Setting Up A Trust to Protect Assets From Medicaid

As we age, the reality of requiring long-term care becomes more prevalent, and with it, the concern of how to finance such care without depleting a lifetime of savings. Medicaid, a federal and state program, can provide assistance for long-term care, but it requires meeting specific asset limits. For many, this means their hard-earned assets could be at risk of being spent down to qualify for Medicaid. A strategic solution to this dilemma is setting up a trust to protect assets. This blog post aims to guide you through the intricacies of using trusts as a tool for Medicaid planning and asset protection.

Understanding Medicaid’s Asset Rules

Medicaid’s eligibility criteria for long-term care include strict income and asset limits, which vary by state. Generally, to qualify for Medicaid coverage for nursing home care, your countable assets must be below a certain threshold, which is relatively low. This rule often leads individuals to face the possibility of using their savings and assets, including homes, to pay for care until they reach Medicaid’s eligibility limits.

SETTING UP A TRUST TO PROTECT ASSETS FROM MEDICAIDTo prepare, assess your assets against Medicaid’s eligibility criteria in your state. Understanding these limits is the first step in planning how to protect your assets. This assessment will provide a clear picture of what’s at stake and what needs to be protected.

The Role of Trusts in Medicaid Planning

Trusts can be an effective legal tool in Medicaid planning. By setting up the right type of trust, you can transfer your assets into it, potentially making them non-countable for Medicaid eligibility purposes. The assets in the trust are managed by a trustee and are protected from being spent down for Medicaid-covered care, preserving them for your beneficiaries.

When considering this option, identify which of your assets could benefit from being placed in a trust. Common assets include savings accounts, investments, and sometimes, your home. Transferring these assets to a trust can help ensure they remain intact for your future generations.

See also…Is a Trust Better Than A Will?

Types of Trusts for Medicaid Planning

There are several types of trusts used in Medicaid planning, each serving different purposes. The most common is the Irrevocable Medicaid Trust. Unlike revocable trusts, assets in an irrevocable trust are not considered yours for Medicaid purposes, provided the trust is properly structured and administered. Special Needs Trusts are another option, designed to benefit individuals with disabilities without affecting their Medicaid eligibility.

Selecting the right type of trust is crucial. If your primary goal is to protect assets from Medicaid spend-down while ensuring that a disabled family member continues to receive care, a Special Needs Trust might be appropriate. For broader asset protection, an Irrevocable Medicaid Trust could be more suitable.

Setting Up The Right Trust

Establishing a trust for Medicaid planning involves several key steps. Firstly, decide on the type of trust that aligns with your needs. Then, choose a reliable trustee – this can be a family member, a trusted friend, or a professional. The trustee will manage the trust’s assets according to the terms you set.

Drafting the trust document is a critical step. It should clearly state the purpose of the trust, how the assets are to be managed, and the conditions under which distributions can be made. This document should be crafted with the help of an experienced attorney to ensure it complies with Medicaid rules and serves its intended purpose.

Navigating The Medicaid Look-Back Period

An essential aspect of trust planning for Medicaid is understanding and navigating the Medicaid look-back period. This period is typically five years before the Medicaid application date. During this time, any asset transfers you make can be scrutinized, and inappropriate transfers can lead to penalties or a period of Medicaid ineligibility.

To avoid penalties, plan your asset transfers well ahead of when you anticipate needing Medicaid. The earlier you set up and fund the trust, the better positioned you will be when the look-back period comes into play.

Legal Considerations and Professional Assistance

The legal landscape of Medicaid planning and trusts is complex and varies by state. An improperly structured trust can lead to unintended consequences, including Medicaid ineligibility. Therefore, seeking legal assistance from an attorney specializing in Medicaid planning and elder law is crucial.

An experienced attorney can help you navigate the complexities of Medicaid rules, determine the best type of trust for your situation, and ensure that your trust is set up correctly. This professional guidance is invaluable in protecting your assets effectively while maintaining Medicaid eligibility.


