A trust is a legal arrangement between two or more parties concerning the transfer of assets, and they have many uses for seniors and care planning. They can be used as a way to pass down inheritance, or they can be part of strategies used to help seniors qualify for Medicaid.

Trusts are most often utilized in place of Last Will and Testaments in order to minimize estate taxes. Trusts can also be structured very specifically in terms of exactly how and when your estate will be distributed to your heirs. A properly constructed trust can help protect your estate from your inheritor’s creditors, or from inheritors who may not be as adept at money management.

Trusts can also help seniors qualify for Medicaid. To be eligible for Medicaid, applicants have to meet two financial requirements – an asset limit and an income limit. In most states in 2024, the asset limit for long-term care coverage in a nursing home or at home through Medicaid is just $2,000 (in most states). But assets that are held in some (but not all) trusts – Medicaid Asset Protection Trusts and Irrevocable Funeral Trusts – will not be counted toward that limit.

Any asset in a Medicaid Asset Protection Trust will not count toward the asset limit, but the trust has to be created at least five years before the senior applies for Medicaid (in most states) in order for it to work, due to Medicaid’s Look-Back Period. Irrevocable Funeral Trusts can be created any time and their value will not count against Medicaid’s asset limit for eligibility, but there is a limit to their value and rules they must follow that can all change depending on the state.

In some states, seniors who are over Medicaid’s income limit for eligibility can become eligible by using a Qualified Income Trust, also known as a Miller Trust. Essentially, every month the senior puts their excess income in the Qualified Income Trust so their monthly total is below the limit in their state.

Trusts can be a powerful tool, but they can be harmful if they’re not used the right way, and most trusts are not Medicaid compliant. Using one of them, or misusing a trust that is Medicaid compliant, will lead to your application being denied and a possible penalty period of ineligibility.