The Medicaid Asset Protection Trust (MAPT) is a tool that may protect your house from going to reimburse Medicaid for nursing home costs but only after the house is in the trust for at least five years. A trust is a legal entity that owns assets.  The MAPT is a good option to consider to keep the family home and other assets for your family and not the nursing home.

After the house is transferred to the MAPT, you still receive your STAR, veterans and other real estate exemptions. You maintain your house and pay your taxes like normal. You may even forget your house is in the trust. Your lifestyle stays the same.

If you put the house on the market, the trustee (manager) — usually one or two adult children — signs the binder and contract. At the closing the purchaser pays the trust. The trustee deposits the proceeds check into a bank account in the name of the trust. The grantors of the MAPT (the parents who transferred their house to the trust) still have their capital gains tax exclusions —$250,000 each, for living in the primary residence two out of the last five years.

The MAPT is an “income only” trust, which means the grantors (parents) only have a right to take income from trust assets but may not spend the principal. However, the trustee may purchase a new house with the proceeds and the new house is owned by the trust. Buying the new house does not start a new five-year period because the assets, whether real estate or cash, all stayed in the trust.

If the parents do not buy a new house with the sale proceeds, they may make gifts of trust principal to the children who are beneficiaries of the trust. The children and parents do not pay tax for the gifts.  If there is a house and cash in the MAPT, the parents may direct the trustee to use trust assets to pay for real estate taxes, home maintenance and repairs, and home insurance for the house in the trust. The parents may also invest the money in the trust and take income distributions from the investments.

As opposed to common thought, adding children’s names to the deed of the house is not a good idea. If your child is sued, their judgment creditor can put a lien on your house. If the child dies before you, you may own the house with their spouse. If the parents sell the house, the child may have to pay capital gains tax because they were not living in the house. The MAPT avoids these complications.

The MAPT allows preservation of assets, including the family home, from the devastating cost of care in a nursing home and at the same time provides flexibility upon the sale of the home.

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