FAQ Medicaid Asset Protection Planning

Because the trust is irrevocable, the creator (Settlor) cannot be the Trustee and cannot have the power to pull principal back out of the trust for their own use. However, a properly drafted MAPT allows the creator to remain in their home for life and ensures that the property passes to their heirs without being subject to Medicaid Estate Recovery.

It is important to distinguish between countable and exempt assets. Countable assets include cash, stocks, bonds, and secondary real estate. Exempt assets typically include a primary residence (up to certain equity limits), one vehicle, personal effects, and prepaid funeral arrangements. Because these limits are so low, advance planning is essential for middle-class families.

However, if a Medicaid recipient passes away and the home is still in their name, the state may initiate Estate Recovery to recoup the costs paid for their care. Asset protection planning often involves transferring the home into a life estate or a Medicaid Asset Protection Trust to ensure the home is preserved for the next generation.

The state cannot recover assets if there is a surviving spouse, a child under 21, or a blind or disabled child. Outside of these exceptions, the state acts as a creditor against the probate estate. Planning strategies aim to move assets out of the “probate estate” so they are legally out of reach for the recovery program.

A “Spend Down” is the process of reducing countable assets to meet Medicaid eligibility levels. This does not mean you have to give the money away; rather, you must spend it on “qualifying” expenses that benefit the applicant or their spouse.

Common spend-down strategies include:

• Paying off existing debt (mortgages, credit cards).
• Making necessary home repairs or modifications.
• Purchasing a Medicaid-Compliant Annuity.
• Prepaying funeral and burial expenses.
• Purchasing a new vehicle.

The key is to receive fair market value for every dollar spent to avoid triggering a transfer penalty.

In states with an income cap, the solution is often a Qualified Income Trust (QIT), also known as a Miller Trust. By redirecting income into this specific trust, the “excess” income is not counted for eligibility purposes, allowing the senior to qualify for benefits despite being “over income.”

When only one spouse requires nursing home care, the “well spouse” (the Community Spouse) is allowed to keep a certain amount of assets to prevent them from falling into poverty. This is known as the Community Spouse Resource Allowance (CSRA).

For 2026, the federal maximum CSRA is approximately $154,140. While the applicant spouse is limited to $2,000, the Community Spouse can often keep significantly more, plus the primary home and one vehicle. Effective planning can sometimes increase this allowance through “spousal refusal” strategies or court orders, depending on the state.

To qualify, the child must prove that the care they provided allowed the parent to remain at home and delayed their institutionalization. Documentation from a physician is typically required. This is one of the few ways to legally transfer a high-value asset like a home within the five-year window without losing Medicaid eligibility.

A Medicaid-Compliant Annuity (MCA) is a financial tool used to turn “countable” cash into a “non-countable” stream of income. This is most often used in “crisis planning” when a senior is already in or about to enter a nursing home and has too many assets to qualify.

To be compliant, the annuity must be:

• Irrevocable (cannot be cancelled).
• Non-assignable (cannot be sold).
• Actuarially sound (pays out within the owner’s life expectancy).
• State-named beneficiary (the state must be named as the primary beneficiary up to the amount of care provided).

MCAs are frequently used to protect assets for a healthy spouse while getting the ill spouse immediate Medicaid coverage.