For attorneys stepping into the world of Elder Law, irrevocable trusts can feel intimidating. They’re powerful tools—but also come with complexity, nuance, and long-term implications. In Medicaid planning, irrevocable trusts often serve as the cornerstone strategy for asset protection, allowing clients to qualify for long-term care benefits while preserving a legacy for their loved ones.
In Episode 51 of The Elder Law Coach podcast, we took a deep dive into these trusts—when they work, when they don’t, and how to use them confidently and ethically.
Let’s break that down into actionable guidance for your practice.
What Is an Irrevocable Trust, and Why Does It Matter in Elder Law?
An irrevocable trust is a legal arrangement in which the grantor (your client) places assets into a trust and gives up direct control. The assets are managed by a trustee and are no longer considered part of the grantor’s personal estate for Medicaid eligibility purposes.
This matters because Medicaid has strict asset limits. If a client owns too much, they won’t qualify for help with nursing home care or in-home services. If they simply give away those assets, there are tax and "ownership by others" issues that should be avoided. But if those assets are properly transferred into an irrevocable trust—well ahead of needing care—they can be preserved, avoid adverse tax consequences and still allow the client to become eligible.
The 5-Year Lookback Rule: Timing Is Everything
One of the most important aspects of Medicaid planning is the five-year lookback period. When a client transfers assets to an irrevocable trust, Medicaid examines the transaction for up to five years.
If they apply for Medicaid within that period, the transferred assets may trigger a penalty period—a time during which the client is ineligible for benefits, even if they qualify otherwise. That penalty can extend past the 60 month lookback if you are not careful.
Key Takeaway:
The sooner you start the planning process, the better. Encourage clients to act early—before there’s an imminent need for long-term care.
What Can Be Put Into an Irrevocable Trust?
Not every asset is a good fit for an irrevocable trust. Some of the most commonly transferred assets include:
- The primary residence, especially when protected with a right to reside or life estate.
- Rental property or other real estate.
- Brokerage accounts not needed for daily living expenses.
- Certain life insurance policies with significant cash value.
Caution:
Avoid placing qualified retirement accounts (like IRAs or 401(k)s) into irrevocable trusts—they generally trigger immediate taxation and loss of tax deferral.
Choosing the Right Type of Irrevocable Trust
There’s no one-size-fits-all trust. Depending on the client’s needs, you may want to consider:
- Income-only trusts, which allow the grantor to receive income from the assets but not access the principal.
- Discretionary trusts, where the trustee has full control over distributions to the beneficiaries.
- Gifting trusts, used for legacy planning with specific instructions for children or grandchildren.
The key is to draft the trust so that:
- The grantor cannot revoke or directly access the assets, preserving Medicaid eligibility.
- The trust language aligns with state Medicaid rules and planning goals.
Pitfalls to Avoid
Even experienced attorneys can fall into these traps:
- Making the grantor the trustee, which can lead to the assets being counted by Medicaid.
- Allowing too much control or access, which undermines the trust’s asset protection.
- Failing to fund the trust—an empty trust offers no protection.
- Using a Trust when not appropriate- These should only be used selectively for the right clients.
Make sure you not only draft the trust properly but also assist the client in transferring assets into it correctly. A beautifully written trust that was never funded is worthless in crisis.
The Conversation That Changes Everything
Clients are often nervous about “giving up control.” Your job is to help them see the bigger picture:
- “Would you rather have 100% control of an asset that Medicaid will force you to spend on a nursing home… or limited control of an asset that’s protected and passed down to your kids?”
- “This isn’t about hiding assets—it’s about planning wisely, with your legacy in mind.”
Once clients understand that an irrevocable trust is a shield, not a surrender, they’re much more open to the idea.
Final Thoughts: Be the Planner, Not the Scrambler
Irrevocable trusts aren’t just legal tools—they’re a lifeline for families who want to avoid losing everything to long-term care costs. But they require education, intentionality, and the kind of guidance only a well-trained Elder Law attorney can offer.
If you’re not confident in using these trusts yet, that’s okay. The Elder Law Coach is here to guide you through the planning, drafting, and client communication needed to become the go-to expert in your market.
