MassHealth Planning for Married Couples: Irrevocable Trusts, Look-Back Period, & Strategies to Protect Assets if You Have no Advanced Planning in Place

Planning well in advance for potential nursing home or long‑term care needs is an essential step to protect your assets for your loved ones in the event that you go into a nursing home. As the famous quote largely attributed to Benjamin Franklin goes, “Failing to plan is planning to fail.” These words of caution are especially true when it comes to long-term care planning in Massachusetts. Under current MassHealth rules, an individual can have no more than $2,000 in total “countable” assets in order to qualify for long-term care. With this threshold being so low, long-term care planning requires the retitling or transferring of assets to meet this threshold.

The most effective planning tool is often an irrevocable Medicaid trust, which, when timely implemented, can safeguard your primary residence, other real estate, and investment assets from being consumed by long‑term care costs.

However, it is not uncommon for families to find themselves in an unexpected crisis. A spouse may suddenly require nursing home care due to illness or injury, with little or no advance planning in place. While this situation can feel overwhelming, you still have options available to you. Even at this late stage, there may be viable strategies available to protect certain assets from MassHealth estate recovery, or at the very least may reduce the overall financial impact.

Private pay for nursing home residents is approximately $13,000-$15,000 per month and could be even higher, which can deplete your assets quickly Before depleting all of your hard-earned assets by private-paying for your care, couples should consult with an experienced elder law and estate planning attorney at Lane, Lane & Kelly. In many cases, last‑minute planning options still exist.

Understanding Medicaid vs. Medicare: What Massachusetts Families Need to Know

Every state administers its own Medicaid program, and the rules can vary significantly from state to state. In Massachusetts, the Medicaid program is known as MassHealth. While MassHealth is jointly funded by the state and federal governments, eligibility requirements, asset limits, and planning strategies are governed by Massachusetts-specific laws and regulations. This program is designed to assist families across the Commonwealth with healthcare costs for individuals that have limited resources, and are otherwise unable to pay for their own care.

It is important to understand the distinction between Medicare and MassHealth. Medicare is the federal health insurance program most individuals become eligible for at age 65. Medicare is the base insurance plan, and individuals can elect for additional, supplemental coverage (Part A and Part B) if needed. While Medicare may cover short-term rehabilitation or limited skilled nursing care following a hospital stay, it does not pay for long-term custodial nursing home care.

In Massachusetts, long-term nursing home care is generally paid for privately or through MassHealth long-term care benefits. Applying for MassHealth benefits can be a timely and rigorous process, and at times can require several rounds of rejections and appeals. This is due to the strict financial eligibility rules that must be met. Unfortunately, many families assume that their Medicare plan will cover extended nursing home stays, only to learn once it is too late, that this is not the case.

Because each state differs in its Medicaid eligibility rules, it is imperative that you work with a Massachusetts elder law attorney that is familiar with the MassHealth rules and unique planning techniques. Massachusetts-specific planning is essential.

Understanding the MassHealth Five‑Year Look‑Back Period

MassHealth reviews financial transactions made by an applicant during a defined “look‑back period.” The look-back period had been three years for all transfers prior to 2006. However significant changes were passed under the Deficit Reduction Act of 2005. Most notably, regulation 130 CMR 520.019(B) increased the look-back period from 3 years to 5 years. Under current regulations, MassHealth can now “look back” at 60 months (five years) of your transaction history from the date an individual both enters a nursing facility, and either applies for or receives, MassHealth benefits.

This 60-month look-back period now applies for all transfers whether they are made outright to an individual, into an irrevocable trust, or out of a revocable trust. In practical terms, this means that assets transferred within five years generally will not be protected until that full five‑year period has passed. This look-back period also applies an all-or-nothing approach. Meaning you do not receive any benefit, reduction in value, or protection if you transferred an asset 2 or 3 years ago. In order to receive any protection whatsoever, the transfer must be done the full five years prior to the application or receipt of long-term care benefits.

