Irrevocable Trusts · Medicaid & Long-Term Care
Medicaid and Long-Term Care Planning
Medicaid asset protection trusts and long-term care planning in Missouri, including the five-year look-back period.
Nursing home care in Missouri runs well over eighty thousand dollars a year, and Medicare does not pay for it — it covers a limited period of skilled rehabilitation after a qualifying hospital stay and then stops. What pays for long-term custodial care is your own money, long-term care insurance if you bought it, or MO HealthNet once your own money is nearly gone. Planning to protect assets from that spend-down is legitimate and legal. It is also almost entirely a question of timing, because the federal look-back rule reaches back five years and penalizes what it finds.
The look-back is 60 months, and it is federal. Under 42 U.S.C. § 1396p(c)(1)(B)(i), the look-back period for any disposal of assets made on or after 8 February 2006 is sixty months before the application date — the Deficit Reduction Act of 2005 extended it from thirty-six. MO HealthNet applies this federal rule through the Family Support Division’s eligibility policy. Assets given away or transferred for less than fair market value during that window create a penalty period of ineligibility, calculated by dividing the uncompensated value by the state’s average private-pay nursing home cost. Critically, the penalty does not begin when the gift was made — it begins when the person is otherwise eligible and receiving care. So a transfer made four years before applying produces a period of ineligibility precisely when the money is needed and already gone. That is the trap, and it is why this is planning you do at sixty-five, not at eighty-five.
The main tool
The Medicaid asset protection trust
A MAPT is an irrevocable trust funded more than sixty months before an application. Once the look-back has run, the assets in it are neither yours nor countable, and they are not subject to estate recovery at your death.
What makes it work is what you give up. You must have no access to principal. If the trustee can distribute principal to you — even discretionarily — the assets are generally countable, because Medicaid looks to the maximum amount that could be paid to you under any circumstance. This is the single most common drafting failure, and a trust that is comfortable for the settlor is usually a trust that does not work.
What you can keep. The right to income from the trust, which is why these are often called income-only trusts. The right to live in a residence the trust owns. A limited power of appointment to change who receives the remainder at your death — which preserves some control and, importantly, keeps the assets in your estate for basis purposes. And the ability to serve as trustee is sometimes possible, though an independent trustee is safer.
The basis point that matters more than people expect. Drafted so the trust assets remain in your gross estate for tax purposes — usually by retaining a limited power of appointment — the property still receives a full step-up in basis at death under IRC § 1014. That means your children inherit the house free of decades of capital gain. A trust drafted without that feature protects the house and hands your children a large tax bill. Since the estate tax exclusion is $15 million and almost nobody funding a MAPT is anywhere near it, there is no reason to sacrifice the step-up.
What goes in. Typically the home and investment assets you do not need to live on. Not retirement accounts — transferring an IRA to a trust is a taxable distribution of the whole balance, which is almost always worse than the problem being solved. Retirement accounts are handled separately.
The other tools
Planning options within the look-back period
Irrevocable funeral trust
A small irrevocable trust prepaying funeral, burial and related expenses. Treated as an exempt resource rather than a transfer, so it works even during a crisis. One of the few genuinely useful moves inside the look-back, and it also removes a decision from a grieving family.
Spousal protections
Where one spouse enters care and the other remains at home, federal law protects the community spouse through a resource allowance and a minimum monthly income allowance. Transfers between spouses are not penalized. These rules do substantial work in a crisis and are frequently underused.
Exempt assets
The home up to an equity limit while a spouse or dependent lives there, one vehicle, personal effects, prepaid burial, and certain income-producing property. Restructuring countable assets into exempt ones is legitimate and is not a transfer at all.
Testamentary trust for a surviving spouse
A trust created in the will of the first spouse to die can hold assets for the survivor without those assets counting for the survivor’s own eligibility — a result a living trust cannot achieve. This costs nothing to include in an ordinary estate plan and is one of the best reasons for a married couple to plan while both are healthy.
Caregiver child exception
Federal law permits transfer of a home without penalty to a child who lived there and provided care that allowed the parent to remain at home rather than enter a facility, for at least two years before institutionalization. Documentation is everything — start it before you need it.
