Medicaid Asset Protection Trusts: Protecting Your Nest Egg From Long‑Term Care Costs

Growing old brings joys and challenges. Among the most daunting is the soaring cost of long‑term care. According to a 2016 survey the average annual cost of a nursing home approached $80,000, and in states like New Hampshire and Massachusetts it exceeded $120,000 and $140,000, respectively. These figures have continued to rise. Medicare and private health insurance usually do not cover long‑term nursing care. As a result, roughly half of seniors eventually turn to Medicaid, the joint federal‑state program that pays nursing home expenses for those who meet strict income and asset limits.

Qualifying for Medicaid requires careful planning, because the program is intended for the poor. In 2025 a single Medicaid applicant generally must have monthly income below $2,901 and countable assets under $2,000. Couples applying together can keep a modest sum ($3,000 for assets and $5,802 of monthly income). If only one spouse needs care, the non‑applicant spouse is allowed to retain up to $157,920 in resources under the community spouse resource allowance. While a primary residence is usually exempt if the owner intends to return home, most other assets count toward the limit. As a result, families often face the uncomfortable choice of spending down savings and selling property to meet eligibility.

Why the Look‑Back Rule Matters

In order to prevent people from artificially impoverishing themselves just to qualify for Medicaid, federal law imposes a look‑back period. When someone applies for long‑term care Medicaid, the state examines financial transactions for the previous five years (60 months) to see whether the applicant transferred assets for less than fair market value. Gifts to children, transferring real estate for a dollar or making large charitable donations can all trigger penalties. If the state identifies such transfers, it imposes a penalty period during which Medicaid will not pay for nursing home care; the penalty is calculated by dividing the value of the transfer by a state‑specific divisor representing average nursing home costs.

The look‑back rule varies somewhat by state. For example, California eliminated its asset limit and is phasing out a 30‑month (2.5‑year) look‑back period, which will disappear completely by July 2026. New York has no look‑back for community Medicaid (in‑home care) but plans to implement a 30‑month look‑back for those services in 2025. Nevertheless, for most applicants in most states, the five‑year rule is the operative standard.

Because transfers into trusts during the look‑back period are treated as gifts, careful timing is essential. Transferring assets to an irrevocable trust within the look‑back period will cause a penalty period. Therefore, families considering a Medicaid asset protection trust need to plan well in advance of when care might be needed.

What Is a Medicaid Asset Protection Trust?

A Medicaid asset protection trust (MAPT) is an irrevocable trust designed to shelter assets from the Medicaid spend‑down while still providing for a spouse or children. When a person (the grantor) transfers ownership of their home, savings or investments into a MAPT, they relinquish legal control of those assets. The trustee—often an adult child or trusted relative—manages the assets for the benefit of named beneficiaries. Because the grantor no longer owns the property, it is not considered part of their countable estate for Medicaid purposes. This allows the grantor to qualify for Medicaid coverage of long‑term care while preserving the assets for heirs.

MAPTs are irrevocable; once assets are transferred, the grantor cannot freely access the principal. However, if the trust holds income‑producing assets, the grantor may receive income from the trust so long as their total income stays below Medicaid’s limit. Typical assets placed in a MAPT include a primary residence, other real estate, bank accounts, brokerage accounts, stocks, bonds, mutual funds and certificates of deposit. Retirement accounts like IRAs and 401(k)s generally should not be transferred to a MAPT because doing so would trigger immediate income tax consequences.

Crucially, once assets are in the trust and the five‑year look‑back has expired, those assets are protected from estate recovery. Medicaid programs may seek reimbursement from an estate after the recipient’s death, but property in a properly drafted MAPT is not subject to these claims. Additionally, in many states the home becomes protected from forced sale while allowing the grantor to remain living there.

How a MAPT Works: An Example

Consider Mary, a 72‑year‑old widow who owns a home worth $400,000 and has $300,000 in savings and investments. She expects she may need assisted‑living or nursing home care within the next decade. She consults an elder law attorney and decides to create a Medicaid asset protection trust. Mary transfers her home and $250,000 of her investments into the trust, naming her daughter as trustee and her two children as remainder beneficiaries. She retains the right to live in the home for life and receives income generated by the investments, but she cannot withdraw the principal.

Mary completes these transfers in 2025. If she remains healthy and avoids needing long‑term care for at least five years—until 2030—those assets will be protected and will not be counted if she later applies for Medicaid coverage. If Mary needs care in 2027 (within the five‑year period), the transfer will be treated as a gift, and she would face a penalty period during which she must pay for her care out of pocket. Once the penalty period ends, she would qualify for Medicaid, and the trust assets would remain shielded for her children.

Benefits of Medicaid Asset Protection Trusts

MAPTs offer several advantages:

• Qualifying for Medicaid while preserving assets: By moving assets into an irrevocable trust, the grantor can meet the low asset threshold and qualify for Medicaid benefits without impoverishing the healthy spouse or disinheriting children.

• Protection from estate recovery: After the grantor’s death, Medicaid can recover benefits paid by making claims against the estate. Assets held in a MAPT are generally exempt from such recovery, ensuring they pass to heirs.

• Safeguarding the home: A MAPT can protect the family home while allowing the grantor to continue living there. Homestead protection is particularly valuable in states where property is otherwise subject to liens.

• Financial stability for the spouse: If only one spouse needs care, the community spouse can continue using income from trust assets or reside in the home without those assets counting toward the Medicaid asset limit.

• Preserving wealth for future generations: Trust assets can be structured to pass to children or grandchildren, helping preserve family wealth and providing a legacy.

