Trust Decanting and Long-Term Care Medicaid: What Elder Law Attorneys Need to Know

Trust decanting—the power of a trustee to distribute assets from an existing irrevocable trust into a new trust with different terms—is one of the most powerful tools in modern trust practice. Many states now have some form of decanting statute, and the Uniform Law Commission has promulgated the Uniform Trust Decanting Act (UTDA) to encourage consistency across jurisdictions.

For estate planners, the benefits of decanting are well known: fixing drafting errors, updating outdated administrative provisions, accommodating changed family circumstances, and moving assets to more favorable trust situs jurisdictions. But for elder law attorneys—particularly those who work at the intersection of trust planning and Medicaid eligibility—decanting introduces a set of risks that are often underappreciated and, in some cases, poorly addressed by state statutes.

Massachusetts is currently considering legislation that would adopt a version of the UTDA as Article 9 of Chapter 203E, the Massachusetts Uniform Trust Code. The proposed statute tracks the Uniform Act closely but departs from it in several ways, and at least one of those departures has meaningful consequences for Medicaid planning. This article examines those implications, both for Massachusetts practitioners and for elder law attorneys in any state working with decanting statutes.

The Core Problem: Decanting and Medicaid Availability

Under 42 U.S.C. §1396p(d), if an irrevocable trust is self-settled, established with the applicant’s own assets by the applicant or another enumerated person, the portion from which payment could be made to or for the applicant under any circumstances is treated as an available resource, meaning there could be an “available” and “unavailable” portion of the principal within the same trust. The power to pay is enough; actual payment is not required.

Irrevocable trusts used for Medicaid planning are structured to, among other things, eliminate circumstances under which payment could be made. The settlor retains no right to principal, and the trustee has no authority to distribute principal to the settlor. When properly structured, those assets are unavailable for Medicaid purposes.

Decanting opens a new line of argument for Medicaid agencies. If a trustee has the statutory power to move assets into a new trust with different terms, including terms that might permit distributions to the applicant, the agency can argue that the assets were never truly unavailable. They were one trustee decision away. Whether the argument succeeds depends on how the specific state statute defines and constrains the decanting power.

The Massachusetts Bill and the Availability Argument

The Massachusetts bill illustrates both the risk and the way a statutory attempt to manage it. Proposed Section 921 states that the decanting power applies whether or not the trustee “would have made or could have been compelled to make” a distribution under the existing trust standard. That provision is consistent with the Uniform Act: the decanting power is an independent statutory authority, not just an extension of the distribution powers in the trust.

However, as drafted, this provision also gives a Medicaid agency a statutory basis to argue that the trustee’s restructuring power is not limited by the trust’s own distribution constraints. Specifically, the agency’s argument is that there exists a circumstance under which the trustee could restructure the trust to permit distributions to the applicant and that the principal is therefore available under §1396p(d). How far that theory travels will depend on how a given state treats trustee powers that exist by statute and whether a statutory safe harbor exists for trusts that expressly restrict or prohibit decanting.

The “Substantially Similar” Requirement and Its Limits

Both the Massachusetts bill and the UTDA include a meaningful constraint for decanting under what they call “limited distributive discretion”—the standard most relevant to irrevocable trusts used in Medicaid planning. Where a trustee’s distribution power is limited to an ascertainable standard, Section 912 of the Massachusetts bill (mirroring UTDA Section 12) requires that the second trust grant each beneficiary interests that are “substantially similar” to those in the first trust. In practical terms, this means a trustee cannot use a limited-discretion decanting to convert a protective trust into a distributable one. The principal restrictions that make the trust Medicaid-safe must carry over.

This is a real protection and may be worth emphasizing when counseling clients. But “substantially similar” is not defined with precision, and that ambiguity will eventually be litigated. A trustee might argue that administrative modifications (e.g., changes to trustee succession, governing situs, or investment provisions) do not touch beneficial interests and are therefore permissible. How Medicaid agencies and administrative hearing officers treat those distinctions in practice remains an open question in most states.

Cross-Border Trusts and Decanting: Why Governing Law Matters for Medicaid Planning

A departure from the Uniform Act most relevant to Medicaid planning involves how each statute handles trusts that cross state lines. The UTDA is designed to reach trusts governed by the enacting state’s law regardless of where the trustee is located. State decanting statutes vary in how broadly or narrowly they define their scope, and those differences matter for practitioners whose clients hold trusts administered by corporate trustees in other jurisdictions—South Dakota, Nevada, and Delaware being common choices.

Even where a state’s decanting statute clearly applies to a given trust, cross-border administration introduces practical complications. When a trustee administers from another jurisdiction, the question of which state’s decanting rules govern—and whether a foreign trustee will follow the protections built into the governing statute, including requirements like the “substantially similar” standard—is not always self-executing. For Medicaid planning purposes, that ambiguity affects how confidently a practitioner can predict the constraints on trustee restructuring authority, and by extension, how a Medicaid agency is likely to assess availability.

Choice-of-law questions in the decanting context are not uniformly resolved, and arguments exist on both sides of the question. Practitioners advising clients with cross-border trust structures should audit existing trust structures to confirm which state’s decanting rules apply, and how a foreign trustee would implement them.