Disabled child transfers
Transfers to a child who is blind or permanently disabled, or to a trust solely for that child’s benefit, are exempt from the transfer penalty. This intersects directly with special needs planning and is frequently the right answer for both problems at once.
What does not work. Giving assets to your children and hoping nobody notices — the application asks, and the penalty applies whether or not the transfer was intended to affect eligibility. Adding a child to the deed, which is a transfer of a partial interest, penalized on that value, and which costs the basis step-up on the transferred share. A revocable living trust, which protects nothing for this purpose because you can take the assets back. A self-settled spendthrift trust under RSMo § 456.5-505.3, which protects against ordinary creditors but is countable if you can receive distributions. And promising to pay a child for care without a written personal care agreement at a documented market rate, which is treated as a gift.
Crisis planning
Planning when care is imminent
Do not start giving things away
The instinct is universal and it is the worst possible move. A gift made now creates a penalty period that begins when the person is otherwise eligible and in care — so the money is gone and the coverage is delayed at exactly the same time. Stop, then get advice.
Use the exempt categories
Prepaid irrevocable funeral arrangements, a needed vehicle, home repairs and modifications, paying off debt on an exempt home. Converting countable assets into exempt ones is not a transfer and carries no penalty.
Protect the spouse at home
If there is a community spouse, the resource allowance, the income allowance and interspousal transfers are the most powerful tools available in a crisis. This is where a large share of crisis planning value actually comes from.
Consider the half-a-loaf approaches
Structured combinations of a partial gift with a compliant promissory note or annuity can shorten the exposure. These are technical, state-specific and easy to get wrong — they are not a do-it-yourself exercise.
Get the personal care agreement in writing
If a family member is providing care, a written agreement at a documented market rate, with records of hours and payments, converts what would be treated as a gift into payment for services actually rendered.
Check the estate plan for a testamentary trust
If the healthier spouse dies first, a trust created in their will can hold assets for the survivor outside the survivor’s countable resources. If both spouses are living, this is often the single most valuable document to put in place immediately.
Related reading
From the firm’s blog
- What is the Difference Between a Will and a Trust
- Leaving Cash to One Person: A Transfer-on-Death Account or a Gift in Your Trust?
Meet Derek Haake
About the attorney
Derek spent three years as a Vice President and Estate Settlement Officer at Bank of America Private Bank — the country’s largest provider of managed personal trust services — and has spent almost fifteen years in estate practice since. The families who arrive in the worst position are almost never the ones who did nothing; they are the ones who acted at the wrong moment, usually by giving property to a child a year or two before care was needed.
This is also the area where the honest advice is most often unwelcome. Sometimes the answer is that private pay is the right choice, that long-term care insurance should have been bought a decade ago, or that the assets in question are already exempt and no trust is needed. You will be told that rather than sold a structure.
Where planning does help, the drafting detail that matters most — preserving the § 1014 basis step-up inside a Medicaid trust — is the one omitted most often by documents that otherwise look fine.
Common questions
Frequently asked questions
Does Medicare pay for a nursing home?
No, and this misunderstanding costs families more than any other. Medicare covers a limited period of skilled nursing or rehabilitation following a qualifying hospital stay — up to 100 days, with meaningful co-payments after the first 20, and only while skilled care is genuinely needed and improving the condition.
Long-term custodial care — help with bathing, dressing, eating, mobility, which is what most nursing home residents need — is not covered by Medicare at all, regardless of duration.
What pays for it is your own money, a long-term care insurance policy, certain veterans’ benefits, or MO HealthNet once assets are spent down to the eligibility limits. Families frequently discover this on day 101, which is far too late to plan.
What exactly is the five-year look-back?
When someone applies for Medicaid long-term care coverage, the agency reviews all asset transfers made in the sixty months before the application. 42 U.S.C. § 1396p(c)(1)(B)(i) sets the period at sixty months for any disposal made on or after 8 February 2006.
Transfers for less than fair market value create a penalty period, calculated by dividing the uncompensated value by the state’s average monthly private-pay nursing home cost. Give away $120,000 where the average cost is $8,000 a month and you have a fifteen-month penalty.
