Assets in an irrevocable trust are not automatically protected from New Jersey Medicaid. Under New Jersey rules, any part of an irrevocable trust that can be paid to you or for your benefit can be treated as an available resource, and payments made to or for you can be treated as income. Funding the trust may also be treated as a transfer and is subject to the 60-month (5-year) look-back for long-term care Medicaid.
At The Matus Law Group, New Jersey trust attorney Christine Matus helps families throughout Monmouth County protect their assets while planning for long-term care. Our trust lawyers can guide you through Medicaid planning, irrevocable trusts, and estate recovery avoidance strategies in Red Bank and across New Jersey.
This guide explains how irrevocable trusts protect assets from Medicaid, what the five-year look-back rule means for your planning, how to avoid estate recovery, and what tax benefits these trusts offer. Call The Matus Law Group at (732) 785-4453 to speak with NJ estate planning lawyer Christine Matus about protecting your assets.
What Is an Irrevocable Trust?
An irrevocable trust is a separate legal entity that owns assets for the benefit of named beneficiaries. Once created, it cannot be changed, amended, or revoked except under specific circumstances. A trustee manages the trust and distributes assets in accordance with the trust agreement.
Because the trust is irrevocable, the person who creates it no longer owns the assets placed inside. This transfer of ownership enables the trust to protect assets from Medicaid eligibility requirements. The trust itself owns the property, not the individual applying for benefits.
What matters most under New Jersey Medicaid rules is whether the trust can pay you or pay for things that benefit you. If the trust can do that, Medicaid can treat some or all of the trust as available to you. Many Medicaid-planning irrevocable trusts name someone else as trustee and do not allow distributions to the grantor, because payments “to or for the benefit of” the grantor can affect eligibility.
Key Takeaway: Moving assets into an irrevocable trust can help with Medicaid planning, but only if the trust cannot pay you. If the trust can pay you (directly or indirectly), Medicaid may treat some or all of it as available.
How Does Medicaid Count Assets?
Medicaid limits both income and assets for individuals seeking long-term care benefits. New Jersey Medicaid sets a resource maximum of $2,000 for an individual and $3,000 for a couple (when both are treated as a couple for eligibility). For married couples where only one spouse is applying for long‑term care Medicaid, New Jersey applies spousal impoverishment rules. In 2026, the Community Spouse Resource Allowance (CSRA) ranges from $32,532 to $162,660, depending on the couple’s total resources.
Countable assets include cash, stocks, bonds, savings accounts, checking accounts, and real estate other than a primary residence. However, certain assets are exempt from this calculation. Non-countable assets can include your primary residence, personal belongings/household goods, and one automobile. Retirement accounts (such as IRAs and 401(k)s) are not always excluded; it depends on whether you can take a lump sum or are required to receive periodic payments.
The following table shows which assets count toward Medicaid eligibility:
| Asset Type | Countable | Notes |
|---|---|---|
| Cash, savings, checking accounts | Yes | Must be under $2,000 (single) or $3,000 (married; CSRA may apply) |
| Stocks and bonds | Yes | Full market value counts |
| Real estate (non-primary residence) | Yes | Vacation homes, rental properties |
| Primary residence | No | Exempt while living there or intending to return |
| Personal belongings and furniture | No | Exempt |
| One automobile | No | Exempt |
| IRAs and 401(k)s | Yes | Countable in NJ unless in payout status |
| Property in an irrevocable trust | No | Exempt unless the trust can pay or benefit the grantor |
Reminder: Trust assets are protected only when the trust cannot pay you or for your benefit; otherwise, Medicaid may treat some or all of them as available.
Christine Matus can review your assets and explain which ones count toward Medicaid eligibility and which can be protected through an irrevocable trust.
How Does an Irrevocable Trust Protect Assets From Medicaid?
An irrevocable trust can help with Medicaid planning by moving assets out of your name, but only if the trust cannot pay you or pay for your benefit. The trust terms and trustee powers are what matter most.
Whether a trust pays its own taxes depends on how it’s drafted. Some irrevocable trusts pay taxes themselves, but many are grantor trusts, so the grantor reports the trust’s income on their own tax return (IRS §671). Income or distributions you receive from the trust would count toward your Medicaid eligibility, which is why the grantor should not be named as a beneficiary. Depending on the trust terms, naming a spouse as trustee or allowing distributions that benefit the household can create Medicaid eligibility risk, so the trustee and distribution rules should be structured carefully.
