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The MAPT and Asset Protection

ElderCounsel’s Medicaid Asset Protection Trust® (MAPT) is a strong tool to use for asset protection.  Not only is the trust designed to protect assets from being counted for Medicaid eligibility, the trust can also be designed to accomplish asset protection for beneficiaries.  Protecting loved ones is a common goal in elder law cases.  Clients want to know that they are not only protecting themselves, but they are doing all they can to better the lives of their loved ones.  Asset protection can be a desired product.  To be able to protect beneficiaries from creditors, divorce, or judgments is a satisfying feeling.  So how can one design the MAPT to achieve the best protection?

The MAPT is designed to contain a lifetime trust.  Lifetime beneficiaries, usually the kids, are able to receive distributions from the trust.  The Lifetime Beneficiaries are free to do what they want with the distributions, but they are often used to help the parent-grantor with expenses.  One key to asset protection is how this lifetime trust is designed. 

When designing the MAPT, many grantors will want a family member to serve as Trustee.  However, an interested Trustee does not provide much asset protection for trust property if distributions can be compelled by the beneficiary.  An interested Trustee is one who is related or subordinate to the grantor or to a beneficiary, within the meaning of IRC § 672(c): 

“(c) Related or subordinate party - For purposes of this subpart, the term “related or subordinate party” means any nonadverse party who is—

(1) the grantor’s spouse if living with the grantor;

(2) any one of the following: The grantor’s father, mother, issue, brother or sister; an employee of the grantor; a corporation or any employee of a corporation in which the stock holdings of the grantor and the trust are significant from the viewpoint of voting control; a subordinate employee of a corporation in which the grantor is an executive.

For purposes of subsection (f) and sections 674 and 675, a related or subordinate party shall be presumed to be subservient to the grantor in respect of the exercise or nonexercise of the powers conferred on him unless such party is shown not to be subservient by a preponderance of the evidence.”

So, having an independent Trustee – one who is not interested – would provide the best level of asset protection.  However, finding an independent Trustee is oftentimes a difficult task.  Finding someone who is not related to the grantor or beneficiaries to serve in a time-consuming trusteeship is often not feasible.  For this reason, there is an option in the MAPT to include a Distribution Trustee.  A Distribution Trustee must be an independent party and their one job is to make distributions.  It is oftentimes easier to find this independent party if they only have one simple job.  They are not responsible for the on-going trust administration, like investing trust assets.  Using the Distribution Trustee technique can also allow the kids to serve as Trustee while still achieving asset protection.  Finally, a Distribution Trustee can be useful to achieve and maintain family harmony.  When a neutral third-party is writing the checks, this sometimes makes beneficiaries feel like the process is fair and above the board.

Download a preview of the Medicaid Asset Protection Trust.

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Another strategy to achieve asset protection for beneficiaries is to have their inheritance continue on in trust.  One can design this trust with principal and income distribution schemas that best provide for optimal asset protection – say, with provisions that allow distributions by an independent trustee and restricted distributions if an interested trustee is serving.  ElderCounsel wanted to make this easier for our members, so we created the EC Medicaid Family Protection Trust® (MFPT).  It takes care of the asset protection for you!  The MFPT is the same as a MAPT, but the inheritance for beneficiaries is given through trusts designed to afford prime asset protection. 


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