The problem: long-term care costs.
Medicare generally doesn't pay for long-term custodial care. Medicaid does — but only once your countable assets are below strict limits. Without planning, families often spend down savings built over a lifetime before help arrives.
How the trust works.
You transfer assets — often your home or savings — to an irrevocable trust and give up any right to the principal. A trustee, often an adult child, manages it for your beneficiaries. Depending on how it's drafted, you may keep the right to live in the home or to receive the trust's income. Because you no longer own or control the principal, it can stop counting as your asset for Medicaid once the look-back period has passed.
When you apply for long-term-care Medicaid, the state reviews transfers made in the five years before the application (42 U.S.C. § 1396p(c)). Assets moved into the trust within that window can trigger a period of ineligibility. That's why this trust works only when it's set up well before care is needed.
What to know first.
- It's irrevocable. You can't take the principal back.
- Income still counts. Income the trust pays you is generally still your income for Medicaid.
- Choose the trustee carefully. It should be someone you trust completely — usually not you.
- It isn't always needed. Your home may already be protected in some situations, such as while you or your spouse live there.
- Estate recovery. Both states can seek repayment of Medicaid costs from certain estates, so the plan must account for it.
Qualified income trusts (Miller trusts).
A different trust solves a different problem. Texas and New Mexico are both income-cap states for nursing home Medicaid: if your monthly income is over the limit, you can't spend down to qualify. Instead, the excess income is deposited each month into a qualified income trust — called an Income Diversion Trust in New Mexico — and used toward your care. It doesn't shelter savings, and the state is repaid from what's left at death, but it can make Medicaid possible when income is the obstacle.
Texas vs. New Mexico.
| Texas | New Mexico | |
|---|---|---|
| Look-back period | 60 months | 60 months |
| Income over the cap | Qualified income trust (QIT) | Income Diversion Trust |
| Estate recovery | Texas Medicaid Estate Recovery Program | New Mexico Medicaid estate recovery |
| Who handles it | Jeff Barnett, Of Counsel (Texas Practice) — a long-standing part of his practice | Shawn Barnett, Managing Attorney |
Pricing.
Trusts are quoted after a consultation, because the right design depends on your family, your property, and your goals. The documents that usually accompany a trust are flat-fee:
Texas
New Mexico
Part 1 of the NM Advance Health-Care Directive$150
Part 2 of the NM Advance Health-Care Directive$100
Flat fees are per person and cover preparation of each document. The first hour of an estate planning consultation is free; if a consultation runs longer than one hour and you don't purchase an estate planning package, additional time is $300 per hour, prorated to the nearest quarter hour. Court filing and county recording fees, if any, are separate. Prices effective through December 31, 2027.
Common questions.
When should I set one up?+
Can I put my house in the trust and keep living there?+
What if I already need care?+
Is this hiding assets?+
Texas estate planning services are provided by Jeff Barnett, Of Counsel (Texas Practice), of Barnett & Leuty, PC, Austin, Texas, licensed in Texas. New Mexico estate planning services are provided by Shawn Barnett, Managing Attorney, licensed in New Mexico. This page provides general information, not legal advice; reading it does not create an attorney-client relationship.