A Medi-Cal asset protection trust is an irrevocable trust used in California to move property out of your name so it no longer counts against Medi-Cal’s asset limit and no longer sits in your probate estate where the state can claim against it after death. It solves two problems at once: qualifying for coverage now, and keeping the home or other assets from being pulled back to pay for care later. Whether you need one depends on what you own, whether you own real property, and how far ahead of a potential nursing facility stay you are planning.
The Two Problems the Trust Solves
Medi-Cal creates two separate financial risks for older adults and people with disabilities, and the trust addresses each one through a different mechanism.
The first is eligibility. Non-MAGI Medi-Cal, which covers long-term care, the Aged, Blind, and Disabled program, Medi-Cal with a Share of Cost, the 250% Working Disabled Program, and the Medicare Savings Programs, requires that your countable assets fall below a set limit. Property held inside a properly drafted irrevocable trust is no longer legally yours, so it does not count. A $300,000 investment portfolio in your name blocks eligibility; the same portfolio inside an irrevocable trust does not.
The second is estate recovery. The Department of Health Care Services (DHCS) can file a claim against your estate after death to recover what Medi-Cal paid for nursing facility care, home and community-based services, and related hospital and prescription drug costs while you were receiving that care. Recovery applies if you were 55 or older when you received services, or a nursing facility patient at any age.1California Legislative Information. California Code WIC 14009.5 – Medi-Cal Estate Recovery For anyone who dies on or after January 1, 2017, DHCS can only recover from assets that pass through probate. Property that transfers by trust, by survivorship, or by a payable-on-death designation is outside its reach.2Department of Health Care Services. Medi-Cal Estate Recovery Brochure
An irrevocable trust handles both. A revocable living trust handles only the second, because you still control revocable-trust assets and Medi-Cal still counts them.
Why 2026 Changed the Calculation
From January 2024 through December 2025, California ignored assets entirely when determining non-MAGI Medi-Cal eligibility. That window closed. Effective January 1, 2026, AB 116, Section 59 brought back an asset test. The new limits are:
- $130,000 for one person
- $65,000 for each additional household member, up to ten people
Applicants above the limit are ineligible, and current enrollees have their assets evaluated at their first annual renewal in 2026.3Santa Clara County Social Services Agency. Important Changes About Medi-Cal Asset Limits Rules For families who had stopped thinking about asset planning during the two-year pause, the limit is back on the table.
Not every asset is counted. Your primary residence, one vehicle, household goods, term life insurance, burial plots, irrevocable prepaid burial plans, and retirement accounts that are paying out periodic distributions of principal and interest are all exempt. Cash, checking and savings accounts, investment accounts, second vehicles, second homes, and whole life insurance with a combined face value above $1,500 do count. Property inside an irrevocable trust is treated as no longer yours and falls outside the count entirely.
The Home Problem
The single most common reason Californians create a Medi-Cal asset protection trust is the family home. During your life, the home is exempt for eligibility. After death, if the home passes through probate, DHCS can claim against its value to recover care costs. Families who take comfort in the “exempt” label during a parent’s lifetime sometimes lose the house after death.
Transferring the home into an irrevocable trust removes it from the probate estate and shields it from recovery. There are statutory backstops that reduce recovery risk even without a trust. DHCS cannot recover at all if you are survived by a spouse, a child under 21, or a child of any age who is blind or permanently disabled. And DHCS must waive its claim if enforcement would cause substantial hardship, which includes a “homestead of modest value,” defined as a home whose fair market value is 50% or less of the average home price in the county at the time of death.4California Legislative Information. SB 833 Senate Bill – Enrolled For homes above that threshold, and for heirs who are not spouses or minor or disabled children, the trust is the reliable protection.
Timing and the Transfer Penalty
Funding an irrevocable trust with countable assets can trigger a period of ineligibility (POI) for long-term care benefits. Transferring countable property for less than fair market value creates a POI of up to 30 months from the date of transfer. If you wait until you already need nursing care to move cash or investments into the trust, you can face months without Medi-Cal coverage for long-term care.5Department of Health Care Services. DHCS All County Welfare Directors Letter 23-28
There is one important exception. Transferring an asset that is already exempt at the time of the transfer does not create a penalty regardless of its value. Because your primary residence is exempt, moving the home into an irrevocable trust does not trigger a POI, even if the home is worth several hundred thousand dollars. This is why home-focused planning can work relatively close to the point of need, while planning that involves moving cash or a brokerage account needs a long runway.
