couple’s assets to be protected for the spouse who doesn’t require long-term care, preventing the healthy spouse from being impoverished. If a healthy spouse is living in the couple’s home, it is also likely that the home will be exempt from being counted as an asset for Medicaid eligibility. Lastly, the Minimum Monthly Maintenance Needs Allowance (MMMNA) ensures that the healthy spouse has enough income to cover their living expenses. 

Advantages of a MAPT

People who exceed the Medicaid asset limit can still be eligible by opting for a MAPT. A MAPT takes assets out of the grantor’s (the trust creator’s) control and puts them under the control of the trust. 

Once that is accomplished, these assets are not counted against the grantor when they apply for Medicaid. This can make it easier for someone who exceeds the Medicaid qualification limits to essentially lower their net worth to below the Medicaid threshold, thus qualifying for benefits.

When creating the trust, the grantor can name their relatives, friends, or other close acquaintances as the beneficiaries. These individuals will ultimately inherit the assets that the grantor would have otherwise had to use to pay for their health care. 

That said, a MAPT does not give away the trust’s assets to the grantor’s family; the assets are not passed on to the family until the grantor passes away. While the grantor is still alive, the family may access the trust assets, but only for the grantor’s benefit.

Five Year Look-Back Period

When applying for Medicaid, the government will conduct a look back, where they will check the applicant’s financial transactions for five years prior to the application. Any assets that were given away within this five-year period count against the grantor. It’s also important to note that not all of one’s assets need to go into the trust; they can leave some assets out of the MAPT live off of during the 5 year look back period and beyond.

Let’s take a look at an example. If Mary sells her home worth $800,000 to her daughter for $50,000, and then applies for Medicaid the next day, Medicaid will see this transaction as a $750,000 gift. This gift will apply to the appropriate penalty period, which is the time where an individual is ineligible for Medicaid benefits because of the transfer of assets. 

The length of the penalty period is the total value of the transferred assets divided by the average monthly cost of nursing home care in the individual’s state. In Mary’s case, the gift is $750,000. If the average cost of nursing home care in her state is $10,000, the penalty period would be 75 months. Given that this is actually longer than the five-year lookback period, Mary would have been better suited creating a MAPT 60 months before she needed care and transferring the home into the trust at that time, which would effectively start the clock. It’s important to understand that when assets are transferred into a MAPT, this is what starts the Medicaid look-back period. If any new gifts or transfers are made after this initial transfer, it does not reset the entire five-year clock. Instead, it adds a new penalty period for the value of the new gift. 

Therefore, timing is crucial when dealing with MAPTs, as careful planning of transactions can help avoid extended penalty periods and ensure smoother eligibility for Medicaid benefits. This makes careful planning all the more important, because someone cannot simply realize that they will very soon need nursing home care and throw all of their assets into a MAPT. The creation and funding of a MAPT must be done long before it is necessary.

Drawbacks of a MAPT

The biggest drawback is that the grantor loses control over the assets that they put into the MAPT, which date back five years. However, they have the power to designate a trustee that will control the assets. A trustee can be any adult who is not the grantor or the grantor’s spouse. 

Once an asset is put into a MAPT, it generally cannot be taken out, although the money is technically not locked away. For example, designated family members may take money out to support the individual who needs care. However, once someone sets up a MAPT to plan for long term care, they should not have the intention to decide against this arrangement later on.

Primary Residence Exception

There is a primary residence exception within the Medicaid eligibility rules. For example, the home equity interest limit for a primary residence in New Jersey is $1,071,000 for 2024. If someone’s home equity is below this threshold, then they would not need to put the home in the MAPT. This would mean they could still use, enjoy, and control the home during their lifetime without it counting against their Medicaid eligibility. 

However, as mentioned earlier, this primary residence exception does not protect the home once the grantor is deceased. The MERP gives Medicaid the right to seize the grantor’s home as a reimbursement for the care costs of the client while they were alive. 

The large swath of assets that the grantor would lose control over with a MAPT can be a strong deterring factor, even with exceptions like the primary home rule. For this reason, it’s highly recommended to speak with an experienced estate planning attorney who can accurately gauge a particular situation to determine the best course of action moving forward.

When Might a MAPT be Appropriate?

There is no clear-cut rule to determine who is a good candidate for a MAPT, and it can be quite overwhelming to try and make a decision on long term care years before this care becomes necessary. Individual circumstances are the primary factor. That said, there are certain cases in which a MAPT could be a good move. 

Income Level 

Generally, the best potential client for a MAPT is someone who cannot afford long-term care or would be unable to pay for long-term care without spending assets intended for their heirs. If an individual is concerned that paying for long-term care on their own would wipe out their estate, they should consider a MAPT to avoid this possibility. 

Family Medical History 

One reason to opt for a MAPT is when the need for nursing home care is particularly high due to familial circumstances. One example is someone with a long family history of degenerative conditions, which are likely to lead to long term care down the road. Although it is difficult to predict one’s health five years down the line, knowing one’s risk factors can help them make a more informed decision about a MAPT. 

Support Network

Again, although it may be difficult to predict one’s support network five years down the line, it’s an important factor to take into consideration. Someone deciding whether a MAPT is right for them should evaluate their current support network and who would be able to care for them later in life. If someone has no or limited support from family and  friends, a MAPT can ensure that they have immediate access to a long-term care facility. 

Contact a Rosenblum Law Estate Planning Attorney 

A MAPT can be immensely beneficial by shielding your assets from being seized and paying for long-term care you may require down the line. It can reassure your loved ones that they will inherit your hard-earned assets, rather than having to forfeit them for necessary treatment. The main drawback to consider is that you would effectively lose control over the assets in the trust for the rest of your life. 

The decision to create a MAPT is a big one that shouldn’t be taken lightly. If you are creating a MAPT, you should be relatively certain that it will be a necessary tool in the future. It makes it no easier that this decision must be made in advance of the five-year look back period. 

As discussed, this is an incredibly difficult decision that should not be up to you to make alone. To help you make the best possible decision, we highly recommend speaking with an estate planning attorney. The estate planning attorneys at Rosenblum Law have a breadth of experience helping people evaluate their options and arrive at the best possible solution. Contact us today to schedule your free consultation to discuss your circumstances and needs further. It is never too early to start thinking about and planning for your future.