Medicaid Asset Protection Trusts: What You Need to Know

by Kristen Ishihara and Chris Parker with Ishihara & Parker Law Firm PLLC

When families visit us at Ishihara & Parker Law Firm, one of the most common concerns we hear is: “How do I protect my assets if I ever need Medicaid?”

The truth is, long-term care in East Texas is expensive — often $5,000–$6,000 a month — and most people can’t privately pay for that indefinitely. That’s where a Medicaid Asset Protection Trust, also called a Medicaid-compliant irrevocable trust, might come into play.

But before you consider this option, let’s break down what it is, who it’s for, and what it’s not.

Why Not Just Gift Assets to the Kids?

A question we often hear is: “Can I just give my house or money to my children?”

The answer is no — at least not if your goal is to protect those assets from Medicaid’s reach. Even if you have the best children in the world, life happens:

• They could get divorced.
• They could be in a car accident and face lawsuits or debts.
• They could even pass away before you.

Putting your assets in their names exposes them to risks you can’t control. That’s why gifting directly to kids usually isn’t a safe strategy.

The Role of an Irrevocable Asset Protection Trust

Instead of gifting, many families consider placing assets into an irrevocable trust. Here’s what that means:

• Once an asset goes into the trust, you no longer own the principal.
• You may still receive the income the asset generates (for example, interest from a CD), but you can’t touch the principal itself.
• Medicaid won’t count the principal against you in the future, because it’s no longer available to you.

This makes it a strong tool for protecting certain assets — but it also means you must be ready to part with direct control over them.

Who Should Consider This Type of Trust?

Not everyone is the right fit for a Medicaid Asset Protection Trust. Typically, we see this used by clients who:

• Own rental properties, mineral interests, or inherited family land they want to keep in the family.
• Have non-retirement investments (like CDs, cash, or brokerage accounts) that Medicaid would count against them.
• Want to protect specific assets for children or loved ones, including disabled children or dependents who may struggle financially.

On the other hand, if you have several million dollars in assets, you may simply choose to privately pay for care. Or if your wealth is mostly in retirement accounts like IRAs and 401(k)s, this may not be the right tool for you.

The Big Trade-Offs

Before setting up an irrevocable trust, here are a few key things to know:

1. You give up control of the principal.
   • You can receive income generated, but the underlying assets are no longer yours.
2. It’s truly irrevocable.
   • Once you set the beneficiaries, you can’t change them later. This can be a problem for blended families or people who frequently update their wills.
3. The Medicaid 5-Year Look-Back applies.
   • Any assets you move into the trust start a five-year “clock.” If you need Medicaid within that window, those transfers may still be counted against you.
4. Texas rules matter.
   • Currently, Texas does not allow self-settled asset protection trusts. That means you cannot create a trust where you are both the principal beneficiary and shield it from creditors or Medicaid.

Example

Let’s say you place $100,000 into a Medicaid Asset Protection Trust.

• You cannot touch that $100,000 principal ever again.
• But if it earns $4,000 a year in interest, you can receive that as income.
• After five years, Medicaid will no longer count that $100,000 against you.

It’s a hard shift for some clients — seeing money they’ve saved no longer legally “theirs.” But for others, the trade-off is worth the peace of mind.

Is This Right for You?

This trust is not for everyone. It works best for people who:

• Have assets they know they want to preserve for loved ones.
• Accept that those assets will be out of their reach.
• Understand the five-year look-back rule and plan accordingly.

It’s probably not the right tool if you:

• Like to frequently change your estate plan.
• Have a blended family with complex beneficiary needs.
• Primarily hold retirement accounts as your assets.

Final Thoughts

At Ishihara & Parker, we remind clients that planning ahead is critical. If you’re already in your 90s and applying for Medicaid, this tool likely won’t help. But if you’re younger, healthy, and want to ensure certain assets stay in your family, a Medicaid Asset Protection Trust can be a powerful strategy.

As always, we recommend sitting down with an experienced attorney before making any decisions. This is a serious commitment — but for the right family, it can provide exactly the protection and peace of mind they’re looking for.

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