Medicaid (ALTCS) Lawyers, and the Medicaid Planning Process

​A Medicaid Asset Protection Trust (MAPT) is a specialized irrevocable trust designed to secure your assets while allowing you to qualify for long-term care benefits. By placing assets into this trust, they are no longer counted as your personal property for Medicaid eligibility purposes, protecting your life savings from being exhausted by nursing home costs.

​The primary difference lies in control and protection. A Revocable Living Trust allows you to retain full control and access to your assets, but it offers no protection against Medicaid spend-down requirements because the assets are still considered yours. A MAPT is irrevocable, meaning you give up direct access to the principal in exchange for shielding those assets from Medicaid and long-term care creditors.

​The trust works by legally transferring ownership of your assets—such as your home, savings, or investments—from your name to the trust. You appoint a trustee (usually a trusted family member) to manage these assets. Because you no longer legally own the principal, Medicaid cannot count these assets against the strict financial limits required for eligibility.

​The “Look-Back Period” is a five-year window during which Medicaid reviews all your financial transactions before you apply for benefits. In Arizona, if you transferred assets into a MAPT within 60 months (5 years) of applying for Arizona Long Term Care System (ALTCS) benefits, you may face a penalty period of ineligibility.

​The clock for the five-year look-back period starts the moment you transfer assets for less than fair market value. However, if you apply for Medicaid before the five years are up, the penalty period calculation can be severe, so in practical terms, you will have to wait the full five years before applying. This makes early planning essential; the sooner you fund the trust, the sooner you clear the five-year hurdle, ensuring your assets are fully protected when you eventually need care.

​The most significant benefit is the ability to qualify for government-funded long-term care without becoming impoverished. A MAPT protects your inheritance for your heirs, prevents the forced sale of your family home, and offers peace of mind knowing your estate is safe from catastrophic healthcare costs.

​Yes. Medicaid Estate Recovery allows the state to seek reimbursement for care costs from your estate after you pass away. By transferring your home into a MAPT, the property is technically owned by the trust, not your probate estate. This generally places the home beyond the reach of the state’s recovery efforts.

​A properly structured MAPT is often treated as a “grantor trust” for income tax purposes. This means you, the grantor, continue to pay taxes on any income the trust generates, just as you did before. This structure keeps tax reporting simple and typically avoids the higher tax rates often associated with irrevocable trusts.

​Yes. If drafted correctly, a MAPT allows you to retain the exclusion on capital gains (up to $250,000 for singles, $500,000 for couples) if the house is sold during your lifetime. Additionally, your heirs effectively receive a “step-up” in basis upon your death, potentially eliminating capital gains taxes if they sell the property immediately after you pass.

​The main limitation is the loss of access to the trust principal. Once assets are in the MAPT, you cannot just take them back to spend on yourself. While you can receive income generated by the assets (like dividends or interest) and live in the trust-owned home, you cannot sell the assets to buy a vacation car or pay for personal expenses outside of the trust terms.

​While “irrevocable” suggests it cannot be changed, modern MAPTs often include specific powers allowing some flexibility. You typically retain the right to change the trustee or the beneficiaries (limited power of appointment). However, you generally cannot cancel the trust entirely or regain ownership of the assets without complex legal maneuvering.

​The process involves consulting with an experienced elder law attorney to design the trust, signing the trust documents, and—crucially—funding the trust. Funding involves changing the titles of your bank accounts, deeds, and investment accounts from your individual name to the name of your new trust.

​You should select someone you trust implicitly, such as an adult child or a close relative, as they will legally manage the assets. You cannot be your own trustee for a MAPT if you want to ensure asset protection. It is often wise to appoint a primary trustee and at least one alternate in case your first choice is unable to serve.

​Beyond the MAPT, strategies may include converting “countable” assets into “exempt” assets (like purchasing an irrevocable funeral plan or upgrading your primary residence), purchasing a Medicaid Compliant Annuity to convert excess assets into an income stream, or carefully timing gifts. However, the MAPT remains the most robust strategy for protecting the bulk of an estate while planning ahead.

​Medicaid laws are state-specific and incredibly complex. A generic or “DIY” trust often fails to meet the strict requirements of the Arizona Long Term Care System (ALTCS), potentially causing immediate denial of benefits. An experienced attorney at Copper State Planning ensures the trust is drafted correctly to withstand government scrutiny and minimize tax liabilities.