Irrevocable trusts — the Medicaid planning tool

Reviewed by a licensed elder law attorney

An irrevocable trust removes assets from your parent's legal ownership, which means Medicaid does not count those assets when determining eligibility for long-term care coverage. The tradeoff is permanent: your parent gives up control of the money. The five-year look-back period means this planning must happen well before care is needed to be effective. This is attorney-guided work with no room for DIY.

Why Anyone Would Give Up Control of Their Own Money

An irrevocable trust sounds like a legal straightjacket. The word "irrevocable" means it cannot be undone or changed later. In a world where circumstances shift and people change their minds, putting your parent's money into something permanent and unchangeable feels backwards. Why would anyone do that on purpose?

The reason is Medicaid. According to the U.S. Department of Health and Human Services, roughly 70 percent of people turning 65 will need some form of long-term care. The Genworth Cost of Care Survey puts the national median cost of a semi-private nursing home room at over $100,000 per year, and costs in major metropolitan areas run substantially higher. If your parent's assets are not large enough to cover those costs indefinitely, an irrevocable trust can protect some of their wealth from being consumed by care bills.

The logic works like this: Medicaid pays for long-term care when a person's countable assets fall below a very low threshold (typically $2,000 to $3,000 depending on the state, according to the Centers for Medicare and Medicaid Services). If your parent transfers assets into an irrevocable trust, those assets are no longer legally your parent's property. If they are not your parent's property, Medicaid does not count them. If Medicaid does not count them, your parent may qualify for coverage while the trust preserves wealth for heirs.

This is complicated enough that it absolutely requires a qualified elder law attorney. But understanding the basics helps you have an informed conversation about whether this tool belongs in your parent's plan.

Assessing Whether This Makes Sense for Your Parent

Start with what your parent actually owns. Savings, investments, the house, life insurance, valuable personal property. Get a realistic total. Then look at your parent's health picture. Is long-term care theoretical or probable? Has a doctor suggested it may be needed? Is your parent currently managing well at home, or are things deteriorating?

If your parent has long-term care insurance, that changes the equation significantly because insurance covers a large portion of costs directly. If your parent does not have insurance and cannot qualify for it (common for people already showing health decline), the question becomes: how will care be paid for, and what happens to the rest of the estate?

What does your parent actually want? Some parents care deeply about leaving an inheritance. Some care only about ensuring their own care is covered. Some want both and are willing to accept the tradeoffs necessary to protect assets. This is a values conversation, not just a financial one, and it drives everything that follows.

If your parent has substantial assets and is facing probable long-term care needs in the coming years, an irrevocable trust is worth serious discussion with an attorney. If your parent is healthy with no indication of future care needs, or if your parent has enough assets to self-fund years of care without Medicaid, the trust may not be necessary.

How the Trust Actually Works

Your parent transfers assets into the trust. A trustee (who cannot be your parent) takes legal control. Your parent no longer owns those assets and cannot access them directly. The trust document specifies how the assets can be used, who benefits from them, and what happens to them when your parent dies.

The trust can be structured to distribute income to your parent during their lifetime. It can allow payment for certain expenses. But the terms are set when the trust is created and cannot be changed afterward. Your parent is locked into whatever the document says.

Medicaid's five-year look-back period is the critical timing element. According to the Centers for Medicare and Medicaid Services, if your parent transferred assets into a trust within five years before applying for Medicaid, those assets are still counted against eligibility. Medicaid calculates a penalty period, dividing the transferred amount by the average monthly cost of care in your state, during which it will not pay. The penalty can last months or years.

This means timing is everything. If your parent creates the trust today and does not need Medicaid for six years, the look-back period has passed and the assets are protected. If your parent creates the trust today and needs Medicaid in three years, the transfer triggers a penalty and the trust works against your parent instead of for them.

When your parent dies, the trust assets pass to whoever the trust document designates. They do not go through probate. They are not part of the estate that Medicaid can pursue through estate recovery. Depending on how the trust is structured, there may be tax advantages as well.

