To give or not to give — that is often a key question in Medicaid planning. People often wonder, when estate planning attorneys discuss the use of irrevocable trusts, why not just gift the assets outright?
Outright gifts can appear to have the advantages of simplicity and minimal cost. So why complicate things with a trust? The short answer is that gift transaction costs are only part of what needs to be considered. Many important benefits that result from gifting in trust are forfeited by gifting outright.
The 5-Year Look-Back Rule
Federal law imposes a 5-year look-back period for all transfers made for Medicaid purposes, whether made outright or in trust. Given that the timing consequences are the same either way, the question becomes: what additional benefits does a trust provide that an outright gift does not?
Key Benefits of Gifting in Trust
Asset Protection. A trust provides protection from the future creditors of your beneficiaries. An outright gift does not.
Capital Gains Tax Exclusion (Section 121). When a residence is held in a properly drafted trust, you preserve the ability to exclude up to $250,000 (or $500,000 for qualifying co-owners) of capital gain upon the sale of your principal residence. An outright gift of the home to your children eliminates this exclusion.
Eligibility for Government Benefits. Assets in the trust can be structured to be non-countable for purposes of government benefit eligibility. For 2026, New York has increased the individual Medicaid resource limit to $33,038, making trust planning an essential tool for those with assets above this threshold.
Home Equity Protections. New York allows a home equity limit of $1,097,000 for Medicaid purposes in 2025. Placing the home in a trust ensures it is protected from Medicaid estate recovery after your passing. An outright transfer does not provide the same protection.
Control Over Successor Beneficiaries. A trust allows you to determine exactly who will inherit the assets upon your death. An outright gift surrenders that control entirely.
Why Now is the Time to Plan
An irrevocable trust can greatly enhance the value of Medicaid planning beyond what can be accomplished through outright gifting. With the current changes in New York tax law and the evolving Medicaid landscape, including the anticipated 30-month look-back period for Community Medicaid, the window for proactive planning matters more than ever.
The families who plan ahead have significantly more options than those who wait until a crisis forces their hand.
Contact me today or call 845 292-9345 to schedule a free initial consultation at my Liberty, NY office.