The critical detail is when the penalty starts: not at the transfer, but when the applicant is otherwise eligible and receiving care. So the money is already gone when the ineligibility bites. Note also that the look-back applies to long-term care coverage, not to ordinary Medicaid health coverage, and that transfers between spouses are not penalized.
Can I give my house to my children?
You can, and it is usually a bad idea for four separate reasons.
Look-back. A gift within sixty months of applying creates a penalty. Basis. A gift carries your original basis under IRC § 1015; a house bought for $60,000 and worth $400,000 hands your children a $340,000 capital gain that would have vanished entirely under § 1014 had they inherited it. Exposure. The house is now reachable in your child’s divorce, bankruptcy or lawsuit. Control. You no longer own your home, and if your child predeceases you it passes under their will.
A properly drafted Medicaid asset protection trust achieves the eligibility goal, protects the house from your child’s creditors and divorce, lets you keep living there, and — drafted with a retained limited power of appointment — preserves the full basis step-up. It costs more than a deed and it is worth it.
Note the home is also frequently an exempt resource during your lifetime while a spouse or dependent lives there. The real exposure is often estate recovery after death, which is a different problem with different answers.
Will Missouri take my house after I die?
Federal law requires states to seek recovery from the estates of Medicaid recipients who received long-term care benefits, and Missouri operates an estate recovery program. In practice the home is the asset most often involved, because it was exempt during life but not after death.
Protections exist. Recovery is generally deferred while a surviving spouse is living, and while a child under 21 or a blind or disabled child survives. Hardship waivers exist. And the scope of what counts as the “estate” for recovery purposes varies.
Assets properly held in a Medicaid asset protection trust funded more than five years before application are not part of the estate for recovery purposes, which is much of the point of using one. A beneficiary deed or a revocable trust does not solve this — those avoid probate, and estate recovery is a separate question from probate avoidance.
My spouse needs care but I do not. Will we lose everything?
No, and the spousal protections are the most generous part of the whole scheme — and the most underused.
Federal law protects the community spouse two ways. A community spouse resource allowance lets the healthy spouse keep a substantial share of the couple’s countable assets, subject to a floor and a ceiling that adjust annually. A minimum monthly maintenance needs allowance can divert income from the institutionalized spouse to the spouse at home.
Transfers between spouses are never penalized, which means restructuring who owns what is available even in a crisis. Certain assets remain exempt entirely — the home while you live there, a vehicle, personal effects, prepaid irrevocable burial.
And there is a planning step to take now while both of you are living: a testamentary trust in the healthier spouse’s will, so that if they die first, assets pass into a trust for the survivor rather than into the survivor’s countable resources. It costs almost nothing to add and it can protect an entire estate.
Is a revocable living trust any help?
None at all for this purpose. Everything in a revocable trust is fully countable, because you can revoke it and take the assets back. Medicaid looks at the maximum amount that could be made available to you under any circumstances.
A revocable trust remains excellent for probate avoidance, incapacity management and privacy. It simply has nothing to do with long-term care eligibility, and it is regularly sold as though it did.
Be similarly careful with a self-settled spendthrift trust under RSMo § 456.5-505.3. It gives real protection from ordinary creditors, but if the trustee can distribute principal to you, the assets are countable for Medicaid. Creditor protection and benefit eligibility are different tests, and a trust designed for one does not automatically satisfy the other.
What can the trust pay for while I am alive?
Income, and that is the design. A Medicaid asset protection trust is ordinarily an income-only trust: you may receive the interest, dividends and rents the trust generates, and you may not receive principal.
You can also retain the right to live in a residence the trust owns, and the trust can pay property taxes, insurance and maintenance on it. Many families find the practical effect on daily life is small — you live in your house, you receive the income, and what you have surrendered is the ability to sell the house and spend the proceeds.
That last point is the real constraint, and it needs to be honestly weighed. If there is any prospect you will need to liquidate those assets for your own living expenses, do not put them in. The usual approach is to fund the trust with assets genuinely surplus to your needs and keep enough outside it that you never feel trapped.
Should I buy long-term care insurance instead?
