One of the most misunderstood topics in asset protection planning is the role of the trustee and the beneficiary. Many people assume they can serve both roles in their trust—after all, it’s “their money.” But when it comes to Medicaid and Veterans benefits, this assumption can destroy your eligibility. In this post, we clear up the confusion and explain what’s truly allowed—and what isn’t.
When families begin exploring asset protection, one of the first questions they ask is: “Can I still control my trust?” Often, this comes in the form of, “Can I be the trustee?” or “Can I still benefit from it?”
The logic is understandable: you worked hard for these assets, so you should be able to manage and use them, even after transferring them to a trust. Unfortunately, Medicaid and Veterans Affairs (VA) rules do not share that view.
The Simple Answer: You Can’t Be Both
When it comes to Asset Protection Trusts (APTs) designed to help you qualify for Medicaid or VA Aid and Attendance, you cannot be both the trustee and the beneficiary of principal—period.
Why? Because Medicaid and VA programs evaluate control and access, not just ownership. If you can control trust assets, direct distributions to yourself, or revoke the trust, the government considers those assets to be available resources—and they will count against your eligibility.
Understanding Trustee vs. Beneficiary Roles
Let’s break it down.
- Trustee = The person who manages the trust’s assets: pays bills, makes distributions, files tax returns.
- Beneficiary = The person who benefits from the trust’s assets: receives income, principal, or both.
In a standard Medicaid- or VA-compliant Asset Protection Trust:
- You may be able to retain the role of trustee, but only if the trust strictly limits what you can do.
- You may be a beneficiary of income only, but not principal.
- You may not have the ability to revoke or modify the trust to benefit yourself.
In most cases, a third-party trustee is the safest option, especially when applying for public benefits.
What the Law Actually Says
Federal and state Medicaid regulations focus on whether the applicant has:
- The legal right to access the principal, or
- The ability to compel distributions.
If either is true, then the trust is not protected, even if it’s irrevocable.
For example:
- A Texas Medicaid applicant who transfers their home to an irrevocable trust but retains the right to receive principal, or serves as a trustee with discretionary power over principal, will have that home treated as a countable asset.
- Similarly, under VA rules, any trust that allows the applicant to receive or control principal is considered a resource, and VA Aid & Attendance eligibility will be denied.
Even if you never use the principal, just having access is enough to disqualify you.
“But Can I Still Receive Income?”
Yes—in most cases, an APT can be drafted to allow you to receive income only, such as interest or dividends from investments held in the trust. This income will be countable for Medicaid and VA purposes (as all income is), but it won’t disqualify you if your overall income is below the program limits.
But this is a carefully balanced structure. If your trust includes vague language or grants you too much power, it may fail under scrutiny. That’s why boilerplate trust templates or generic online forms are dangerous—they can accidentally leave you exposed.
The Dangers of Being Trustee
Even though some planners may allow the grantor (you) to serve as trustee, doing so carries risk. Medicaid will review:
- The trust language to see how much power you have.
- Whether you can direct distributions, even indirectly.
- Whether you have “de facto” control, even if technically limited.
Some state Medicaid programs aggressively challenge trusts where the applicant is trustee—even with limited authority. The safest course is often to name an independent or family member trustee, who has no legal obligation to follow your directions unless authorized by the trust terms.
Common Pitfalls
- Using a revocable trust – You retain full control and access, so all assets are countable. Revocable trusts offer no asset protection.
- Trying to “have it both ways” – You can’t protect assets and retain the ability to use them.
- Naming yourself as lifetime beneficiary of principal – This defeats the purpose of the trust.
- Failing to update your powers of attorney – If your agent under a financial POA has broad gifting powers, Medicaid might argue you still control assets.
How to Structure It Right
To qualify as an effective Asset Protection Trust, the document must:
- Be irrevocable.
- Have a third-party trustee or a trustee with limited powers.
- Limit your benefits to income only, or to residence rights (for your home).
- Contain no provisions allowing the trustee to distribute principal to you.
- Be drafted in compliance with state-specific Medicaid laws and VA regulations.
Your attorney may also recommend additional safeguards, like:
- Naming remainder beneficiaries.
- Providing trustee instructions for asset management during incapacity.
- Including “triggers” for trustee replacement if the original trustee becomes unable or unwilling to serve.
Your Role Doesn’t Have to Be “All or Nothing”
Even though you may give up direct control over principal, a well-drafted trust can still:
- Let you live in your home.
- Give you income from investments.
- Preserve your assets for your spouse, children, or other loved ones.
- Help you avoid probate and estate recovery.
In short, you’re not giving your assets away—you’re protecting them in a legal wrapper that helps secure your future.
Final Thoughts
Trying to keep full control over your trust while applying for government benefits is like trying to insure your house while it’s already on fire. It just doesn’t work.
An Asset Protection Trust, properly drafted and implemented, is one of the most effective tools available to middle-class families—but only if you accept that you can’t wear all the hats.
By separating your control and your benefit, you comply with the law, preserve your assets, and unlock access to benefits that could save your family hundreds of thousands of dollars in care costs.
We have helped hundreds of people with their trust planning; we can help you too! Our office is located at 17625 El Camino Real, Ste 102, Houston, TX 77058.
Call our office at 832.408.0505 or you can also book your Legal Strategy Session today just schedule your appointment online
Related Part 1 and Part 2:
Coming up next:
The Five-Year and Three-Year Clocks: Understanding Look-Back Rules for Medicaid and Veterans Benefits
Gratia specializes in providing comprehensive solutions in Estate Planning, Probate, Family Law, and Business Formation. Whether guiding families through the intricacies of estate planning, navigating the probate process, or advising on business and family law matters, Gratia ensures every client feels respected, informed, and confident. Her approach is characterized by clear communication and tailored strategies that reflect the specific needs and values of her clients.
Gratia is deeply embedded in the local area, often participating in community outreach and educational programs. She offers both virtual and in-person consultations to meet the diverse needs of her clients.
