What Are the Disadvantages of a Medicaid Trust

Medicaid trusts can have some potential downsides that one should be aware of before establishing one. One drawback is that the individual setting up the trust has to give up control of the assets placed in the trust. The trust is then controlled by a trustee, who manages the assets according to the terms of the trust. Another potential downside is that Medicaid trusts can incur setup and administrative costs.

Loss of Control Over Assets

When you create a Medicaid trust, you are transferring ownership of your assets to the trust. This means that you will no longer have direct control over those assets. The trustee will be responsible for managing and distributing the assets according to the terms of the trust.

  • Loss of flexibility: You can no longer sell or give away the assets in the trust without the trustee’s permission.
  • Potential loss of income: If the assets in the trust are investments, you may lose out on potential income from those investments.
  • Potential tax consequences: Depending on the type of trust you create, there may be tax consequences associated with transferring assets to the trust.

It’s important to weigh the pros and cons of a Medicaid trust carefully before deciding if it’s the right option for you. If you’re concerned about losing control over your assets, you may want to consider other options, such as a long-term care insurance policy or a life insurance policy with a long-term care rider.

Medicaid TrustDisadvantages
Loss of Control Over Assets– You can no longer sell or give away the assets in the trust without the trustee’s permission.

– You may lose out on potential income from investments in the trust.

– There may be tax consequences associated with transferring assets to the trust.

Expensive and Time-Consuming to Establish

Setting up a Medicaid trust can be a costly and time-consuming process. It typically involves hiring an attorney to draft the trust agreement, as well as an accountant to help you understand the tax implications. The cost of setting up a Medicaid trust can range from a few thousand dollars to tens of thousands of dollars, depending on the complexity of the trust and the attorney’s fees. Additionally, it can take several months or even years to get a Medicaid trust approved by the government.

  • Legal fees: Attorney’s fees for drafting the trust document and providing legal advice can be substantial.
  • Administrative costs: Costs associated with setting up and managing the trust, such as trustee fees and accounting fees.
  • Investment fees: If the trust assets are invested, there may be fees associated with managing the investments.
  • Taxes: Depending on the type of Medicaid trust, there may be tax consequences, such as capital gains taxes or income taxes on distributions from the trust.
Attorney fees$2,000 to $10,000
Accountant fees$1,000 to $5,000
Trust administration fees$500 to $2,000 per year
Investment feesVaries depending on the investment

Disadvantages of a Medicaid Trust: What You Need to Know

A Medicaid Trust, also known as a Medicaid Asset Protection Trust, is a legal instrument designed to safeguard assets and maintain eligibility for Medicaid benefits. However, there are certain disadvantages associated with Medicaid trusts that individuals should consider before establishing one.

Potential Disqualification from Medicaid

  • Resource Limit Violation:
    Setting up a Medicaid trust may cause the individual’s assets to exceed the Medicaid resource limit. This could result in ineligibility for Medicaid coverage until the trust has been in existence for the required “look-back” period (typically five years).
  • Income Generation:
    Assets transferred into a Medicaid trust can generate income, which may affect Medicaid eligibility. If the trust generates more income than allowed, the individual may lose Medicaid coverage.
  • Medicaid Penalty:
    In some cases, transferring assets into a Medicaid trust may result in a Medicaid penalty. For five years following the establishment of the trust, the individual may be required to pay a higher share of the cost of their nursing home or home care expenses.
  • Impact on Future Care:
    Establishing a Medicaid trust can limit the individual’s choices for future care. Once assets are transferred into the trust, they are no longer available to be used for personal care.

Other Disadvantages

  • Costs and Complexity:
    Setting up a Medicaid trust involves legal fees and administrative costs. It also requires ongoing management and compliance with complex legal requirements.
  • Delay in Access to Benefits:
    As mentioned above, there is a “look-back” period before an individual becomes eligible for Medicaid benefits after creating a Medicaid trust. During this period, the individual may have to pay for their long-term care expenses out of pocket.
  • Loss of Control:
    Once assets are transferred into a Medicaid trust, the individual no longer has direct control over those assets. The trustee of the trust manages the assets according to the terms of the trust agreement.
  • Limited Use of Assets:
    Assets in a Medicaid trust can only be used for specific purposes, such as paying for qualified medical expenses. The individual cannot access the assets for personal use or to benefit family members.
Additional Disadvantages of Medicaid Trusts
Potential Interference with Estate Planning: A Medicaid trust may interfere with the individual’s estate planning goals and strategies.
Limited Flexibility: Once established, a Medicaid trust is difficult to modify or terminate.
Public Record: Medicaid trusts are typically recorded in public records, potentially affecting an individual’s privacy.
Potential Tax Implications: Depending on the structure of the trust and the assets involved, there may be potential tax implications, such as capital gains or income taxes.

Individuals considering a Medicaid trust should carefully weigh the potential benefits and drawbacks to determine if it is the right choice for their situation. Consulting with a qualified elder law attorney is essential to fully understand the implications and make an informed decision.

Complex Legal and Financial Issues

Setting up and maintaining a Medicaid trust involves a number of complex legal and financial issues. These can include:

  • Legal Fees: Establishing a Medicaid trust often requires the involvement of an attorney to ensure that the trust is properly drafted and executed. The costs associated with hiring an attorney can be significant.
  • Financial Requirements: To be eligible for Medicaid, the individual must meet certain financial requirements, including asset limits. The creation of a Medicaid trust may involve transferring assets into the trust, which could affect the individual’s eligibility for Medicaid.
  • Asset Protection: Medicaid trusts are designed to protect assets from being used to pay for long-term care costs. However, there are limitations on the types of assets that can be placed in a Medicaid trust, and the individual may still be required to pay for some long-term care costs.
  • Ongoing Reporting: Medicaid trusts require ongoing reporting and disclosure to the state Medicaid agency. This can include providing information about the trust’s assets, income, and distributions. Failure to comply with reporting requirements could result in the individual being denied Medicaid benefits.

It is important to carefully consider the legal and financial implications of establishing a Medicaid trust before proceeding. Consulting with an experienced attorney who is knowledgeable about Medicaid planning can help individuals understand the risks and benefits associated with a Medicaid trust and make informed decisions about their long-term care planning.

Additional Considerations:

  • Timeliness: Medicaid trusts must be established well in advance of the need for long-term care. There may be a waiting period before the individual is eligible for Medicaid benefits after the trust is created.
  • Medicaid Recovery: Upon the death of the individual, the state Medicaid agency may seek to recover the cost of Medicaid benefits provided from the trust assets. This can result in the depletion of the trust assets and may have implications for the individual’s heirs.


Medicaid trusts can be a valuable tool for protecting assets and ensuring access to Medicaid benefits for long-term care. However, it is important to be aware of the complex legal and financial issues involved in establishing and maintaining a Medicaid trust. Consulting with an experienced attorney is essential to ensure that the trust is properly drafted and executed and that the individual’s long-term care needs are met.

I appreciate you taking the time to learn about the disadvantages of Medicaid trusts with me. I know it can be a lot to take in, but I hope this information has been helpful. If you have any more questions, feel free to reach out to me. I’ll be here to help you out in any way I can. And remember to stop by again soon for more interesting reads— I’m always adding new content that you might find helpful. Take care, and see you later!