What Your Parent Gives Up

This is the part that deserves honest consideration. Your parent is permanently surrendering control of the money. If circumstances improve and care is never needed, the money is still locked in the trust. If your parent changes their mind about who should inherit, the trust terms cannot be modified. If the trustee makes decisions your parent disagrees with, your parent has no authority to override them.

The trustee selection matters enormously. A family member who is trustworthy, financially responsible, and willing to serve long-term is the most common choice. A professional trustee (such as a bank or trust company) is more expensive but eliminates the risk of family conflict. Whoever it is, your parent needs to trust them completely because they will control the money for the rest of your parent's life and beyond.

Your parent also needs to understand that an irrevocable trust is not a hiding strategy. Medicaid is sophisticated about identifying trusts created for the purpose of qualification. The trust must be properly structured by an attorney who understands both trust law and Medicaid regulations in your parent's state. A trust that does not meet Medicaid's requirements will not protect the assets, and your parent will have given up control for nothing.

When to Act

If your parent is healthy and has no reason to expect long-term care, revisit this topic periodically but do not feel rushed. Circumstances change, and the conversation can be reopened.

If your parent has health issues that suggest long-term care in the coming years, talk to an elder law attorney now. Not an estate planning attorney. Not a tax attorney. An elder law attorney who specializes in Medicaid planning and understands the rules in your parent's state. NAELA (the National Academy of Elder Law Attorneys) maintains a directory at naela.org.

Do not wait until your parent is already in a care facility. At that point, the five-year look-back period makes an irrevocable trust useless for Medicaid purposes. The planning window closes well before the crisis arrives.

Your parent also has the option of not pursuing this strategy at all. If your parent has sufficient assets to self-fund care for their likely remaining years, protecting wealth through an irrevocable trust may be unnecessary. Some parents prefer to maintain full control and accept that care costs will reduce the estate. That is a legitimate choice.

An irrevocable trust is not the right tool for every family. But for parents facing probable long-term care costs with assets they want to protect for the next generation, it is one of the most effective Medicaid planning strategies available. The key is starting early, choosing the right attorney, and understanding the permanent nature of the tradeoff.

Frequently Asked Questions

What is the difference between a revocable and irrevocable trust for Medicaid?
A revocable trust lets your parent maintain control and access to assets, which means Medicaid counts those assets as if they were still in your parent's name. An irrevocable trust removes your parent's control and ownership, which means Medicaid does not count the assets, provided the trust was created outside the five-year look-back period. Only irrevocable trusts offer Medicaid asset protection.

How long is Medicaid's look-back period?
Five years (60 months) in most states. Any asset transfers made within this window before a Medicaid application will be scrutinized and may result in a penalty period during which Medicaid refuses to pay for care. California extended its look-back period to 30 months starting in 2024 after previously having none.

Can my parent still receive income from an irrevocable trust?
It depends on how the trust is structured. Some irrevocable trusts allow income distributions (interest, dividends) to the grantor while keeping the principal protected. The specific terms are set when the trust is created and cannot be changed. An elder law attorney structures the income provisions based on your parent's needs and Medicaid rules.

What happens to the trust assets when my parent dies?
The assets pass to the beneficiaries named in the trust document. They do not go through probate and are generally not subject to Medicaid estate recovery. The distribution happens according to the trust's terms, which your parent defined when the trust was created.

How much does it cost to set up an irrevocable trust?
Attorney fees for creating an irrevocable trust typically range from $2,000 to $7,000 or more, depending on the complexity of the estate and the attorney's market. This does not include the cost of retitling assets into the trust. While significant, this cost is a fraction of what long-term care would consume from unprotected assets.

Can an irrevocable trust be changed or undone?
Generally, no. That is the defining characteristic. In very limited circumstances, a court may allow modification or termination (for example, if all beneficiaries agree and the modification does not violate the trust's purpose), but this is rare and not something to count on. Your parent should treat the decision as permanent.