A client recently came into our Manhattan office with a revocable living trust he’d created online. He was proud of his foresight, believing he had protected his home and savings for his children if he ever needed long-term care. He believed he had secured his family’s legacy. I had the difficult job of explaining that for Medicaid purposes, his trust was essentially invisible. The assets inside were still his, fully exposed to the cost of care.
This is one of the most common—and costly—misunderstandings I see in my practice. A revocable trust is a powerful tool for managing assets during your life and avoiding the delays of Surrogate’s Court after your death. But it is not a tool for long-term care planning. The very feature that makes it so flexible, its revocability, is what renders it ineffective for Medicaid qualification.
The Problem with Control
A revocable living trust operates as an extension of yourself. You create it, you fund it with your assets, and you name yourself as the trustee. You retain complete control—the power to amend its terms, add or remove assets, or dissolve it entirely. From a legal standpoint, and specifically from the government’s perspective, those assets never truly left your possession.
When you apply for Medicaid to cover nursing home or long-term care costs, the agency looks at your “countable” assets. Because you can revoke the trust at any time and reclaim the assets for your own use, every dollar and every piece of property in that trust is considered a countable resource. There is no distinction between assets held in your name personally and those held by your revocable trust.
Thinking the trust protects you is like moving money from your checking account to your savings account and believing it’s no longer available to your creditors. It’s all still your money. For Medicaid eligibility in New York, you must spend down these countable assets to a very low threshold—a requirement your revocable trust does nothing to prevent.
Medicaid’s Five-Year Look-Back Period
Some people, upon learning their revocable trust offers no protection, think they can simply move the assets out of the trust and give them to their children. This strategy runs into another major pillar of Medicaid law: the five-year look-back period. This rule is codified in New York Social Services Law § 366(5).
The Department of Social Services will scrutinize any non-exempt assets you transferred for less than fair market value during the 60 months prior to your application. If they find such transfers, they will impose a penalty period—a length of time during which you are ineligible for benefits, even though you otherwise qualify financially. The length of this penalty is calculated based on the value of the assets you gave away.
Transferring assets from your revocable trust to a family member is a gift, just as if you had written them a check directly. It starts the five-year clock ticking. This is not a contingency you can plan for at the last minute. It requires deliberate, forward-looking action well before a health crisis emerges.
The Intended Tool: An Irrevocable Trust
So, if a revocable trust doesn’t work, what does? For clients whose primary goal is to shield assets from the cost of long-term care, the conversation almost always turns to a specific type of irrevocable trust, often called a Medicaid Asset Protection Trust (MAPT).
The distinction is critical. With an irrevocable trust, you, the grantor, give up control. You cannot amend the trust or take the principal back for yourself. The assets are no longer legally yours. You appoint an independent trustee—often a child or a trusted professional—to manage the assets according to the terms you established. Because you no longer own or control the assets, they are not considered countable resources for Medicaid purposes after the five-year look-back period has passed.
This is a significant trade-off. Stewardship of your legacy requires you to place assets beyond your own reach. It is not a decision to be made lightly, but for many families, it is the only prudent path to preserving generational wealth while planning for the immense costs of care. The structure must be drafted with precision to comply with complex state and federal regulations, but when done correctly, it is an effective instrument.
Your estate plan should be a reflection of your intentions. If your intention is simply to avoid probate, a revocable trust is an excellent choice. But if your goal is to plan for potential long-term care needs, that same document will fail you. Understanding the difference is the first step toward building a plan that actually works.
The first step in correcting a flawed plan is identifying its weaknesses. If you have an existing trust and are uncertain how it would be treated in a long-term care scenario, we can provide a formal review of the document to assess its standing against New York Medicaid rules.
