Whether a nursing home can take money from a trust depends almost entirely on which kind of trust holds the money. A revocable living trust offers no protection at all: federal law treats everything inside it as your own asset, available to pay for your care and available to creditors. A properly drafted irrevocable trust can shield the principal, but only if you gave up all access to it and funded the trust well before you needed care. Get either piece wrong and the money is on the table.
How Nursing Homes Actually Reach Trust Money
Two different mechanisms are at work, and confusing them leads to bad planning. The first is a direct creditor claim. You receive care, you owe the bill, the facility sues and tries to collect from whatever assets the law says are yours, trust included. The second is indirect and more common. When you apply for Medicaid to cover nursing home costs, the state decides whether the trust assets count as available to you. If they do, you cannot qualify until you have spent them down, which in practice means paying the nursing home from the trust.
The stakes are high because the costs are high. The median semi-private nursing home room runs about $9,842 a month in 2026, roughly $118,000 a year. Medicaid covers long-term care for people with limited resources, but in most states you cannot have more than $2,000 in countable assets to qualify. The gap between what care costs and what you are allowed to keep is what makes the trust question matter.
Revocable Trusts Protect Nothing
If you set up a standard revocable living trust for estate planning, it will not keep a dollar away from a nursing home. Federal Medicaid law is explicit: the full balance of a revocable trust counts as a resource available to you, and any payment from it is treated as your income.1Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets The reasoning is simple. You can change or dissolve the trust anytime, so the assets never really left your hands.
A revocable trust also fails against a direct claim. Most states have adopted versions of the Uniform Trust Code, which makes property in a revocable trust reachable by the settlor’s creditors during the settlor’s lifetime, regardless of any spendthrift language. Revocable trusts are useful for avoiding probate. They do nothing to keep nursing home costs from consuming your savings.
Irrevocable Trusts: The “Any Circumstances” Test
Irrevocable trusts are where real protection lives, and the federal test is strict. The statute does not simply ask whether the trust is irrevocable. It asks whether there are any circumstances under which a payment from the trust could be made to you or for your benefit. If the answer is yes, that portion of the trust counts as your available resource.1Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
The rule applies regardless of the trust’s stated purpose, regardless of whether the trustee has discretion, and regardless of any restrictions on how distributions can be used. That language closes the common loopholes. A trust that gives the trustee discretion to distribute principal to you for “health, education, maintenance, and support” still makes those assets countable, even if the trustee has never made a single distribution. To genuinely protect assets, the trust document must make it impossible for any payment to reach you under any circumstances.
Medicaid Asset Protection Trusts
The standard tool is a Medicaid Asset Protection Trust, sometimes called an income-only trust. You transfer assets into an irrevocable trust and keep the right to receive income the trust generates. The document flatly prohibits you from accessing the principal. Because you cannot touch the principal under any circumstances, Medicaid does not count it as your resource.1Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
The income flowing to you is still counted. That is usually fine, because Medicaid nursing home residents already have to contribute nearly all their income toward care. The protection is on the principal, which stays intact for your beneficiaries.
The Five-Year Look-Back
Federal law imposes a 60-month look-back on asset transfers. When you apply for Medicaid, the state reviews every transfer you made during the prior five years. Assets given away or sold for less than fair market value during that window, including transfers into an irrevocable trust, trigger a penalty period during which Medicaid will not pay for your nursing home care.1Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
The penalty is calculated by dividing the total value transferred by your state’s average monthly cost of private nursing home care. Transfer $100,000 in a state where care averages $10,000 a month and you get a 10-month penalty. Worse, the penalty does not start until you would otherwise qualify for Medicaid, meaning after you have already spent down your other assets. You end up with no remaining resources and no Medicaid coverage at the same time.
This is why last-minute trust planning almost always fails. Setting up an irrevocable trust after a diagnosis or a fall is generally too late. Effective planning happens at least five years before care is needed, which is precisely why most people don’t do it.
Late Transfers Can Be Unwound Even Outside Medicaid
A nursing home does not have to rely only on Medicaid rules. Nearly every state has adopted either the Uniform Fraudulent Transfer Act or its updated successor, the Uniform Voidable Transactions Act. Under those laws, a creditor can challenge a transfer made with intent to avoid paying debts, or one that left you unable to pay debts that were reasonably foreseeable.
Courts weigh whether you kept some hidden benefit from the trust, whether you had existing debts when you made the transfer, and how close the transfer was to the onset of care. A trust created two months before you enter a facility invites intense scrutiny. Even airtight irrevocable language can be undone if a court concludes the transfer was designed to duck the bill.
What Happens After You Die
Protection during your lifetime is only half the picture. Federal law requires every state to seek reimbursement from the estates of Medicaid recipients who were 55 or older when they received benefits. Recovery targets nursing home care, home and community-based services, and related hospital and prescription drug costs.1Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
Assets held in a properly drafted irrevocable trust are generally outside your probate estate at death and therefore outside the reach of estate recovery. That is one of the main advantages of a Medicaid Asset Protection Trust: the principal is shielded both while you are alive and after. Assets in a revocable trust pass through your estate and are fully exposed.
The state cannot pursue estate recovery while your spouse is still living, or while you have a child under 21 or a child who is blind or disabled.1Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets States must also offer a hardship waiver process for heirs, though the criteria vary widely.2Medicaid.gov. Estate Recovery
Trusts That Don’t Fit This Answer
Two other trust types come up in nursing home conversations and work under different rules.
A special needs trust serves someone with a disability who is already on government benefits. A third-party special needs trust, funded by a parent or grandparent, is off-limits to nursing homes and to Medicaid estate recovery because the money never belonged to the beneficiary. A first-party special needs trust, funded with the beneficiary’s own money, is exempt from Medicaid’s usual counting rules during life, but any balance at death must first reimburse the state for Medicaid paid on their behalf.3Social Security Administration. POMS SI 01120.203 – Exceptions to Counting Trusts Established on or After January 1, 2000
A qualified income trust, or Miller trust, is used in states that impose a strict income cap for Medicaid nursing home eligibility. You route your monthly income through the trust so it is disregarded for eligibility, but nearly all of it still goes to the nursing home. A Miller trust is an eligibility tool, not an asset protection tool. Any balance at death goes to the state.
The Tax Cost of the Protection
Irrevocable trusts protect assets from nursing homes, and they create tax consequences families often miss.
Transferring assets into an irrevocable trust is a gift for federal tax purposes. The 2026 annual gift tax exclusion is $19,000 per recipient.4Internal Revenue Service. Whats New – Estate and Gift Tax Transfers above that require filing IRS Form 709, though tax is not usually owed until you exhaust your lifetime exemption. The gift tax rules and the Medicaid transfer rules are separate systems. Staying under the annual exclusion does nothing to avoid the five-year look-back penalty.
The larger issue is cost basis. Under IRS Revenue Ruling 2023-2, assets held in an irrevocable grantor trust do not receive a step-up in basis at your death. Inherited property normally gets a basis reset to current market value, wiping out capital gains on appreciation during your lifetime. Assets in an irrevocable trust lose that treatment. A home you bought for $150,000 and transferred into the trust, worth $400,000 at your death, leaves your beneficiaries with the original $150,000 basis and a capital gains bill on the $250,000 difference when they sell. That tax can eat a meaningful share of what the trust saved from the nursing home.
The right structure depends on your assets, your health, your family, and your state’s rules. Sit down with an elder law attorney before signing anything. The planning window is measured in years, not months, and the details are where families lose money they thought was safe.