How the Trust Structure Works
The grantor creates the trust and funds it by transferring assets into the trust’s name. The trustee manages those assets in accordance with the terms of the trust agreement. Beneficiaries receive distributions as specified in the agreement, but the grantor is not among them.
This structure keeps the assets separate from your estate. Because Medicaid looks only at what you own and control, the trust’s assets remain protected. However, this protection depends entirely on following the rules. If you retain any power over the assets or can benefit from them, Medicaid may still count them.
New Jersey law allows irrevocable trusts to hold real estate, investment accounts, and other property. Families often use these trusts to protect a family home or savings that would otherwise be spent down to qualify for benefits.
Trust Attorney in New Jersey – The Matus Law Group
Christine Matus, Esq.
Christine Matus founded The Matus Law Group and has practiced law for over 30 years. She graduated from Douglass College, Rutgers University, with a Bachelor of Arts in Economics in 1992 and received her Juris Doctor from Touro College, Jacob D. Fuchsberg Law Center in 1995. Ms. Matus was admitted to the New Jersey Bar and to the U.S. District Court for the District of New Jersey in 1995.
Ms. Matus is a member of the New Jersey State Bar Association and serves as a Board of Trustee of the Ocean County Bar Association. She is also a member of the Asian Pacific American Lawyers Association and the American Bar Association, where she serves on its Advisory Panel. Additionally, Ms. Matus serves in the Attorney Arbitration Committee and is an active mediator with the Superior Court of New Jersey, Special Civil Part.
What Is Medicaid’s Five-Year Look-Back Rule?
The five-year look-back rule requires Medicaid to review all financial transactions made within five years before your application date. Any asset transfers during this period may be classified as gifts, which can trigger penalties and delay your eligibility.
When you transfer assets to an irrevocable trust, Medicaid treats the transfer as a gift because you relinquish ownership without receiving fair market value in return. If this transfer occurred within the five-year window, you may face a penalty period during which you are ineligible for benefits.
How the Penalty Period Works
New Jersey calculates a transfer penalty using the State’s penalty divisor (the average daily cost of nursing home services). Effective on April 1, 2025, the penalty divisor is $402.74 per day. The penalty period (in days) is the value transferred ÷ $402.74, rounded down, and the penalty clock starts when you apply and would otherwise be eligible. For example, $127,000 ÷ $402.74 = 315 days of ineligibility (rounded down), assuming you are otherwise eligible.
The penalty period begins when you apply for Medicaid and would otherwise be eligible. It does not start when you make the transfer. This means planning is essential. Transferring assets into an irrevocable trust five years and one day before applying for Medicaid avoids the penalty entirely.
New Jersey updates its penalty divisor annually and uses it to calculate transfer penalties for long-term care Medicaid. Because the divisor is adjusted each year, planning should use the current divisor and the 60-month look-back window.
Key Takeaway: Medicaid reviews all asset transfers made within five years before your application. Transfers to an irrevocable trust during this period trigger penalties that delay eligibility. Proper planning requires starting at least five years before you anticipate needing long-term care.
Can You Put Your Home in an Irrevocable Trust to Protect It From Medicaid?
Putting a home into an irrevocable trust may help with eligibility planning after the 60-month look-back, but it does not automatically prevent New Jersey Medicaid estate recovery. New Jersey defines “estate” for Medicaid recovery broadly to include property such as a decedent’s home or share of a home, bank accounts (including joint accounts), trusts, annuities, and other property interests. Whether a trust reduces recovery risk depends on what interests you keep and how the trust is drafted. This strategy preserves the home for your heirs while still allowing you to qualify for benefits.
Families throughout Monmouth County use irrevocable trusts to protect homes that have been in the family for generations. The Monmouth County Surrogate’s Court handles probate matters, but assets in an irrevocable trust bypass probate entirely.
How Can You Avoid Medicaid Estate Recovery?
Medicaid estate recovery allows the state to reclaim costs paid for your long-term care after your death. New Jersey pursues estate recovery through its Medicaid Estate Recovery Program, which can place claims against your estate. This underscores the importance of asset protection planning for New Jersey families.
Several strategies can help you avoid or minimize estate recovery:
- Medicaid Asset Protection Trusts (MAPTs): Remove assets from your estate entirely so the state cannot claim them after death.
- Life estate deeds: Transfer ownership while retaining the right to live in your home until death.
- Transfers to a spouse: Move assets to your spouse without triggering penalties.
