Why a Revocable Living Trust Can Affect a Medicaid Spend Down

Medicaid eligibility in New York is governed by Social Services Law § 366 and the federal Medicaid statute. Both require that the applicant's countable resources fall below program limits — approximately $32,396 for Community Medicaid in 2024-2025 and the same threshold for institutional Medicaid for a single applicant. Resources include any asset the applicant has the legal right to access, sell, or spend.

A revocable trust does not place assets beyond the grantor's reach. By definition, the grantor retains the power to revoke the trust, amend its terms, change beneficiaries, and demand the return of trust property at any moment. The federal Medicaid regulations at 42 CFR § 433.36 and the New York Department of Health's Administrative Directives treat trust property the grantor can recover as the grantor's countable resource — exactly as if the assets had never been transferred.

The conclusion is procedural: the revocable trust appears on the Medicaid application, is listed as a countable resource, and either fits within the resource limit or does not. There is no shelter mechanism. Clients who funded a revocable trust expecting Medicaid protection learn this only when the application is filed or denied.

The instrument that does shelter assets from Medicaid is the Medicaid Asset Protection Trust (MAPT) — an irrevocable trust drafted specifically to remove transferred assets from the grantor's countable resources. The MAPT works because the grantor permanently gives up the right to revoke, to amend in ways that benefit the grantor, and to access principal. The grantor typically retains the right to income generated by the trust assets, which is permitted under EPTL § 7-3.1 and the federal regulations.

The MAPT must be irrevocable and the transfer to the trust must occur at least 60 months before the Medicaid application — the look-back period under 42 USC § 1396p(c) and SSL § 366(5). Any transfer within the 60-month window produces a transfer-of-asset penalty: a period of ineligibility calculated by dividing the transfer amount by New York's regional rate for nursing-home care (the 'monthly divisor', which varies by region).

The five-year wait makes timing essential. A client diagnosed with early-stage dementia who funds a MAPT today must survive five years without needing nursing-home Medicaid before the shelter activates. Clients who wait until they need care have run out of time. We discuss MAPT planning with every estate-planning client in their late sixties and seventies, not because all of them need one, but because the option must be available before crisis hits.

A revocable trust can sometimes be modified into an irrevocable MAPT, but the conversion itself triggers a new 60-month look-back as of the date of conversion. Restating the trust to remove the power of revocation, restrict the grantor's access to principal, and add the MAPT-specific provisions effectively creates a new transfer for Medicaid purposes; the clock starts on the restated date, not the original funding date.

More often we recommend a parallel structure: keep the revocable trust for assets the client may need to access (cash, brokerage accounts, vehicles), and fund a new irrevocable MAPT with assets the client can commit to long-term (the family home, a vacation property, securities the client does not intend to spend). The two trusts coexist; the revocable trust holds resources for current needs and probate avoidance, the MAPT holds the long-term Medicaid-shelter portion.

Asset selection for the MAPT requires care. The family home is a common funding asset because the grantor can retain a right of occupancy (a life estate under EPTL § 6-5.1) without making the home a countable resource. Securities and rental property are also typical. Retirement accounts are usually not transferred into MAPTs because the income tax cost of the transfer typically exceeds the Medicaid benefit; we plan around them differently.

Revocable trusts continue to serve their original purposes even in a Medicaid-planning context. Probate avoidance — particularly for clients with real property in multiple states — is unaffected by the Medicaid analysis. The revocable trust holds the assets, the successor trustee distributes them on death without filing a probate petition, and the family avoids the time and public exposure of the SCPA § 1402 process.

Incapacity management is the second continuing role. A revocable trust with a successor trustee provision allows the grantor's chosen successor to step in and manage the assets without an Article 81 guardianship under the Mental Hygiene Law. For clients in early-stage cognitive decline, the revocable trust is the right vehicle for the assets that need active management — and the MAPT handles the assets being sheltered for long-term care.

Privacy is the third. Wills become public on probate; trusts do not. A client who values discretion about the disposition of assets uses the revocable trust for those assets even when Medicaid is not part of the picture. The Medicaid-eligibility issue does not undermine the revocable trust's other benefits — it just limits what the revocable trust can do.