By Ronald Fatoullah and Stacey Meshnick
The statistics are daunting. The odds of needing long-term care at age 65 are nearly 70%! And long-term care costs in the NYC metro area, including nursing home costs, average around $469 per day, or approximately $171,276 per year. It would be imprudent not to plan to protect your home and your other assets from long-term care costs.
Typically, the best way to protect assets so that Medicaid will pay for these prohibitive long-term care costs, is to transfer your home (condo or coop) and other assets into a Medicaid Asset Protection Trust, oftentimes referred to as a “MAPT.”
Medicaid is a “means tested” program, so if an applicant’s assets exceed allowable amounts, eligibility will be denied. The only way to become eligible for Medicaid is to deplete assets by spending down, transferring assets into a properly drafted Medicaid Trust, or transferring assets outright to one or more individual(s). Of course, spending down most of one’s assets on long-term care costs is not ideal for obvious reasons.
There are many advantages to using a Medicaid Trust. Transferring your home to a MAPT may allow an individual to retain the $250,000 capital gains tax exclusion ($500,000 for a married couple) upon the sale of the home by the trust.
Another important reason to transfer assets to a Medicaid Trust is because one’s beneficiaries will ultimately get a stepped-up basis (as opposed to a “carry over” basis) on appreciated assets. For example, if you transfer stock to your adult child directly without a trust, currently valued at $400,000, with a cost basis of $100,000, your child will pay capital gains on $300,000 (the difference between $100,000 and $400,000) when the stock is sold. However, if you transfer the same stock to a properly drafted Medicaid Trust, the stock will be out of your name for Medicaid purposes, and assuming the stock is still held upon one’s death, your beneficiaries will get a “stepped up” basis, i.e., the value on the date of death will be the new basis of the stock. Hence if the stock is worth $500,000 upon your death, your child will receive a basis of $500,000 and will only incur capital gains tax if sold for more than $500,000.
Another reason to transfer assets to a trust is to avoid issues that an individual beneficiary may have. That individual may have creditors, marital issues or other circumstances that leave your assets vulnerable. One can safeguard one’s assets by transferring them into a Medicaid Trust that will not only protect the assets for long-term expenses but can also protect the assets from creditors and other issues that a potential recipient may have.
There are a few scenarios wherein a transfer to an individual/individuals makes sense, especially in combination with a transfer to a trust. For example, it is advisable to make direct “exempt” transfers which do not result in a period of Medicaid ineligibility, such as the transfer of assets to a disabled child, or the transfer of a home to a child who has been living with you for two years or more.
In summary, a Medicaid Asset Protection Trust allows individuals to get their assets out of their names for Medicaid purposes, retain income from those assets while also safeguarding those assets from creditors of your beneficiaries.
Ronald Fatoullah, Esq. Chairs the firm’s Elder Law Practice Group and is a Partner of the firm’s Trusts & Estates Practice Group. Stacey Meshnick, Esq. is a member of the firm’s Trusts & Estates and Elder Law Practice Group.
This blog posting is for informational and educational purposes only. It is general in nature and not person or circumstance specific. This blog posting is not intended nor should it be construed as rendering independent investment, legal or tax advice. It may but does not necessarily constitute attorney advertising.