Is A Medicaid Protection Trust Right For You?
This is a three-part series on the potential value of using a Medicaid Protection Trust as a component of your estate plan. Part One will focus on what a Medicaid Protection Trust (“MPT”) is and why its use is almost always a better choice than making a direct transfer to your children or beneficiaries while you are living. Part Two will cover many of the tax considerations and benefits associated with utilizing a Medicaid Protection Trust. Finally, Part Three will discuss for whom an MPT may be best suited.
As always, please feel free to send us a message with questions or feedback about this or any other aspect of Estate Planning. Also, we will be holding upcoming in-person educational seminars on a variety of topics, so please (1) share this with someone who may benefit from the information, (2) ‘Like’ us on Facebook to be kept up-to-date on articles, seminars, and other information, and (3) visit our website at BurgettLawFirm.com to view and register for upcoming events and to subscribe to receive free, valuable reports about this and other important subjects!
What Is A Medicaid Protection Trust?
A Medicaid Protection Trust (“MPT”) is an irrevocable trust which holds and preserves assets, and it either accumulates or distributes income generated by those assets. Our clients transfer certain assets to the MPT and usually retain the right to the income from the trust. The underlying purpose of an MPT is to allow an individual to qualify for Medicaid, if needed, five years following the creation and funding of the trust. After the death of the individual the MPT assets can be held for the benefit of a surviving spouse, or they can be distributed to beneficiaries you select (including distribution to another trust for their benefit if circumstances warrant). The end result is that the assets held by the MPT allow for Medicaid eligibility, avoid Medicaid estate recovery, and eliminate the need for death probate.
Why Not Just Transfer Assets Directly To My Beneficiaries?
When people decide to transfer assets directly to their beneficiaries in order to qualify for Medicaid in the future, those transferred assets will be subject to the creditors of the beneficiaries. Not only that, but if the assets end up commingled with the beneficiary’s spouse (which happens all the time!), they could be lost if that marriage ends. Further, if the beneficiary dies prior to the death of the individual who made the transfer, the assets would be distributed pursuant to the beneficiary’s estate plan – and that outcome may not be consistent with original donor’s desires. Under each of these scenarios, the assets of the transferor could be lost. By contrast, when assets are transferred to an MPT, they are protected from the claims of the beneficiaries’ creditors, divorce actions, and the possibility of a beneficiary predeceasing the transferor.
Other important considerations of an MPT include the opportunity to select a trustee who will ensure appropriate asset management, preservation of harmony within the family, and the avoidance of both living probate (guardianship) and death probate. Creation of an MPT allows for the appointment of successor trustees, alternative beneficiaries, and protections for beneficiaries who may have substance abuse and/or special needs considerations. The next part of this series will focus on several of the tax benefits that can be realized by using a Medicaid Protection Trust. Please feel free to send us a message with questions or feedback about this or any other aspect of Estate Planning. Also, we will be holding upcoming in-person educational seminars on a variety of topics, so please (1) share this with someone who may benefit from the information, (2) ‘Like’ us on Facebook to be kept up-to-date on articles, seminars, and other information, and (3) visit our website at BurgettLawFirm.com to view and register for upcoming events and to subscribe to receive free, valuable reports about this and other important subjects!
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