MEDICAID ASSET PROTECTION TRUSTS IN MARYLAND: Why
Attorneys Are Afraid—and Why They Shouldn’t Be
BY EVAN H. FARR, ESQ.
MEDICAID ASSET PROTECTION TRUSTS (MAPTs) are rarely drafted in Maryland. Even among experienced elder law attorneys, MAPTs are often avoided, sidelined, or replaced with inferior “wait-and-see” strategies. Many Maryland elder law attorneys don’t even discuss these trusts with their clients, or, if they do, they scare their clients away from doing one because the attorney is scared to draft one and is scared Maryland Medicaid will accept one.
Estate planning attorneys avoid drafting MAPTs because they think this type of living trust lives only in the realm of elder law, when in fact a MAPT sits at the intersection of estate planning and elder law.
MEDICAID ASSET PROTECTION TRUSTS IN MARYLAND:
Why Attorneys Are Afraid—and Why They Shouldn’t Be
BY EVAN H. FARR, ESQ.
MEDICAID ASSET PROTECTION TRUSTS (MAPTs) are rarely drafted in Maryland. Even among experienced elder law attorneys, MAPTs are often avoided, sidelined, or replaced with inferior “wait-and-see” strategies. Many Maryland elder law attorneys don’t even discuss these trusts with their clients, or, if they do, they scare their clients away from doing one because the attorney is scared to draft one and is scared Maryland Medicaid will accept one.
Estate planning attorneys avoid drafting MAPTs because they think this type of living trust lives only in the realm of elder law, when in fact a MAPT sits at the intersection of estate planning and elder law.
This widespread avoidance has nothing to do with the legality of MAPTs. It has everything to do with fear—fear of Maryland Medicaid, fear of scrutiny from the trust, and fear of getting it wrong.
That fear is misplaced. This author has drafted thousands of MAPTs across Maryland, Virginia, and the District of Columbia, and this author is here to tell you that properlydrafted MAPTs work in Maryland, just as they work in every other state.
MAPTs are explicitly authorized under federal law and expressly recognized under Maryland law. Maryland is not hostile to MAPTs. Maryland is hostile only to sloppy drafting, retained access to principal, and attorneys who do not understand how Medicaid evaluates trusts.
Once that distinction is understood, the supposed “risk” of MAPTs in Maryland largely disappears.
The Federal Foundation Is Unambiguous MAPTs exist because smart attorneys created them, and Congress allows them. Many attorneys in many states over the years have attempted to draft MAPTs and failed spectacularly, leading to exceptional court cases that have allowed smart attorneys to perfect these types of living trusts.
The Omnibus Budget Reconciliation Act of 1993 (OBRA '93) codified the treatment of irrevocable trusts at 42 U.S.C. § 1396p(d)(3)(B). That statute establishes the now-famous “any circumstances” test. If there are any circumstances under which the trust principal could be distributed to or for the benefit of the Medicaid applicant or the applicant’s spouse, the entire trust is a countable resource. If there are no such circumstances, the trust corpus is not a countable resource. Rather, transfers into the trust trigger the five-year Medicaid look-back.
This is not a loophole. It’s simply the law.
Congress could have prohibited irrevocable trusts entirely in 1993. It could’ve done so again in 2006 when it overhauled the Medicaid laws. It did not. Instead, it left in place a precise rule: no access to principal means no countable resource. Every MAPT that works anywhere in the country works because it satisfies this test.
Maryland Follows Federal Law
Maryland did not invent its own trust rules. The Code of Maryland Regulations (COMAR) 10.09.24.08-2(B)(5) tracks the federal statute closely. The regulatory language is dense and confusing, and it is often cited as a reason to avoid MAPTs. But regulations are not where Medicaid eligibility decisions are actually made.
In Maryland, the operative authority is the Maryland Medicaid Manual (the Manual). Caseworkers are trained
Even among experienced elder law attorneys, MAPTs are often avoided, sidelined, or replaced with inferior “wait-and-see” strategies.
on it. Eligibility determinations apply it. And the Manual does something crucial: it translates the federal “any circumstances” test into plain, functional language, in fact stronger language than most states have in their Medicaid manuals.
Maryland Medicaid manual § 800.15(G) states that when there are no circumstances under which payments may be made to or on behalf of the applicant, the trust is not an available resource. Instead, the transfer is treated as a disposal subject to penalty. The manual also correctly explains that later distributions from the trust to third-party beneficiaries do not create new transfer penalties.
Many attorneys in many states over the years have attempted to draft MAPTs and failed spectacularly, leading to exceptional court cases that have allowed smart attorneys to perfect these types of living trusts.
