Qualifying Medicaid Asset Protection Trust
The Asset Protection Trust (APT) – also known as the Medicaid Qualifying Trust – is normally set up as a non-discretionary, income only sub-trust of the grantor’s RLT. The rules governing and authorizing this type of trust are much the same under the OBRA 93 rules (see Add-on Item C – Special Needs Sub-Trust). Unlike the Special Needs Trust, however, this sub-trust format is funded during the grantor’s lifetime.
The intent of this trust is a direct effort to take advantage of the federal laws under USC Title 42 to avoid a spend-down of the person’s estate when institutionalized into a long-term nursing facility. In other words, its purpose is to help the grantor qualify for Medicaid (when institutionalized) and thus reserve the estate for his/her heirs. Under normal circumstances, an institutionalized person’s estate will be spent down until he/she becomes “indigent” for purposes of qualifying for Medicaid (or will qualify if already indigent upon entering the nursing home). At that point, Medicaid funds will be used to pay for the nursing home occupancy.
If a person (giftor) gives away his/her assets in contemplation of entering a long-term care facility, the giftor will not qualify for Medicaid if the gift(s) was made outright within 36 months of the application. So, the gift must have been made for Medicaid qualifying purposes beyond the 36-month period. If the applicant transfers (or gifts) assets into a non-discretionary, income-only trust beyond a period of 60 months before applying for Medicaid then, according to federal law, the giftor is to qualify for Medicaid and thus avoid a spend-down of the estate to pay for nursing home costs.
This type of planning allows parents to effectively give away assets in contemplation of a future, nursing home occupancy and yet receive lifetime income distribution benefits from the gifted assets. (There can be no distributions from principal allocated to the grantor for any reason, discretionary or otherwise.). That is obviously better than an outright gift by the grantor outside of a trust where no vested benefit from the gift can be retained by the grantor.
This type of planning is best effort only with no guarantees. Certain local or state agencies may not always agree with the federal stipulations of this type of trust and attempt to have it adjudicated as against public policy or attempt to pass contrary law from time to time. Nevertheless, the potential of this type of planning creates a way for the patriarch/matriarch to make a legally legitimate good faith effort to optimize preservation planning for the family estate.
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