Medicaid spend-down and asset rules
Most people who end up on Medicaid for long-term care did not start out poor. They spent down, and the rules governing that process are the single most consequential thing to understand before moving money.
Medicaid long-term care eligibility is a means test with three moving parts: income, countable assets, and transfers. Understanding which of your assets is which is the whole game.
Income limits
In most states a single applicant must have monthly income at or below $2,982 — 300% of the federal SSI rate of $994 per month. Note that "most states" is doing real work in that sentence; a handful use a different threshold or a different test entirely.
If income is above the limit, applicants in many states can establish a Qualified Income Trust (sometimes called a Miller trust), a legal instrument that diverts the excess into a trust that pays for care. This is common for people whose Social Security and pension are just above the line.
Countable versus exempt assets
This distinction is not intuitive, so it is worth stating plainly.
Usually countable
- Cash and checking or savings accounts
- Stocks, bonds, mutual funds, brokerage accounts
- Certificates of deposit and money market accounts
- Retirement accounts, if the applicant can access them
- A second home or investment property
- Additional vehicles beyond the allowed one
- Life insurance policies above a small face value
Usually exempt
- The primary residence, within an equity cap and while a spouse or dependent lives there
- One vehicle
- Household furnishings and personal belongings
- Burial funds and a prepaid funeral, within limits
- Certain business property used for income
The individual countable asset limit in most states is $2,000. That is not a typo, and it surprises nearly everyone. The strategy is therefore not to accumulate less, but to understand which assets are not counted and which legitimate conversions exist.
Protection for the spouse at home
When one spouse needs care and the other remains in the community, the community spouse can generally keep a protected share of the couple's countable assets, plus a minimum monthly income. Both figures are adjusted annually and vary by state, with a floor and ceiling set federally. Where the couple's income is below the minimum, the community spouse may be allowed to keep some of the institutionalized spouse's income too.
Ask your state Medicaid agency for the current Community Spouse Resource Allowance and Maximum Monthly Maintenance Needs Allowance. These numbers change every year, which is why no website — including this one — should be your only source.
The five-year lookback and penalty periods
When you apply, the state reviews asset transfers from the previous five years. Gifts, below-market sales, or transfers into certain trusts can be treated as disqualifying. The penalty is not a fine — it is a period of ineligibility.
The penalty is calculated by dividing the total value of the transfers by the state's average monthly cost of nursing home care (called the penalty divisor), giving a number of months during which Medicaid will not pay, even if the applicant is otherwise eligible. Whether the penalty starts at the date of the transfer or the date of application depends on the state.
The most common and expensive mistakes
- Liquidating an exempt asset. Converting a house into cash turns an exempt asset into a countable one. Sell or transfer only with advice.
- Gifting to qualify sooner. A gift in the lookback window usually delays eligibility rather than accelerating it.
- Adding a child's name to a deed. This can create capital gains liability for the child and retrigger Medicaid review. It also exposes the home to the child's own creditors or divorce.
- Spending on the wrong thing. Money spent on the applicant's own care, on exempt assets, or on certain permitted expenses is fine. Money given away is not.
- Waiting until a hospital discharge forces the issue. Discharge planners work on days, not months. Planning two years earlier changes the outcome.
What to do, concretely
Talk to an elder-law attorney, not a general practitioner and not a financial advisor alone. Elder-law attorneys work with these rules daily, know the state-specific thresholds, and can document a plan that survives review. The consultation typically costs a few hundred dollars, and it is the highest-return money spent in this entire process.
Bring: all account statements, the deed, life insurance policies, any annuity, the most recent tax return, and the marriage certificate. Also check whether the person is a wartime veteran or the surviving spouse of one — VA Aid and Attendance benefits are not counted for Medicaid purposes in the same way as income, and many families never claim them.
Keep reading
How to pay for assisted living · Medicare vs. Medicaid · Assisted living vs. nursing home
Medicaid spend-down rules FAQ
What is the five-year lookback for Medicaid?
When you apply for long-term care Medicaid, the state reviews asset transfers made in the previous five years. Gifts or transfers below fair market value can trigger a penalty period during which Medicaid will not pay for care.
Can Medicaid take my house?
The home is generally exempt while a spouse lives there or the recipient intends to return. After the recipient dies, states may pursue estate recovery, and some states recover the value of care paid. Rules differ substantially by state.
Can I give my assets to my children to qualify for Medicaid?
It is legal to give money away, but it can make you ineligible for a period of time. Transfers in the five years before an application are reviewed, and gifts below fair market value are penalized. Talk to an elder-law attorney before doing this — not after.