Using Medicaid Trusts for Asset Protection and Long-Term Care Planning

The cost of long-term care continues to rise in 2026, and many Illinois families face difficult financial decisions when a loved one needs nursing home care or home health services. One powerful tool for protecting your assets while qualifying for Medicaid benefits is a Medicaid Asset Protection Trust, also called a MAPT.

In 2026, the asset limit for Medicaid long-term care is $17,500 for individuals, according to the Illinois Department of Human Services. This means that if you have more than $17,500 in countable assets, you must spend down those assets before Medicaid will pay for your care. 

For many families who have worked their entire lives to build savings and own a home, this requirement can wipe out everything they hoped to leave to their children. A Naperville, IL estate planning lawyer can help you create a properly structured Medicaid trust that offers a legal way to protect your assets.

What Is a Medicaid Asset Protection Trust?

A Medicaid Asset Protection Trust is a type of irrevocable trust designed specifically to shield your assets from being counted when you apply for Medicaid long-term care benefits. When you transfer property into this trust, you give up direct ownership and control. Because you no longer legally own these assets, Medicaid does not count them when determining your eligibility.

The word “irrevocable” means you cannot change your mind and take the assets back. This permanence is exactly what makes the trust effective for Medicaid planning. The trust names a trustee, who must be someone other than you or your spouse. This trustee manages the assets according to the trust terms. When you pass away, the assets go to the beneficiaries you named in the trust, typically your children or other family members.

What Assets Should You Put in a Medicaid Trust?

Choosing which assets to transfer into your Medicaid Asset Protection Trust takes careful planning. Not every asset belongs in the trust, and putting the wrong assets in can create serious problems.

Assets That Work Well in Medicaid Trusts

Your primary residence is often the most valuable asset placed in a Medicaid trust. While your home may be exempt from the asset limit while you are alive, it is subject to Medicaid estate recovery after your death. Placing your home in a MAPT protects it from estate recovery and ensures it passes to your family.

Other real estate, such as vacation homes or rental properties, can also be transferred to the trust. These properties are counted toward the asset limit, so moving them into the trust helps you qualify for benefits. If the properties generate rental income, you can continue to receive that income while the principal remains protected.

Bank accounts, certificates of deposit, stocks, bonds, and mutual funds are also typical assets for Medicaid trusts. Moving these into the trust reduces your countable assets. However, you need to balance this protection against your need for access to liquid funds for daily living expenses.

Assets That Should Not Go in a Medicaid Trust

Retirement accounts like IRAs and 401(k) plans should not be transferred into a Medicaid trust. Cashing out these accounts to fund the trust triggers immediate income tax consequences and potential early withdrawal penalties. The tax bill can be substantial and may eliminate much of the benefit you hoped to achieve.

You should also keep enough liquid assets outside the trust to cover your living expenses. Once assets are in the trust, you cannot access them for your own needs. Proper planning means maintaining a balance between protection and accessibility.

Understanding the Five-Year Medicaid Asset Transfer Look-Back Period

The most critical rule for Medicaid trusts is the five-year look-back period. Illinois follows federal Medicaid rules that examine any asset transfers made within 60 months before your Medicaid application. If you transferred assets into a trust during this period, Medicaid imposes a penalty period during which you are ineligible for benefits.

The length of the penalty period depends on the value of the assets transferred. This is why early planning is so important. If you establish and fund your Medicaid trust at least five years before you need long-term care, the assets are fully protected. Many people in their 60s or early 70s create these trusts as part of comprehensive estate planning, even though they do not currently need long-term care.

What Happens If You Need Care Sooner?

If you need Medicaid benefits before five years have passed, you may still benefit from creating a trust. You will face a penalty period, but the assets will be protected for your family. In some situations, family members can provide private payment during the penalty period, or other planning strategies can help bridge the gap. An estate planning lawyer can analyze your specific situation and determine the best approach.

How Does Income from Trust Assets Work?

One common question about Medicaid trusts involves income. If you transfer income-producing assets into the trust, can you still receive the income? The answer is yes, but with important conditions.

You can structure the trust to allow you to receive income generated by trust assets while keeping the principal protected. For example, if you place rental property in the trust, you can continue receiving the rental income. However, Medicaid also has income limits. 

If your income exceeds this limit, you may need additional planning strategies such as a Qualified Income Trust, also called a Miller Trust. Your estate planning attorney can help coordinate these different planning tools to ensure you remain eligible for benefits while maximizing the income available for your needs.

Call a Naperville, IL Estate Planning Attorney Today for Medicaid Asset Protection Trusts

Protecting your assets while ensuring you can qualify for Medicaid long-term care requires careful planning and attention to complex rules. A Medicaid Asset Protection Trust can be a powerful tool, but only if it is properly structured and timed correctly. Working with a Naperville, IL estate planning lawyer who understands Illinois Medicaid rules makes all the difference.

Our practice combines legal education, a certified public accountant background, and over 30 years of experience helping families protect their legacies. Contact [[title]] at 630-756-1160 to discuss further.