A Medicaid Asset Protection Trust in Texas is an irrevocable trust you fund with assets you want to keep out of Medicaid’s resource count when you later apply for long-term care benefits. The trust works because federal law stops treating transferred assets as yours once you give up all access to the principal, but it only works if you fund it at least 60 months before you apply. Set it up too late, or draft it so you still have a way to reach the money, and Medicaid will either count the assets against you or impose a penalty period that leaves your family paying privately for nursing home care.
Why the Trust Has to Be Locked Away From You
The whole strategy rests on 42 U.S.C. § 1396p(d). Medicaid treats an irrevocable trust one way if any of the principal could ever come back to you, and a completely different way if it cannot. If the trust allows principal to be paid to you or spent on your behalf under any circumstances, Medicaid counts that portion as your available resource, as if you still owned it outright. If the trust is written so no principal can ever return to you, the entire corpus is treated as a completed transfer rather than a countable resource.1Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
That difference is what makes the planning possible. By giving up access to the principal, you convert assets that would have disqualified you into a transfer that triggers a time-limited penalty instead. Once the penalty window closes, the assets stop counting. The cost is real: you permanently lose the ability to tap those funds for your own needs.
The 60-Month Look-Back Period
When you apply for Medicaid long-term care in Texas, the Texas Health and Human Services Commission reviews every asset transfer you made in the 60 months before your application date or the date you entered a nursing facility, whichever is later.2Texas Health and Human Services. I-2100, Look-Back Policy Any transfer during that window for less than fair market value, including funding a MAPT, can trigger a penalty period in which Medicaid will not pay for your care.
The penalty is a division problem. HHSC takes the value of the transferred assets and divides by the state’s average daily private-pay nursing facility rate. Transfer $300,000 at roughly $200 a day and you get about 1,500 penalty days, more than four years without benefits. Worse, the penalty clock does not start when you make the transfer. It starts only when you are otherwise eligible for Medicaid and in (or applying for) a nursing facility. A family that begins planning two or three years before a nursing home admission often discovers the clock has not even begun.
Transfers made before the 60-month window are not penalized at all. That is the entire reason elder law attorneys push clients to start early. Five full years after the trust is funded, the transferred assets fall outside the review period.2Texas Health and Human Services. I-2100, Look-Back Policy
Each transfer carries its own date. If you fund the trust in stages across several months, each batch has its own 60-month calculation.
What a Valid Texas MAPT Must Look Like
Texas applies the federal trust rules in 42 U.S.C. § 1396p(d) together with Title 1, Part 15, Chapter 358 of the Texas Administrative Code when deciding whether trust assets count against you. Miss any of the following and the trust can be treated as your personal resource, which erases the point of creating it.
Fully Irrevocable
You cannot amend, revoke, or dissolve the trust once you sign it. If you keep any power to undo it, Medicaid treats the assets as still yours. There is no partial credit for a trust that is mostly irrevocable.
No Path Back to Principal
The trust must prohibit any distribution of principal to you or for your benefit. Under 42 U.S.C. § 1396p(d)(3)(B), if principal could be paid to you under any circumstances, Medicaid counts that portion as an available resource.1Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets Some MAPTs are drafted as income-only trusts, meaning the trustee can distribute interest, dividends, or rental income to you while the principal stays locked. That income counts toward your Medicaid income eligibility, but the underlying assets remain protected. Other MAPTs cut off all distributions to the grantor. Which design fits depends on whether you need supplemental income during the look-back years.
Someone Else as Trustee
You and your spouse should not serve as trustee. No Texas statute flatly forbids it, but naming yourself invites the argument that you kept effective control, which is exactly the conclusion you need Medicaid to avoid. An adult child, a trusted family member, or a professional fiduciary eliminates the risk. The trustee manages investments, files trust taxes, and makes distributions under the trust terms without your involvement.
Not the Same Thing as a Qualified Income Trust
A Qualified Income Trust (QIT) solves a different problem. A QIT is used when your monthly income exceeds the Medicaid eligibility cap, and it holds only income, never resources.3Texas Health and Human Services. F-6800, Qualified Income Trust A MAPT does the opposite: it holds assets like real estate and investment accounts to reduce your countable resources. Confusing the two or trying to combine them into one document will disqualify you from both.
What to Put In and What to Leave Out
Texas Medicaid caps your countable resources at $2,000 for an individual or $3,000 for a couple.4Texas Health and Human Services. F-1300, Resource Limits Anything over those ceilings disqualifies you unless it is sheltered.
Assets commonly moved into a MAPT include brokerage accounts, certificates of deposit, savings accounts, and real estate. The family homestead is a particularly strategic choice because it is the main target of the Texas Medicaid Estate Recovery Program after death. Moving the home into a MAPT before the look-back window closes shields it from a later recovery claim.
