When it comes to long-term care planning, protecting your assets while remaining eligible for Medicaid can feel like walking a tightrope. One of the most effective strategies to strike that balance involves using trusts for Medicaid planning, but not all trusts offer the same protection.
In this article, we’ll break down the key differences between revocable and irrevocable trusts specifically in the context of Medicaid eligibility—so you can make informed decisions that safeguard your wealth and future care needs.
Here’s what we’ll cover:
- Why Trusts Matter in Medicaid Planning
- Key Differences Between Revocable and Irrevocable Trusts
- Understanding Medicaid Asset Protection Trusts (MAPTs)
- When Should You Use a Medicaid Planning Trust?
- Work with a Professional to Avoid Mistakes
Let’s start by looking at why trusts play such an important role in Medicaid planning.
Why Trusts Matter in Medicaid Planning
Planning for long-term care often involves balancing two critical priorities: securing quality healthcare and preserving hard-earned assets for your family. Medicaid is a key resource for many older adults needing long-term care—but qualifying isn’t simple. The government looks closely at your finances, and if your assets exceed certain limits, you may be required to “spend down” your wealth before becoming eligible. That’s where comprehensive estate planning comes into play.
Medicaid’s Asset Limit and “Spend Down” Rules
To qualify for Medicaid long-term care benefits, an individual must meet strict income and asset thresholds. In most states, the asset limit for a single applicant is around $2,000. This includes bank accounts, investment portfolios, second properties, and other countable assets (Medicaid income and asset eligibility guidelines from Medicaid Planning Assistance).
If your assets exceed that limit, Medicaid will require you to use those funds to pay for care—until your estate falls below the threshold. This forced liquidation is commonly referred to as the spend-down process. It can leave individuals with minimal savings and drastically reduce what’s available to pass on to children or other heirs.
Here’s an example:
If you own a home valued at $300,000 and have $150,000 in investments, Medicaid will likely count most of those assets. Without proper planning, you may have to sell your home or deplete your savings to qualify for aid.
This is why many individuals turn to Medicaid asset protection planning designed specifically to protect assets from being counted against Medicaid eligibility.
How Trusts Can Help Protect Assets
Trusts—particularly certain types of irrevocable trusts—offer a legal structure for transferring ownership of assets while still retaining some benefits for the original owner. When done correctly and well in advance of applying for Medicaid, placing assets into a trust can prevent them from being counted as part of your available estate.
Trusts used in Medicaid planning can:
- Shield real estate and savings from spend-down requirements
- Help preserve wealth for future generations
- Provide controlled distributions to beneficiaries even after the trust creator has entered long-term care
- Prevent the need for asset liquidation during medical or nursing home crises
Takeaway: Trusts play a pivotal role in Medicaid planning by helping families qualify for care while protecting what they’ve built over a lifetime—when structured and timed correctly.
Key Differences Between Revocable and Irrevocable Trusts
When it comes to trusts for Medicaid planning, not all trust types offer the same level of protection. While both revocable and irrevocable trusts have their place in estate planning, only one is typically effective in helping you qualify for Medicaid without exhausting your assets. Understanding the distinction is crucial before making any decisions. For a deeper comparison of how these trusts differ in structure, control, and protection, see our full guide on revocable vs irrevocable trusts.
Revocable Trusts – Why They Don’t Protect Assets from Medicaid
A revocable trust—often referred to as a living trust—gives you full control over the assets placed inside it. You can amend, revoke, or dissolve the trust at any time, and you continue to benefit from the assets just as if they were still in your name.
However, that control comes with a cost when it comes to Medicaid eligibility.
From Medicaid’s perspective, assets in a revocable trust are still countable. Since you retain the legal right to access and control the trust property, Medicaid considers those assets available to you—and therefore must be spent down before you can qualify for benefits.
Example: If you place $200,000 in a revocable trust and later apply for Medicaid, the entire amount may be treated as yours and used to determine eligibility.
If you’re considering setting one up for probate avoidance or management reasons, check out our walkthrough on how to set up a revocable trust.
Irrevocable Trusts – How They Protect Assets (With Conditions)
An irrevocable trust, by contrast, requires you to permanently give up control of the assets placed inside. Once established and funded, you cannot dissolve the trust or reclaim the assets without the consent of the beneficiaries or a court.
