Medicaid Trusts

The cost of home health services and long-term care for severe permanent disabilities or advanced age can quickly become expensive and potentially drain a family’s financial resources. Fortunately, Medicaid programs can provide financial assistance for long-term care, although applicants must meet strict asset and income limits. Medicaid trusts offer a powerful estate planning tool for individuals and couples who anticipate needing long-term care. Contact ELG Estate Planning for an initial evaluation to learn more about Medicaid trusts and their suitability for your circumstances, needs, and goals.

Understanding Medicaid Trusts

A Medicaid trust refers to a trust established to help an individual or couple qualify for Medicaid benefits. These benefits can help individuals afford in-home health services or long-term care for disabilities or advanced age. However, the Medicaid program imposes strict financial eligibility limits. Medicaid trusts allow benefit applicants to meet these eligibility requirements by removing assets from an applicant’s estate, avoiding the need to spend down or transfer assets, which can trigger penalties that may delay the receipt of Medicaid benefits.

Medicaid trusts typically use irrevocable trusts rather than revocable trusts. The Medicaid program considers assets placed in a revocable trust as remaining within the grantor’s estate since the grantor can dissolve the trust and recover the assets. However, a grantor gives up any right or interest in an asset placed in an irrevocable trust, meaning those assets no longer count as part of the grantor’s estate.

How Medicaid Trusts Work

When a person uses a Medicaid trust, they will establish an irrevocable trust. Establishing a trust requires a person to create and sign a trust document, which will nominate a person or organization to serve as a trustee (or successor trustee), identify beneficiaries of the trust, and set forth the terms under which the trustee must manage the trust, including the conditions in which the trustee pays income or assets to beneficiaries. After creating the trust document, the grantor (the person creating the trust) will fund the trust by transferring assets to the trust’s ownership. Assets commonly placed in a Medicaid trust include:

Savings accounts
Certificates of deposit
Stocks or bonds
Mutual funds
Real estate
Vehicles
Retirement accounts (depending on the account’s payout status)

Certain assets do not count against the eligibility limit for Medicaid benefits, such as an applicant’s primary residence (up to a certain equity value), personal belongings, household items, a primary vehicle, burial plot rights, and prepaid funeral expenses.

When evaluating an applicant’s eligibility, Medicaid uses a five-year “lookback” rule to review asset transfers conducted in the five years before the application date. The value of assets involved in non-qualifying transfers gets added back into an applicant’s estate, which can potentially trigger penalties that require an applicant to wait for a specific number of months before they can begin receiving Medicaid benefits. As a result, a Medicaid trust’s effectiveness may depend on how early a person begins Medicaid planning.

Furthermore, when a Medicaid trust entitles a grantor to income generated by the trust’s assets, Medicaid may count that income as part of the grantor’s monthly income, potentially putting them over the income eligibility threshold.

In many cases, a Medicaid trust may have to repay the program for some or all the benefits paid to the grantor during their life. Assets remaining in the trust after Medicaid recovery can pass to the beneficiaries designated in the trust document, providing beneficiaries with income generated from the assets or passing those assets without the need for probate.

Benefits of Intervivos or Lifetime Medicaid Trusts

Establishing a Medicaid trust during your lifetime is ideally done five years in advance of needing care due to Medicaid’s five-year look back rule. Medicaid trusts can provide an individual or couple applying for benefits with various advantages, including:

Ensuring eligibility for Medicaid: By placing assets in a Medicaid trust, an individual or couple can reduce their countable assets below the eligibility threshold to qualify for benefits.
Preserving family assets/wealth: Trusts can protect and manage assets or wealth from creditors or misuse. In some cases, Medicaid trusts can also protect assets from Medicaid recovery after the grantor’s passing.
Facilitating inheritances: Trusts can also pass assets and wealth onto succeeding generations without the time, expense, and delay of probate.

Finally, Medicaid trusts can help protect against unexpected healthcare or long-term care costs. Although an individual or couple may set aside funds to pay for long-term care during their final years, the cost of such care can balloon past expectations due to unforeseen health issues. Medicaid trusts allow individuals to turn to the Medicaid program to help afford home health services or long-term care.

Eligibility Requirements and Medicaid Planning

A person applying for Medicaid benefits for long-term care must meet resource limits. Medicaid counts almost all sources of income, such as employment income, alimony payments, pension benefits, Social Security Disability Insurance benefits, Social Security retirement benefits, retirement account withdrawals, stock dividends, annuity payments, bond payments, and business income. Asset and income limits can vary depending on whether a person applies as a single person, a married individual, or a married couple.

As of 2025, single individuals and married persons applying individually may own up to $2,000 in countable assets and receive a monthly income of $2,901 up to $13,542. The income of the well-spouse of a married couple is generally disregarded and does not interfere with eligibility. However, Medicaid rules allow a married person applying individually to “transfer” some of their monthly income to their spouse as a minimum monthly maintenance needs allowance. Married persons may keep a total of $70,301to $159,920 in “countable” assets, depending on the program applied for, and where the care is received.

Medicaid trusts help applicants reach the eligibility thresholds to qualify for benefits by removing assets and income from their estates. However, applicants should work with experienced Medicaid planning lawyer to develop and implement Medicaid plans, as plans that violate Medicaid rules can trigger penalties that delay the receipt of benefits, disqualify individuals from benefits, or trigger Medicaid recovery rules after the person’s death.

Medicaid trusts can work with other standard planning tools to facilitate a person’s or couple’s Medicaid eligibility, such as:

Spend-down strategies: Medicaid rules allow individuals to spend assets on qualifying healthcare-related expenses.
Gifting strategies: Applicants may use annual and lifetime gift tax exemptions to reduce the value of their estates; however, gifting strategies may trigger penalties under the lookback rules.
Long-term care insurance: Medicaid rules may allow individuals to purchase qualifying insurance policies.
Medicaid annuities: Some annuity products comply with Medicaid rules and allow applicants to spend down assets purchasing those products.

How Can an Attorney Help You Set Up a Medicaid Trust?

A long-term care planning lawyer from ELG Estate Planning can help you with your Medicaid planning needs by:

Sitting down with you to discuss your situation, needs, and goals to identify appropriate Medicaid planning strategies
Determining the suitability of a Medicaid trust for your circumstances
Explaining how Medicaid trusts work and their advantages and challenges
Helping you avoid mistakes that may jeopardize your Medicaid eligibility
Drafting trust paperwork and helping you establish and fund your Medicaid trust

Contact Us Today to Discuss Your Legal Options

When you need Medicaid benefits to obtain long-term care or home health services for a disability or advanced age, a Medicaid trust can help you qualify and protect your assets. Contact ELG Estate Planning today for a confidential consultation with our legal team to learn more about Medicaid trusts and their suitability for your circumstances.

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