Some assets should stay out. Retirement accounts like IRAs and 401(k)s create tax complications when transferred to an irrevocable trust and can trigger immediate income recognition. Checking accounts you need for daily living obviously cannot go into a trust you no longer control. Vehicles used for transportation are generally exempt from Medicaid’s resource count already, so moving them in adds complexity for little gain. The goal is to transfer enough to drop below the resource limit while keeping enough liquid cash outside the trust to live on during the look-back years.
Tax Consequences You Need to See Coming
A MAPT reshapes your tax picture, and families who notice this only after funding the trust often cannot fix it.
Gift Tax Filing
Transferring assets to an irrevocable trust where you keep no access to principal is a completed gift for federal purposes. In 2026, the lifetime gift and estate tax exemption is $15,000,000 per person under the One, Big, Beautiful Bill Act signed in 2025.5Internal Revenue Service. What’s New – Estate and Gift Tax Most families funding a MAPT will owe no gift tax, but you still need to file Form 709 for the year of the transfer. Failing to file does not create a penalty when no tax is due, but it leaves the IRS statute of limitations open on that transfer indefinitely.
Loss of Step-Up in Basis
This is the tax trap. Normally, when you die owning an appreciated asset, your heirs receive a step-up in basis to the asset’s fair market value at death, which wipes out the built-in capital gain. In 2023, the IRS issued Revenue Ruling 2023-2 clarifying that assets in an irrevocable grantor trust do not receive the step-up at the grantor’s death, because the assets are no longer part of the grantor’s taxable estate. Your beneficiaries inherit your original cost basis and owe capital gains tax on the full appreciation when they sell.
A home bought decades ago for $80,000 and now worth $400,000 carries $320,000 of built-in gain, potentially $50,000 or more in federal and state capital gains taxes. Some attorneys address this by giving a third party a testamentary general power of appointment over the trust assets, which pulls them back into someone’s taxable estate and restores the step-up. Whether that tradeoff is worth it depends on the size of the estate and how much appreciation is in play.
Trust Income Tax Returns
An irrevocable trust is a separate tax entity. If it earns income above the filing threshold, the trustee files IRS Form 1041 each year.6Internal Revenue Service. About Form 1041, US Income Tax Return for Estates and Trusts Irrevocable trusts hit the top federal income bracket at a low income level, far sooner than individuals do, so income accumulated inside the trust can be taxed heavily. Distributing income to beneficiaries shifts the tax to their returns, often at lower rates. The trustee needs to coordinate distributions each year with a tax professional.
When a Simpler Deed Does the Job
Before committing to a MAPT, look at what Medicaid Estate Recovery actually goes after in Texas. After a Medicaid recipient dies, the state can seek reimbursement for long-term care services it paid, but no more than it actually paid.7Texas Health and Human Services. Your Guide to the Medicaid Estate Recovery Program In practice, Texas MERP claims have focused on the deceased recipient’s homestead. Bank accounts and personal property have generally not been pursued.
If your only significant asset is your home, a MAPT may be far more machinery than you need. Texas recognizes two deed-based tools that shield a homestead without an irrevocable trust.
A Lady Bird deed (an enhanced life estate deed) transfers your home to a beneficiary while you keep full control during your lifetime, including the right to sell, mortgage, or lease without the beneficiary’s consent. Because you retain a life estate with enhanced powers, the transfer is not a gift for Medicaid purposes and does not start the 60-month clock. At death, the property passes to the named beneficiary outside probate, which puts it beyond MERP’s reach.
A Transfer on Death Deed, added to the Texas Estates Code, works similarly. HHSC recognizes a properly drafted and filed Transfer on Death Deed as protection against a MERP claim on the homestead. You keep full ownership while alive, and the beneficiary receives the property at death outside probate.
Neither deed helps with non-real-estate assets. If your countable resources exceed the $2,000 individual limit even after sheltering the house, you still need a broader strategy, and that is where the MAPT becomes necessary.4Texas Health and Human Services. F-1300, Resource Limits
Married Couples in a Community Property State
Texas is a community property state, which adds a layer of complexity. When one spouse needs nursing home care and the other stays in the community, federal law provides a Community Spouse Resource Allowance (CSRA), a protected amount the healthy spouse can keep without disqualifying the institutionalized spouse. The CSRA is adjusted annually and can be substantial, but assets above it still have to be spent down or sheltered.
Transferring community property into a MAPT typically requires both spouses’ consent. If only one spouse is the grantor, careful attention has to be paid to which assets are separate property and which are community property. Characterization mistakes can lead to challenges from HHSC during eligibility review. The look-back period also applies to transfers by either spouse: a transfer by the community spouse can trigger a penalty against the institutionalized spouse’s application.
For couples with substantial assets above the CSRA, a MAPT funded well in advance can protect the excess. For couples whose assets fall within the CSRA, the allowance alone may be enough without the expense and permanence of a trust.