Estate Planning Q&A Series

What type of trust should I consider to protect my parents’ assets if they might need Medicaid? – North Carolina

Short Answer

In North Carolina, a revocable living trust does not protect assets for Medicaid because the assets remain available to the settlor and are reachable by creditors and, after death, by estate recovery. For asset protection, families typically consider an irrevocable Medicaid Asset Protection Trust (MAPT) that the parents fund well before applying for benefits. A revocable trust can still help with incapacity management and probate avoidance. Because your parents live in another state, they should work with an elder law attorney where they reside.

Understanding the Problem

You want to know, under North Carolina law, whether a revocable trust or an irrevocable trust is the right tool to protect your parents’ assets if they may need Medicaid, and when to set it up. The goal is to protect a home, bank accounts, and other property while ensuring someone can manage assets if they become incapacitated. One key fact: your parents live in another state.

Apply the Law

Under North Carolina law, assets in a revocable living trust are treated as the settlor’s own property for creditor and Medicaid purposes. Creditors (including the State for certain recovery claims after death) may reach those assets, and after death, revocable trust property can be used to satisfy claims if the probate estate is insufficient. By contrast, an irrevocable trust can remove assets from being counted—if the settlor gives up control and certain lookback rules are satisfied. Trust administration disputes and modifications typically proceed in Superior Court, while estate recovery claims are presented in the decedent’s estate with the Clerk of Superior Court. A key timing rule is Medicaid’s five-year lookback for gifts and transfers; penalties can apply if funding is too close to an application.

Key Requirements

  • Control must be surrendered: For protection, the parents—not you—must transfer assets to an irrevocable trust and give up control and access.
  • Timing matters: Transfers to an irrevocable trust should be completed well before any Medicaid application due to the five-year lookback on uncompensated transfers.
  • Revocable trust limits: A revocable trust can streamline management and avoid probate but does not shield assets from creditors or Medicaid estate recovery.
  • Proper funding and titling: Deeds, account retitling, and vehicle titles must be changed to the trust to achieve the intended results.
  • Right forum and notices: Estate recovery is asserted in the estate case at the Clerk’s office; trust disputes or modifications typically go to Superior Court if needed.

What the Statutes Say

Analysis

Apply the Rule to the Facts: You’re considering a revocable trust so you can manage your parents’ assets if they become incapacitated. That tool helps with management and probate avoidance, but under North Carolina rules on creditor access to revocable trusts, it won’t protect assets for Medicaid. If asset protection is a goal, your parents should consider an irrevocable MAPT prepared under their home state’s law and funded well before any application, while you also secure a durable power of attorney for day-to-day authority.

Process & Timing

  1. Who files: Your parents (as settlors). Where: With an elder law/estate planning attorney in the state where they live. What: Draft and execute an irrevocable Medicaid Asset Protection Trust (MAPT) if protection is desired, or a revocable living trust plus durable power of attorney if management and probate avoidance are primary. When: Complete any MAPT funding at least five years before a potential Medicaid application.
  2. After signing, fund the trust: execute and record a deed for any North Carolina real estate with the county Register of Deeds; retitle bank and brokerage accounts to the trust; and, if moving a vehicle into a trust, retitle it with the N.C. Division of Motor Vehicles. Processing times vary by county and institution.
  3. On death, the trustee administers the trust privately. If a North Carolina estate is opened, the State’s estate recovery claim (if any) is presented in the estate at the office of the Clerk of Superior Court; revocable trust assets may be reached if the probate estate is insufficient.

Exceptions & Pitfalls

  • Transferring assets to an irrevocable trust within five years of applying for Medicaid can cause a coverage delay; plan early.
  • Retaining control or access (for example, the right to revoke) defeats asset protection; the trust must be truly irrevocable and properly drafted.
  • Failing to fund the trust (not recording deeds or retitling accounts) defeats probate avoidance and protection goals.
  • Estate recovery can reach revocable trust assets after death if the probate estate is insufficient to pay claims.
  • Cross-border issues: the trust’s principal place of administration and your parents’ domicile drive governing law and venue; use counsel in the parents’ state.

Conclusion

In North Carolina, a revocable living trust helps with incapacity and avoids probate but does not protect assets for Medicaid. For protection, your parents should consider an irrevocable Medicaid Asset Protection Trust drafted under their home state’s law and funded well before any application, because transfers are subject to a five-year lookback. The next step is to meet with an elder law attorney where your parents live to draft and fund the appropriate trust.

Talk to a Estate Planning Attorney

If you’re weighing revocable versus irrevocable trusts to plan for possible long-term care, our firm has experienced attorneys who can help you understand your options and timelines. 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.