What Is a Medicaid Trust?
A Medicaid trust—more formally called a Medicaid Asset Protection Trust (MAPT)—is a specialized irrevocable trust designed to help individuals qualify for Medicaid while preserving certain assets for their heirs. The primary goal is to shelter assets from being counted in Medicaid’s financial eligibility test, so they are not depleted by long-term care costs.
While Medicaid is a joint federal–state program, each state has its own rules about how these trusts are structured and implemented. However, the core principle is the same: you transfer ownership of certain assets to the trust so that, after a waiting period, they are no longer considered yours for Medicaid eligibility purposes.
Medicaid trusts are complicated so it’s best to consult a qualified “Elder Law” attorney to determine if it’s the right fit for you. Let’s unpack a few key concepts though.
How a Medicaid Trust Works
When you place assets into a Medicaid trust, you give up direct ownership and control over them. You may retain the right to receive income from trust assets (like dividends or interest), but you cannot access the principal. This is the key to preventing the assets from being looked at by Medicaid.
The trust is managed by a trustee which cannot be you or your spouse. Often an adult child or trusted family member is responsible for managing and distributing the assets. If you do have someone who can perform this role, corporate trustees can be found. Any decisions that need to be made and executed regarding the assets in the Medicaid trust must have the trustee involved.
Finally, a Medicaid Trust is Irrevocable which means you cannot change your mind later after it’s funded.
Funding a Medicaid Trust
A Medicaid trust only protects what you put into it—and when you put it in matters.
Transfer In Advance
Most states have a five-year look-back period (30 months in California). Transfers to a Medicaid trust within this period can cause a penalty period of Medicaid ineligibility.
For example, if you transfer $100,000 to a Medicaid Trust in October 2025 and enter attempt to become qualified for Medicaid in May 2028 (32 months from transfer), Medicaid will include the $100,000 as eligible assets.
If you don’t apply for Medicaid until November 2030, the $100,000 transfer will not be included.
What to Fund the Trust With, or Not
Not all assets are easily protected by a Medicaid Trust.
- Commonly transferred: real estate (including your primary residence), non-retirement investment accounts, savings, CDs, and sometimes life insurance cash values.
- Less common: business interests or income-producing property (depends on state rules).
- Rarely transferred: IRAs or other qualified retirement accounts, as these typically require liquidation before transfer, which triggers income tax.
Downsides or Limitations
While a Medicaid trust can be a powerful planning tool, it comes with trade-offs.
1. Loss of Control
Once you transfer assets into an irrevocable trust, you cannot take them back or change your mind. The trustee controls the assets according to the trust’s terms.
2. Impact on Flexibility
Your ability to sell, refinance, or repurpose trust-owned assets is limited—you’ll need trustee cooperation and must follow trust rules.
3. Five-Year Look-Back
If you need nursing home care before the look-back period ends, those transferred assets could still disqualify you from Medicaid until the penalty period expires.
4. Income Still Counts
While the principal may be protected, income generated by trust assets often must be used to pay for your care.
5. Estate Recovery Rules
Assets may avoid being spent during your lifetime, but poor planning could still expose them to Medicaid estate recovery after death if not properly structured.
6. Setup and Maintenance Costs
Creating a Medicaid trust requires an experienced elder law attorney, and costs can be several thousand dollars. There may also be ongoing administration and tax filing requirements.
Final Thoughts
A Medicaid trust is not a one-size-fits-all solution, but when used correctly and well ahead of time, it can shield significant assets from long-term care costs while still allowing you to benefit from them in limited ways.
The key is early, strategic planning with a qualified elder law attorney who understands your state’s Medicaid rules. It can be worth exploring if:
- You want to preserve assets for your spouse, children, or other heirs.
- You’re not likely to need nursing home care within the next five years.
- You have significant non-retirement assets that could be exposed to long-term care costs.
- You’re comfortable giving up direct control of those assets.
It’s less effective if you already need care, have mostly retirement assets, or are unwilling to relinquish ownership.
Additionally, you should carefully consider your overall picture and how you can potentially protect assets through other means.