An irrevocable trust can keep assets from counting against you for California Medi-Cal long-term care and can keep them out of the state’s estate recovery reach after death, but only if the trust bars you from ever getting the principal back and only if you fund it at least 30 months before you apply. Starting January 1, 2026, Medi-Cal reinstates a $130,000 asset limit for long-term care and other non-MAGI programs, along with a 30-month look-back period on transfers.1California Department of Health Care Services. Asset Limits FAQs That combination is what makes an irrevocable trust useful, and also what makes the timing unforgiving.
What the Trust Has to Say to Actually Work
Federal Medicaid law sets the test that governs every Medi-Cal irrevocable trust: if there are any circumstances under which the trust could pay you or benefit you, the portion that could reach you still counts as an available resource.2Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets Stated purpose doesn’t matter. Whether the trustee ever actually pays you doesn’t matter. If the document leaves the door open, Medi-Cal counts the assets.
So the trust must completely bar the trustee from distributing principal back to you under any scenario. Even discretionary authority for the trustee to pay you or pay expenses for your benefit is enough to blow the protection on that portion. This is the most common failure point for trusts that weren’t drafted for Medi-Cal planning. A general-purpose irrevocable trust that names you as a potential beneficiary offers no protection at all.
Trust income gets separate treatment from principal. Interest, dividends, and rental income can still be counted as your income if the trust directs those payments to you, and that income will factor into your monthly Share of Cost before Medi-Cal covers care. A well-drafted trust usually keeps income inside the trust or sends it to other beneficiaries rather than to you.
Revocable Living Trusts Don’t Help
If you’re wondering whether the standard living trust you signed with your estate planning attorney already covers this, it doesn’t. The entire principal of a revocable trust counts as your resource because you can cancel the trust and take everything back.2Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets The trustee holding legal title changes nothing. Revocable trusts are estate-planning tools for avoiding probate, not Medi-Cal tools.
The 30-Month Look-Back and When to Fund the Trust
Moving assets into an irrevocable trust is a gift for less than fair market value. When you apply for Medi-Cal long-term care starting in 2026, the state will review every transfer you made during the 30 months before your application.3California Department of Health Care Services. All County Welfare Directors Letter 25-18 A transfer within that window produces a penalty period during which Medi-Cal will not pay for nursing facility care, and you are on the hook for the full private cost during that time.
The practical rule is simple: the trust needs to be funded and the transfer complete at least 30 months before you apply. If you’re in your late 60s or early 70s and in reasonable health, funding now gives the transfer time to clear the window before long-term care becomes likely. If you wait for a diagnosis or a hospital discharge that leads straight to a facility, you almost certainly don’t have enough time left.
One useful quirk: because California suspended its asset test from January 1, 2024 through December 31, 2025, transfers made during that period will not be counted against you when the rules return.3California Department of Health Care Services. All County Welfare Directors Letter 25-18 Anyone who funded an irrevocable trust during those two years gets that time counted as clear.
Transfers That Don’t Trigger a Penalty
Federal law carves out specific transfer exceptions that California honors. Several of them shape trust planning:
- Transfers to a spouse, or to another person for your spouse’s sole benefit.
- Transfers to a blind or permanently disabled child, or to a trust set up solely for that child’s benefit.
- Transfers of your home to a son or daughter who lived with you for at least two years before you entered a nursing facility and whose care allowed you to stay home during that time.
- Transfers of your home to a sibling who has an equity interest in the property and who lived there for at least one year before your institutionalization.
- Transfers to a trust for the sole benefit of any disabled person under age 65.
These are set in 42 USC 1396p(c)(2).2Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets California also does not penalize transfers of already-exempt assets, transfers where you received fair market value, or transfers you can show were made for reasons unrelated to Medi-Cal eligibility.4California Legislative Information. California Welfare and Institutions Code 14015
Whether You Need the Trust at All
The 2026 asset limit for a single applicant is $130,000 in countable assets, with an additional $65,000 for each additional household member.1California Department of Health Care Services. Asset Limits FAQs Countable assets include bank accounts, investment accounts, cash, and non-primary real estate. Your primary residence, one vehicle, household goods, and personal belongings are exempt and don’t count.
Couples get an extra layer of protection when one spouse needs facility care and the other stays home. The community spouse in California can keep up to $162,660 of the couple’s combined countable assets in 2026, and can receive up to $4,066.50 per month from the applicant spouse’s income if the community spouse’s own income falls below that figure.
