Long-term care costs can exceed $12,000 monthly in many Pennsylvania areas, revealing a financial reality that can devastate family savings in a matter of months. A Pennsylvania elder law lawyer can help you explore irrevocable trusts as an effective planning tool to protect assets while maintaining future Medicaid eligibility. Understanding how these trusts function, what they protect, and what trade-offs they require helps you make informed decisions about your family's financial future.
What Makes an Irrevocable Trust Different?
Unlike revocable trusts that you can change or dissolve at any time, irrevocable trusts become permanent once established. You transfer ownership of assets into the trust, surrendering direct control in exchange for legal protection from Medicaid's asset counting rules.
The permanence is both the strength and the challenge. Once you fund an irrevocable trust, those assets no longer belong to you. Pennsylvania's Medicaid program may not count properly transferred assets when determining eligibility if the trust is drafted to make them unavailable to you. However, you can't simply change your mind and take them back.
You must also meet medical criteria demonstrating nursing facility level of care need; asset planning alone doesn't qualify you for Medicaid benefits.
The Five-Year Look-Back and Transfer Penalties
Establishing an irrevocable trust doesn't provide immediate protection. Pennsylvania's Medicaid program examines all asset transfers made during the five years before your application date.
Transfers to a properly drafted irrevocable trust may avoid transfer penalties after five years, but trust terms must prevent the assets from being available to you. Even after five years, a trust can still be countable if the applicant can benefit from the principal. Apply for benefits before completing that period, and you'll face penalty periods that delay coverage once you're otherwise eligible and receiving long-term care services.
Which Assets Belong in Irrevocable Trusts?
Not all assets work well in irrevocable trusts. Cash and investment accounts typically transfer smoothly.
Real Estate as a Countable Resource
Real estate requires more careful consideration because of potential tax implications and control issues. Your primary residence needs special attention. Pennsylvania generally excludes your home as a countable resource if equity doesn't exceed $752,000 (effective January 1, 2026), it serves as your principal residence, and you intend to return home.
Medicaid estate recovery after death is a separate issue from initial eligibility. In other words, the home may be protected during your lifetime but subject to recovery claims later unless qualifying survivors remain. Transferring a house to an irrevocable trust may create tax complications depending on the trust structure.
Keep Retirement Accounts Out
Never transfer IRAs, 401(k)s, or other retirement accounts into irrevocable trusts. Such transfers are generally treated as a taxable distribution and can cause immediate income tax on the entire account value.
Retirement account treatment for Pennsylvania Medicaid is state-specific and fact-specific. Accounts may be treated as countable resources depending on circumstances, often with different treatment once in payout status.
Trust Drafting Pitfalls That Break Medicaid Plans
Poorly structured irrevocable trusts can fail to protect assets. Common mistakes include:
- Retained powers or excessive control. Keeping too much authority over trust assets can make them countable for Medicaid purposes.
- Problematic trustee selection. Serving as your own trustee defeats the trust's protective purpose.
- Vague distribution standards. "Availability" language that allows distributions back to you can destroy asset protection.
Trust income can remain accessible without undermining asset protection, but this income affects both eligibility determinations and patient-pay obligations. After Medicaid approval, long-term care recipients must contribute most monthly income to nursing home costs after deducting a personal needs allowance ($60 monthly as of 2025) and spousal allowances when applicable.
Does Every Family Need an Irrevocable Trust?
Irrevocable trusts serve families with substantial assets, typically $300,000 or more beyond protected resources. The cost, complexity, and loss of control make less sense when protecting modest amounts that might be sheltered through other strategies.
Pennsylvania also permits certain asset conversions that reduce countable resources without the permanence of irrevocable trusts. Converting cash into exempt assets like home improvements or prepaid funeral arrangements can protect resources while maintaining flexibility.
Medicaid Planning for Married Couples
Spousal transfers receive automatic Medicaid protection without any look-back penalty. Married couples can transfer unlimited assets between spouses, making irrevocable trusts unnecessary for many families where one spouse requires care and the other remains healthy.
Pennsylvania's spousal protections include the Community Spouse Resource Allowance (CSRA, $157,920 as of 2025), allowing the healthy spouse to retain assets while the other spouse qualifies for Medicaid. Monthly income allowances further protect the community spouse's financial security.
Estate Recovery: A Separate Concern From Eligibility
Qualifying for Medicaid doesn't mean assets are permanently protected. Pennsylvania pursues estate recovery to recoup benefits paid after recipients die. Medicaid’s recovery rights are usually limited to estate assets that pass through probate. Property that transfers automatically at death, like assets held jointly with rights of survivorship, is generally not part of the recovery claim.
The family home is a common source of misunderstanding. While a residence may be excluded when determining Medicaid eligibility, that protection does not necessarily continue after death. Unless a surviving spouse, minor child, disabled child, or another protected individual remains, the home may still be subject to estate recovery.
For that reason, Medicaid eligibility planning alone is not enough. Effective planning must also account for how assets will be treated after death.