This rule underscores why proactive planning is so important. Without it, families risk losing significant assets to long‑term care costs. It is also worth noting that lawmakers have previously considered extending the look‑back period even further, with a bill known as house bill 6300 which has proposed extending the look-back period to ten years. While there has been limited movement on this bill as of late, it nonetheless reinforces the value of planning sooner rather than later.

IRS Gift Rules vs. MassHealth Rules: A Common Misunderstanding

One frequent source of confusion involves the difference between IRS gift rules and MassHealth eligibility rules. The IRS allows people to make gifts to other individuals, up to certain exemption amounts that are subject to change each year, without incurring any gift tax liability or even needing to file a gift tax return.

For tax year 2026, and individual can gift up to $19,000 per recipient per year, and a married couple can gift up to $38,000 per recipient per year, without the need for a gift tax return. If the gift is under this amount, the donor will have no gift tax liability, and the recipient will not incur any income tax liability.

While the IRS allows these gifts without triggering gift tax consequences, the MassHealth rules surrounding gifting are not the same. The IRS gifting rules and MassHealth transfer rules are mutually exclusive. Even a gift that is perfectly acceptable under federal tax rules may still be treated as a disqualifying transfer for MassHealth purposes and trigger the five‑year look‑back period. It is important to note that these rules do not work in tandem, and just because a gift is not taxable does not mean it is safe from a long‑term care planning perspective.

Small Gifts and MassHealth Scrutiny

MassHealth does not typically scrutinize every small transaction. Transfers under modest amounts may not be reviewed unless they appear unusual or part of a recurring pattern. However, repetitive gifts or transfers, especially those that appear to be an attempt to avoid MassHealth rules, can still result in penalties or the resetting of the 5-year look-back period. For example, if you were transferring $850 every other Friday, these transactions would likely be flagged. As a general rule of thumb, MassHealth will only review transfers of $1,000 or more, unless they appear suspicious for any other reason.

With careful guidance, some limited gifting for customary occasions may continue, but it must be done thoughtfully and with a full understanding of the potential consequences. This is another area where professional advice can be invaluable. You can still make regular gifts to say, your grandchildren on their birthday, or your church on a regular occasion, but these gifts should be kept under $1,000 to avoid any scrutiny from MassHealth.

Proactive Planning: Protecting your Assets with an Irrevocable Trust

The single best way to protect your assets, whether they are real estate assets such as your primary residence, vacation home, rental property or your investment portfolio, is to transfer these assets to an Irrevocable Medicaid trust. These types of trusts are sometimes referred to as MassHealth Income-Only Trusts (IOT).

The drafting and creation of these trusts requires a very specific structure, and must be meticulously crafted to avoid potential pitfalls down the road. It is important to note that this level of planning requires the assistance of an experienced attorney with extensive knowledge in the area of long-term planning. Failing to craft an Irrevocable Trust with the right language will result in the nullification of any transfers to the trust, and could result in a period of ineligibility, or even worse, the trust assets being deemed as “countable” assets, even if the 5-year look-back period was met.

Lane, Lane & Kelly has extensive experience in helping clients across the Commonwealth in the creation of MassHealth Irrevocable Trusts, that successfully shield their assets from future MassHealth estate recovery liens, and aid in the transfer of assets from a MassHealth recipient to their children or other loved ones. In order to avoid MassHealth scrutiny, the Trust must include the following elements:

1. Irrevocability

The Trust must be irrevocable, meaning the Settlor of the Trust can not revoke or amend the trust in any way following its execution. In order to protect the assets that you place in the Irrevocable Trust, it requires giving up some control over these assets, namely the ability to alter or revoke your trust in any way.

2. Access to Income Only, and No Access to the Principal

As previously mentioned, these trusts are sometimes referred to as IOT’s. This is because the Settlor is only entitled to receive income generated from the trust assets, but they can never touch the trust principal. This is because in the eyes of MassHealth, if you, the Settlor and MassHealth applicant, can touch the principal of the trust, then you are in control of that asset. If you have control of that asset, then it is countable and must be used to pay for your care. Therefore, placing assets into an Irrevocable Trust is a big financial consideration, because you are giving up access to the principal of that asset for the remainder of your life.

