Understanding the Difference Between a Revocable Living Trust and a Medicaid Asset Protection Trust

By Olivia Wann

Many people assume that all trusts provide the same benefits, but that is not the case. A Revocable Living Trust and a Medicaid Asset Protection Trust (MAPT) serve very different purposes, and choosing the wrong one can have significant financial consequences.

A Revocable Living Trust is primarily an estate planning tool. It allows you to manage your assets during your lifetime, avoid probate upon your death, and provide for the orderly distribution of your estate. Because you retain complete control over the trust, you may amend or revoke it at any time. However, this control comes with an important limitation: the assets in a revocable trust are still considered your assets. As a result, they remain available to creditors and are generally countable when determining eligibility for Medicaid long-term care benefits.

A Medicaid Asset Protection Trust, on the other hand, is an irrevocable trust specifically designed to help preserve assets while planning for future long-term care needs. Once assets are transferred into the trust, the grantor gives up direct ownership and control of those assets. If the trust is properly drafted and funded, and the transfer occurs outside Medicaid’s five-year look-back period, the assets held in the trust are generally not counted for Medicaid eligibility purposes. This allows individuals to qualify for Medicaid benefits while preserving assets for a spouse, children, or other beneficiaries.

The tradeoff is that an irrevocable trust cannot simply be changed or revoked at the grantor’s discretion. Because of the legal and tax implications involved, a Medicaid Asset Protection Trust should only be established after careful planning with an experienced elder law attorney.

Both trusts avoid probate.  These trusts allow us to add sub trusts for minors, special needs, beneficiaries who are chemically dependent, and other types of contingencies to benefit those who are beneficiaries.

In short, a Revocable Living Trust helps families avoid probate and simplifies estate administration, while a Medicaid Asset Protection Trust is designed to protect assets from the high cost of long-term care and assist with Medicaid eligibility. Understanding the distinction between these two trusts is essential when developing a comprehensive estate and long-term care plan.

This type of sophisticated beneficiary planning will help you achieve your objectives with the future distribution of your estate.