What a Trust Can and Cannot Do

A trust can protect assets from nursing home costs, but only if you set it up years before you need care — not after. The key is timing. When you place money or property into a trust before a health crisis, those assets may not count against you when you explore for Medicaid to pay for nursing home care. But if you create a trust after you have already been diagnosed with a condition requiring care, or after you have already moved into a facility, Medicaid will see through it and count the assets anyway.

The reason is a rule called the look-back period. Medicaid looks back five years from the date you explore to see if you moved assets into a trust or gave them away. If you did, Medicaid assumes you did it to hide money, and it penalizes you by making you wait before Medicaid will pay for your care. The penalty period is calculated based on how much you moved and when.

A trust does not protect assets from the nursing home bill itself — the facility will still bill you for care. What a trust does is keep those assets from counting as your own money when Medicaid decides whether you are poor enough to may have access to for help paying that bill.

Key Takeaways

  • A trust must be created at least five years before you explore for Medicaid nursing home coverage, or Medicaid will count the assets inside it anyway.
  • The most common type for this purpose is an irrevocable trust, which you cannot change or take money out of once it is funded — that is what makes Medicaid treat it as no longer yours.
  • A revocable trust (one you can change) does not protect assets from Medicaid because you still control the money, so Medicaid counts it as yours.
  • Trusts do not shield assets from the nursing home's bill; they only help you meet Medicaid's income and asset limits so Medicaid will pay the bill.
  • Setting up a trust requires a lawyer and costs money upfront, so you should understand whether your situation actually needs one before you pay for it.

The Five-Year Look-Back Rule and Why Timing Matters

Medicaid's five-year look-back period is the single most important rule for trusts and nursing home protection. When you file for Medicaid to cover nursing home costs, Medicaid asks for a detailed accounting of every financial transaction you made in the past five years. If you moved money into a trust during that window, Medicaid counts it as a transfer you made to avoid spending it on care.

The penalty for a transfer is not that you lose Medicaid coverage — it is that Medicaid makes you wait. The wait period is calculated by dividing the amount you transferred by the average cost of a nursing home in your state. If you transferred $100,000 and the average monthly cost is $8,000, you would wait roughly 12 months before Medicaid starts paying. During that time, you (or your family) have to pay the nursing home directly.

This is why a trust only works if you create it years in advance. If you set up an irrevocable trust today and move $200,000 into it, that money is protected from Medicaid five years from now — but not before. If you wait until you are diagnosed with dementia or heart failure, you have waited too long.

Irrevocable Trusts vs. Revocable Trusts

An irrevocable trust is a legal document that transfers ownership of your assets to the trust itself. Once you sign it and fund it, you cannot change it, take the money back, or spend it without the trustee's permission. Because you no longer own the money, Medicaid does not count it as yours. This is the type of trust that can protect assets from nursing home costs — but only if it was created more than five years before you explore for Medicaid.

A revocable trust is different. You can change it, take money out, or cancel it whenever you want. Because you still control the money, Medicaid treats it as if you still own it. A revocable trust does not protect assets from Medicaid at all. Many people set up revocable trusts for other reasons — to avoid probate, to keep finances private, or to plan for incapacity — but nursing home protection is not one of them.

The tradeoff is real: an irrevocable trust protects your assets, but it also means you give up control of that money. You cannot access it if you change your mind, if an emergency comes up, or if your situation improves. Some irrevocable trusts allow the trustee to give you money for health care or other needs, but that is up to the trustee, not you. You need to understand this loss of control before you set one up.

What Assets Can Go Into a Protective Trust

Most assets can be placed into an irrevocable trust: savings accounts, investment accounts, real estate, vehicles, and personal property. The exception is your primary home, which has its own Medicaid rules. In most states, your home does not count against your Medicaid asset limit, so you do not need to put it in a trust to protect it. Some states have a home equity limit — usually $884,520 as of 2024, though this amount changes yearly — but even then, a trust is not the standard solution.

Income is different from assets. Money you receive each month — Social Security, pensions, rental income — cannot be hidden in a trust. Medicaid counts your monthly income separately from your assets, and a trust does not change that. If your income is above Medicaid's limit, a trust will not help you may have access to.

Life insurance and retirement accounts (IRAs, 401(k)s) have their own rules and are not usually placed in trusts for Medicaid purposes. A lawyer can advise you on whether these should be included in your plan.

