What Every Estate Planning Attorney Needs to Know About Medicaid Planning

Session 2: Medicaid Asset Protection Trusts (MAPTs)

By: Evan H. Farr, CELA
Founder, Farr Law Firm
November 6, 2025

Evan Farr delivered a practical deep-dive on Medicaid Asset Protection Trusts (MAPTs) as a pre-crisis planning tool for preserving client assets from long-term-care costs. He explained how properly drafted irrevocable trusts meet Medicaid rules in Maryland and D.C. while maintaining tax and creditor-protection benefits.

• MAPT Purpose & Ethics: clarified that lawful, transparent asset protection is comparable to tax planning and essential for many middle-income clients.
• Core Compliance Rule: the settlor must have no access to principal under any circumstances; if principal is reachable—directly or indirectly—trust assets become countable.
• Drafting Requirements: warned against powers that imply principal access, including adjusting between income/principal, converting to a unitrust, substituting assets, or making loans to the settlor or spouse.
• Settlor Controls Preserved: the settlor may serve as trustee (when appropriate), remove/replace trustees, and hold limited lifetime and testamentary powers of appointment to change beneficiaries.
• Advantages over Outright Gifts: maintains investment/distribution control, adds creditor protection for beneficiaries, keeps the §121 home-sale exclusion, and preserves step-up in basis at death.
• Back-Door Distributions: trustees can distribute to beneficiaries who may choose to assist the settlor; emphasized there must be no prior agreement or collusion.
• Tax Treatment & Reporting: typically a grantor trust with income taxed to the settlor; beneficiaries receive a step-up in basis at death; standard grantor-trust reporting conventions apply.
• Maryland & D.C. Application: tied federal “any-circumstances” rules to Maryland’s manual guidance and D.C.’s “inaccessible asset” standard recognizing properly drafted irrevocable income-only trusts.
• Inside the Look-Back Example: demonstrated bridging costs (private pay plus beneficiary distributions) when care is needed before five years, often preserving a majority of assets.

His presentation provided a clear blueprint for drafting compliant MAPTs and integrating them into estate-planning practices aimed at protecting clients from long-term-care expenses.