The Medicaid Asset protection Trust (“MAPT”) is a staple component of the elder law planning process for those who want to make sure to protect and preserve family assets. In particular, clients who want to protect their home from the ever-rising cost of long term nursing care will transfer their primary residence (the “Home”) into a MAPT. The MAPT commonly serves to appoint one of the client’s children or family members to act as the trustee. Once the Home is transferred to the MAPT, the question of who will be responsible for paying all of the taxes and expenses related to the Home from that point forward is one that must be answered. The answer to that question will depend on how additional key planning decisions were made.
As part of the overall Medicaid asset protection plan, we will secure the client’s right to reside in their Home through the use of either a Life Estate Agreement (“LEA”) or through a Long-Term Lease (“LTL”). There are important tax considerations that must be assessed as we are deciding on the use of either the LEA or the LTL. I will not get into that decision making process here and will simply focus on the bill paying implications of the decision. The determination of how the expenses related to the Home are paid will be made based on which method for protecting a client’s use and enjoyment of their Home is used.
Where the Life Estate Agreement Is Used: If the tax advantages of using the LEA are more significant, then the client will retain the legal right to live in, use and enjoy the Home at the time it is transferred to the MAPT. Because the client has retained and has never given up this sliver of ownership interest, he or she has the continued obligation to pay the bills and expenses related to the Home out of their personal assets.
Where the Long-Term Lease is Used: If the tax advantages of using the LTL are more significant, then the client will transfer complete ownership of the Home to the MAPT and simultaneously enter into a contractual agreement that will give them the legal right to reside in the Home as a tenant. In a case such as this, the trustee of the MAPT will be responsible for paying the bills and expenses related to the Home out of assets held in the MAPT. As a part of the LTL, the client will be responsible for paying a reasonable rent to the MAPT monthly or annually. Even if the MAPT is not holding any other cash or financial assets, the expectation is that the client will make rental payments to the MAPT that will be sufficient for the trustee to pay all of the taxes, bills and expenses related to the Home each year.
So, you can see that there is an orderly decision-making process for how a Home transferred to a MAPT will be cared for. Your Unruh, Turner, Burke & Frees team of elder law attorney and paralegal will work with you first to determine the best tax and asset protection plan for your particular situation. Following that determination, you will be guided meticulously through the steps of what will have to be done to manage the MAPT and the Home owned within it. One of our goals here at the PA Elder Law Solutions Section of Unruh, Turner, Burke & Frees is to make sure that you not only achieve the maximum asset protection and monetary savings, but also that you have a full understanding of the process and the peace of mind that goes along with it.
Please contact us today to schedule an appointment to proactively assess your specific family and financial circumstances to see how long term care asset protection planning could protect your financial legacy for your heirs. 610-933-8069.
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