Most people will need some form of long-term care as they age. Long-term care can be very expensive, and Medicare does not pay for long-term custodial nursing home care. It may cover up to 100 days in a skilled nursing facility after a qualifying inpatient hospital stay. After that, the bill is yours or another payer’s. Many people who cannot keep up with private-pay costs turn to Medicaid for help.
If you are asking if an irrevocable trust protects you from Medicaid, talk to The Matus Law Group. Our New Jersey trust attorneys can walk you through the advantages and disadvantages of an irrevocable trust, how it could fit your goals, and what tradeoffs to expect. Planning ahead helps you line up resources for possible care needs and protect what you have worked for.
Contact us at (732) 785-4453 to schedule an appointment and take the first step toward securing your future and protecting your assets.
New Jersey Long‑Term Care Costs and Why Early Planning Matters
New Jersey long-term care is expensive, and the numbers speak for themselves. Recent survey data show median monthly costs of $7,055 for a home health aide, $8,548 for assisted living, and $12,380 for a nursing home semi-private room. A private room runs about $14,357 per month. Adult day health care averages $2,275. Hourly in-home help typically costs $36 to $37.
Those prices add up fast. You might be able to pay out of pocket for a while, but few families can sustain that level of spending for years. That is why early planning matters. New Jersey’s Medicaid Managed Long-Term Services and Supports can help pay for care at home, in assisted living, or in a nursing facility, but you must meet both clinical and financial rules.
Financially, the 2025 income cap for long-term services and supports is $2,901 per month for an individual, and the Medicaid Only resource limit is $2,000. If your income is over the cap, a Qualified Income Trust can be used to qualify, provided it is set up and funded correctly. There is also a five-year lookback on transfers, which can trigger penalties if gifts were made without proper planning.
There is another key point. Medicaid must seek recovery from the estate after death for the cost of long-term services and supports paid after age 55 or during permanent institutionalization, subject to certain exceptions and hardships.
A New Jersey trust attorney can help you build a plan that protects savings and keeps options open. That can include funding an irrevocable trust well in advance of the five-year lookback, coordinating a QIT if income is high, aligning beneficiary designations and your home title, and timing any spend down with the rules.
What is an Irrevocable Trust in New Jersey?
A trust is a legal arrangement that holds your assets in the name of the trust, not in your name. You choose a trustee to manage those assets and follow your instructions. The trustee then distributes what you own to the people you pick, called beneficiaries.
You will often hear about two types of trusts: revocable and irrevocable. Many people pick a revocable trust because you can change it as life changes. It is flexible. You can update who gets what, add assets, or adjust the terms.
There are times when an irrevocable trust makes more sense. It can lower certain taxes. It can protect a disabled child or adult, so support stays in place without risking important benefits. It can also help with long-term care planning, including meeting Medicaid asset limits so you can qualify for coverage. If these goals are on your mind, an irrevocable trust may be worth a closer look.
How Does the Irrevocable Trust Work?
When the trust is created, the creator will designate a trustee to manage it and also name beneficiaries of the trust. For Medicaid-planning purposes, the person who creates and funds the trust should not be the trustee or a beneficiary. If the grantor can receive income or principal, Medicaid will generally treat the trust as available.
Once the creator transfers assets into an irrevocable trust, he or she no longer controls those assets. The trust now owns the assets, and the trustee controls them. Whether the trust or the grantor pays income tax depends on how the instrument is drafted. Many irrevocable trusts are taxed as grantor trusts and are reported on the grantor’s return, while others file Form 1041 and pay tax at the trust level.
Different Kinds of Irrevocable Trusts in New Jersey
There are many irrevocable trusts that can be used to accomplish a variety of goals. The most popular in New Jersey are the following:
- Bypass Trust: Married couples sometimes use this structure to shelter assets from federal estate tax and to control disposition to children from a prior relationship. New Jersey repealed its state estate tax for deaths in 2018 and later, so current estate tax exposure is usually federal only. The federal basic exclusion amount is $13,990,000 per person for 2025.
- Special Needs Trust: This irrevocable trust is intended to provide for an adult or child with disabilities who are receiving Medicaid or other public benefits. A special needs trust is created to protect the eligibility of a beneficiary for benefits and ensure that they don’t lose their eligibility if there is a large inheritance.
- Spendthrift Trust: A spendthrift trust protects a beneficiary who cannot manage their finances, is at high risk of creditors’ claims, or has a problem using alcohol, drugs, or gambling. The trust is managed by the trustee. Assets are transferred to the trust. The trust terms allow the trustee to provide funds on a regular basis to the beneficiary or pay monthly expenses directly.
- Charitable Trust: A charitable remainder trust pays income to one or more non-charitable beneficiaries for a term of years or for life, and the remainder goes to charity at the end of the term
- Life Insurance Trust: The proceeds from a life insurance policy often count towards the estate’s total value, which can have estate tax implications. An Irrevocable Life Insurance Trust is one that acquires the life insurance policy and names a trustee to distribute the proceeds upon the death of the grantor.