If you can qualify medically and afford the premiums, it is frequently the better answer — it pays for care rather than merely protecting assets from the cost, and it preserves choice about where and how you receive that care.
The obstacles are real. Premiums have risen sharply, underwriting tightens with age and health history, and traditional policies can raise rates after issue. Hybrid products combining life insurance with a long-term care rider address some of that at higher cost.
Missouri also operates a long-term care partnership program, under which qualifying policies allow you to protect additional assets from Medicaid spend-down and estate recovery equal to the benefits the policy paid — effectively combining insurance with an eligibility benefit. Worth asking about specifically.
The honest framing: insurance is best bought in your fifties or early sixties, and a trust is what you use when insurance is unavailable, unaffordable, or already declined.
Can I pay my daughter to take care of me?
Yes, and it must be documented in advance or it will be treated as a gift.
You need a written personal care agreement executed before the care begins, specifying the services, the hours, and a rate comparable to what a commercial provider would charge locally. Payments must actually be made on schedule, and the caregiver must report the income. Keep a log of hours and services.
Without that, every payment to a family caregiver is treated as an uncompensated transfer and penalized. Families do this informally all the time and are shocked at the application stage.
Separately, the caregiver child exception permits transfer of the home without penalty to a child who lived in it and provided care that allowed the parent to stay at home rather than enter a facility for at least two years before institutionalization. Both routes depend entirely on documentation created contemporaneously, not reconstructed later.
Is any of this legal?
Yes. Structuring your affairs to qualify for a benefit programme within its rules is lawful, and courts have said so repeatedly — it is no different in kind from arranging your affairs to reduce income tax. Congress wrote the look-back period precisely to define what is and is not permitted, and complying with it is not evasion.
What is not lawful is concealment: failing to disclose transfers on the application, hiding assets, or misrepresenting facts. Those are fraud, with criminal exposure, and no legitimate planner will go near them. Every structure described on this page is disclosed on the application.
There is also a fair policy debate about whether middle-class Medicaid planning is a good thing. That debate is worth having; it does not change what the law currently permits. Within the rules, a family protecting a home built over fifty years is doing something the statute contemplates.
What if we are already in a crisis?
There is still meaningful work available, and the first instruction is to stop giving things away. A gift made now creates a penalty that begins when the person is otherwise eligible and in care — the worst of both outcomes.
What works in a crisis: converting countable assets to exempt ones (prepaid irrevocable funeral, a needed vehicle, home repairs, paying off debt on an exempt home); using the community spouse protections in full; a properly documented personal care agreement going forward; and, where the facts support it, structured combinations of a partial gift with a compliant promissory note or annuity.
Crisis planning routinely preserves a meaningful share of an estate that would otherwise be spent entirely. It preserves less than planning done five years earlier, and it is worth doing anyway. Come in before the application is filed, not after it is denied.
When should we start?
In your mid-sixties, or whenever a health change makes care foreseeable within a decade — because the sixty-month clock has to run before the protection is real.
The sequence that works: first decide whether long-term care insurance is available and affordable, since it is the cleanest answer. Then, if it is not, consider a Medicaid asset protection trust for assets genuinely surplus to your needs, keeping plenty outside it. Then make sure both spouses’ wills contain a testamentary trust for the survivor, which costs almost nothing and protects a great deal. Then keep the ordinary documents current — particularly a durable power of attorney containing the express gift and trust powers required by RSMo § 404.710.6, without which your agent cannot do any of this on your behalf later.
That last point catches families constantly. A generic power of attorney gives an agent no authority to make gifts or fund a trust, and by the time it is needed the principal often cannot sign a new one. See the basic estate plan.
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Twenty minutes, no commitment. Bring what you own, how it is titled, whether there is a spouse at home, and what the care situation actually is. You will get a straight answer about what can still be protected and what the honest cost of waiting has been.
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Email derek@haakelawgroup.com · Offices in Wildwood, MO & St. Louis, MO (by appointment)
This page is general information about federal and Missouri law, not legal advice, and does not create an attorney-client relationship. Medicaid eligibility rules, resource and income allowances, and average cost figures change annually and are applied by the administering agency to particular facts. Consult a licensed attorney before making any transfer that could affect eligibility.