Is a Florida Medicaid Asset Protection Trust Right for Diane, Age 68 and Healthy?

Meet Diane: why timing is everything

Diane is a composite I use to talk through this decision, not an actual client, but her situation is one I see often in Vero Beach and across Florida. She's 68, recently retired, in good health, and owns a home worth around $450,000 along with roughly $300,000 in savings. Her mother spent down almost everything paying for a nursing home, and Diane doesn't want that story to repeat itself.

Here's the thing about Medicaid planning: the tool that protects the most is the one you use before you need it. A Medicaid asset protection trust, often called a MAPT, only works if it's funded and left alone for five years before a Medicaid long-term care application. Diane is exactly the kind of person this planning is designed for. She's healthy, she has time, and she has assets worth protecting. That combination is rarer than you'd think, because most families don't start thinking about this until a health crisis makes the five-year window impossible to use.

What an irrevocable Medicaid trust actually is (and isn't)

A revocable living trust, the kind most Florida estate plans use for probate avoidance, does nothing to protect assets from Medicaid. Diane can change or cancel a revocable trust at any time, which means the law treats those assets as still hers. A MAPT is different by design: it's irrevocable, meaning Diane gives up the right to unilaterally take assets back out or dissolve the trust once it's created and funded.

In exchange for that loss of control, properly transferred assets stop counting toward Florida's strict asset limit for long-term care Medicaid eligibility, and they generally fall outside the reach of Florida's Medicaid Estate Recovery Program after death, since assets held in the trust are not part of the probate estate.

• Diane cannot serve as trustee of her own MAPT, and neither can a spouse, because control over trust assets would count against her.
• Diane cannot be named a beneficiary of the trust principal for the same reason.
• She can, however, retain a right to trust income and, depending on the drafting, a lifetime right to live in the home.

What Diane keeps: income, the home, and some flexibility

A well-drafted MAPT is not a total surrender. Diane can typically retain:

• The right to live in the house for the rest of her life, even after it's transferred into the trust, as long as the trust is drafted properly.
• Income the trust generates, such as interest or dividends, though this needs care. If retained trust income pushes Diane's total monthly income above Florida's income cap for long-term care Medicaid, she may eventually need a separate Miller Trust (a qualified income trust) to route the excess and preserve eligibility.
• The ability to change beneficiaries in some designs. Many MAPTs give the grantor a limited power of appointment, letting Diane adjust who ultimately inherits the trust assets among her descendants, even though she can't take the assets back for herself.

What she gives up is direct ownership and control. She can't sell the house on her own signature once it's in the trust, and she can't reach into the trust and pull the $300,000 back out if she changes her mind or has an emergency the trust wasn't designed for. That tradeoff is the entire decision.

The homestead inside the trust, and the tax picture heirs care about

Diane's home is her biggest asset, and it's also the one people worry about most. When a homestead is transferred into a MAPT correctly, Florida's property tax homestead exemption can generally be preserved, and Diane keeps her right to live there. If she later needs nursing home care and qualifies for Medicaid, the home inside the trust is generally shielded from the state's estate recovery claim after her death, because it's not part of her probate estate.

On the tax side, MAPTs are typically drafted as grantor trusts. That's intentional. Because Florida has no state estate or inheritance tax, and the federal estate tax only applies to estates far larger than Diane's, keeping the trust assets in her taxable estate for tax purposes is a benefit, not a downside. It means that when Diane dies, the home and other trust assets get a step-up in basis to fair market value. For her children, that step-up can eliminate the capital gains tax they'd otherwise owe on decades of appreciation if they later sell the house.

The five-year clock and who this planning is wrong for

Once Diane funds the trust, Florida's Department of Children and Families will look back 60 months from any future Medicaid long-term care application. Any transfers made within that window can trigger a penalty period during which Medicaid won't pay, even if she's otherwise eligible. That's exactly why funding the trust now, while she's healthy at 68, matters. If she waited until a diagnosis or a fall forced the issue, the trust might not finish its five-year run before she needed care, and it would do her no good at that point.

This planning is generally the wrong move for people who are already in declining health or likely to need nursing home care soon, since an irrevocable trust can't help with near-term eligibility and only ties up assets they might need directly. It's also often not worth the cost and complexity for people with modest savings, sometimes described as under $100,000 outside the home, where simpler strategies may accomplish more for less. And retirement accounts like IRAs or 401(k)s are usually left out of a MAPT entirely, because moving them in typically triggers immediate income tax on the full balance, which tends to outweigh any Medicaid benefit.

Questions Diane should answer before she signs anything

Before committing to an irrevocable trust, I'd want Diane, or anyone in her position, to think through:

• Am I comfortable giving up direct control of these assets for at least five years, possibly permanently?
• Who will serve as trustee, and do I trust that person completely with long-term financial responsibility?
• Do I have enough assets left outside the trust to handle emergencies, since MAPT funds generally aren't accessible on demand?
• How does this trust interact with my existing will, healthcare surrogate, and durable power of attorney?
• Am I healthy enough today that five years is a realistic and comfortable planning horizon?

For Diane specifically, being 68 and healthy is the strongest argument in favor of acting now rather than waiting. The whole strategy depends on time she currently has and may not have later.

This article is for general informational purposes only and does not constitute legal advice, nor does reading it create an attorney-client relationship. Florida estate, elder, probate, and real estate law are fact-specific and change over time. Consult a licensed Florida attorney about your individual circumstances. Arthur Simpson, Esq. is licensed to practice law in the State of Florida. Attorney advertising.