Medicaid Planning Basics: Protecting Assets While Qualifying for Care

Nursing Home Care Costs an Average of $9,733 Per Month — Medicaid Covers It, but Only After Most Assets Are Gone

The median annual cost of a private room in a nursing home exceeded $116,800 in 2024, according to Genworth's annual cost of care survey. Private health insurance does not cover custodial long-term care. Medicare covers only short-term skilled nursing care (up to 100 days under specific conditions). This leaves Medicaid — the joint federal-state program for low-income individuals — as the primary payer for the majority of nursing home residents in the United States. But qualifying for Medicaid requires meeting strict financial eligibility requirements, and the program's "look-back" rules make last-minute asset transfers legally risky. Medicaid planning — working with an elder law attorney to structure assets in compliance with the rules — has become a significant practice area precisely because the stakes are so high.

Medicaid Eligibility for Long-Term Care

Medicaid long-term care eligibility involves two separate financial tests: an asset (resource) test and an income test. Both limits vary significantly by state, as states administer Medicaid under federal guidelines with substantial flexibility.

Asset Limits

In most states, an individual applying for nursing home Medicaid must have assets below approximately $2,000 in countable resources. Married couples face a different calculation — the community spouse (the one who remains at home) may retain up to the "community spouse resource allowance" (CSRA), which ranges from approximately $30,828 to $154,140 in 2025 depending on the state and total marital assets.

Not all assets are countable. Exempt assets typically include:

• Primary residence (subject to conditions — generally exempt if the applicant intends to return or a spouse or dependent lives there)
• One vehicle of reasonable value
• Personal property and household effects
• A small amount of prepaid burial funds
• Term life insurance with no cash value
• Irrevocable burial trusts

Countable vs. Exempt Resources

The Five-Year Look-Back Period

Medicaid's look-back rule is the provision most often misunderstood by families planning for long-term care. When someone applies for nursing home Medicaid, the state reviews all asset transfers made within the past 60 months (5 years). Transfers made for less than fair market value during this period trigger a penalty — a period of Medicaid ineligibility during which the applicant must pay for their own care.

The penalty period is calculated by dividing the value of improper transfers by the average monthly nursing home cost in the state. A $100,000 gift in a state with a $10,000/month average cost creates a 10-month ineligibility period. The penalty period begins when the applicant would otherwise be Medicaid-eligible — creating potentially devastating gaps in coverage for families who transferred assets hoping to protect them and then face an immediate care need.

• The look-back does not apply to home-based Medicaid waiver programs in most states — only nursing home Medicaid
• Transfers to spouses or to disabled children of any age are generally exempt from penalties
• Transfers to caregiver children who delayed institutionalization by living with and caring for the parent may be exempt

Legal Medicaid Planning Strategies

Elder law attorneys use several legal strategies to help clients qualify for Medicaid while protecting family assets:

• Medicaid Asset Protection Trust (MAPT): An irrevocable trust that holds assets outside the Medicaid applicant's estate. Assets transferred to a MAPT more than five years before the Medicaid application date are not counted. The trust must be properly structured — the grantor cannot retain control or benefit from the assets.
• Spousal annuity: A community spouse converts countable assets into an income stream through a Medicaid-compliant annuity, reducing the countable assets while providing income. The annuity must be irrevocable, non-assignable, and properly structured to avoid transfer penalties.
• Caregiver child exception: A child who lived with and provided care to the parent for two or more years prior to institutionalization, thereby delaying nursing home placement, may receive the home without triggering a penalty.
• Spend-down on non-countable assets: Using countable assets to pay for exempt items — home repairs, a reliable vehicle, prepaid funeral expenses, debt payoff — reduces the countable asset total without triggering look-back issues.

Medicaid Estate Recovery

Qualifying for Medicaid does not mean assets are fully protected. Federal law requires states to seek recovery from the estates of Medicaid recipients for long-term care costs paid after the recipient reaches age 55. The home, in particular, is subject to estate recovery after the recipient dies — the state can file a lien against it before heirs receive it. States vary in how aggressively they pursue recovery and what exemptions they provide for surviving spouses, dependent children, or siblings who lived in the home.

When to Start Planning

This article is for informational purposes only and does not constitute legal advice.