How To Structure Your Estate Planning For The Expense of Long Term Care

One of the most important concerns for people setting up their Estate Plans is how to plan for the cost of long term care, including nursing home costs. Long Term Care Insurance is by far the preferred option, since it has offers the possibility of keeping people out of nursing homes by paying for care in the home or in assisted living facilities. However, most people do not purchase long term care insurance and are forced to rely on other alternatives to pay for long term care costs. Unfortunately, the other alternatives often do not include care in the home and instead require the long term care to be in a nursing home or other approved facility.



Absent a good long term care policy, there are two primary options for the payment of nursing home costs. First, a person may have sufficient income and assets to pay for such costs on a private pay basis. However, since such costs average in excess of $5,000 per month, and will continue to rise, the private pay option is not viable for most people. The second option is the Long Term Care Medicaid Program. Since this is a government benefit program, there are asset and income requirements to be met in order to qualify. The rules differ depending on if you are single or married. As a result of the eligibility determination process, many clients structure their estate plans in a way to enhance their eligibility in the event such costs become necessary. The remainder of this article will focus on one of the more popular estate planning tools used to enhance Medicaid eligibility for long term care costs.

A Medicaid Asset Protection Trust (MAPT), often referred to as an Irrevocable Trust, has become a popular planning tool for people trying to protect assets from the costs of nursing homes. It is important to note that many people have set up Trusts, however, in all likelihood the Trust is a Revocable Living Trust which offers no protection from nursing home costs. In order to gain eligibility, one must either give away assets or structure assets in a MAPT. As a general rule, gifting assets to your children is inadvisable, since those assets then become exposed to the children’s debts and liabilities, divorces, etc. In addition, some children may spend the money, refuse to give it back when needed, or pass away before the parent and pass those gifted assets on to their heirs. For these reasons, the MAPT may be a preferred option.

The MAPT is an irrevocable trust agreement in which you name someone other than yourself and your spouse to serve as the trustee, usually one or more of your adult children. Please note that not all irrevocable trusts are MAPTs. The primary disadvantage of the MAPT is that it limits you and your spouse to the income earned on the Trust assets, as the principal is restricted and protected for the benefit of your remainder beneficiaries, usually your children. The MAPT does allow you to have full use and benefit of your home and real property, including the right to sell it (provided the proceeds stay in the Trust). These trusts are ideal for the home as well as other assets in which the parents are only using the income from in the first place. The parents’ life style is typically not affected since they continue to receive their pension and social security income directly.

As with most asset transfers, the creation and transfer of assets to a MAPT is subject to a Medicaid “look back” of five years. This means the Trust should be created and funded at least five years prior to applying for any Medicaid benefits. It is important to note that most clients who set up a MAPT elect to keep a sufficient amount of assets out of the Trust so they will have full access and control to a comfortable level of assets for their lifestyle and enjoyment. IRA’s and other retirement plans are usually left out of a MAPT, as it is generally not advisable to put such assets into a trust in the first place.

In summary, planning for the cost of long term care is an important issue that many people need to consider when setting up their estate plan. In the event long term care insurance is not an option, a person should consider other estate planning tools, such as a MAPT, that will enhance their ability to obtain government benefits, while at the same time offering some level of protection for their support and maintenance in the future. This type of planning is very specialized and should only be implemented with the help of an experienced elder law attorney.

Wesley Harris is an associate attorney at Farrar & Williams, PLLC and can be contacted at 501-525-4401 or by email at wesley@farrarwilliams.com. Wesley can answer any questions you have about this subject.