Never before has there been such a rapid growth in people turning 65 years of age or older and these seniors are expected to live longer than any previous generations. Living longer also means higher medical costs. Many parents spent most of their lives working to pay off their home mortgages and they would like to pass these homes on to their children. The federal government gives California approximately $17 billion per year as part of the Medi-Cal health insurance program. Medi-Cal is funded by the federal government but administered by California. Californians can use Medi-Cal to fund for their health care and still leave their house to their children if they plan ahead. The Medi-Cal Asset Protection Trust (MAPT) has proven to be a highly effective estate planning tool for many older middle class Americans. MAPT protects the homes while permitting elder parents to obtain and maintain qualification for Medi-Cal and other government public benefits.
What is a Medi-Cal Asset Protection Trust?
A Medi-Cal Asset Protection Trust is an irrevocable trust specifically created to hold and manage your primary residence and other assets so that you can qualify for Medi-Cal and to prevent the State of California from taking your home and assets from your heirs. In addition to keeping Medi-Cal from taking your home, MAPT ensures that the assets you built over your lifetime are not susceptible to being lost to the government, lawsuits, divorce, bankruptcy or other predators. MAPT is the asset protection tool for middle class Americans.
What are the top 10 benefits of having a Medi-Cal Asset Protection Trust (MAPT)?
Benefit 1. Avoid Medi-Cal Recovery -- Prevent Medi-Cal From Taking Your Home
If you use Medi-Cal, the State of California will come after your estate for any medical bills that were paid on your behalf. Both federal and state laws require reimbursement of Medi-Cal costs from any assets you have left under your name, namely your home. However, if you transfer your home to a Medi-Cal Asset Protection Trust, the State of California cannot come after your home. California Probate Code §215 requires that a copy of the death certificate be sent to the Department of Health Care Services for reimbursement purposes. A living trust does not protect your home from Medi-Cal but a Medi-Cal Asset Protection Trust does.
Benefit 2. Preservation of Step-up Basis (No Capital Gains Tax for Your Children)
One of the best ways to pass a house to your children is through a MAPT because it will ensure that your children will not have to pay any capital gains tax. California homes have appreciated considerably in value from their original purchase price. Some parents make the costly mistake of gifting their house to their children because they know that if the house is still under their name Medi-Cal will take the house. This is a big mistake because when an appreciated asset like a house is gifted outright to the children, the original purchased price of the house becomes the cost basis of the children. For example, if the original purchased price of the house is $100,000 and now it is worth $1million dollars, and the parents were to give that house to the children and their children sell the house for $1 million then the children would have to pay a capital gains tax on $900,000. However, if the house was gifted via a MAPT, then the children would not need to pay any capital gains because the children's cost basis is the value of the house on the date of the parent's death. Eliminating capital gains tax is a huge tax benefit for California's homeowners.
Benefit 3. Preserve Exclusion of Capital Gains on Sale of Primary Residence
Homeowners understand that the Internal Revenue Code Section 121 provides that a single homeowner may exclude up to $250,000, or in the case of a married couple, up to $500,000 of capital gains from the sale of a personal residence, provided that the taxpayer resided in the home as his or her personal residence for at least two of the preceding five years. Primary residence placed in a MAPT will preserve this great tax benefit. Many homeowners will make the mistake of gifting their homes to their children because they want to escape Medi-Cal reimbursement. However, if the children sell the house, the children will not be given the same favorable tax treatment.
Benefit 4. Asset Protection for Your Children
A house placed in MAPT will protect that house from the children's creditor. If you gifted that house outright to your children then your children's creditors could come after the house. A spendthrift provision is built in the MAPT to protect trust assets from attachment, foreclosure, garnishment, or other undesirable actions by your children's creditors.
Benefit 5. Ability to Decide Which Beneficiaries will Inherit Upon Your Death
In the Medi-Cal Asset Protection Trust, a special provision known as the "Limited Power of Appointment" will allow the parents to retain the right to change the beneficiaries of the trust. This power allows the parent to change the beneficiaries either by writing a will or by executing any other writing during their lifetime. This means that the creation of a MAPT does not spell the end of the parent's control of the house. Even though you have given your house away to your children in the Medi-Cal Asset Protection Trust, the trust is written in such a way to give you the power to change your mind in terms of which children get the house.
Benefit 6. The right to remain in the home as long as you and your spouse are alive.
The trust is a contract. In the contract, there will be provisions that mandate that your children cannot sell the house until you die. There will be provisions in the trust that state you and your spouse retain the right to live in the house.
Benefit 7. Avoid Probate
One of the biggest benefits of a MAPT is that it will avoid probate. In California, if you died owning a house under your own name, then a probate is inevitable, but MAPT does away with the probate problem. The house will go directly to your children without court intervention.
Benefit 8. Ability to make assets in MAPT non-countable in regard to your children's eligibility for government benefits or if your children ever need Medi-Cal.
In order to be eligible for Medi-Cal or certain government benefits, you have to be eligible in terms of what type of assets you own. Quit often, a child who is receiving much needed Medi-Cal or other government benefits is disqualified from receiving those benefits because he or she has received a small inheritance from mom and dad. Although it is a small inheritance, it is big enough to disqualify him or her from the much needed Medi-cal or government benefits. Therefore, in your MAPT we build a contingent clause to avoid this situation. If you child is ever in this situation, a special trust will be borne from the MAPT to hold his or her inheritance so that he or she will not be disqualified from any government help.
Benefit 9. Ability to specify certain terms and incentives for your children's use of trust assets.
Many parents desire to infuse their planning for their children or grandchildren with positive aspirations, such as that the money may only be used for education, to finance a career or buy a home. These planning goals can be accomplished when placing the home in a MAPT, but not with an outright gift to your children. In MAPT, since you are the creator of this contract, you can establish the rules and determine the uses of your hard earned money.
Benefit 10. Trust Protector
Some parents may feel uneasy in releasing and transferring their house to a MAPT because they don't want to lose control over the house. This can be solved by using a "Trust Protector". The idea behind a Trust Protector is to have somebody who you trust to watch over the Medi-Cal Asset Protection Trust, protect the beneficiaries and the house, and make sure your wishes are carried out properly. The Trust Protector is like a guardian of the trust, someone who can tweak the trust to track changes in tax laws and change distributions based on your children's life.
For parents who want to protect their most important asset (their home) and to ensure that the home is passed to their children, a Medi-Cal Asset Protection Trust (MAPT) is a valuable tool to consider for all the above reasons. This trust is the asset protection for middle class Americans