Because of this separation, Medicaid generally does not count the assets in an irrevocable trust as part of your personal estate—as long as it was set up correctly and well in advance of applying.
These types of trusts are often structured so that:
- The grantor (you) can no longer access the principal
- A trustee manages the assets according to specific terms
- Income from the trust may still be available to the grantor, but the principal is protected
This structure allows families to preserve wealth, avoid forced asset sales, and still access Medicaid when needed.
Timing Matters – The Five-Year Look-Back Rule
Even with an irrevocable trust, timing is critical. Medicaid applies a five-year look-back period to all asset transfers, including those made to trusts. If you move assets into an irrevocable trust within five years of applying for Medicaid, those transfers may be penalized—delaying your eligibility or reducing your benefits.
For example:
If you set up an irrevocable trust today and apply for Medicaid three years later, Medicaid may still treat those assets as yours and impose a penalty period during which you’ll be ineligible for benefits.
That’s why proactive planning—ideally at least five years before needing care—is key to making irrevocable trusts work as a Medicaid strategy.
Takeaway:
Revocable trusts offer flexibility but no Medicaid protection, while irrevocable trusts can shield assets—if structured correctly and established early enough to avoid look-back penalties.
Understanding Medicaid Asset Protection Trusts (MAPTs)
For individuals looking to qualify for Medicaid while preserving their assets, the Medicaid Asset Protection Trust (MAPT) is one of the most effective and widely used tools. A MAPT is a specific type of irrevocable trust designed to help you meet Medicaid’s asset limits without spending down your estate. You can learn more about how these trusts work and when to use them in our guide to Medicaid Asset Protection Trusts.
What is a MAPT and How Does it Work?
A Medicaid Asset Protection Trust is a legally binding arrangement that allows you to transfer ownership of certain assets out of your personal estate and into a protected trust. Once the assets are inside the MAPT, they are no longer considered “countable” by Medicaid—as long as the trust is properly drafted and you no longer retain control over the principal.
Here’s how it generally works:
- You (the “grantor”) create the trust and designate someone you trust (a child, relative, or professional fiduciary) to act as trustee.
- You place selected assets—such as your home or investment accounts—into the trust.
- While you give up direct ownership of those assets, you may still receive income generated by the trust (e.g., interest or rental income).
- Upon your passing, the assets in the trust pass directly to your named beneficiaries, avoiding probate and Medicaid estate recovery.
The key to its effectiveness lies in the separation of control: Medicaid won’t count assets you no longer legally own or control.
What Assets Can Be Transferred Into a MAPT?
MAPTs are flexible in terms of what can be included. Commonly transferred assets include:
- Primary residence or vacation homes (especially valuable if you want to preserve the family home)
- Investment accounts (such as brokerage portfolios)
- Certificates of deposit (CDs)
- Savings accounts
- Income-producing real estate (e.g., rental properties)
- Privately held business interests (business asset protection strategies)
It’s important to work with an estate planning professional to determine which assets are appropriate to place in the trust, and how doing so may affect income, taxes, and family dynamics.
Common Misunderstandings About MAPTs
Despite their benefits, MAPTs are often misunderstood. Here are a few common misconceptions:
- “I’ll lose everything I put into the trust.”
Not true—you’re giving up legal ownership, but you can still receive income from the trust and live in your home if it’s included. - “It’s too late to set up a trust.”
Even if you’re already retired, planning now—before care is urgently needed—can help avoid penalties. The earlier, the better. - “I won’t be able to change anything once it’s done.”
While the trust itself is irrevocable, you can typically change trustees and beneficiaries if the trust is drafted with flexibility. - “Medicaid will eventually take the assets anyway.”
Assets in a properly structured MAPT are protected from Medicaid estate recovery in most cases.
Takeaway: A MAPT allows you to protect your most valuable assets from Medicaid spend-down rules—without losing the ability to live in your home or receive trust income—as long as it’s created and funded early enough.
When Should You Use a Medicaid Planning Trust?
Timing is everything when it comes to Medicaid planning. One of the most common mistakes families make is waiting until a health crisis forces immediate decisions about long-term care. Unfortunately, by then it may be too late to take full advantage of the protections offered by an irrevocable trust—especially if you’re within Medicaid’s five-year look-back period.
To get the most out of a Medicaid planning trust, early planning is essential.
