Long-Term Care Asset Protection Trusts: Protecting the Home Up North, and Other Assets, From Nursing Home Costs

The problem: the house you no longer live in

Many of our clients spent their working lives in another state, retired to Southwest Florida, and made Florida their legal home. They vote here, they have a Florida driver's license, and they claim the Florida homestead exemption. But they kept the house in Ohio, New York, or Michigan, for summers, for the grandchildren, or because they can't bring themselves to sell it.

For Florida Medicaid, those two houses are treated very differently. The Florida home, the one you live in, is generally an exempt asset. The house up north is not. Once Florida is your home, the northern house is no longer your principal residence, and unless a spouse or dependent relative lives there, Medicaid generally counts its full equity as an available asset. Florida's asset limit for a single nursing home applicant is $2,000. A northern house worth $350,000 doesn't just reduce benefits; it prevents eligibility until it is sold and the money is spent on care.

There are narrow exceptions, but they mostly delay the problem: when the house is sold, the cash counts.

What a long-term care asset protection trust is

It is an irrevocable trust with one central rule: you receive the income, and no one can ever pay the principal to you or your spouse.

• You, the grantor, create the trust and transfer assets into it: the northern house, a brokerage account, a certificate of deposit, or other property you don't need to spend.
• A trustee, usually an adult child, manages the property. You and your spouse should not serve as trustee.
• You keep the income. Interest, dividends, and rent are paid to you. For real estate, "income" includes the beneficial use and enjoyment of the property, so you can keep using the house.
• The principal is off limits to you. That is the feature that makes the plan work.
• At your death, the trust passes to your children or other beneficiaries without probate in Florida or in the state where the property sits.

Federal Medicaid law explains why this works. For an irrevocable trust, any part that could under some circumstances be paid to you is counted as yours. Any part that could never be paid to you is treated as a transfer made on the day the trust was funded (42 U.S.C. § 1396p(d)(3)(B)). Transfers are reviewed only for the 60 months before an application (§ 1396p(c)(1)(B)). Once five years have passed, the principal is no longer counted.

Because neither spouse has a right to the principal, the trust protects the assets for a married couple even though Medicaid counts both spouses' assets together.

A note on the name

You will see this plan called a Medicaid asset protection trust (MAPT), an irrevocable income-only trust (IIOT), or simply an asset protection trust. We call it a long-term care asset protection trust, because that describes what it protects against. It is not the same as the "asset protection trusts" some states offer to shield assets from lawsuits and creditors. Florida does not have that kind of trust, and it is a different tool for a different problem.

The tax side: why "income-only" matters

A common alternative is to deed the northern house to the children. It starts the same five-year clock, but it carries a tax cost many families don't see until later. A gift during life passes your original purchase price to your children. If you bought the house for $120,000 and it's worth $350,000 when they sell, they owe tax on the $230,000 gain.

A properly drafted income-only trust avoids that. Two features work together:

1. The assets stay in your taxable estate. Because you keep the income and the use of the property for life, the trust assets are included in your estate at death (26 U.S.C. § 2036). That inclusion is what gives your beneficiaries a stepped-up basis: the property's value on the date of death becomes their basis (§ 1014). The IRS has confirmed that a trust that keeps assets out of the estate does not get the step-up (Rev. Rul. 2023-2), so this inclusion is deliberate.
2. The trust is a "grantor trust" for income tax purposes. The trust is drafted so that you, not the trust, report its income on your own return, at your own rates (§§ 671-677). The trust doesn't need to pay the compressed trust tax rates.

For most families, estate inclusion costs nothing at the Florida or federal level: Florida has no estate tax, and the federal exemption is far above most estates. The northern state is a separate question. A state with an estate or inheritance tax taxes real estate located there no matter where the owner lives, and putting the house in this trust does not change that. Know what that state's tax will be before the deed is signed.

An example

Bob and Susan moved from Ohio to Bonita Springs, made Florida their domicile, and kept their Ohio house, worth $350,000, which they bought for $120,000. They are healthy, in their early seventies, and have enough savings and income to live on.