The Cost and Complexity of Setting Up a Trust

Creating an irrevocable trust requires a lawyer. The cost varies by state and by the complexity of your finances, but typically ranges from $1,500 to $3,500 for a straightforward trust. Some lawyers charge more if you have significant assets or complicated family situations. You also have to fund the trust, which means actually transferring the money or property into it — this is not automatic and requires paperwork.

After the trust is created, there are ongoing costs. The trustee (the person managing the trust) may charge a fee, usually a percentage of the assets in the trust each year. Banks and professional trustees often charge 0.5% to 1% annually. If you name a family member as trustee, they may not charge, but they are responsible for keeping records and filing tax returns for the trust.

A trust also requires maintenance. If you want to add assets to it later, you have to go back to a lawyer. If the trustee dies or becomes unable to serve, you have to name a replacement. These are not huge burdens, but they are real, and they cost money.

When a Trust Makes Sense and When It Does Not

A trust makes sense if you are in your 60s or early 70s, in reasonably good health, and you have significant assets you want to protect. If you have $300,000 or more and you are willing to give up control of some of it, a trust can reduce what Medicaid will require you to spend before it pays for nursing home care. The five-year window gives you time to plan.

A trust does not make sense if you are already in your 80s, if you have been diagnosed with a condition that typically requires nursing home care within a few years, or if you have very few assets. If you are already sick, you have missed the five-year window. If you have little money, there is nothing to protect — Medicaid will cover your care anyway because you are already poor.

A trust also does not make sense if you might need the money. If you are not certain you will need nursing home care, or if you might want to use the money for other things, giving up control of it in an irrevocable trust is a big step. Some people use a revocable trust instead, knowing it will not protect them from Medicaid but keeping their options open.

Other Ways to Protect Assets Without a Trust

A trust is not the only tool. Some people protect assets by giving them away to family members — but this also triggers the five-year look-back rule, so it only works if you do it years in advance. Others buy long-term care insurance, which pays for nursing home costs directly and does not require you to spend down your assets first. Long-term care insurance is expensive but can be worth it if you are healthy enough to may have access to.

Some states allow you to protect a certain amount of home equity without using a trust. A few states also allow you to protect assets in a Medicaid-compliant annuity, which converts a lump sum of money into a monthly income stream that does not count against your asset limit. An annuity is complex and not right for everyone, but it is an option worth discussing with a lawyer or financial planner who understands Medicaid rules.

The simplest approach, if you have time, is to spend down your assets on things you need or want — travel, home repairs, gifts to family — before you explore for Medicaid. This is legal and requires no lawyer. But it only works if you know you will need care soon enough to plan for it.

Frequently Asked Questions

If I put money in a trust today, when can Medicaid stop counting it?

Medicaid stops counting it five years after you fund the trust, assuming it is an irrevocable trust and you truly gave up control of the money. If you explore for Medicaid before five years have passed, Medicaid will count the money and impose a penalty period. The five-year clock starts when you actually transfer the money into the trust, not when you sign the trust document.

Can I name myself as the trustee of an irrevocable trust?

No. If you are the trustee, you still control the money, and Medicaid will count it as yours. You must name someone else — a family member, a bank, or a professional trustee — to manage the trust. This is what makes it irrevocable and what makes it work for Medicaid purposes.

What happens to the money in the trust if I die?

That depends on how you set up the trust. You can direct the trustee to give the money to your children, to charity, or to anyone else you choose. The money does not go through probate, which is one reason people use trusts. But the money is still part of your estate for tax purposes, so your heirs may owe estate tax depending on how much you leave.

Does a trust protect assets from my nursing home's bill if I run out of Medicaid coverage?

No. A trust protects assets from Medicaid's rules, not from the nursing home itself. If Medicaid stops paying for some reason, the nursing home can still bill you. If you have no money to pay, the nursing home may pursue collection or try to move you to a different facility. A trust does not shield you from that.

Can I change my mind and take money out of an irrevocable trust?

Not without the trustee's permission, and even then it may disrupt your Medicaid coverage. If you take money out, Medicaid may count it as income or as a new transfer, depending on the timing and the amount. This is why you should only put money into an irrevocable trust if you are certain you do not need it.