Should I use a revocable trust or an irrevocable trust if my main goal is Medicaid protection? – North Carolina

Short Answer

In North Carolina, a revocable trust usually does not protect assets for Medicaid eligibility because the person who created the trust can typically change it, revoke it, or use the assets. If Medicaid protection is the main goal, planning more often involves an irrevocable arrangement that limits the creator’s control and benefits, and it generally must be done far enough in advance to avoid transfer penalties during Medicaid’s lookback period. Even with an irrevocable trust, the trust terms and timing matter because transfers can trigger a penalty, and certain assets can still be subject to Medicaid estate recovery after death.

Understanding the Problem

In North Carolina, can a person place assets into a trust and still qualify for Medicaid long-term care coverage without having to spend down everything first? The decision point is whether a revocable trust or an irrevocable trust is more likely to help with Medicaid protection when the goal includes preserving assets for family members, keeping younger beneficiaries from accessing funds too early, and reducing the risk of Medicaid estate recovery after death.

Apply the Law

North Carolina Medicaid follows federal Medicaid rules on transfers and eligibility, and it can impose a penalty period if assets are transferred for less than fair market value during the lookback window. Separately, North Carolina operates an estate recovery program that can seek repayment from certain property interests a Medicaid recipient had at death. In general, a trust that the creator can revoke or control is less likely to provide Medicaid protection than a trust that is irrevocable and structured so the creator does not retain control or access that causes the assets to be treated as available.

Key Requirements

Loss of control (to be “protected”): For Medicaid protection, the trust plan usually must limit the creator’s ability to revoke the trust, demand distributions, or otherwise treat the assets as still available.
Timing and the lookback: Funding a trust can be treated as a transfer. If it happens inside the lookback period and is for less than fair market value, Medicaid can impose a penalty period that delays coverage for certain long-term care services.
Estate recovery exposure: Even when a person qualifies for Medicaid, North Carolina can seek reimbursement from the recipient’s “estate,” which can include certain non-probate transfers and interests depending on the situation.

What the Statutes Say

N.C. Gen. Stat. § 108A-58.1 (Transfer of assets; lookback and penalty) – Authorizes Medicaid ineligibility for specified services when an applicant (or spouse) transfers assets for less than fair market value during the lookback period, using federal Medicaid timing and penalty rules.
N.C. Gen. Stat. § 108A-70.5 (Medicaid Estate Recovery Plan) – Creates North Carolina’s Medicaid estate recovery program and defines “estate” for recovery purposes, including (in some situations) assets passing through a living trust or survivorship-type arrangements.

Analysis

Apply the Rule to the Facts: The facts describe a North Carolina resident with a paid-off primary residence, a mortgaged rental property, vehicles, retirement accounts, limited cash, and Social Security income, with concerns about Medicaid “clawback” and about grandchildren receiving money too early. A revocable trust is typically designed for probate avoidance and management, but because it commonly leaves the creator in control, it usually does not create Medicaid protection. If Medicaid protection is the main goal, an irrevocable trust structure is more consistent with the “loss of control” requirement, but transferring a home or rental property into an irrevocable trust can be treated as a transfer that must be timed carefully because of the lookback and penalty rules.

Process & Timing

Who files: The Medicaid applicant (or authorized representative). Where: the county department of social services in North Carolina. What: the county’s Medicaid application packet and verification requests. When: eligibility is determined based on current rules, and transfers during the lookback period can affect approval and start dates for certain long-term care benefits.
Review and verification: The county reviews financial accounts, deeds, and trust documents. If assets were transferred (including into a trust), the county may request documentation to value the property and identify the timing and nature of the transfer.
Decision and notice: The county issues a written decision. If a transfer penalty is imposed, the notice should explain the penalty period and any available hardship waiver process under North Carolina law.

Exceptions & Pitfalls

“Irrevocable” in name only: If the trust allows the creator to get principal back, requires distributions for the creator’s benefit, or gives the creator too much control, Medicaid may still treat the assets as available.
Funding a trust too late: Deeding real estate or transferring other property into an irrevocable trust inside the lookback period can cause a penalty that delays coverage when care is needed most.
Estate recovery misconceptions: Avoiding probate is not the same as avoiding estate recovery. North Carolina’s recovery rules can reach certain property interests at death and, in some cases, assets passing through arrangements like a living trust.
Rental property and cash flow: A mortgaged rental property raises practical issues (insurance, lender requirements, rental income management). A plan that disrupts cash flow can create problems when income is limited to Social Security.
Retirement accounts: Retirement accounts often follow beneficiary designations and have separate Medicaid and planning considerations. A trust plan that ignores beneficiary designations can create mismatches between the estate plan and the account paperwork.

Conclusion

In North Carolina, a revocable trust usually does not provide Medicaid protection because the creator typically keeps control and access. When Medicaid protection is the main goal, planning more often uses an irrevocable approach that limits the creator’s rights in the transferred assets and is completed early enough to avoid transfer penalties during the lookback period. A key risk is that transfers for less than fair market value can delay long-term care coverage. Next step: review the assets and intended trust terms, then complete any trust funding (such as deed transfers) before the lookback window becomes an issue.

Talk to a Estate Planning Attorney

If dealing with the choice between a revocable trust and an irrevocable trust for Medicaid protection and concerns about estate recovery, our firm has experienced attorneys who can help explain options and timelines under North Carolina law. Call us today at (919) 341-7055.

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.