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When advising clients regarding Medicaid asset protection planning, it is common to recommend the transfer of their residence (and other properties they may own) to a Medicaid Asset Protection Trust (“MAPT”). After five years, the trust assets would not be considered an available resource for purposes of determining Medicaid eligibility.
One of the most frequently asked questions regarding this planning technique is whether the house can be sold. The answer to that question is “Yes”. However, there are a number of factors to be considered:
- Who is selling the house?
- Who gets the money from the sale?
- Are there any capital gains taxes?
These are all good questions. Let’s look at them in order –
“Who is selling the house?” When property is in a MAPT, the trust is the seller and the Trustee is the person who has the authority to sell and sign the closing documents.
“Who gets the money from the sale?” The proceeds of the sale of the house owned by a MAPT are payable to the trust. This is important in order for the trust assets to remain protected, and not be considered an available resource for Medicaid purposes. The trustee would need to open a bank account and deposit the proceeds for further investment, or to use all or a part of the proceeds to buy a new house.
Finally, “Are there any capital gains taxes?” Typically, a MAPT is established as a “grantor trust”. For IRS purposes, this basically means that the person who set up the trust (you, the “Settlor”) is considered to be the “owner” for income tax purposes. So, the trust would then benefit from utilizing the Settlor’s $250,000 capital gains tax exclusion, even though the trust is selling the property, and not the Settlor. This, of course, assumes that the Settlor qualifies for the capital gains tax exclusion under the IRS regulations.
It is important when selling a house from a trust, especially a MAPT, to consult with and retain attorneys experienced with the sale of property from a trust and the Medicaid eligibility laws. Russo Law Group, P.C., has knowledgeable attorneys who can advise you and your Trustee.
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