Drawbacks and Considerations

While MAPTs provide powerful benefits, they are not a one‑size‑fits‑all solution. Key considerations include:

• Irrevocability: Once established, a MAPT generally cannot be revoked or amended without court permission or beneficiary consent. The grantor loses control over the principal and must rely on the trustee’s discretion. Some states, like Wisconsin, allow modification or cancellation with consent of all parties, but in most jurisdictions the trust is difficult to change.

• Timing: Transfers to a MAPT trigger the Medicaid look‑back period. If the grantor requires nursing care within five years of funding the trust, the assets may still be subject to penalty. Early planning is essential. Proactive planning—transferring assets and waiting out the five‑year period—is critical to secure the benefits.

• Cost and complexity: Setting up a MAPT involves attorney fees and sometimes ongoing administrative costs. Estimates range from $2,000 to $12,000 depending on the complexity of the estate. However, given that the average nursing home costs around $8,669 per month, the potential savings often outweigh the setup expenses.

• State variations: Medicaid rules vary widely. For example, in Michigan a home transferred to a MAPT is still counted as a resource. California’s unique regulations allow revocable trusts to avoid estate recovery, while New York will soon introduce a 30‑month look‑back for home care. It is imperative to consult an attorney familiar with your state’s rules.

• Income limits: While the trust principal is exempt, any income from assets may still count toward Medicaid’s monthly income limit, which for single applicants is about $2,901 per month in 2025. If income exceeds the limit, strategies like a Qualified Income Trust (also called a Miller trust) may be needed.

Alternatives and Complementary Strategies

MAPTs are only one tool in the Medicaid planning toolbox. Other strategies can help spend down assets or convert them to income in a Medicaid-compliant way:

• Spend‑Down Strategies: You can use excess resources to improve quality of life by paying for home repairs, modifying bathrooms, buying medical equipment, replacing vehicles, paying off debts and prepaying funeral expenses. These expenditures reduce countable assets without violating Medicaid rules.

• Medicaid‑Compliant Annuities and Promissory Notes: Irrevocable annuities and promissory notes can convert assets into an income stream, which may help applicants meet asset limits while still receiving payments. These instruments must meet strict requirements and are subject to scrutiny.

• Qualified Income Trusts (Miller Trusts): In states that use the “income cap” model, applicants whose income exceeds Medicaid limits can deposit excess income into a trust to qualify for benefits. The trustee uses the funds to pay medical expenses and a modest personal needs allowance.

• Long‑Term Care Insurance: Purchasing private insurance can help cover nursing home costs and may delay or reduce reliance on Medicaid. However, premiums can be high, and coverage varies.

• Irrevocable Funeral Trusts: Prepaying funeral expenses through an irrevocable trust can reduce assets while ensuring a dignified burial. Many states treat these trusts as exempt resources.

Working with an experienced elder law attorney can help determine which mix of strategies is appropriate for your situation.

Planning Steps for Setting Up a MAPT

1. Assess Long‑Term Care Risk and Goals: Consider family health history, personal health, financial resources and whether you want to protect property for heirs. Statistics show that about half of individuals aged 65 will require long‑term care, and the likelihood rises to 75% by age 85.

2. Choose the Right Assets to Transfer: Not all assets belong in a MAPT. While homes, non‑retirement investments and bank accounts are commonly transferred, retirement accounts may carry tax penalties and are usually better handled with beneficiary designations.

3. Select a Trustee and Beneficiaries: The trustee will control the trust assets, so choose someone with integrity and financial acumen. Many people select adult children or professional trustees. Beneficiaries are typically children or other heirs, though trusts can be tailored to provide lifetime income to a spouse while preserving the remainder for children.

4. Draft the Trust with State‑Specific Provisions: State Medicaid rules differ widely. A qualified attorney will draft the trust to comply with local requirements and to address estate tax issues, spousal elective shares, homestead rules and other considerations. In some states, the trust must include a Medicaid payback provision; in others, it may not.

5. Fund the Trust and Start the Clock: Transfer deeds for real estate and retitle financial accounts. Be sure to complete these steps at least five years before you anticipate needing long‑term care to avoid penalty periods. Keep thorough records, as Medicaid will ask for documentation of all transactions during the look‑back period.

6. Coordinate With Your Overall Estate Plan: MAPTs work best when integrated with wills, revocable trusts, powers of attorney and healthcare directives. For example, your will should include a pour-over provision to transfer any remaining assets into the MAPT at death (subject to probate and look‑back implications), and your power of attorney should authorize your agent to fund the trust if you cannot. Keeping your entire estate plan coherent prevents conflict and ensures assets are properly managed.

Conclusion: Early Planning Preserves Autonomy and Wealth

Medicaid asset protection trusts are powerful tools for families concerned about long‑term care costs. By transferring assets into an irrevocable trust well before nursing home care is needed, seniors can preserve their homes and savings for their spouses and children, qualify for Medicaid benefits when necessary and avoid estate recovery claims. However, MAPTs are not suitable for everyone. They require relinquishing control, must be created outside the five‑year look‑back window and involve costs and ongoing oversight. State laws differ widely; some states count homes in MAPTs as resources, while others provide generous protections. Working with an experienced elder law attorney and financial advisor is essential to navigate these nuances and integrate a MAPT with other planning tools.

The key takeaway? Do not wait until health problems force a rushed decision. With life expectancy increasing and long‑term care costs climbing, proactive planning is essential. Whether you ultimately choose a Medicaid asset protection trust, a spend-down strategy or a combination of tools, early action ensures you maintain dignity and financial security in your later years while leaving a meaningful legacy for your loved ones.