For example, if you place a brokerage account that had $250,000 in value into your Irrevocable Trust, then you are giving up the right to utilize that $250,000 for the remainder of your life. As an income-generating asset, the Trustee would be able to distribute any income (appreciation) that the brokerage account generated to you. But the $250,000 is untouchable. If you draw from the principal of that asset, then you will completely restart the 5-year look-back period.

If you place income-generating real estate in to your Irrevocable Trust (such as an investment property), then similarly, you would be entitled to receive any income, such as the rent payments, but you are locked out from accessing the principal for good.

For real estate assets held in an Irrevocable Trust, including your primary residence, keep in mind that you will be restricted from refinancing, obtaining a HELOC, or pulling any equity from your home. If there is an outstanding mortgage on the real estate, most banks and mortgage companies also require notice before placing a home into an Irrevocable Trust. For an overview of the Garn St-Germain Act and how to avoid triggering a due-on-sale clause of your mortgage when transferring your home into a trust, read our full legal blog here.

There are important steps to follow in the event that you desire to sell your property that is titled in the name of the irrevocable trust. Most importantly, the Settlor and MassHealth applicant, cannot touch the sale proceeds, or else they would reset the lookback period. Our attorneys have extensive experience assisting families sell property out of an irrevocable trust, as well as purchasing a replacement property in the name of the trust, with the guidance needed to manage the funds in a way that will not disqualify the owner or reset the lookback period.

As a result, irrevocable trusts are best suited for individuals that do not intend to sell their home and do not have an outstanding mortgage. If you intend to remain in your residence for the remainder of your life and want to protect your home for your loved ones, an irrevocable trust structure is a great option for you.

3. Generally, the Settlor should not Serve as Trustee

While there is much debate over this element with elder law and estate planning attorneys, it is generally a good idea for someone other than the Settlor to serve as Trustee of the Irrevocable Trust. Nowadays, MassHealth is attempting to attack Irrevocable Trusts to collect payment for long-term care in any way that they can. More and more we have seen these attacks come when the Settlor, and MassHealth applicant, is also serving as Trustee of their Irrevocable Trust. However, there is case law to combat this attack, and MassHealth has yet to prevail in piercing a trust solely because the Settlor is also serving as Trustee, so long as all of the other requirements are met.

Their argument is that because the Settlor is serving as Trustee, they have “control” of the principal, and therefore they fail the “any circumstances” test (discussed in greater detail below). But this argument should fail as a result of general fiduciary law. A Trustee is serving in a fiduciary capacity, to act in the best interests of the beneficiaries of the trust. A fiduciary is held to a very high standard, both legally and ethically, to carry out the terms of the trust as intended. They are held to a duty of loyalty, care, and good faith, and are forbidden from engaging in any kind of self-dealing or a conflict of interest.

As a result, even if the Settlor is serving as the Trustee, they are forbidden from accessing the trust principal for their own benefit. Doing so would result in liability as a breach of fiduciary duty. With that said, if you have a family member or friend that you trust to serve as Trustee, such as one of your adult children, it will eliminate unnecessary scrutiny and prevent potential attacks if you name someone else to serve as Trustee. Plus, the Trustee that you name will have limited responsibility until you either sell trust assets, or until you pass away.

With the recent uptick in attacks from MassHealth coupled with continuous developments in long-term care eligibility requirements, it is our legal opinion that you would rather be safe than sorry. If possible, it is best to name someone other than yourself to serve as Trustee. While not legally required as of now, this will eliminate an additional tactic that MassHealth has at its disposal to classify your hard-earned assets as countable in determining your eligibility.

Supplemental Benefits of an Irrevocable Trust Structure

While the primary benefit of an Irrevocable Trust is to reduce your countable assets for MassHealth eligibility, as well as to avoid any future MassHealth estate recovery lien on your real estate or other assets, there are some tangential benefits that this strategy provides as well. These are (1) the Settlor’s ability to exercise a limited power of appointment, and (2) the treatment of trust assets for tax purposes.

