Medicaid Asset Protection Trusts
Most readers of this book should not do Medicaid planning, and it is worth being blunt about why. Long-term care runs $120,000 to $200,000 a year in a high-cost state. If your portfolio can absorb that, self-fund it or buy long-term care coverage (section “Long Term Care Insurance”) and keep control of your assets and your choice of facility—Medicaid pays poorly, accepts a limited set of homes, and will not be the care you want. Medicaid planning is for families whose assets are large enough to disqualify them but too small to survive several years of private-pay care. That is a real and uncomfortably wide band, and if you are in it, the tool is a Medicaid Asset Protection Trust (MAPT).
The structure is a straightforward irrevocable trust with a hard constraint: you may retain the right to the income, and you may keep the right to live in a transferred residence, but you must give up all access to principal. Any retained power to reach principal makes the whole corpus a countable resource and the exercise pointless. You also cannot be trustee. Adult children typically serve, the trust is drafted as a grantor trust so the income stays taxable to you at your lower rates, and a retained limited power of appointment preserves the IRC §1014 step-up at your death—worth real money, and frequently omitted by cheap drafting.
Everything turns on timing. Medicaid applies a five-year look-back: transfers made within sixty months of applying trigger a penalty period during which you are ineligible, computed as the transferred amount over your state’s average monthly private-pay cost:
And note where that clock starts—not at the transfer, but when you would otherwise have qualified, which is precisely when you are sick and need the coverage. A MAPT funded at 68 is planning; the same trust funded at 79 after a diagnosis is a penalty generator.
California deserves its own paragraph, and it is a lesson in not building a plan on a policy. Under AB 133 (2021) the state phased out its Medi-Cal asset test entirely—raised to $130,000 per individual in July 2022, then eliminated outright on January 1, 2024, the first state in the country to do it. Planners spent two years telling California clients the asset trust was obsolete. Then the budget turned, and AB 116 (2025) reinstated the limit effective January 1, 2026, at $130,000 for an individual and $65,000 for each additional household member ($195,000 for a couple). That is still far more generous than the $2,000 limit most states apply, and it means a California household of ordinary means may qualify without any trust at all. But the whipsaw is the point: a structure whose entire justification was a 2024 policy became unnecessary and then necessary again inside 24 months.
California also runs a shorter clock than the rest of the country. It is the one state that never implemented the Deficit Reduction Act of 2005, so its look-back has remained 30 months for liquid assets rather than the federal 60 (longer for non-residence real property). Under the reinstated rules, transfers made before January 1, 2026 are generally not counted, while later ones can be. All of that is in visible motion, so confirm the current Department of Health Care Services guidance before you act on any of it—this is a corner of the law that has changed three times in four years, and any planner quoting you 2024 rules with confidence has stopped reading. Estate recovery against probate assets survives all of it, which is one more reason to keep the house out of probate (section “Revocable Living Trust”).
The honest summary: this trades control and flexibility for eligibility, five years in advance, against a risk that may never materialize. For the wealthy it is a bad trade. For a family whose house is the entire estate and whose alternative is spending it down to nothing, it is the difference between leaving something and leaving nothing.