Living and Family Trusts and Long-Term Care Medicaid

Many older adults have a living trust, sometimes called a family trust or revocable trust. It is one of the most common estate planning tools in the country, and it is very good at what it was designed to do: manage assets during incapacity and pass them to heirs without probate. But a living trust does not protect assets from Long-Term Care Medicaid. Families are often surprised by this. This guide explains why, what a living trust is good for, and how it should be handled when someone needs care.

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

The short version

A typical living trust is revocable: the person who created it can change it or take assets back at any time.
Because the creator keeps that control, Medicaid counts everything in a revocable trust as the creator’s asset (Social Security Act section 1917(d)(3)(A), 42 U.S.C. 1396p(d)(3)(A)).
A living trust is still useful. It avoids probate, makes it easier for a successor trustee to manage money during incapacity, and can include provisions that help a spouse or disabled heir.
Moving assets out of a revocable trust to a spouse is not penalized. Moving them to anyone else is treated like any other gift.
A living trust can sometimes be changed to work better with a Medicaid plan, but an attorney must prepare the changes.

What a living trust is

A living trust is a legal document created during a person’s life (hence “living,” as opposed to a trust created by a will). In the usual setup:

The person who creates it (the grantor) transfers assets into the trust, such as the home, bank accounts and investments.
The grantor is usually also the trustee, managing the assets exactly as before.
A successor trustee, often an adult child, takes over if the grantor becomes unable to manage or dies.
The trust names beneficiaries who receive the assets after the grantor’s death, without going through probate court.

“Family trust” is an informal term. It often refers to a revocable living trust created by a married couple for their family. Sometimes it refers to an irrevocable trust. The name does not decide how Medicaid treats it; the terms do.

Why Medicaid counts a revocable trust

Federal law is clear. For a revocable trust:

the whole trust is counted as the grantor’s asset;
payments from the trust to or for the grantor are counted as the grantor’s income;
payments from the trust to anyone else are treated as transfers of assets by the grantor, subject to the look-back.

The reasoning is simple: if a person can take the money back whenever they want, it is still their money. Putting savings in a revocable trust is, for Medicaid purposes, no different from keeping them in a bank account.

What a living trust is still good for

Even though it does not shelter assets, a living trust can be valuable for families facing long-term care:

Incapacity planning. If the grantor develops dementia, the successor trustee can manage trust assets immediately, without a court guardianship. This can make it much easier to carry out a Medicaid plan and pay bills.
Probate avoidance. Assets in the trust pass to heirs without probate. In some states, this also keeps them outside the probate estate that estate recovery can reach. However, many states use an “expanded” definition of the estate that includes trust assets, so probate avoidance does not always mean recovery avoidance.
Protecting a surviving spouse. A couple’s trust can be written so that, at the first death, the survivor’s share passes into a trust for the survivor that does not count for Medicaid, if drafted correctly under the rules for trusts created by a will. This is an advanced technique with strict requirements.
Protecting a disabled beneficiary. The trust can leave a disabled child’s share in a supplemental needs trust, rather than outright.

Common problems when a person with a living trust needs care

The trust gives the successor trustee no power to plan

Many living trusts were written for a simple world: manage the assets, then distribute them. They may not allow the successor trustee to make gifts, transfer assets to a spouse, buy an annuity or fund another trust. If the grantor has lost capacity, it can be hard to carry out a Medicaid plan. A broad durable power of attorney and well-drafted trust powers prevent this.

The home is in the trust

A home in a revocable trust is generally still treated as the grantor’s home. In most states it keeps the home exemption if the grantor or spouse lives there or intends to return. Some caseworkers ask extra questions, and some states have specific rules. The home’s treatment for estate recovery depends on the state’s definition of the estate.

The trust leaves everything to a spouse outright

If the healthy spouse dies first and their trust leaves everything outright to the spouse in a nursing home, the inheritance can push that spouse over the asset limit and end their Medicaid until it is spent down. See Receiving an inheritance. Reviewing the trust while both spouses are living can avoid this.

Assets were never moved into the trust

A trust only controls assets titled in its name. Accounts left outside the trust may pass by will or beneficiary designation instead.

Converting a living trust into part of a Medicaid plan

A revocable trust cannot simply be relabeled irrevocable for Medicaid purposes. If a family wants assets protected, the usual steps are:

Decide which assets, if any, should be moved to an irrevocable asset protection trust, knowing that each transfer starts a five-year look-back clock.
Keep the revocable trust for assets the grantor needs to live on and for probate avoidance.
Update the revocable trust so the successor trustee has the powers needed to carry out a plan.
Update the provisions for a spouse or disabled heir.

All of this is legal drafting, and an attorney prepares the documents.

A simple example

Walter, 82, set up a living trust 15 years ago and put his home and $180,000 in savings into it. He names his son as successor trustee. Walter now needs nursing home care. His son assumes the trust protects the money from Medicaid. It does not. Because Walter can revoke the trust, the full $180,000 counts, and the home is treated the same as if it were in Walter’s own name.

The good news is that the trust makes it easy for his son to manage the money and carry out a crisis plan, such as allowed spend-down, a funeral trust and, depending on the state, a compliant annuity or a half-a-loaf approach. If the trust does not give the son power to make gifts or buy an annuity, they may need Walter’s power of attorney (if it allows those acts) or court approval.

Questions to ask about an existing living trust

Is the trust revocable or irrevocable?
Which assets are actually titled in the trust?
Can the successor trustee make gifts, transfer assets to a spouse, or create or fund other trusts?
What happens to each spouse’s share at the first death?
Does a disabled beneficiary receive their share outright or in a supplemental needs trust?
How does the state’s estate recovery program treat trust assets?

A Certified Medicaid Planner can review how an existing trust fits a long-term care plan, and an attorney can make any changes.

Frequently asked questions

Does a living trust protect my house from the nursing home? No. A revocable living trust does not protect the home or any other asset from Medicaid’s asset rules.

Does a living trust avoid estate recovery? Sometimes, in states that recover only from the probate estate. In states with an expanded definition of the estate, trust assets can still be reached.

Should I get rid of my living trust? Not necessarily. It may still be valuable for incapacity and probate. The question is whether it needs updating.

Is a “family trust” irrevocable? It depends on the document. Read the trust’s terms, or have an attorney review it.

Key terms

Grantor: the person who creates and funds the trust.
Successor trustee: the person who takes over management if the grantor cannot act or dies.
Probate: the court process for passing property under a will.
Expanded estate: a state definition of the estate, for estate recovery, that reaches beyond probate assets.
Testamentary trust: a trust created by a will, which takes effect at death.

What to bring to a review

The trust document and every amendment.
A list of assets titled in the trust, with recent statements.
Deeds for any real estate.
Beneficiary designation forms for life insurance and retirement accounts.
The current power of attorney and health care documents.

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