Medicaid asset protection trusts in Florida: how they work and who they may fit

You (the grantor) sign a trust agreement and transfer property to a trustee, often an adult child. The agreement says two things that matter most for Medicaid. First, you can't revoke it. Second, the trustee may pay you the trust's net income, such as interest and dividends, but may never pay principal to you or your spouse or use it for your benefit.

At your death, the trustee distributes what's left to the people you named, usually your children, without probate.

DCF's rule is what makes this work. For an irrevocable trust created on or after October 1, 1993, if any part of the principal could be paid to you or for your benefit under any circumstances, that part counts as your asset. If no payment could be made to you under any circumstances, the trust isn't counted, but the transfer rules apply to what you put in (ESS Policy Manual 1640.0576.07; 42 U.S.C. 1396p(d)(3)(B)). The same passage says these rules apply regardless of the trust's purpose or the trustee's discretion. Wording is everything. A trust labeled "asset protection" that lets the trustee pay principal to you "for health and support" generally fails.

When you apply for long-term care Medicaid, DCF looks back 60 months from the month of application for transfers for less than fair market value. Money or a home moved into an income-only trust is such a transfer.

If you apply within the 60 months, DCF divides the value transferred by the average private nursing home rate, $10,645 a month in 2026, to set a penalty period (ESS Policy Manual 1640.0618). Federal law starts that penalty only once you're otherwise eligible and in need of nursing-home-level care (42 U.S.C. 1396p(c)(1)(D)(ii)). In other words, the penalty runs at the worst possible time, when you're already spending down and need care.

If you apply after the 60 months have passed, the transfer generally isn't reviewed. That is why this trust is a "five years or more" tool. It's rarely the answer when someone is already in a nursing home; our Medicaid planning page explains crisis options.

You generally shouldn't serve as your own trustee. If the trustee can use the funds for themselves, DCF treats the trust as the trustee's asset (ESS Policy Manual 1640.0312.02). In practice, the trustee is usually a child or other trusted person, with a named backup.

The trustee owes duties under the Florida Trust Code: loyalty, prudent investing, keeping records, and informing beneficiaries (Fla. Stat. 736.0802; 736.0813). The trust may allow principal to be paid to your children. That's legal, but if a child then hands the money back to you, the protection can unravel, and the gift back may be countable. A trust protector, or a limited power for you to change the remainder beneficiaries, may add flexibility without giving you access.

Many families put the home in the trust. These trusts are commonly drafted to give you the right to live in the home for life. Florida grants the homestead property tax exemption to a person with "beneficial title in equity" who makes the home a permanent residence (Fla. Stat. 196.031), and to a person whose right to live there comes from an instrument granting a beneficial interest for life (Fla. Stat. 196.041). Confirm with your county property appraiser after the deed is recorded.

Two points to weigh:

A home you live in is often already excluded for Medicaid during life, up to the $752,000 equity limit in 2026 (A-9). Moving it into the trust starts a new 60-month clock on its value. Some families use a Lady Bird deed instead, because DCF says signing one is not a transfer. If you're married or have a minor child, Florida's homestead rules may restrict who can receive the home and require your spouse to sign the deed (Art. X, s. 4, Fla. Const.).

If the trustee later sells the home, the proceeds stay in the trust and generally remain unavailable to you.

Because you keep the right to the income, the trust is generally a grantor trust for income tax, so you report its income on your own return (26 U.S.C. 677). Drafters often add another power so capital gains are also taxed to you. Grantor status can keep the $250,000 home sale exclusion available (Treas. Reg. 1.121-1(c)(3)).

Basis at death matters a great deal. The IRS has ruled that assets in an irrevocable grantor trust that are not included in the grantor's taxable estate don't get a step-up in basis at death (Rev. Rul. 2023-2). Income-only trusts are usually written so the assets are included in your estate, for example because you keep the income (26 U.S.C. 2036). That inclusion generally gives your children a basis equal to value at death (26 U.S.C. 1014). Your CPA should review the document; our guide for CPAs covers the technical side.

It may fit someone who:

is in reasonable health and doesn't expect to need long-term care within five years; has more assets than they will need, and enough income and savings outside the trust to live on; trusts the person who will serve as trustee; wants a home or savings to pass to children.

It usually doesn't fit someone who:

already needs care, or likely will within five years; would need the principal for living expenses; holds savings mainly in IRAs or 401(k)s, which generally can't be retitled to a trust without cashing out and paying income tax; has a modest estate that other tools protect more simply; has a spouse who may need planning soon, since married couples have their own rules (see married couples and Medicaid).

A revocable trust is useful for probate and incapacity planning, but DCF counts its entire principal as yours (ESS Policy Manual 1640.0576.07).