Can an Irrevocable Trust Protect Your Assets From Medicaid?

Long-term care in a nursing home can be expensive. In 2020, the average cost for a semi-private room was $7,756 per month, increasing to $8,821 per month for a private room. When you consider the average Social Security payout in June 2020 was about $1,500 per month, this leaves seniors to struggle to afford the care they need.

It's no surprise that so many people turn to Medicaid for help. Medicaid pays for nursing home care more than any other type of insurance. Unfortunately, it does that by making you spend down your assets.

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Countable Assets for Medicaid

When it comes to basic health care, Medicaid eligibility is based on your income. When it comes to long-term care in a nursing home, however, Medicaid also takes a close look at your assets. For the year 2021, you must have $2,000 or less in total countable assets and earn less than $2,382 per month in income.

Not everything you own will necessarily count towards your Medicaid eligibility for long-term care. It is important to understand what does and does not count. Keep in mind that Medicaid programs are run by the state and each state may have criteria that vary from what is listed below.

Countable Assets

Countable assets include:

  • Bank accounts
  • Certificates of deposit
  • Life insurance policy with cash value over $2,500 (i.e., if the cash value is $3,000, only $500 is countable for Medicaid purposes)
  • Property (additional real estate that is not for rent)
  • Stocks and bonds
  • Vehicles (additional vehicles less than seven years old)

Non-Countable Assets

These assets are not counted:

  • 401Ks or IRAs
  • Assets that you made a "good faith effort" to sell but could not (e.g., timeshares)
  • Home improvements
  • Life insurance policy with cash value up to $2,500
  • Personal property (e.g., art, furniture, jewelry)
  • Pre-paid funeral and burial expenses
  • Property (primary residence and rental properties that are not a primary residence)

Keep in mind that any payouts you receive from a 401K or IRA or income you receive from a rental property will affect your Medicaid eligibility. They will count towards your income limit.

If you have too many assets, you may need to spend down before you can be eligible for nursing home care.

The Medicaid Look-Back Period

For obvious reasons, many people want to preserve their assets for their spouse, children, or future generations. This is where Medicaid planning becomes very important.

Some people will try to give their assets away or transfer them to friends and family, but that could pose its own problems. That is where the Medicaid look-back period comes into play.

The government looks to see if any assets were gifted, transferred, given away, or sold for less than their fair market value. Most states with the exception of California look back 60 months (five years); California only looks back 30 months.

Any assets that fall under the Medicaid look-back period will delay when you can go to a nursing home.

The more money that changed hands, the longer the waiting period. It could even take months or years to get placed in a nursing home. This can be troublesome for anyone needing urgent care.

Revocable vs. Irrevocable Trusts

The trick is to turn your countable assets into non-countable assets. Some people look to trusts as a way to accomplish this goal. Unfortunately, not all trusts are created equal. You need to understand the difference between a revocable and an irrevocable trust.

A revocable trust is one where you still have access to your assets and still retain control to change or cancel provisions of the trust. Medicaid will see this kind of trust as a countable asset.

An irrevocable trust, on the other hand, is one where someone else, a designated trustee, takes the reins. You cannot touch the assets or amend provisions for the trust in any way.

The trustee is not required to distribute any assets to you, even for the purposes of health care. The day your assets are transferred into an irrevocable trust, they become non-countable for Medicaid purposes.

Unfortunately, those assets are seen as a gift and are subject to the Medicaid look-back period. After a five-year period (a 30-month period in California), transferred assets will no longer subject you to penalties or delayed eligibility for Medicaid's long-term care benefits.

Planning in advance, before you even need nursing home care, provides the most advantages.

Benefits of an Irrevocable Trust

There are pros and cons to using an irrevocable trust as part of your Medicaid plan.

For one, they can be a risky venture. As much as you believe the person you assign as a trustee will manage the assets in your best interests, there is nothing to stop that person from spending down the funds for their own gain. You need to be confident about your decision because you will not have legal recourse in the event that occurs.

Beyond converting your countable assets to non-countable assets, there are other benefits in having an irrevocable trust. This relates to estate planning.

Upon your death, Medicaid reserves the right to recover funds they paid on your behalf. They can go after your remaining assets, even assets that were not initially countable, like your house.

However, your state cannot recover from the estate if you are survived by a spouse, have a child under age 21, or have a blind or disabled child of any age. When your spouse dies, so long as you do not have children who meet the criteria above, the state can still go after your estate.

An irrevocable trust can protect your assets against Medicaid estate recovery. Assets in an irrevocable trust are not owned in your name, and therefore, are not part of the probated estate.

When you or your spouse (if they are part of the trust) pass away, any assets put into an irrevocable trust are not included in the estate for the calculation of Medicaid recovery, the estate tax, or probate.

A Word From Verywell

Medicaid planning can be very complicated, and is even more challenging by the fact that each state has its own rules. An irrevocable trust may be one option to consider.

Transferring your assets into a trust can make them non-countable for Medicaid eligibility, although they could be subject to the Medicaid look-back period if the trust is set up within five years of your Medicaid application. It may be in your best interest to discuss these and other Medicaid planning options with an elder law attorney in your state.

5 Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Genworth. Cost of care survey.

  2. Center on Budget and Policy Priorities. Policy basics: Top ten facts about Social Security.

  3. American Council on Aging. Medicaid Eligibility: 2021 Income, Asset & Care Requirements for Nursing Homes & Long-Term Care.

  4. American Council on Aging. Understand Medicaid’s look-back period; penalties, exceptions & state variances.

  5. American Council on Aging. Medicaid estate recovery programs: when Medicaid can and cannot take one’s home.

By Tanya Feke, MD
Tanya Feke, MD, is a board-certified family physician, patient advocate and best-selling author of "Medicare Essentials: A Physician Insider Explains the Fine Print."