Setting up a trust can be a powerful strategy in protecting your assets from Medicaid spend-down, preserving your legacy for future generations. It requires careful planning, an understanding of Medicaid rules, and the right legal guidance. By taking proactive steps and seeking professional advice, you can ensure that your assets are safeguarded, providing peace of mind and security for your family’s future.

Trusts FAQs

What are the disadvantages of a medicaid trust?

Setting up a Medicaid Trust, typically an irrevocable trust designed to protect assets and ensure Medicaid eligibility for long-term care, comes with certain disadvantages that should be carefully considered. Here are some key drawbacks:

  1. Loss of Control Over Assets:
    • When you transfer assets into an irrevocable Medicaid Trust, you generally relinquish direct control over those assets. The trust becomes the legal owner, and you cannot unilaterally retrieve or manage these assets as per your personal wishes.
  2. Irrevocability:
    • As the name suggests, an irrevocable trust cannot be easily altered or revoked once it is established. This means your financial decisions regarding the trust’s assets are permanent, making it crucial to be certain of your decisions at the time of setting up the trust.
  3. Medicaid Look-Back Period:
    • Medicaid has a look-back period (five years in most states) during which all asset transfers are scrutinized. If you transfer assets to the trust within this period, it could result in a penalty period during which you are ineligible for Medicaid benefits.
  4. Complexity and Cost:
    • Setting up and maintaining a Medicaid Trust can be complex, often requiring the assistance of an experienced attorney. This can incur significant legal fees, both at the time of creation and potentially for ongoing management.
  5. Impact on Taxation:
    • The transfer of assets into an irrevocable trust may have tax implications. For instance, removing assets from your direct ownership could affect your income tax situation. Additionally, trusts can be subject to different tax rules and rates, which might not always be advantageous.
  6. Limited Flexibility:
    • Once assets are placed in a Medicaid Trust, they are generally earmarked for specific uses according to the terms of the trust. This limits the flexibility you have in using or benefiting from these assets.
  7. Potential Emotional Impact:
    • The idea of giving up control over one’s assets can be emotionally challenging for some individuals. It represents a significant shift in how one’s estate is managed and can affect feelings of security and independence.

When considering a Medicaid Trust, it’s important to weigh these disadvantages against the benefits of asset protection and Medicaid eligibility. Consulting with an estate planning attorney who focuses on elder law can provide valuable guidance and help you make an informed decision based on your specific circumstances.

How much does a medicaid asset protection trust cost?

The cost of setting up a Medicaid Asset Protection Trust can vary widely based on several factors, including the complexity of your estate, the specific needs of your Medicaid planning, and the rates of the attorney or law firm drafting the trust. Here are some general considerations:

  1. Attorney Fees:
    • The primary cost of setting up a Medicaid Asset Protection Trust is the attorney fees. Since Medicaid planning and trust laws are complex and vary by state, it’s essential to work with an experienced attorney, which can be a significant cost factor.
    • Fees can vary significantly based on the attorney’s experience, the complexity of your estate, and your geographic location. In general, urban areas tend to have higher rates than rural areas.
  2. Complexity of the Estate:
    • The more complex your estate (for example, if you have multiple types of assets, properties in different states, or a business), the higher the cost of setting up a trust. Complex estates require more time and legal expertise to ensure the trust is structured correctly.
  3. Type of Trust:
    • The type of Medicaid Asset Protection Trust you choose can also affect the cost. Some trusts are more complicated to set up and manage than others.
  4. Additional Costs:
    • There may be additional costs related to the trust, such as notary fees, recording fees (for real estate), and costs for retitling assets to fund the trust.

As a rough estimate, the cost to set up a basic Medicaid Asset Protection Trust might range from $2,500 to $5,000, but more complex situations could significantly increase these costs. It’s advisable to consult with several estate planning attorneys to get quotes and understand what services are included in their fees.

Remember, while the initial cost might seem substantial, a well-structured Medicaid Asset Protection Trust can offer significant benefits in terms of asset protection and ensuring Medicaid eligibility.

How do I set up a trust to protect assets from medicaid in Texas?

