Medicaid Planning Trusts Are Not Asset Protection Trusts

And Why Trying to Make Them So Is Both Dangerous and Doctrinally Unsound

A Medicaid Planning Trust—often abbreviated as an “MPT”—is a very specific planning tool, designed for a very narrow purpose. At its core, an MPT is an irrevocable trust created so that assets transferred to it are no longer countable for MassHealth long-term care eligibility after the expiration of the five-year lookback period. That is the deal. Assets are given up today so that, years later, the Commonwealth does not require those assets to be spent down on nursing home care.

That limited function matters. A Medicaid Planning Trust is not a general wealth preservation tool. It is not designed to withstand lawsuits, business failures, professional liability, or bankruptcy. It is not built to defeat judgment creditors. And it is certainly not intended to function as a substitute for legitimate asset protection planning.

Unfortunately, some advisors blur that line—sometimes out of misunderstanding, sometimes out of expedience, and sometimes because telling a client what they want to hear is easier than telling them the truth.

What an MPT Is—and What It Is Not

An MPT is a Medicaid eligibility strategy, not an asset protection strategy. It operates within a regulatory framework administered by MassHealth, not within the common-law creditor rights framework enforced by courts. Those two systems ask different questions and apply different standards.

MassHealth looks at whether an applicant has legal access to assets. Courts, on the other hand, look at beneficial ownership, control, and economic reality. A structure that satisfies one inquiry can fail catastrophically under the other.

This distinction is foundational to how we approach Medicaid planning. At Boyd & Boyd, our philosophy has always been that Medicaid planning should be honest, conservative, and defensible—not clever for the sake of being clever. We assume that rules will be enforced, that facts will be scrutinized, and that aggressive structures will eventually be tested. Anything less is not planning; it is gambling with a client’s future.

Massachusetts Public Policy After De Prins v. Michaeles

That philosophy is not merely prudential. It is compelled by Massachusetts law.

In De Prins v. Michaeles (2020), the Supreme Judicial Court reaffirmed what Massachusetts courts have said for generations: self-settled asset protection trusts are against public policy. A person cannot place their own assets into a trust for their own benefit and insulate those assets from creditors. Labels do not matter. Intent does not matter. Drafting tricks do not matter. If the settlor retains a beneficial interest—directly or indirectly—creditors may reach the assets.

The Court did not announce a new rule in De Prins. It reaffirmed an old one. Massachusetts has long rejected the idea that a debtor may enjoy property while placing it beyond the reach of those to whom the debtor owes obligations. That principle is embedded in our common law and repeatedly described by the SJC as a matter of public policy, not mere statutory interpretation.

Why Other States Reach a Different Result—and Why That Matters

Importantly, Massachusetts is not universal in this view. Roughly nineteen states now permit some form of Domestic Asset Protection Trust (DAPT). These trusts are explicitly authorized by statute and operate under tightly defined rules. They must be governed by the law of a DAPT-friendly state. They generally require a trustee located in that state. They impose restrictions on retained powers, distributions, and creditor classes. In short, they exist because the legislature in those states made a policy decision to allow them.

Massachusetts has made the opposite policy decision.

That difference matters because asset protection trusts are creatures of state law, and state law is not portable by wishful thinking. A Massachusetts resident cannot opt out of Massachusetts public policy simply by declaring otherwise in a trust instrument.

This is also why Massachusetts real estate should never be owned directly by a DAPT. Real property is subject to the jurisdiction of the state in which it is located. A Massachusetts court will not defer to another state’s asset protection statute when adjudicating creditor rights against Massachusetts land. The court will apply Massachusetts public policy—and under that policy, a self-settled asset protection trust fails.

Why Medicaid Planning Trusts Survive—For Now

Given De Prins, one might reasonably ask why Medicaid Planning Trusts are recognized at all. Conceptually, they are difficult to reconcile with the Court’s reasoning. They involve a settlor transferring assets into a trust from which the settlor may still benefit indirectly—most notably through discretionary distributions to others or the preservation of assets for heirs.

The answer is practical rather than doctrinal. Medicaid planning trusts exist because Medicaid and MassHealth regulations tolerate them, not because they align cleanly with Massachusetts common law. They survive in an administrative space that has not yet been fully reconciled with the SJC’s public-policy jurisprudence.

But that uneasy coexistence is precisely why MPTs must be drafted and administered with extreme care—and why attempts to stretch them into asset protection vehicles are so dangerous.

The Fatal Flaw in Most MPTs: Closely Held Businesses

In practice, most Medicaid Planning Trusts contain a provision allowing the trustee to own interests in closely held businesses, including stock in corporations or membership interests in LLCs. This provision is often included casually, without much thought. It is also the single most dangerous feature of many MPTs.

Here is why.

The trustee forms a closely held entity. The MPT funds it. The entity then engages in transactions that appear, on paper, to have a “business purpose.” The donor is hired. The donor is paid. The donor provides services. Fees are charged. Compensation is justified. Distributions flow—not directly from the trust, but from the entity.

From a distance, this may look compliant. In reality, it creates a back door through which trust assets become economically available to the donor. And courts do not ignore back doors.

A creditor—or eventually MassHealth itself—will not ask whether the donor technically holds title. They will ask whether the donor can get money out. If the answer is yes, the structure collapses.

It does not matter that the transactions are dressed up as business dealings. Substance controls over form. A trust that can be used to re-route its assets back to the settlor through a closely held entity is functionally self-settled. Under De Prins, that is the end of the analysis.

The Inevitable Reckoning

I am surprised that Medicaid Planning Trusts are recognized at all, given their tension with Massachusetts public policy. But whether they should exist is ultimately beside the point. What matters is that most of them are far more fragile than their proponents admit.

At some point, MassHealth will focus not just on formal trust terms, but on economic access created through business entities. When that happens, many MPTs will fail—not because they were aggressive, but because they were carelessly permissive.

Medicaid planning is not asset protection. Pretending otherwise does not make it so. And when planning crosses that line, it is the client—not the advisor—who bears the consequences.