The Step-Up in Basis Tradeoff
The trust protects against recovery, but it costs your heirs a tax benefit. When you inherit property from someone who owned it at death, you receive it at its current fair market value, wiping out decades of built-up capital gains. Property transferred into an irrevocable trust during your lifetime does not get this step-up. Your beneficiaries inherit your original cost basis and owe capital gains tax on the full appreciation when they sell.
For a California home bought decades ago and now worth several times its purchase price, the lost step-up can be substantial. Weighing that against a potential estate recovery claim is one of the harder calls in Medi-Cal planning, and the right answer depends on your basis, the current value, and how likely your heirs are to sell.
The transfer itself is also a completed gift for federal tax purposes. The 2026 annual gift tax exclusion is $19,000 per recipient, or $38,000 for a married couple electing to split gifts.6Internal Revenue Service. Frequently Asked Questions on Gift Taxes Transfers above the annual exclusion eat into the lifetime exemption, which is $15,000,000 per individual in 2026.7Internal Revenue Service. Whats New – Estate and Gift Tax Most people funding a Medi-Cal trust are nowhere near the lifetime cap, but transfers above the annual exclusion still require filing IRS Form 709.
Special Needs Trusts
A Special Needs Trust (SNT) is a specific type of irrevocable trust for someone with a disability. Assets inside a properly structured SNT do not count toward Medi-Cal eligibility and can supplement the beneficiary’s quality of life without disturbing benefits. The payback rules turn on who funded it.
A first-party SNT holds the disabled person’s own money, often from an inheritance or a personal injury settlement. When the beneficiary dies, remaining funds must first reimburse Medi-Cal for benefits paid on their behalf, ahead of other debts and heirs.8Social Security Administration. SI 01120.203 Exceptions to Counting Trusts Established on or After January 1, 2000 A third-party SNT is funded by a parent, grandparent, or other family member and requires no Medi-Cal payback at the beneficiary’s death; remaining assets pass to the heirs the trust names. For families planning ahead, the third-party version protects both eligibility and the family’s remaining wealth.
Who Actually Needs One
Not everyone on Medi-Cal needs an irrevocable trust. The strongest cases are narrow.
If you own a home and may eventually need long-term care, the trust is the cleanest way to shield it from estate recovery, and because the home is already exempt, funding the trust with the home does not create a penalty period. If your countable assets exceed $130,000, a trust can move them below the limit, but the 30-month potential penalty means you need to act well before care is needed. If you have a disabled family member, a third-party Special Needs Trust protects assets from both eligibility and estate recovery with no payback obligation.
The case is weaker for other situations. If your savings are under $130,000 and you don’t own real property, the setup and administration costs likely outweigh the benefit. Married couples already receive substantial spousal protections that shield a portion of assets and income for the at-home spouse, so a trust may or may not add much on top. And if your countable assets are close to the limit, a targeted spend-down can be simpler and cheaper than a trust.
Cost, Trustee, and What Irrevocable Actually Means
Irrevocable is the operative word. Once you transfer property into the trust, you no longer own it. You cannot sell it, borrow against it, or take it back if your circumstances change. The trustee manages the property under the trust terms and you have no authority to override those terms.
Choosing a trustee is a real decision. The trustee can be a family member, a professional advisor, or a corporate trust company. No law requires a professional or corporate trustee, but when asset protection is the point, an independent trustee reduces the risk that Medi-Cal will argue you still effectively control the assets. Professional fiduciaries typically charge between $125 and $295 per hour, or 1% to 2% of the trust’s value annually for administration.
Attorney fees to draft an irrevocable asset protection trust generally range from $2,000 to $10,000 or more, depending on the complexity of your assets and family situation. The math tends to be straightforward when a home is involved: $5,000 in trust drafting to protect a $400,000 house against a potential six-figure recovery claim is an easy call. For someone with $140,000 in a savings account and no real property, spending down $10,000 to fall under the limit is usually the better move.
The reinstated asset limit put Medi-Cal planning back on the agenda for California families who had let it slip during the 2024–2025 pause. For anyone with real property or savings above the threshold, an elder law attorney familiar with the state’s rules is worth the consultation before deciding whether a trust is the right tool.