How a Revocable Trust Can Be Used as a Medicaid Planning Strategy

When one spouse applies for Medicaid to help cover the cost of long-term care, the other spouse—known as the “community spouse protected resource amount"—is entitled to retain a portion of the couple’s assets. This protected amount is called the Spousal Protected Resource Amount (SPRA). In Texas, the SPRA is calculated by totaling all countable resources (remember many resources are non-countable) owned by both spouses as of the Medicaid “snapshot date”—the first day the institutionalized spouse was continuously in a medical facility for 30 days or more. As of 2025, the community spouse may keep half of the couple’s countable resources, up to a maximum of $157,920, but not less than the minimum of $31,584 (adjusted annually). This protection helps ensure that the community spouse is not left impoverished while the other receives Medicaid benefits.

In some cases, a revocable living trust is used to temporarily convert a homestead—which is normally an exempt (non-countable) asset—into a countable one to help increase the SPRA. Here's how it works: the couple transfers their home into a revocable trust, making it a countable resource under Medicaid rules. This boosts the total countable resources, which in turn increases the amount the community spouse can keep. After the SPRA is calculated and Medicaid eligibility is confirmed, the home is removed from the trust (via a deed), restoring its exempt status and simultaneously functioning as part of the spenddown strategy. This planning technique must be carefully timed and implemented under legal guidance. Medicaid has scrutinized this strategy when it has been done in “crisis cases,” meaning close in time to Medicaid eligibility. It is important to do this strategy as soon as possible. It is also critical that the trust is executed as part of a suite of documents designed to work together to make this strategy possible.

Unlike transfers to an irrevocable trust, moving assets into a revocable living trust does not trigger the Medicaid five-year look-back penalty, because the assets remain fully available and under the control of the grantor. Medicaid only penalizes transfers that are considered gifts—i.e., assets that are given away or placed out of the applicant’s control for less than fair market value. With a revocable trust, the grantor retains the right to access, manage, or revoke the trust at any time. Therefore, a transfer into a revocable trust is not treated as a gift under Medicaid rules, making it a safe and flexible strategy when used properly to increase the community spouse’s protected resource amount without incurring a penalty.

This Medicaid planning strategy is best suited for married couples where one spouse requires long-term care and the couple has at least $60,000 in countable resources (such as checking/savings accounts, CDs, investment accounts, and non-exempt real estate). These couples often fall into a “gray area”—they have too much in assets to immediately qualify for Medicaid, but not enough to comfortably afford years of private-pay care. For example, if a couple has $100,000 in countable resources and a homestead not in a trust, the community spouse’s SPRA would be $50,000. If the couple puts their homestead worth $250,000 into a trust then their total countable resources are $350,000, which means the community spouse’s SPRA would be $157,920. The house can be removed from the trust after the SPRA is assessed and the community spouse can keep the entire $100,000 with no additional spenddown. By using a revocable living trust to temporarily make the homestead countable, we can help maximize the protected resource amount for the healthy spouse while preserving the home and other assets for future needs or inheritance. Clients who are proactive and willing to follow a coordinated legal and financial strategy are ideal candidates for this approach.

If neither spouse needs Medicaid, there are lots of other benefits that the revocable trust provides. First, it allows your estate to avoid probate, saving your family time, money, and the public scrutiny that comes with court proceedings. Second, a trust offers comprehensive incapacity planning, enabling your chosen trustee to step in and manage your affairs if you become unable to do so—without the need for guardianship. Lastly, a trust helps maintain your privacy. Unlike a will, which becomes a public record after death, a trust remains confidential, keeping the details of your assets and beneficiaries out of public view.