Medicaid101: How Families Can Protect A Loved One's Assets and Still Qualify For Coverage


Medicare and Medicaid can be confusing, even for people who routinely deal with government programs. For seniors and their caregivers, learning the differences between these federal and state programs and what each program offers could mean receiving additional funds and support for loved ones.

Applying for Medicaid means the applicant must meet the income and asset requirements to be eligible for benefits. Therefore, the first step is determining the eligibility requirements for the person's state of residence.

specific state laws and the person's unique circumstances. There is no "one-size-fits-all" solution. Therefore, it is best to consult an elder law attorney or Medicaid planning attorney. These lawyers specialize in estate planning for elderly individuals and people who must protect their assets while qualifying for Medicaid benefits.

Common Types of Trusts That Help Protect Your Assets

Examples of trusts that could help you protect your loved one's assets if they require long-term nursing care:

Revocable Living Trusts

A living trust is a trust agreement you create during your lifetime. A "revocable" living trust" means that you can end the trust whenever you desire. The benefits of creating a revocable living trust include:

  • Add or remove assets from the trust
  • Change the terms and conditions of the trust agreement
  • Sell assets through the trust or remove the assets to sell them in your personal name
  • Add or remove trust beneficiaries
  • The assets in the trust agreement do not pass through probate

Upon death, a revocable trust becomes an irrevocable trust. The terms and conditions of the trust cannot be changed. The trustee must manage or disburse the trust assets according to the terms of the trust.

Unfortunately, a revocable living trust does not protect a person's assets from Medicaid because the person retains control over the assets. Furthermore, Medicaid counts the assets in a revocable trust when it considers a person's eligibility for benefits.

Irrevocable Living Trusts

With very few exceptions, the terms and conditions of an irrevocable trust cannot be changed. The trustee cannot add or remove beneficiaries. The trustee must manage the trust according to the terms outlined in the trust agreement, including disposing of assets and making payments to beneficiaries.

Irrevocable living trusts can provide greater asset protection and tax benefits than revocable living trusts. Irrevocable living trusts also avoid the need to probate the assets in the trust when the person dies.

Choosing an irrevocable living trust for Medicaid planning may help some people qualify for Medicaid benefits because the property held by the trust does not belong to the person. Once the person transfers the property to the trust, the person no longer has any control over the asset.

However, a few things to remember before choosing an irrevocable trust for Medicaid planning.

  • You lose control over the assets when you transfer them to the trust
  • Generally, you cannot change the terms of the trust
  • Transferring assets to a trust is included in the Medicaid lookback period, including transfers to an irrevocable trust
  • Any benefits or assets the trustee disburses to a beneficiary can be counted as an asset or resource for Medicaid eligibility for that beneficiary

While revocable living trusts could be a better option for Medicaid planning, careful thought must be given to the terms and conditions of the trust agreement. If the agreement is not worded correctly, Medicaid could still count the assets and trust income as resources.

Medicaid Asset Protection Trusts (MAPT)

A Medicaid Asset Protection Trust is an irrevocable trust agreement. It is used to protect assets from Medicaid. Because assets in a MAPT are not countable assets, APTs can help people qualify for Medicaid benefits.

However, the same transfer and look back rules apply for Medicaid Asset Protection Trusts as for all other trusts. If your loved one needs nursing or skilled care before the five-year look-back period, Medicaid could apply a disqualification penalty period before the person can receive Medicaid benefits. When your loved one dies after receiving Medicaid benefits, Medicaid cannot claim the assets in the trust to reimburse Medicaid for money it paid for care.

One thing to remember with MAPTs is that your loved one cannot be a beneficiary of the trust for the trust assets to be exempt for Medicaid purposes. Furthermore, MAPTs are unsuitable for some assets, such as IRA accounts and qualified plans.

Miller Trusts

A Miller Trust or Qualified Income Trust is an example of an irrevocable trust that could allow your family member to qualify for Medicaid if they earn more than the income limit for Medicaid. The income in a Miller Trust does not count towards the Medicaid income qualifications. All qualifying income should be placed in the account. Furthermore, Miller Trusts are not designed to hold assets other than income.

The income in the trust is used to pay the person's nursing home bill. Medicaid covers the difference if the person meets other Medicaid qualifications. Sometimes, the trust may pay a small amount to the Medicaid recipient for personal needs each month. The amount varies by state. A community spouse may receive a monthly amount as well for personal expenses.

The rules for Miller Trusts vary by state. Therefore, you should talk with a lawyer in your state to determine if a Miller Trust would be helpful to qualify for Medicaid benefits.

One Last Thought About Trusts for Medicaid Planning

Transfers to trusts are subject to Medicaid's lookback period. The lookback period allows Medicaid to recover assets that would have been used to pay for long-term care had the person not transferred the assets to become eligible for Medicaid. Depending on state law, Medicaid could seize the assets to reimburse the program for nursing home care if the person dies before the lookback period expires.

Medicaid planning is a complex area of elder law and estate law. Therefore, it is best to consult an experienced estate planning and elder law attorney in your state before you transfer assets or create any trust. During the decision process, timely communication between family members is critical. In some cases, correcting the situation after transferring assets or making certain decisions could be impossible. If your family struggles to keep each other informed due to busy schedules or distance, consider Livindi. The helper app is a hub for caregivers that makes it easy for everyone to connect with each other and stay informed about a loved one’s wellbeing.