Who Owns The Property In An Irrevocable Trust
Assets conveyed into the trust are transformed into trust property. Trust property comprises all the assets that the grantor, the trust’s creator, transferred into the trust while alive, as well as assets for which the trust assumes a beneficiary role following the grantor’s passing. This may encompass real estate and personal possessions, whether tangible or intangible, such as bank accounts or financial interests.
In an irrevocable trust, the trustee holds legal title to trust property in a fiduciary capacity and manages it for the beneficiaries under the trust terms. The grantor does not own the assets once transferred, and the trustee’s control is limited by fiduciary duties and the instrument. From both a legal and financial perspective, the grantor has no connection to the assets, and the trustee, responsible for managing the trust assets for the beneficiaries, does not possess ownership of the trust property. While the trustee has control over the assets, their responsibility is to prioritize the well-being of the beneficiaries, following the instructions provided by the grantor during the trust’s establishment.
Legal counsel is essential for handling property ownership within an irrevocable trust. At The Matus Law Group, our seasoned New Jersey trust attorneys can provide invaluable insights into the legal framework surrounding irrevocable trusts, with the aim of protecting and managing your assets properly. Contact us to schedule a consultation and secure your assets with confidence.
New Jersey Trust Attorney
Christine Matus
With three decades of experience, New Jersey trust and estates attorney Christine Matus helps families protect what matters, guiding clients through wills, trusts, special needs planning, and long-term care strategies with clarity and care. Admitted to the New Jersey Bar and the U.S. District Court of New Jersey in 1995, she blends sophisticated planning with a practical, client-first approach.
Christine earned her J.D. from Touro College, Jacob D. Fuchsberg Law Center (1995) and her B.A. in Economics from Douglass College, Rutgers University (1992), and completed coursework in International Criminal Law and Ethics at St. Anne’s College, Oxford University (1993). Beyond her practice, she serves the profession and her community through leadership roles, public education, and hands-on volunteer work.
How Does an Irrevocable Trust Help With Medicaid Asset Eligibility Requirements?
Medicaid evaluates both income and resources. For 2025, an individual’s Medicaid Only resource limit is $2,000, and the MLTSS income cap is $2,901 per month. Assets placed into a properly drafted and funded irrevocable trust that cannot pay principal or income to the grantor are generally treated as unavailable, subject to transfer-of-assets rules and the five-year look-back.
Common New Jersey resource exclusions include:
- A principal residence, if certain conditions are met, including intent to return or occupancy by a spouse, plus a federal home equity limit that for 2025 is $1,097,000.
- One automobile used for transportation.
- Household goods and personal effects, subject to New Jersey’s limits.
- Life insurance cash value only if the total face value of all policies is $1,500 or less; otherwise, the cash value is countable.
- Burial spaces and limited burial funds, within New Jersey’s specified caps.
- Certain resources that are not accessible through no fault of the individual, with periodic reevaluation.
Rental property is generally a countable resource unless it falls under a specific exclusion, such as property essential for self-support. Retirement accounts are often countable unless placed into a permitted payout status; transferring an IRA to a trust during life typically causes a taxable distribution, although trusts can be named as beneficiaries.
| Exclusion Type | Description | Countable for Medicaid? |
|---|---|---|
| Principal residence | Excluded if applicant intends to return or if occupied by a spouse; equity limit is $1,097,000 | Not countable if conditions are met |
| One automobile | A single vehicle used for transportation | Not countable |
| Household goods and personal effects | Subject to New Jersey’s value limits | Not countable |
| Life insurance | Excluded if total face value is $1,500 or less; otherwise, cash value is counted | Countable above $1,500 |
| Burial spaces and funds | Must fall within New Jersey’s limits | Not countable |
| Inaccessible resources | Must be proven unavailable through no fault of the individual | Temporarily not countable |
Why You Shouldn’t Gift These Assets to Your Children Instead?
It may seem like an obvious solution to transfer your assets to your children now. However, if your goal is to qualify for Medicaid benefits, be aware that Medicaid enforces a five-year look-back period for anything considered a gift. Any asset transfers intended to meet Medicaid eligibility requirements must be completed at least five years in advance to be protected.
In addition, there are advantages to naming your children beneficiaries of the trust instead of gifting them the assets now.
- In the case of a divorce or death, the spouse may have rights to those assets.
- Creditors cannot seize the assets in the trust.
- The trust will provide legal accountability for the family.
If you have more questions concerning irrevocable trusts and how they can ensure your long-term care, you should discuss this with a professional estate planning attorney. The estate planning professionals at The Matus Law Group would be happy to discuss any of your estate planning needs during a consultation.
For more than 20 years, The Matus Law Group has been advising residents of New Jersey in all matters of estate planning and special needs planning services for both children and adults. The Matus Law Group is an experienced team of attorneys who can help you and your family plan for life, protect and care for loved ones with special needs, cope effectively with disability and death, and preserve inheritances for future generations.
