She’ll Put a Dividend Portfolio Into an Irrevocable Trust Before Entering a Nursing Home. Medicaid May Still Count the $800 Monthly Income Toward Her Care
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Picture a widow in her early 80s. Years ago, she moved a dividend portfolio into an irrevocable trust. Her reasoning: once the stocks left her name, Medicaid couldn’t touch them. The holdings pay about $800 a month, and the trustee mails her a check every month.
Then a stroke sends her to a nursing home, and her family applies for Medicaid, which uses federal and state funds to pay long-term nursing home bills. Even if the trust keeps some or all of the portfolio outside her countable assets, payments made to or for her benefit can still count as income. That $800 can flow straight onto her nursing home bill.
Federal Trust Rules Can Treat the Portfolio and Its $800 Income Differently
Medicaid’s rules for irrevocable trusts that people fund with their own money sit in one federal statute, 42 U.S.C. § 1396p(d). Elder law attorneys call its core the “any circumstance” test.
If the trust allows payments to her from any portion of the principal or its income, that portion can remain available to her for Medicaid purposes. A trust that lets the trustee reach principal for her benefit, even rarely, may leave that portion exposed.
If neither principal nor income can ever be paid to or for her benefit, those amounts are generally treated under Medicaid’s transfer rules instead of as income available to her.
How $800 a Month Lands on Her Nursing Home Bill
Qualifying for Medicaid ends one calculation and starts another. Once Medicaid pays for institutional care, the state runs what’s formally called the post-eligibility treatment of income. It totals her monthly income, subtracts the allowed deductions and applies the rest toward her nursing home care.
The deduction list is short. It includes a personal needs allowance (federal law sets a floor of $30 a month), an allowance for a spouse still living at home, and health insurance premiums.
Our widow has no spouse. Assume her Social Security already covers her personal needs allowance and premiums. In that case, the trust’s $800 has only one place to go: the nursing home’s account. She protected the portfolio and still hands over every dividend dollar toward her care.
Medicaid still pays the balance of the bill. The dividends reduce Medicaid’s share and grow hers, and her children, the trust’s future heirs, watch that income disappear each month while she’s living.
Where she lives matters. Each state sets its own personal needs allowance (at or above the $30 floor) and spousal figures, and state agencies read trust language differently. The same trust can get a different Medicaid review depending on the state.
60-Month Look-Back Adds a Timing Trap
Federal law treats the portion of a trust that can never be paid to her as a transfer of assets on the date she funded it. Medicaid reviews transfers made within a 60-month look-back window, and funding a trust inside that window can trigger a penalty period that delays her coverage.
Funding the trust well before the application changes the transfer analysis. It won’t rescue a trust that lets principal reach her, and it does nothing for income the trust pays to her.
Trust Language Decides What Medicaid Counts
Two trusts both labeled “irrevocable” can produce opposite Medicaid outcomes. Families reviewing a document usually need answers to four questions:
- Can the trustee give her principal? If yes, under any circumstances, the principal can count as her asset.
- Must income go to her? Or can the trustee keep dividends inside the trust or pay them to her children?
- Can the trustee pay her bills directly? The statute counts payments made for her benefit right alongside checks written in her name.
- Who takes over if the trustee dies or steps down? A successor named in the document keeps the arrangement running.
Suze Orman pointed out that last risk on her podcast in 2025: “You can put it in an irrevocable trust and somebody else will have control over it. But what happens if something happens to the person who has control over it?” She also warned listeners against putting heirs’ inheritance ahead of a parent’s quality of care.
A trust that bars all payments to her, income and principal alike, generally keeps the dividends from counting as her income. The tradeoff is steep: she gives up that $800 for good, and payments the trustee makes to others from any portion that could have reached her can count as transfers.
Our widow’s trust may succeed at moving the portfolio out of her countable assets, and the $800 a month still follows her into the nursing home. Protecting an asset and protecting the income it throws off are two separate Medicaid questions. A trust designed around the asset can still leave the income exposed.
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Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