1. The Settlor may Retain a Limited Power of Appointment

While the Trust must be Irrevocable, the Trust can allow for the Settlor to retain what is called a Limited Power of Appointment. This grants the Settlor the ability to exercise this limited power during their lifetime to make minor changes to the administrative provisions of the trust, as well as the power to reappoint the trust principal and undistributed income. This allows the Settlor the flexibility to change the beneficiaries of the trust, so long as they are within a defined class of person. Namely, this power of appointment must be limited in the following manner:

• The limited power of appointment must be exercised by a Valid Last Will and Testament, another Trust document, or some other notarized instrument, signed by the Settlor during their lifetime;
• It can only be exercised in favor of the Settlor’s family members (children, grandchildren, etc.), or charities as selected by the Settlor;
• The Settlor is strictly prohibited from exercising this power in favor of themselves, their creditors, their estate, or the creditors of their estate.

The Trust cannot grant the Settlor what is commonly referred to as a “General” Power of Appointment. This would allow them to exercise the above powers in favor of anyone, including themselves. As such, this would grant the Settlor control over the principal, and would give MassHeath a clear avenue to attack the Trust and reach the trust assets to be applied for the Settlor’s long-term care.

2. The Trust Retains “Grantor Trust” Status for Tax Purposes

The limited power of appointment granted to the Settlor allows the trust to operate as what is called a grantor trust for income tax purposes. This means that during the life of the Settlor, any income generated from the trust flows through to the Settlor as their own income tax liability.

Additionally, retaining grantor trust status has massive implications for your beneficiaries. Since the Settlor retains the right to the income from the trust, the trust assets will be included in the Settlor’s estate. By including these assets in the gross taxable estate, it ensures that the beneficiaries of the Trust will receive a full step-up in basis upon the death of the Settlor. For a full overview of 26 U.S. Code § 1014 and the benefits of a step-up in tax basis, read our full legal blog here. In summation, this means that upon the Settlor’s death, the beneficiaries will receive the trust assets with a cost basis equal to the fair market value of those assets on the date of the Settlor’s death. Therefore, if the beneficiaries of the assets were to sell them shortly after the Settlor’s death, it would result in little to no capital gains tax liability to the beneficiaries.

The Massachusetts “Any Circumstances” Test

It is clear from MassHealth regulations and their annual Eligibility Memo’s that the financial eligibility requirements and application process remains very rigid. Irrevocable Trusts and transfers into and out of these trusts are subject to severe scrutiny from MassHealth, especially during the application process or once someone has been admitted to a facility. It is important to recognize why these trusts must meet certain requirements to provide adequate protection, and the test that MassHealth uses in their analysis.

For an Irrevocable trust, any portion of the principal, or income that is generated from the principal, of that Irrevocable trust that could be paid under any circumstances to, or for the benefit of, a Medicaid applicant and/or spouse is countable under 42 USC § 1396p(d)(3)(B) and 130 CMR 520.023(C). This is what is known as the “any circumstances” test. Essentially this means that MassHealth will attack an Irrevocable Trust if, based on their analysis of the trust document, there is “any circumstance” in which the Settlor could benefit from or reach the principal of the trust assets.

Federal Medicaid law requires that the “any circumstances” determination be made without regard to (1) the purpose for which the trust is established; (2) whether the trustees have or exercise any discretion under the trust; (3) any restrictions on whether distributions may be made from the trust, and when they can be made; or (4) any restrictions on the use of distributions from the trust.

Consistent with the “any circumstances” test, MassHealth considers the principal of an Irrevocable trust to be a countable asset if there is any circumstance in which the trust principal could be paid to the MassHealth applicant, or the applicant’s spouse. In making its determination, MassHealth will request and review all relevant trust documents, including the trust instrument itself, amendments, any documents reflecting the exercise of a limited power of appointment, trustee’s certificate, and schedule of beneficiaries, and any other documents related to the trust and its administration.

