Understanding the Eligibility Requirements for Medicaid Trusts
Planning for long-term care often requires a careful legal strategy. One tool many families consider is a Medicaid trust, which can help protect assets while allowing a person to qualify for Medicaid.
At my firm, Russell Manning Law PLLC in Corpus Christi, Texas, I regularly assist clients in building strategies involving trusts that meet both personal and legal goals. Medicaid planning must follow specific eligibility requirements, and understanding those requirements is essential before establishing any type of trust.
Whether your concern is protecting a family home or preserving income for a surviving spouse, trusts can provide structure and control. They’re also a key part of planning for healthcare and elder law needs in Texas.
What Is a Medicaid Trust?
A Medicaid trust, also known as a Medicaid asset protection trust (MAPT), is an irrevocable trust designed to protect certain assets from being counted as resources when applying for Medicaid long-term care coverage.
Once assets are placed in this trust, they’re no longer considered owned by the person applying for Medicaid. This allows individuals to potentially meet Medicaid’s strict financial requirements without spending down all personal assets.
There are two main types of Medicaid trusts:
Income-only trusts: The grantor can receive income from the trust during their lifetime, but can’t access the principal. This structure is often used to preserve eligibility for Medicaid while providing some cash flow.
Supplemental needs trusts: Used primarily for beneficiaries who are disabled, these trusts are designed to hold and manage funds without affecting eligibility for Medicaid or Supplemental Security Income (SSI).
To be valid and effective, a Medicaid trust must meet several eligibility and structure requirements.
Financial Limits That Affect Medicaid Eligibility
Medicaid eligibility is based on strict income and asset limits, especially for long-term care services. In Texas, applicants must confirm their countable resources fall within the state’s established limits, which are reviewed and adjusted annually.
Asset Limits for 2025
For single applicants, countable assets must not exceed $2,000. Married couples have slightly different rules. If only one spouse is applying for Medicaid, the non-applicant spouse is typically allowed to retain a greater portion of the couple’s combined assets.
This is known as the Community Spouse Resource Allowance, designed to prevent impoverishment of the non-applicant spouse.
Countable assets include bank account balances, stocks and bonds, vacation homes, and any non-exempt vehicles. However, certain assets are exempt. These may include a primary residence (up to a specific equity limit), one vehicle, and personal belongings or household items.
Income Limits for 2025
For single applicants, gross monthly income must generally be no more than approximately $2,829. In the case of a married couple where only one spouse is applying, the income of the non-applicant spouse isn't counted toward the limit.
Applicants who have income above the limit may still qualify for Medicaid by establishing a Qualified Income Trust, also known as a Miller Trust. This type of trust allows excess income to be deposited into a separate account, effectively lowering the applicant’s countable income for eligibility purposes.
Eligibility Requirements for Medicaid Trusts
Medicaid trusts must be carefully structured. To comply with federal and Texas Medicaid rules, certain features are required:
The Trust Must Be Irrevocable
Once established, the grantor can’t dissolve or modify the trust. This is essential to prevent the assets from being counted as personal resources. An irrevocable trust helps demonstrate that the assets aren't under the direct control of the Medicaid applicant.
Assets Must Be Transferred Well Before Applying for Medicaid
Medicaid imposes a five-year “look-back” period. Any asset transfers to a trust made within five years before applying for Medicaid can trigger penalties. The penalty is a period of ineligibility for benefits, based on the value of the assets transferred.
To avoid look-back penalties:
Start planning early
Transfer assets more than five years before filing
Keep detailed documentation of asset transfers
By planning ahead and carefully managing asset transfers, you can protect eligibility for Medicaid and avoid costly penalties during the application process.
The Applicant Can’t Be the Trustee
The person applying for Medicaid can’t maintain control over the trust. A neutral trustee—often a trusted family member or lawyer—must manage the trust’s operations, including investment decisions and distributions.
The Trust Must Limit Distributions
Income may be distributed to the grantor, but the principal must be protected. Distributions from the principal of the trust directly to the applicant can make the trust assets countable. In Texas, even small errors in distribution structure can disqualify an entire trust.