The 5-Year Medicaid “Look-Back” Rule
The Medicaid 5-year look-back period is designed to review any asset transfers made within five years before submitting a Medicaid application. The purpose of this rule is to prevent individuals from reducing their countable assets, such as cash or investments, by transferring them to others in order to meet Medicaid’s asset limit for eligibility.
If transfers are made during this period without receiving fair value in return, Medicaid may impose a penalty period. This penalty could make the applicant ineligible for Medicaid benefits, depending on the amount and timing of the transfer. The duration of the penalty period is determined by the total value of the assets transferred and the cost of care at that time.
To address this rule, many individuals choose to establish an irrevocable trust, such as a Medicaid Asset Protection Trust (MAPT). Once assets are transferred into this trust, they are no longer considered owned by the individual and are not counted toward Medicaid’s asset limits. However, these trusts must be established and funded at least five years before applying for Medicaid to avoid penalties and comply with the look-back rule.
Planning for Medicaid eligibility, with consideration of the 5-year look-back rule, is crucial for anyone incorporating it into their long-term care strategy. Having experienced legal guidance is essential to manage the process and develop an effective asset protection plan that complies with Medicaid regulations.
Dangers of Irrevocable Trusts
Irrevocable trusts, often used for asset protection and estate planning, come with significant risks that warrant careful consideration. The primary danger of an irrevocable trust is its inflexibility. Once you establish an irrevocable trust and transfer your assets into it, you cannot alter the terms or reclaim control over those assets. This irrevocability can lead to unforeseen complications, especially if your financial situation or intentions change.
Another critical risk involves the choice of trustee. Since you cannot serve as your own trustee in an irrevocable trust, you must appoint someone else to manage the trust. This transfer of control means you must rely on the trustee to manage the assets according to the trust’s terms, potentially leading to issues if the trustee fails to act in the best interest of the beneficiaries or manages the assets poorly.
Furthermore, setting up an irrevocable trust without a clear, confident understanding of your goals can lead to regret. If the purpose behind the trust is not well-considered or if circumstances change, you might find yourself stuck with a trust arrangement that no longer serves your needs or those of your beneficiaries.
While irrevocable trusts can offer significant benefits, including tax advantages and protection from creditors, they are not suitable for everyone. Their irreversible nature requires a thorough and confident strategy at the outset, along with a trustworthy and competent trustee to manage the trust effectively.
Top 5 FAQs about Irrevocable Trusts for Long Term Care
The Deficit Reduction Act of 2005 standardized a 60-month look-back for most transfers and aligned the penalty start rules. Before the law, the look-back for gifts to individuals was generally 36 months and for most trusts 60 months; after the law, both are 60 months. Therefore, a gift to a trust has the same five-year look-back as a gift to an individual.
1. Why Use A Trust For Long-Term Care Instead Of Gifting Assets To A Child?
There are many reasons a trust is preferable for asset protection in long-term care planning than an outright gift to a child. First, a child may suffer through a divorce and lose some of the gifted assets to a former spouse.
Second, a child may predecease the spouse, with the child’s spouse or descendants ultimately owning the property. Third, if a child receives the assets and later has problems with creditors, the child’s creditors may be able to seize the gifted assets. With a trust, many of these issues can be avoided. In addition, a trust can provide some legal accountability among the family members.
2. How Does a Trust Work?
The creator of the Trust names a Trustee to handle the investment of assets held by the trust and make distributions of trust assets as detailed in the trust document.
The trust will also name beneficiaries of the trust. These individuals are entitled to distribution of trust income and/or assets. If the trust is drafted properly, the trust assets may be protected from a beneficiary’s creditors.
The Trust may have different beneficiaries during the creator’s lifetime and at the creator’s death. In most cases, an individual should wait at least five years before filing a Medicaid application after transferring assets to an irrevocable trust.
3. What Type of Trust Will Not Count as an Asset for Medicaid or the Veterans Administration?
For Medicaid, the trust must be irrevocable and drafted so that no income or principal can be paid to or for the grantor. If the grantor can receive payments, Medicaid will count what is available. Note that Veterans Affairs pension benefits use different rules, including a 36-month look-back for transfers.
4. Who Can Be a Trustee?
In most cases, a child of the creator serves as trustee, but other individuals or corporations may serve as Trustee. For Medicaid-focused planning, do not name the creator or the creator’s spouse as trustee. Any authority to pay income or principal to the creator can make trust assets countable.
If the trust creator has control over the assets of a trust, Medicaid will count the trust assets as countable resources of the trust creator. Control is tantamount to ownership.
5. What Assets May Fund a Trust?
Almost any asset can be used to fund a trust for long-term care planning, including real estate, stocks, bonds, cash, or even a personal residence. Retirement assets like IRAs and many 401(k)s generally cannot be retitled to a trust during life without triggering a taxable distribution. You can usually name a trust as a beneficiary instead. Please note that certain assets, such as a personal residence, may require unique provisions in the trust document to maintain property tax advantages.
If you are concerned about protecting your assets in case you need long-term care, contact us today at (732) 785-4453. We would be happy to sit down with you for a peace of mind session to review all of your options.