Maryland follows federal law here in that later distributions from a properly drafted MAPT are ignored.
This is where many attorneys get it wrong. They assume that any later trust activity somehow “reopens” the look-back. Maryland does not take that position—provided the trust was properly drafted in the first place.
The Real Problem: Drafting, Not Law
Maryland Medicaid is not hostile to MAPTs. It is hostile to trusts that fail the any-circumstances test—often in subtle ways.
Most estate planning attorneys are not trained to draft negative-power trusts. They draft for flexibility, not inaccessibility. Medicaid requires the opposite. The trust must be engineered so that the principal is unreachable by the settlor and the settlor’s spouse under all circumstances, not merely as a matter of intent.
This means far more than including a sentence that says “the settlor shall have no access to principal.”
A Maryland-compliant MAPT must prohibit:
Principal distributions to the settlor or spouse, directly or indirectly
Trustee powers to adjust between income and principal
Conversion to a total-return unitrust
Powers of substitution
Loans to the settlor or spouse
Any administrative discretion that could be construed as principal access
Many nationally marketed trust systems fail Maryland review because they leave one of these doors open. When attorneys see those trusts fail, they blame Maryland Medicaid—not the drafting.
Professional Responsibility: Is Silence About MAPTs Defensible?
There is also a serious professional responsibility question that deserves attention. When an attorney prepares a revocable living trust for a client age 75 or older—or for any person with a serious diagnosis such as Alzheimer’s disease or another neurodegenerative condition likely to lead towards nursing home care— without ever discussing the option of a Medicaid asset protection trust, it is fair to ask whether that attorney has truly rendered competent advice. A revocable living trust offers no asset protection, no Medicaid planning benefit, and no future flexibility if long-term care becomes necessary.
For an older or medically vulnerable client, the likelihood of needing long-term care is not theoretical. In fact, it’s not theoretical for most people because over 70% of your clients will need long-term care before they die, and 40% of your clients will spend their final months or years in a nursing home.
Failing even to raise MAPTs as a planning option— regardless of whether the client ultimately chooses one—risks reducing estate planning to probate avoidance alone, while ignoring the most financially catastrophic risk elders face. At minimum, informed consent requires that clients understand not only what a revocable trust does, but what it very deliberately does not do.
Creditor Protection Is Immediate—Medicaid Protection Is Timed
Another source of confusion is the difference between creditor protection and Medicaid eligibility.
Under Maryland’s enactment of UTC § 505(a)(2), assets transferred into a properly structured irrevocable trust are immediately protected from future general creditors. Lawsuits, divorces, and medical creditors arising after the transfer cannot reach the trust corpus.
Medicaid is different only in timing. Medicaid imposes a five-year look-back on transfers. That does not make the trust defective. It means the attorney must plan for the interim period—something experienced elder law attorneys already do in other contexts.
MAPTs are not “Medicaid-only” tools. They are lifetime asset protection trusts that qualify for Medicaid after the look-back period expires.
Retained Control Does Not Destroy Eligibility
Another persistent myth is that MAPTs require clients to “give up control.” In reality, a properly drafted MAPT allows significant retained control without violating Medicaid rules.
In Maryland, the settlor may:
Serve as trustee (for Medicaid purposes)
Retain the power to remove and replace trustees
Retain limited lifetime and testamentary powers of appointment to change beneficiaries
Retain the right to income, if desired
What the settlor may not retain is ANY access to principal. Control and access are not the same thing, just as control and ownership are different concepts. Confusing these two concepts is one of the main reasons attorneys unnecessarily avoid MAPTs.
Beneficiary Distributions
MAPTs almost always permit discretionary distributions of income and principal to beneficiaries, sometimes with oversight by an independent trust protector. These distributions allow families to respond to real-world needs during the look-back period.
Implications for Maryland Estate Planning and Elder Law Attorneys
MAPTs are not rare in Maryland because they are risky. They are rare because attorneys are afraid of Medicaid and unfamiliar with how Medicaid analyzes trusts. Federal law authorizes MAPTs. Maryland law recognizes them. The Maryland Medicaid Manual applies them. When a trust fails, it is almost always because it was drafted improperly, not because they don’t work when properly drafted.
Attorneys who draft living trusts must understand this distinction, because without it, the decision to avoid MAPTs is driven by fear rather than law.
Evan H. Farr, Esq. is a Certified Elder Law Attorney with offices in Maryland, Virginia, and DC. He is one of the foremost legal authorities in the country in the field of Medicaid Asset Protection, Veterans Asset Protection, and related trusts.