Ideal Stages to Set Up a Medicaid Asset Protection Trust (MAPT)
While every person’s situation is unique, there are several key life stages when establishing a MAPT is especially beneficial:
- Pre-Retirement (Ages 55–65):
This is often the ideal window to start Medicaid planning. You’re likely still healthy, asset transfers will be well outside the look-back period, and you have time to structure the trust without pressure. - Early Retirement (Ages 65–70):
If you’ve recently retired and are starting to think about long-term care or legacy planning, this is still a great time to act. Just make sure to factor in the five-year timeline if nursing home care may be on the horizon. - At the First Signs of Health Decline:
If you or your spouse have received an early diagnosis for a condition that may require care down the line—such as dementia, Parkinson’s, or a chronic illness—it’s wise to set up a trust as soon as possible. Waiting could limit your options.
Why Planning Ahead Makes a Difference
Medicaid’s five-year look-back rule means any assets you transfer into a trust within five years of applying for benefits may still be counted—and could delay your eligibility. That’s why last-minute trust setups rarely offer full protection and can even result in costly penalties.
By planning early, you gain:
- Greater asset protection
- More flexibility in trust design
- Peace of mind knowing your legacy is secure
- Time to educate family members on their roles and responsibilities
Takeaway: The best time to create a Medicaid planning trust is before you need care—ideally five or more years in advance. Early planning gives you more control, more protection, and far fewer financial surprises.
Work with a Professional to Avoid Mistakes
Creating a trust for Medicaid planning isn’t just about filling out paperwork—it’s about making legally sound, strategic decisions that could impact your financial security and family legacy for decades. Unfortunately, even small mistakes in timing, trust language, or asset transfers can have serious consequences, including delayed Medicaid eligibility or disqualification altogether.
That’s why working with an experienced professional isn’t just helpful—it’s essential.
Why Personalized Legal Guidance Matters
Every family’s financial picture and care needs are different. A qualified estate planning professional can:
- Evaluate which assets should and shouldn’t be placed into a trust
- Draft the trust language to meet Medicaid’s strict eligibility rules
- Time asset transfers to avoid penalties under the five-year look-back rule
- Help you preserve access to income, living arrangements, or control where appropriate
- Provide long-term support as your needs or laws change
Most importantly, they’ll help you avoid costly missteps—such as using the wrong type of trust or funding it incorrectly.
How Trust Guru Can Help
At Trust Guru, we specialize in estate planning strategies that are both effective and accessible. Our team provides:
- Customized irrevocable trust creation for Medicaid planning
- Strategic guidance on trust funding assistance
- Simple, streamlined processes—no law firm intimidation, just real support
- Legal documentation reviewed by experienced professionals and accepted in all 50 states
Whether you’re starting early or feel you may be running out of time, we can help you build a plan that protects what matters most.
Ready to Secure Your Family’s Future?
Don’t leave your Medicaid planning to chance. Contact our team today for a free consultation and discover how our tailored trust solutions can help you qualify for care while preserving your estate.
Frequently Asked Questions (FAQs)
No. A revocable trust does not protect your assets from Medicaid because you still retain control over the assets within it. Medicaid considers anything you can access or revoke as countable toward your asset limit. While revocable trusts are useful for avoiding probate and managing your estate, they do not shield wealth from long-term care costs or Medicaid spend-down requirements.
An irrevocable trust, when properly structured, removes assets from your personal estate. Since you no longer control or own the assets, Medicaid typically does not count them—as long as the trust was created and funded outside the five-year look-back period. This allows you to preserve wealth for your heirs while still qualifying for Medicaid assistance.
The look-back period is a five-year window during which Medicaid examines any asset transfers, including those into irrevocable trusts. If you transfer assets into a trust within five years of applying for Medicaid, you could face a penalty period of ineligibility. To avoid this, it’s critical to plan early and set up your trust well before long-term care is needed.
Commonly included assets are:
Your primary residence (especially if you want to protect it from estate recovery)
Savings accounts and CDs
Brokerage accounts and investments
Rental or income-producing properties
Certain business interests
An estate planning professional can help you determine which assets are ideal based on your financial goals and Medicaid eligibility rules.
The best time to set up a Medicaid planning trust is at least five years before you expect to need long-term care. This ensures full protection under Medicaid rules and gives you the flexibility to structure the trust in a way that aligns with your goals. Starting earlier also reduces stress and maximizes your estate’s preservation potential.
