Estate Planning Basics for Medicaid

Estate planning decides what happens to a person’s property when they die and who makes decisions for them if they cannot. Long-Term Care Medicaid adds a layer that ordinary estate plans often ignore: an inheritance can knock a spouse or disabled relative off Medicaid, the state may seek repayment from the estate through estate recovery, and documents written years ago may not allow the planning a family needs today. This guide covers the estate planning basics every family facing long-term care should know.

Figures change periodically. Double-check current amounts before relying on them.

The short version

Every adult should have a durable power of attorney, a health care power of attorney and a will (or trust). For families facing long-term care, these documents need Medicaid-aware language.
Never leave an inheritance outright to a spouse or relative who is on, or may soon need, Medicaid. Use a properly drafted trust instead.
After a Medicaid recipient dies, the state must seek estate recovery for long-term care costs (for people 55 and older), at least from the probate estate. Some states reach further.
How assets are titled (joint ownership, beneficiary designations, deeds) can matter as much as the will.
Changes to an estate plan can have Medicaid consequences, including look-back penalties.
An attorney prepares wills, trusts, deeds and powers of attorney.

The core documents

Durable financial power of attorney

Names an agent to manage money and property if the person becomes unable to. For Medicaid purposes, it should expressly allow gifts, transfers to a spouse, trust funding and dealing with government benefits. See Powers of attorney.

Health care power of attorney and living will

Names someone to make medical decisions and records the person’s wishes about treatment. These matter for hospital discharges, nursing home admission and hospice decisions.

Will

Says who receives property that is in the person’s sole name at death, and names an executor. A will only controls “probate” assets. It does not control accounts with a named beneficiary, jointly owned property or trust assets.

Revocable living trust

Holds assets during life and passes them outside probate at death. It does not protect assets from Medicaid’s asset test. See Living and family trusts.

The biggest mistake: leaving money outright to someone on Medicaid

When a person on Long-Term Care Medicaid inherits money, it counts as their asset (and, in the month received, often as income). An outright inheritance of $80,000 to a nursing home resident means they lose Medicaid until it is spent down, often on care, and what is left may be subject to estate recovery when they die.

This happens most often between spouses. A healthy husband’s will leaves everything to his wife, who is in a nursing home on Medicaid. If he dies first, his estate goes to her and is spent on her care.

Better approaches

Testamentary trust for a spouse. Federal law treats a trust created in a will by a deceased spouse differently from a trust funded with the applicant’s own assets. A properly drafted “supplemental needs” trust in a will can hold money for the surviving spouse’s extra needs without the trust counting for Medicaid. Note: this special treatment applies to trusts created by will. A trust created in a revocable living trust does not automatically qualify, which is why some couples use a will-based trust for this purpose.
Third-party special needs trust for a disabled child or other relative. See Special and supplemental needs trusts.
Leaving the share to others, such as the children, with an understanding (not a legal obligation) to help.

A spouse’s right to an “elective share” of the deceased spouse’s estate, which exists in most states, complicates this. A Medicaid agency may treat a failure to claim the elective share as a transfer. Planning around this is state-specific.

Beneficiary designations and joint ownership

Many assets pass outside the will:

Life insurance, annuities and retirement accounts pass to the named beneficiary.
Bank and investment accounts can have “payable on death” or “transfer on death” beneficiaries.
Jointly owned property with survivorship passes to the surviving owner.
Real estate may pass by a transfer-on-death deed or a Lady Bird deed in states that allow them.

Review every designation. Naming a spouse in a nursing home, or a disabled child, as direct beneficiary can create the same problems as an outright inheritance. Also note that adding a child as a joint owner can be treated as a gift, can expose the asset to the child’s creditors, and does not always avoid estate recovery.

Estate recovery

Federal law (42 U.S.C. 1396p(b)) requires states to seek repayment from the estates of Medicaid recipients for nursing facility services, home and community-based services and related hospital and prescription costs, for people who were 55 or older when they received the care. Key points:

Every state must recover from the probate estate. Many states use an expanded definition that includes assets passing outside probate, such as jointly owned property, life estates and living trust assets.
Recovery is deferred while a surviving spouse is alive, or while a child under 21 or a blind or disabled child of any age survives.
States must have hardship waiver procedures.
Some homes are protected by special rules, such as when a caregiver child or sibling lived there.

See Estate recovery, explained and Estate recovery rules by state.

How estate planning changes interact with the look-back

Some estate planning steps are treated as transfers for Medicaid purposes if done within the five-year look-back:

adding someone as joint owner of an account they can withdraw from;
deeding a home to a child (unless an exempt transfer);
creating or funding an irrevocable trust;
disclaiming (refusing) an inheritance;
changing a life insurance policy to give a child ownership.

Revising a will or a revocable trust is generally not a transfer, because nothing is given away during life.

A Medicaid-aware estate plan checklist

Durable financial POA with gifting, spousal transfer, trust and benefits powers.
Health care POA, living will and HIPAA authorization.
A will or trust that leaves any share for a spouse or relative on Medicaid in a properly drafted trust, not outright.
Updated beneficiary designations on every policy and account.
A clear plan for the home, considering the home exemption, estate recovery and, where available, a Lady Bird or transfer-on-death deed.
A list of assets, accounts and passwords for the agent and executor.
A review every few years and after any major life event: diagnosis, move to another state, death of a spouse, marriage or divorce.

A simple example

Paul and Ruth, both 76, have simple “I love you” wills leaving everything to each other, then to their children. Ruth develops Alzheimer’s and moves to a nursing home, qualifying for Medicaid with Paul keeping his allowances. Paul updates his estate plan:

His new will leaves Ruth’s share in a testamentary supplemental needs trust, with their son as trustee, and the rest to the children.
He changes his life insurance and IRA beneficiaries from Ruth to the trust or the children, as appropriate, after considering the tax effects.
He signs a new durable POA naming his son, with Medicaid planning powers.

If Paul dies first, Ruth stays on Medicaid, and the trust can pay for extras such as private aides, clothing and outings without disrupting her coverage.

This example is simplified. The elective share and state rules can change the outcome.

Getting help

Estate planning documents are legal documents, and an attorney prepares them. Because Medicaid rules add specific requirements, many families work with a Certified Medicaid Planner to review how their estate plan fits their long-term care situation, alongside the attorney who drafts the documents.

Frequently asked questions

Do I need a trust to avoid estate recovery? Not necessarily. Whether a trust helps depends on the type of trust and the state’s definition of the estate.

Can I disinherit my spouse to protect assets? Most states give a surviving spouse a right to an elective share, and refusing it can be treated as a transfer. This needs state-specific advice.

Should I update my plan when a spouse enters a nursing home? Yes. It is one of the most important times to review it.

Key terms

Probate estate: property passing under a will or by state law when there is no will.
Elective share: a surviving spouse’s legal right to a portion of the estate, even if the will leaves them less.
Testamentary trust: a trust created by a will.
Beneficiary designation: a form naming who receives an account or policy at death.
Hardship waiver: a request that the state not pursue estate recovery because it would cause undue hardship.

Order of steps when a spouse needs care

Families usually update the healthy spouse’s documents first, then retitle assets as the plan requires.

Last updated for 2026. General information only, not legal or financial advice. Medicaid Answers is a free educational resource published by Medicaid Answers Foundation.