Setting up a trust to protect assets from Medicaid in Texas, specifically for long-term care, involves several steps and careful planning. It’s important to understand that Medicaid has strict eligibility criteria, and proper structuring of the trust is crucial to ensure compliance. Here’s a general guide on how to set up a trust for this purpose:

  1. Understand Medicaid Rules and Requirements:
    • Before setting up a trust, familiarize yourself with Medicaid’s rules in Texas, especially regarding asset limits and the look-back period for asset transfers.
  2. Determine the Type of Trust:
    • Typically, an Irrevocable Trust is used for Medicaid planning. Once assets are placed in this trust, they cannot be taken back, and the trust becomes the legal owner of the assets. This type of trust can help in qualifying for Medicaid, as the assets in the trust are not counted towards your personal asset limit.
  3. Choose the Right Assets to Transfer:
    • Decide which assets you want to protect from Medicaid spend-down. Common assets placed in such trusts include savings accounts, investments, and sometimes real estate. Be mindful of the assets you choose, as once they are in an irrevocable trust, you cannot use them freely.
  4. Select a Trustee:
    • Choose a trustee to manage the trust. This can be an individual, such as a family member or friend, or a professional, like an attorney or a bank. The trustee will have the responsibility to manage the trust according to its terms.
  5. Draft the Trust Document:
    • Work with an experienced estate planning attorney to draft the trust document. This document will detail how the trust operates, how the assets are to be managed, and how and when they are distributed to beneficiaries.
  6. Fund the Trust:
    • Once the trust document is finalized and signed, transfer the chosen assets into the trust. This step legally removes the assets from your personal ownership.
  7. Consider the Medicaid Look-Back Period:
    • In Texas, Medicaid has a five-year look-back period. This means any asset transfers made within five years prior to applying for Medicaid can be penalized. Plan and set up your trust well in advance of when you anticipate needing Medicaid.
  8. Maintain Records and Manage the Trust:
    • Keep detailed records of the trust and its assets. Ensure the trustee manages the trust according to its terms and complies with all legal requirements.
  9. Regular Reviews and Adjustments:
    • Regularly review the trust with your attorney to ensure it continues to meet your needs and complies with any changes in Medicaid laws and regulations.
  10. Seek Professional Advice:
  • Given the complexities involved in Medicaid planning and trust law, it’s crucial to seek advice from a legal professional specializing in this area. An experienced attorney can guide you through the process, help you avoid common pitfalls, and ensure that the trust aligns with your Medicaid planning goals.

Setting up a trust for Medicaid asset protection in Texas is a complex process that requires thorough planning and legal expertise. It’s an important step in ensuring that your assets are preserved while maintaining eligibility for Medicaid benefits. See also…Protect Assets from Medicaid Recovery in Texas.

Does an irrevocable trust protect assets from medicaid?

Yes, an irrevocable trust can be used to protect assets from being counted for Medicaid eligibility, under certain conditions. When assets are transferred into an irrevocable trust, they are no longer considered part of your personal assets, assuming the trust is properly structured and administered. This can be a key strategy in Medicaid planning, especially for those seeking to qualify for long-term care benefits under Medicaid. Here are some important considerations:

  1. Loss of Control: Once you transfer assets into an irrevocable trust, you generally cannot change the terms of the trust or withdraw the assets. The trust becomes the legal owner of the assets.
  2. Medicaid Look-Back Period: Medicaid has a look-back period (five years in most states) during which all asset transfers are scrutinized. If you transfer assets into an irrevocable trust within this period, it could result in a penalty period of ineligibility for Medicaid benefits.
  3. Proper Structuring: The trust must be properly structured to ensure it meets Medicaid’s criteria. This often involves specific provisions about how the trust operates and is managed.
  4. State Laws: Medicaid rules can vary by state, so it’s important to understand the regulations in your particular state.
  5. Expert Guidance: Due to the complexities involved in Medicaid rules and trust law, it’s highly advisable to work with an estate planning attorney or a Medicaid planning expert when setting up an irrevocable trust for this purpose.

In summary, while an irrevocable trust can protect assets from Medicaid, setting one up for this purpose requires careful planning and adherence to specific legal criteria.