- Caregiver-child exemption: Transfer your home to an adult child who provided care for at least two years.
Medicaid Asset Protection Trusts
A Medicaid Asset Protection Trust (MAPT) is an irrevocable trust designed to protect assets from estate recovery. Assets placed in a MAPT are no longer part of your estate, which means the state cannot claim them after your death. This allows your beneficiaries to inherit without Medicaid making claims.
The MAPT must be irrevocable, and you cannot control the assets after transfer. However, the trust shields property from recovery while still allowing you to qualify for benefits once the five-year look-back period expires.
Life Estate Deeds
A life estate deed allows you to transfer ownership of your home to beneficiaries while retaining the right to live there until your death. Upon your death, the property automatically transfers to the named beneficiaries. Because the property passes outside your estate, it is not subject to Medicaid recovery.
Life estates must be created at least five years before applying for Medicaid to avoid penalties. This strategy works well for families who want to keep the home in the family while protecting it from recovery claims.
Transfers to Spouses and Caregiver Children
New Jersey recognizes certain exempt transfers that do not trigger penalties. You can transfer your home to a spouse without penalty, which removes the asset from your estate while keeping it in the family. The caregiver-child exemption allows you to transfer your primary residence to an adult child who provided at least two years of care that allowed you to remain at home.
These transfers must meet specific criteria set by Medicaid regulations. The caregiver child must have lived in the home and provided substantial care that delayed or prevented nursing home placement. Proper documentation is essential to prove the exemption applies.
Contact Christine Matus to determine which estate recovery-avoidance strategy is best for your situation.
What Are the Tax Benefits of an Irrevocable Trust?
New Jersey’s Estate Tax is not imposed for the estates of individuals who pass away on or after January 1, 2018, but the federal estate tax may still matter for some families. Whether an irrevocable trust reduces estate tax exposure depends on the rights you retain after transferring assets.
Capital gains rules can also be affected. A basis “step-up” typically depends on whether the asset is treated as acquired from a decedent and/or included in the decedent’s gross estate under federal rules. Trust structure and retained rights can change the outcome.
Estate Taxes
Whether trust assets are included in your taxable estate depends on what rights you keep after the transfer. For example, federal estate tax rules can include property in the gross estate when a person transfers property but keeps certain lifetime rights or benefits.
Federal tax laws can change, and the tax consequences of an irrevocable trust depend on its drafting and the rights retained.
Capital Gains Tax Considerations
Assets held in an irrevocable trust may also avoid capital gains taxes in certain circumstances. The trust’s structure determines how gains are taxed. A ‘step-up’ in basis generally depends on whether the property is treated as acquired from a decedent and/or included in the decedent’s gross estate under federal rules. The trust’s structure and retained rights can change whether a basis adjustment applies.
The tax treatment depends on the specific type of irrevocable trust and its structure. Grantor trusts and non-grantor trusts have different tax implications. Christine Matus can explain which structure provides the best tax outcome for your assets.
Income Tax Responsibilities
Income tax treatment depends on whether the trust is treated as a grantor trust or a non-grantor trust. In some cases, the grantor reports the trust’s income; in others, the trust pays its own income tax. Separately, the estate tax (if applicable) is governed by federal estate tax rules and is not simply a “will vs. trust” issue.
By placing assets in an irrevocable trust, you reduce the tax burden on your beneficiaries and ensure more of your wealth passes to the people you love. This is especially important for families seeking to preserve wealth across generations.
Key Takeaway: Irrevocable trusts can help reduce federal estate and capital gains taxes and shift income tax responsibilities, preserving more wealth for your beneficiaries.
Get Help from a New Jersey Trust Attorney
Planning for long-term care requires understanding Medicaid rules, asset protection strategies, and the five-year look-back period. Mistakes can result in penalties that delay your eligibility or leave your assets unprotected.
Christine Matus has helped families throughout New Jersey for over 30 years. The Matus Law Group handles Medicaid planning, irrevocable trusts, estate recovery avoidance, and asset protection throughout Monmouth County and New Jersey. Trust attorneys Christine Matus and her team work with clients at the Monmouth County Surrogate’s Court and guide you through every step of creating and funding an irrevocable trust.
Call The Matus Law Group at (732) 785-4453 for a consultation. Our offices in Red Bank and Toms River serve families throughout Monmouth and Ocean Counties. We can review your assets, explain your options, and help you create a plan that protects your estate and your eligibility for the benefits you need.
