New Jersey Medicaid Planning: Weighing the Pros and Cons of Irrevocable Trusts, Life Estates, and Gifts

The Chamberlain Law Firm


As New Jersey residents plan for their future, concerns about healthcare costs and long-term care often arise. Protecting one’s assets for Medicaid eligibility becomes essential to ensure proper care without depleting a lifetime of savings. This article will explore the advantages and disadvantages of irrevocable trusts, life estates, and gifts as strategies for asset protection in the context of New Jersey Medicaid planning, as well as the role an experienced elder law attorney can play in helping you protect your assets.

I. Irrevocable Trusts

Irrevocable trusts are legal arrangements where the grantor transfers assets to a trust, managed by a trustee for the benefit of designated beneficiaries. Once established, the terms of an irrevocable trust cannot be changed or revoked by the grantor. Please note that the grantor themselves cannot be a beneficiary of the trust nor can the trust income or principal be used for the grantor’s support. Using the trust for the grantor’s benefit would consider the trust an asset for the purposes of Medicaid eligibility.


  1. Asset protection: Irrevocable trusts protect assets from creditors and potential lawsuits. Since the trust legally owns the assets, they are not considered part of the grantor’s estate for New Jersey Medicaid eligibility purposes.
  2. Tax advantages: Trust assets are not included in the grantor’s estate for estate tax purposes, potentially reducing the estate tax burden.


  1. Loss of control: Grantors relinquish control over trust assets, as they cannot change or revoke the trust’s terms.
  2. Trust creation and administration costs: Setting up and managing an irrevocable trust can be complex and involve legal fees, which may not be suitable for everyone.

II. Life Estates

A life estate is a legal arrangement where an individual (the life tenant) retains the right to live in and use a property for their lifetime, with the property passing to a designated remainderman (usually a family member) upon the life tenant’s death.


  1. Continued use of the property: The life tenant retains the right to live in and use the property for the rest of their life.
  2. Avoiding probate: Upon the life tenant’s death, the property automatically transfers to the remainderman, bypassing the probate process.
  3. New Jersey Medicaid eligibility: After a specified waiting period, the life estate’s value is not considered part of the life tenant’s assets for New Jersey Medicaid eligibility.


  1. Loss of control: The life tenant cannot sell or mortgage the property without the remainderman’s consent.
  2. Capital gains tax: Capital gains tax becomes an issue if the property needs to be sold during the life tenant’s lifetime. This is because any increase in the property’s value during the life tenant’s lifetime will be subject to the capital gains tax if the property is sold during the life tenant’s lifetime. This is less of an issue if the property is sold after the life tenant dies, since the tax basis of the property is “stepped-up” to its fair market value at the time of the life tenant’s death. Thus, any increase in value of the property during the life tenant’s lifetime will not be subject to capital gains tax if the property is sold after the life tenant’s death.

III. Gifts

Gifting assets to family members or loved ones is another strategy for reducing the value of one’s estate and potentially qualifying for New Jersey Medicaid.


  1. Simplicity: Gifting is a straightforward process and does not require complex legal documents.
  2. Reducing the value of the estate: By gifting assets, individuals can reduce their estate’s value and potentially qualify for New Jersey Medicaid.


  1. Look-back period: New Jersey Medicaid has a five-year look-back period, during which any gifts or asset transfers may result in a penalty and delay eligibility for benefits.
  2. Loss of control: Once gifted, the individual loses control over the assets and cannot reclaim them if circumstances change. While you may trust your loved ones to use the gifted assets to care for you, there is no guarantee that they will do so. Further, gifting assets exposes those assets to the recipient’s creditors, risk that the recipient will lose the assets in a divorce, or be lost due to other claims by third parties.

How an Attorney Can Help

An experienced attorney who is familiar with New Jersey laws can consider your individual situation and help you decide which option is best for protecting your assets. For example, if an irrevocable trust is best suited for protecting your assets, an attorney can help you navigate the legal landscape. No matter which option you choose, an attorney can help you save time and avoid costly penalties.


Protecting your assets for New Jersey Medicaid eligibility is a complex process that requires careful planning and consideration. Irrevocable trusts, life estates, and gifts each have their benefits and drawbacks in the context of asset protection. To determine the most suitable strategy for your situation, consult with an experienced New Jersey elder law attorney specializing in Medicaid planning. Our experienced attorneys can help you navigate the intricacies of these options and choose the option that best fits your needs. Please contact us at the Chamberlain Law Firm via our contact page or by calling us at (201) 249-6716 to set up a consultation today.

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