Last‑Minute Planning for Married Couples: What Can Still Be Done

Even under the strict eligibility rules, MassHealth still provides important protections for married couples when one spouse requires nursing home care but the other does not and remains in the community (commonly referred to as the community spouse).

Transferring Assets to the Community Spouse

While almost all transactions and asset transfers will trigger ineligibility if done within the 5-year look-back period, there are some exceptions that MassHealth has carved out that will not result in a penalty. Some of these exceptions include transfers to a blind or disabled child, or a trust for the benefit of a blind or disabled child. The most notable exception includes transfers between spouses, which are considered permissible and do not trigger a disqualification period. Permissible transfers include:

• The primary residence, or other real estate, to the healthy (community) spouse;
• Assets may be transferred to the community spouse up to the Community Spousal Resource Allowance (CSRA), which is currently set at $162,660. This is the amount in total assets that the healthy spouse is able to retain when the sick/disabled spouse enters a nursing home even if no planning has been done.

These transfers are specifically allowed under MassHealth regulations and can immediately protect key assets when no prior planning has been done. These provisions are in effect to ensure that the healthy spouse does not have to be forced to sell the primary residence to pay for a nursing home, and grants them the CSRA to continue to utilize assets for their own maintenance and support.

In crisis situations, transferring the home or other real estate to the healthy spouse can provide immediate protection, and an opportunity for the healthy spouse to conduct their own planning. Once title to the primary residence is transferred into the name of the community spouse individually, they should contact an estate planning attorney to conduct their own long-term planning in an effort to protect their home for their family and loved ones.

Using Annuities to Convert Assets into Income

In appropriate situations, an annuity may be used to convert otherwise countable assets into an income stream for the community spouse. This is done by purchasing an annuity in the name of the community spouse for any excess amount over the CSRA, and the $2,000 in assets that the institutionalized spouse is allowed to keep. When properly structured, this approach can:

• Reduce the institutionalized spouse’s assets to MassHealth eligibility levels;
• Preserve assets for the healthy spouse;
• Convert otherwise countable assets into an irrevocable income stream for the benefit of the community spouse.

This type of planning is highly technical and must comply with strict rules that are outside the scope of this legal blog, but when done correctly, it can preserve hundreds of thousands of dollars for the community spouse. In essence, the purchase of the annuity converts the total amount of excess assets (over the CSRA + $2,000 allowance for the institutionalized spouse) to an income stream which allows the community spouse to meet the asset limits, and allows the institutionalized spouse to become eligible for MassHealth benefits.

Advanced Planning Still Offers the Greatest Protection

While last‑minute strategies can be extremely helpful, they are no substitute for advanced planning. Establishing an irrevocable trust well before a health crisis remains the most comprehensive way to protect assets from long‑term care costs. While nobody has a crystal ball and can predict the future, you would much rather start the 5-year timer sooner rather than later to protect your largest assets.

With proper planning, married couples can:

• Protect real estate and investments from any future MassHealth estate recovery lien;
• Preserve assets for children and other beneficiaries;
• Reduce or eliminate the amount you would have to privately pay for long-term nursing home care;
• Maintain control over certain trust assets;
• Avoid unnecessary income, estate, or capital gains tax complications.

Don’t Wait – Contact Lane, Lane & Kelly Today

If you or your spouse is faced with the need for nursing home care without having planned ahead, all is not lost. MassHealth rules are complex, but they do provide meaningful protections for married couples, even at the eleventh hour.

The sooner you seek guidance from an experienced elder law and estate planning attorney, the more options you and your spouse will have available to you. At Lane, Lane & Kelly, we regularly help families navigate these difficult situations and identify strategies designed to preserve assets, protect the healthy spouse, and provide peace of mind during challenging times. Contact our office today to learn more.

This blog is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By reading this blog you understand that there is no attorney client relationship between you and Lane, Lane & Kelly, LLP.