• If they do nothing and Bob later needs nursing home care, the Ohio house counts. It must be sold, and the proceeds spent, before Medicaid helps.
• If they deed it to their children, the house is protected after five years, but the children take the $120,000 basis, and the house is exposed to the children's own creditors, divorces, and bankruptcies.
• If they put it in a long-term care asset protection trust, the house is protected after five years. Bob and Susan can still use it. If they rent it, the rent is paid to them. If the trustee sells it, the proceeds stay in the trust, still protected. When the second of them dies, the children receive the house or the proceeds with a basis equal to its value at death, without an Ohio probate.

Fund the upkeep, not just the house

When real estate goes into the trust, money to carry it should go in too. A house costs money every year whether anyone lives in it or not: property taxes, homeowner's insurance, utilities, repairs, lawn care and snow removal, and someone to check on it.

Plan for the day you are receiving long-term care. Once you are on Medicaid, nearly all of your income goes to the nursing home or the care program, and you won't have money left over to pay a tax bill on a house in another state. If the trust owns only the house, the trustee has nothing to pay with, and the family either pays out of pocket or the house falls behind on taxes and repairs.

The answer is a separate account inside the trust, funded when the house goes in, sized to cover several years of taxes, insurance, utilities, and upkeep. Because the trustee spends it on property the trust owns, using that money for the house is not a payment to you, and it doesn't weaken the protection. Rent, if the house is rented, can help replenish it.

What it doesn't do, and what it costs you

This plan is not for everyone. Before deciding, understand what you give up.

• It is irrevocable. You cannot take the principal back, even if you need it. Plan to fund the trust only with assets you won't need to live on.
• Five years is the price of admission. If you apply for long-term care Medicaid within five years of funding the trust, the transfer is treated as a gift. Medicaid divides the value by Florida's average monthly nursing home rate, $10,645 in 2026 (Appendix A-35), and imposes that many months of ineligibility. See our guide to Florida's Medicaid lookback period.
• Trust income is still your income. Whatever the trust pays you counts toward Medicaid's income limit, $2,982 a month in 2026 for nursing home care. If you're over, a Qualified Income Trust handles the excess. Once you're on Medicaid, that income goes toward your cost of care, which is fine: the point is to protect the principal.
• You give up direct control. The trustee manages the property. Choose someone you trust, and the trust can let you replace the trustee.
• The northern deed has to work in the northern state. It must meet that state's recording and transfer-tax rules, and the mortgage lender and the homeowner's insurer must be told. Local property tax breaks you once claimed there are probably already gone, since you're now a Florida resident.

A revocable living trust won't do this

Many of our clients already have a revocable living trust, and it's a good tool: it avoids probate and plans for incapacity. But because you can revoke it and take everything back, Medicaid counts every dollar in it. A revocable trust and a long-term care asset protection trust do different jobs, and many families have both. See Revocable vs. Irrevocable Trusts.

	Keep it	Gift to children	Revocable living trust	Long-term care asset protection trust
Counted by Medicaid	Yes	No, after 5 years	Yes	No, after 5 years
You keep the income and use	Yes	No	Yes	Yes
Stepped-up basis at death	Yes	No	Yes	Yes
Avoids probate in the other state	No	Yes	Yes	Yes
Exposed to children's creditors or divorce	No	Yes	No	No
Can you take it back	Yes	No	Yes	No

What about the Florida home?

Your Florida homestead is usually handled differently. It is generally exempt for Medicaid while you live there or intend to return, and Florida's estate recovery program reaches only assets in the probate estate (§ 409.9101, Fla. Stat.). Other tools, such as a lady bird deed, often protect it more simply. See Florida Medicaid Estate Recovery and the Homestead. Whether the Florida home also belongs in the trust is a case-by-case decision.

Who should consider one

A long-term care asset protection trust tends to fit people who:

• are in reasonably good health, with a horizon of five years or more before care is likely;
• own a home in another state, or savings and investments beyond what they need to live on;
• want those assets to go to their children rather than to a nursing home; and
• have enough other income, savings, or long-term care insurance to cover five years.

If care is needed sooner, other strategies are still available. See Strategies for Protecting Assets from Nursing Home Costs.

The sooner, the better

The five years begin only when the trust is funded. The best time to talk about a long-term care asset protection trust is while you are healthy and nothing is wrong. Contact Zacharia Frey to talk with one of our attorneys about whether this trust fits your family.