That math is worth doing before you commit to a trust. If a couple’s countable assets already sit below the community spouse allowance after exempt property comes out, an irrevocable trust may not add much. The trust becomes valuable when assets meaningfully exceed the allowance, when you want to preserve a home or other property for children or other heirs, or when a single person needs to protect assets that would otherwise have to be spent down.
Estate Recovery After Death
After a Medi-Cal beneficiary dies, the state can seek reimbursement for certain services it paid for, mainly nursing facility care. The recovery program applies when the beneficiary was 55 or older when services were received, or when they were a nursing facility inpatient at any age.5California Legislative Information. California Welfare and Institutions Code 14009.5
California defines “estate” for recovery purposes as property in the individual’s probate estate.5California Legislative Information. California Welfare and Institutions Code 14009.5 Assets sitting in a properly funded irrevocable trust are legally owned by the trust, don’t pass through probate, and fall outside recovery. A home transferred into the trust before the look-back window closed, for example, stays with the trust’s beneficiaries.
Recovery is also blocked entirely when the beneficiary is survived by a spouse or registered domestic partner, a child under 21, or a blind or disabled child.5California Legislative Information. California Welfare and Institutions Code 14009.5 Even when recovery is permitted, the state must waive its claim if enforcement would cause substantial hardship to dependents or heirs.
The Tax Costs to Weigh Before You Sign
An irrevocable trust protects assets from Medi-Cal counting, but it comes with tax consequences that deserve an honest look.
Loss of Stepped-Up Basis
When you die owning appreciated property, your heirs normally get a stepped-up tax basis equal to fair market value at death. Buy a home for $200,000, die when it’s worth $900,000, and your heirs’ basis resets to $900,000; they owe no capital gains tax if they sell at that price. The IRS confirmed in Revenue Ruling 2023-2 that assets held in an irrevocable grantor trust do not receive that step-up at the grantor’s death. Same facts, and your heirs inherit the original $200,000 basis, facing capital gains tax on $700,000 of appreciation if they sell. In California, where homes have appreciated substantially over decades of ownership, that tax hit can be large.
That doesn’t automatically make the trust the wrong choice. Nursing home costs in California often exceed $10,000 per month, and several years of Medi-Cal coverage can far outweigh the capital gains exposure. The comparison needs real numbers for your situation, not a rule of thumb.
Property Tax Reassessment Under Proposition 19
Transferring a home into an irrevocable trust during your lifetime triggers a change in ownership for property tax purposes when the trust becomes irrevocable, because the property vests in someone other than you.6California State Board of Equalization. Proposition 19 Under Proposition 19, the parent-child exclusion from reassessment is limited to a primary residence that the child actually uses as their own primary residence, subject to a value cap. A home placed in an irrevocable trust for Medi-Cal purposes will likely be reassessed to current market value, which in most California counties means a meaningful property tax increase compared to the Proposition 13 rate the family had been paying.
Choosing the Trustee
The trustee cannot be you. The whole strategy rests on you having no access to the principal, so someone else has to hold and manage the assets and follow the trust terms without bending them. A distribution back to you, even a well-meant one, can destroy the Medi-Cal protection and make all trust assets countable again.
Most families use an adult child or another trusted relative. Core responsibilities include prudent management of trust assets, detailed recordkeeping, filing trust tax returns, and communicating with beneficiaries. The trustee is a fiduciary and must put the beneficiaries’ interests ahead of their own. A professional fiduciary is an option when no suitable family member exists or when family dynamics could create conflicts; professional trustees typically charge an annual fee in the range of 0.5% to 1% of trust principal. Whoever serves, the trust document should name successor trustees in case the original trustee can’t continue.
After the trust is funded, keep a clean separation between your personal assets and trust assets. Don’t commingle funds, don’t route trust income to your personal accounts, and don’t treat trust property as your own. If Medi-Cal finds evidence you continued to control or benefit from the assets, the transfer will be treated as a sham and the assets counted against you.
Legal fees to draft one of these trusts vary with complexity and typically run from several hundred to several thousand dollars. Use an attorney who works with Medi-Cal eligibility specifically, not only general estate planning. A trust that looks irrevocable on paper but still permits any distribution to the grantor defeats the point of doing it.