What are The Disadvantages of a Medicaid Trust?

by | Oct 10, 2023 | estate planning

Disadvantages of a Medicaid Trust

Medicaid trusts, also known as irrevocable Medicaid asset protection trusts (MAPTs), are powerful tools for protecting assets while securing eligibility for Medicaid benefits. These trusts offer numerous advantages, including shielding assets from nursing home costs and ensuring that you qualify for government-funded healthcare assistance when needed. However, like any financial planning strategy, Medicaid trusts come with their own set of disadvantages and considerations that must be carefully weighed. 

The Complexity of Irrevocability

One of the defining characteristics of a Medicaid trust is its irrevocability. This means that once assets are transferred into the trust, you lose control over them. While you still benefit from any income generated by those assets, you can’t change the trust’s terms or reclaim the assets.

Loss of Control

The loss of control is a significant disadvantage for many individuals considering a Medicaid trust. If you transfer assets into the trust, you no longer have the authority to make decisions about those assets. This can be challenging if you have specific plans for the use of those assets or if your circumstances change.

Limited Access

In addition to losing control, you also generally lose access to the assets you place in a Medicaid trust. Since you no longer own them, you cannot use them for personal expenses or emergencies. This can be a disadvantage if you ever need those resources for non-Medicaid related purposes.


Irrevocable trusts are inflexible by design. The terms and conditions you establish when creating the trust cannot be altered or amended without the consent of the trustee and beneficiaries. This lack of flexibility can be a drawback if your circumstances or intentions change.

Medicaid Eligibility and Look-Back Period

Medicaid has a five-year look-back period, during which any asset transfers made for less than fair market value can result in a penalty period of Medicaid ineligibility. Assets placed in a Medicaid trust are subject to this look-back period, potentially delaying your eligibility for Medicaid benefits.

Five-Year Look-Back Period

The five-year look-back period is a significant drawback of Medicaid trusts. If you transfer assets into the trust and then require Medicaid assistance within the subsequent five years, you may face a period of ineligibility during which you are responsible for covering your healthcare expenses.

Income Considerations

While Medicaid trusts can protect assets, they do not shield income. Income generated by assets in a Medicaid trust is still subject to income tax. While this is not a direct disadvantage of the trust itself, it’s a consideration that requires careful financial planning.

Costs of Establishing and Maintaining the Trust

Setting up a Medicaid trust typically involves legal fees, which can be substantial. Additionally, there may be ongoing administrative costs for trust maintenance, such as trust tax returns and trustee fees.

Legal and Administrative Costs

The costs associated with establishing and maintaining a Medicaid trust can be a disadvantage for some individuals. These expenses can erode the financial benefits of the trust, and it’s important to consider whether the potential savings in long-term care costs outweigh the upfront and ongoing costs of the trust.

Possible Impact on Inheritance

Since assets placed in a Medicaid trust are no longer considered part of your estate, they may not be passed on to your heirs as part of your inheritance. This can be a disadvantage if you have specific plans for leaving certain assets to your loved ones.

Reduced Inheritance

The impact on your inheritance is a significant consideration when establishing a Medicaid trust. If you intend to leave certain assets to your heirs, placing them in the trust can result in a reduced inheritance for your loved ones.

The Need for a Trustee

To establish and manage a Medicaid trust, you’ll need to select a trustee. The trustee is responsible for managing the trust assets and ensuring that the trust complies with Medicaid rules and regulations. Choosing the right trustee is crucial, as they will have control over the trust assets and must act in your best interests.

Trustee Selection

Selecting a trustee is a decision that requires careful consideration. The trustee should have a strong understanding of Medicaid rules and regulations, as well as the ability to manage trust assets effectively. It’s also important to choose someone who can act impartially and in your best interests.

Potential Medicaid Changes

Medicaid rules and regulations can change over time. What is a viable strategy today may not be as effective in the future if Medicaid laws change. This potential for evolving Medicaid rules is a consideration when establishing a Medicaid trust.

Changing Medicaid Rules

The landscape of Medicaid is subject to change, and these changes can impact the effectiveness of a Medicaid trust. It’s essential to stay informed about potential changes to Medicaid rules and to review your estate plan regularly to ensure it aligns with current regulations.

Medicaid trusts are valuable tools for protecting assets while securing Medicaid eligibility, but they are not without their drawbacks. The irrevocable nature of these trusts, the complexities of Medicaid rules, and the potential impact on your control and inheritance plans are important factors to consider. 

Before establishing a Medicaid trust, it’s essential to consult with an experienced estate planning attorney who can help you weigh the advantages and disadvantages in light of your specific financial situation and long-term care needs. With careful planning and a clear understanding of the potential drawbacks, you can make informed decisions about whether a Medicaid trust is the right strategy for your healthcare and estate planning goals.

Schedule a Consultation with a Professional Estate Planning Attorney

Your financial well-being and the preservation of your legacy are our top priorities. Contact Galanti and Copenhaver today to embark on a journey toward a secure and well-planned future. We’re here to ensure that your estate plan reflects your unique circumstances and aspirations, providing you and your loved ones with peace of mind for generations to come.