The Transfer Penalty Gap

Transfer penalty exposure is a separate concern that neither the Massachusetts bill nor the Uniform Act addresses. Under 42 U.S.C. §1396p(c), a transfer of assets for less than fair market value within the five-year lookback period can trigger a period of Medicaid ineligibility. If a decanting diminishes or eliminates an interest held by the applicant (e.g., an income interest, remainder interest, or withdrawal right), a Medicaid agency may characterize that reduction as a transfer by the applicant for less than fair market value, triggering a penalty period.

No state’s decanting legislation that I am aware of provides a safe harbor against the transfer characterization. Where no interest of the applicant is diminished, the transfer penalty analysis is less acute, though state-specific approaches vary and the analysis is worth conducting regardless. Practitioners using decanting in proximity to a Medicaid application should likely identify whether the applicant holds any such interest in the first trust, analyze the impact of the proposed decanting on that interest, and document the analysis.

One Provision That Works in Clients’ Favor

It would be unfair to characterize decanting statutes as uniformly problematic for elder law planning. Section 913 of the Massachusetts bill, mirroring UTDA Section 13, is a provision practitioners in any state with a comparable provision should know well. It allows a “special-needs fiduciary” to exercise the decanting power to move assets into a qualifying special-needs trust (SNT) even without the expanded distributive discretion that ordinarily triggers the broader decanting authority, so long as the decanting furthers the purposes of the first trust. Generally, the fiduciary needs to believe the beneficiary may qualify for governmental benefits based on disability to decant to a qualifying SNT. The beneficiary does not have to be actively receiving benefits or have been adjudicated incompetent, which makes the provision available earlier in the planning process than many practitioners realize.

This addresses a recurring scenario elder law practitioners know well: one where a client creates an irrevocable trust with no anticipation of disability, and a beneficiary later becomes eligible for government benefits. Restructuring that trust often requires a court petition in jurisdictions that haven’t adopted UTDA Section 13 or similar provisions. Section 913 of the Massachusetts bill makes it a trustee decision, subject to notice requirements but without judicial approval in most cases. This could operate as a meaningful improvement for families navigating disability and aging simultaneously by expediting and simplifying the process.

Steps Practitioners Should Be Thinking About Now

Whether you practice in Massachusetts or in any of the many states with a decanting statute, the following steps are worth taking for clients with irrevocable trusts:

Identify which state’s decanting statute actually governs.

The answer is not always the state whose law the trust instrument selects. In states with narrow scope provisions, a governing-law clause pointing to that state may not be enough to invoke its protections if the trustee administers from another jurisdiction. Audit existing protective trust structures accordingly.

Consider expressly restricting or prohibiting decanting in new irrevocable trusts used for Medicaid planning.

Both the Massachusetts bill and the UTDA permit a trust instrument to restrict or prohibit the decanting power. For irrevocable trusts structured to achieve Medicaid eligibility, an express prohibition eliminates the availability argument before it starts.

Use the special-needs fiduciary provision for clients with disabled beneficiaries.

If a beneficiary has become disabled after an irrevocable trust was created, the analogous provision to Section 913 in your state’s decanting statute may provide a path to restructure without court involvement. Understand the notice requirements and the standard the fiduciary must meet.

Be deliberate about decanting within the lookback period.

Any decanting occurring within five years of a Medicaid application should be analyzed for transfer penalty exposure under 42 U.S.C. §1396p(c). Document the analysis. If there is a meaningful question about whether the decanting reduces the value of an existing beneficial interest, consider seeking a pre-application ruling before proceeding.

Document trustee decision-making carefully.

For any decanting in which a current or future Medicaid applicant holds a beneficial interest, the authorized fiduciary should prepare a written record of the reasons for the exercise of the decanting power, the analysis under the “substantially similar” standard, and confirmation that the applicant’s beneficial interest was not diminished. An eligibility worker or hearing officer who sees a decanting in a client’s file will look for that record. Having it is the difference between a defensible position and an exposed one.

Consider using Medicaid Compliant Annuities as a corrective planning tool.

If trust principal is deemed available, a Medicaid Compliant Annuity may provide a corrective path. Converting countable principal into an actuarially sound, irrevocable, non-assignable annuity that satisfies the statutory requirements can transform excess resources into an income stream without triggering a transfer penalty when properly structured. For married applicants, this may allow funds to be converted into income for the community spouse. For single applicants, it may offer a more efficient spend-down mechanism than private-pay alternatives.

The Broader Lesson

The Massachusetts legislation is pending, and its final text may differ from the current draft. The questions it raises about trust availability and cross-border administration are among the issues worth watching as the bill moves through the legislative process. But the Medicaid planning questions decanting raises broadly are live issues right now in every state with a decanting statute on the books. The pattern is consistent: when a new trustee power gets codified, Medicaid agencies eventually learn to read it. The practitioners who have thought through these questions in the drafting room—before the application is filed and the hearing clock starts—are the ones best positioned to protect their clients.

NOTE: This blog was written following the February 2026 MassNAELA monthly advocacy meeting, which I attended. Krause and I want to thank the MassNAELA chapter and the meeting participants for their insights, which triggered the research that led to this blog. The goal of this piece is to foster dialogue on a lesser-discussed matter related to Medicaid planning: trust decanting. We welcome dialogue from Massachusetts practitioners and elder law attorneys nationwide.