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A Life Estate Deed or an Irrevocable Trust for MassHealth Planning?

POSTED ON: June 6, 2023

So, you’re doing some MassHealth planning for the possibility of long-term care and you’re wondering which option would be better for you: a life estate deed or an irrevocable trust. With the cost of long-term care being so expensive, it makes sense that you’re thinking about how you can protect your house so you can pass it on to family members.

What is a Life Estate Deed?

This type of deed lets you continue to own your property (primary residence) during your lifetime and names the person you want to pass the property to (remainder person) when you die. You retain the exclusive right to live in your home until you pass away. You’ll continue to pay the expenses of the property, such as taxes, insurance, and maintenance costs. This type of deed is fitting to use if the property isn’t going to be sold during your lifetime.

What is an Irrevocable Trust?

A living trust is a legal document that can hold legal title to your assets. Think of it like a box where you can hold assets. As the person creating the trust (grantor), you must select a person to manage the trust since you’re not allowed to. You get to choose the beneficiaries who will receive the assets after your death.

This type of trust typically can’t be changed or revoked. Once the assets have been transferred into the trust, they can’t be removed.

MassHealth’s Five-Year Look-Back Period

When a person applies for MassHealth for long-term care at the age of 65 or over, MassHealth will review the applicant’s finances for the past five years. Any transfer of gifting of assets in those years will impose a penalty period for the applicant—a time period in which the applicant won’t be eligible for MassHealth. There’s a penalty because MassHealth believes these assets could have been used to help cover the cost of long-term care had they not been gifted or transferred. The penalty period is based on the dollar amount of transferred assets and how long those assets could have covered the long-term care expenses.

Life Estate Deed

For the purpose of this article, let’s pretend the remainder person you choose is your daughter. On the date the life estate deed is signed, the five-year look-back period for MassHealth eligibility will begin.


  • You get to own your home and live in it during your lifetime. The property can’t be sold without your consent.
  • When you pass away, the property passes to your daughter without having to go through probate court—saving the estate probate costs and quickly transferring the home to your daughter.
  • After the five-year look-back period, the house won’t be considered a countable asset for MassHealth, helping you be eligible for MassHealth as long as you meet the other eligibility criteria.
  • If after the five-year look-back period you enter a nursing home and apply for long-term MassHealth benefits, MassHealth will place a lien on the home.  However, after you die, the lien will be removed, and the remainder person will receive the property free and clear.
  • If a lien is ever placed on the property by MassHealth, it can only be up to the value of the life estate (your ownership interest).
  • For estate tax purposes, the property is an asset of your estate, so your daughter will receive a “step-up in basis” when she receives the real estate. This means the inherited property will be valued for tax purposes at the date of your death, so your daughter should be able to avoid capital gains taxes when she sells the property.


  • You alone can’t simply remove or change a name once it’s on your home deed. Your daughter must agree to the change.
  • If you want to sell, mortgage, refinance the property, or transfer it, you’ll need the consent of your daughter.
  • If you sell the house, the sales proceeds would have to be split with your daughter. There would be capital gains consequences for your daughter since it isn’t her principal residence (unless the home is deeded back to you so it’s only in your name prior to the sale). If you then buy a new home, you could put it in a life estate again, but the five-year look-back period would restart.
  • If the home is sold during your lifetime, the sales proceeds would be an available resource for Medicaid eligibility and for estate recovery.
  • If you’re in a nursing home when your home is sold, the value of the sale proceeds would be seen as a resource to MassHealth that needs to be spent down toward your cost of care.
  • Legal claims against your daughter can affect the home. If she is sued, owes taxes, gets divorced, or if she files bankruptcy, her interest in the home isn’t protected. If she dies before you, her estate will go through probate, including her interest in the home, unless at least one other remainder person was listed as a joint tenant. However, while these claims may be made against the property, no one can make you move out of the home during your life.
  • If the life estate deed has been in existence for less than five years and you apply for MassHealth, you will be disqualified for a period of time since creating the life estate is seen as a transfer of an asset to your daughter.

Irrevocable Trust

On the date the irrevocable trust is signed, the five-year look-back period for MassHealth eligibility will begin.


  • Once the house has been in an irrevocable trust for five years, it’s considered a non-countable asset for purposes of qualifying for MassHealth benefits.
  • If you apply for MassHealth after the five-year look-back-period, MassHealth can’t put a lien on your home to recover costs it has spent on your care.
  • You can still receive limited benefits from the assets in an irrevocable trust. If you put your home and investments in your trust, you can still live in the home and receive the income from the investments.
  • It provides protection from lawsuits since you no longer legally own the assets.
  • Assets in the trust avoid probate, saving the estate from fees and distributing your assets quickly.
  • Assets in the trust are protected from your beneficiaries’ creditors. If you just transfer your house to your daughter, any creditor of hers can go after the house. However, if the house is in an irrevocable trust with your daughter as the beneficiary, her creditors can’t access it.
  • An irrevocable trust preserves the full capital gains tax exclusion on the primary residence. After your death, when your daughter sells the home, the tax basis would be your date of death valuation and not at the original purchase price.
  • In limited circumstances, you can change the trustee and beneficiaries.
  • Your trustee can sell your home if you want to move, without restarting the five-year clock for MassHealth. After the home is sold, the new home would be put in the trust. Any extra cash would be held in an account in the name of the trust.


  • There’s a lack of flexibility since you can’t change the irrevocable trust and you no longer control the assets in it.
  • You no longer have access to the assets in the trust. If you want to pay for assisted living (something MassHealth doesn’t cover), you can’t use the assets in the trust to pay for it since you don’t have the legal right to put your home back into your name.
  • Income generated from the trust that is payable to you will be seen as a resource by MassHealth to cover your health expenses.
  • It’s unlikely that you would be able to refinance your home, get a home equity loan, or get a reverse mortgage while your property is in an irrevocable trust.

Is One of These Options Right for You?

Everyone has their own unique set of circumstances. It’s best to talk to a skilled Massachusetts attorney who has experience with life estate deeds and irrevocable trusts. These are complex estate planning tools, so it’s important to gather information and ask questions before making a decision. Contact us today for a free consultation to discuss your situation. We can help you make the right decision for you and your family.