Only Certain Assets Should be included
Commonly placed assets include:
Primary residences: The home is a valuable asset that can often be protected in a Medicaid trust
Investment accounts: Once transferred, earnings may be retained within the trust
Life insurance policies with cash value: If the policy exceeds a certain threshold, placing it in trust may protect it
Avoid placing retirement accounts, such as IRAs and 401(k)s, directly into a Medicaid trust unless very specific strategies are followed. These accounts often trigger tax consequences and must be carefully reviewed before funding the trust.
What a Medicaid Trust Can and Can’t Do
Trusts are powerful legal tools, but they’re not unlimited in their function. It’s important to know what protections a Medicaid trust provides and what it doesn't..
What a Medicaid Trust Can Do
A Medicaid trust is a powerful estate planning tool that helps individuals qualify for long-term care benefits while protecting valuable assets.
Protect the family home from Medicaid estate recovery: After death, Medicaid may attempt to recover costs paid for long-term care from the estate. A home in a Medicaid trust is usually protected from this claim.
Preserve assets for heirs: With the right planning, a Medicaid trust can preserve property and investments for children or grandchildren.
Maintain eligibility for long-term care assistance: Properly executed Medicaid trusts can allow an applicant to meet Medicaid requirements without needing to spend down all assets.
By using a Medicaid trust strategically, families can safeguard their home, preserve wealth for future generations, and assure access to essential care without exhausting their resources.
What a Medicaid Trust Can’t Do
While Medicaid trusts offer significant benefits, they also come with important limitations that families must understand before relying on them for planning.
Undo the five-year look-back period: Planning ahead is essential. A last-minute transfer won't avoid penalties.
Provide unrestricted access to trust assets: Once placed in trust, those assets aren't freely available to the grantor.
Bypass all income limits: If an applicant’s income is too high, a Qualified Income Trust (Miller Trust) may still be needed in addition to the Medicaid trust.
Recognizing what a Medicaid trust can't do is just as important as knowing its advantages, assuring that your planning strategy remains both realistic and effective.
Choosing a Trustee for Your Medicaid Trust
Because the Medicaid applicant can’t serve as trustee, careful consideration should go into selecting a person or institution to fulfill that role.
Trustworthiness: This individual will be responsible for managing all trust assets
Attention to detail: The trustee must follow state Medicaid rules and IRS guidelines
Willingness to act for the long-term: Medicaid trusts often exist for many years, sometimes even after the original grantor passes away
In some cases, a professional trustee—such as a financial institution or law firm—may be appropriate, especially when managing high-value or income-producing assets.
Planning Strategies Using Medicaid Trusts
Medicaid planning with trusts requires thoughtful decision-making. Different families benefit from different approaches depending on their age, health, and asset portfolio.
Strategies to consider include:
Transferring the home while retaining a life estate: This gives the grantor the right to live in the home while preserving its value for future beneficiaries
Using trusts alongside other planning tools: Powers of attorney, wills, and transfer-on-death deeds can all support the effectiveness of a Medicaid trust
Gifting assets in combination with trust transfers: This must be timed carefully and structured to avoid triggering the five-year look-back penalties
Preserving income for a spouse: The use of spousal refusal or a properly structured trust can help maintain income for a non-applicant spouse
These strategies must follow state and federal Medicaid guidelines precisely. A single misstep in asset transfer or trust formation can lead to disqualification from benefits.
Medicaid Estate Recovery and Trust Protections
Medicaid estate recovery is a lesser-known consequence of long-term care coverage. After the death of a Medicaid recipient, the state may attempt to recover the cost of services provided by placing a claim on the deceased person’s estate.
Placing assets into a Medicaid trust removes them from the individual’s estate and generally shields them from estate recovery claims.
Assets that may be at risk without trust planning include:
Homes not placed in trust or transferred with a life estate
Bank accounts or savings retained in the individual’s name
Vehicles or titled personal property over the exempt limits
By acting early and transferring key assets into a properly structured trust, families can retain greater control over property distribution and reduce the impact of Medicaid estate recovery.
Contact Russell Manning Law PLLC Today
Medicaid trust planning is a critical part of long-term care and estate planning. If you have questions about eligibility requirements or want to know whether a trust may be appropriate for your family, my firm can help. I serve clients throughout Corpus Christi, South Texas, the Coastal Bend area, Bee County, Kleberg County, Nueces County, Live Oak County, Jim Wells County, Aransas County, and Victoria County. Call Russell Manning Law PLLC today to schedule a consultation.