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Medicaid is a joint federal and state program that provides health care and medical treatment to people with limited financial resources. One of the benefits of Medicaid is that it covers long-term care, primarily for older people. Medicaid has income and asset qualifications. The income limits are set by the individual states. The asset limit is generally $2,000 in countable assets. Essentially, every asset is countable, unless a specific exemption applies. Countable assets include items such as real estate other than a primary residence, retirement accounts, cash, securities and other property that easily can be liquidated to pay for long-term care.

What is Medicaid spend down?

Medicaid spend down is the process of reducing the countable assets of someone needing nursing home care to the applicable asset limit. A common way to spend down assets is to privately pay for your long-term-care needs. Medicaid spend down dramatically reduces your family's potential inheritance since almost all assets are lost to the cost of nursing home care. You do not have to spend down exempt assets. Once your assets are gone, you are eligible for Medicaid to pay for nursing home care.

What assets are exempt from spend down?

  • Your primary residence, valued up to $603,000 in most states, up to as much as $906,000 in a few and unlimited in California (2022).
  • One automobile of any value used to transport the Medicaid applicant or another household member.
  • $1,500 of cash surrender value of a life insurance policy.
  • Furniture and appliances in the home.
  • Clothing and personal effects.
  • Irrevocable funeral trust, prepaid funeral or memorial expenses, including burial plots, up to $15,000 in most states.

What is a Medicaid transfer penalty?

The Medicaid program is structured so that you cannot give your assets away and then immediately apply for Medicaid. Medicaid imposes a penalty on uncompensated transfers (gifts) by the Medicaid applicant within the five years preceding the date of Medicaid application. If a Medicaid applicant gives away money or transfers assets at less than their fair market value during this “look-back period,” Medicaid will impose a penalty on the applicant. The penalty results in a delay in the time before the applicant can begin to receive Medicaid services. The length of the penalty period is calculated by dividing the value of the property transferred within the look-back period by the average cost to reside at a nursing home in that state. The penalty period can be months, or even years. Medicaid will not pay for nursing home care during the penalty period, which starts to run on the day of application.

How do I protect assets from Medicaid?

A number of options exist to preserve assets from Medicaid spend down so they can be inherited by your family. Advance planning is required, however, given the five-year look back and transfer penalty.



Medicaid has a $2,000 limit on non-exempt assets. One way to reach that limit is to give away all assets you own in excess of that amount. Any gifting needs to be without an express understanding that the assets will be returned if needed for living expenses. All gifting needs to be completed more than five years before a Medicaid application is filed to avoid a transfer penalty.


Life estate deed

A life estate deed can used to preserve real estate against both Medicaid spend down to be inherited by your family. A life estate deed involves deeding the property to another person, called a remainderman, while reserving a life estate for yourself, the life tenant. The life tenant has sole right to occupy the property and is responsible for its maintenance, taxes and upkeep. The remainderman will own the property when the life tenant dies. The life estate deeds need to be recorded more than five years before a Medicaid application is filed to avoid a transfer penalty.


Irrevocable trust

Irrevocable trusts are often used as part of pre-planning for Medicaid eligibility to preserve assets for which no other spend-down exemption is available, such as a vacation home or other non-residential real estate like farmland. To utilize this strategy, you would place your assets into an irrevocable trust and name someone else as trustee and your family as its beneficiaries. You would have no further ownership interest in the trust's assets that would prevent Medicaid eligibility. Any assets funded into an irrevocable trust will be out of your control and you cannot have access to them to meet any living expenses. The funding of an irrevocable trust needs to be completed more than five years before a Medicaid application is filed to avoid a transfer penalty.


Conversion to exempt assets

As mentioned, several types of assets are exempt from spend down. If your assets exceed $2,000 and you need nursing home care in the immediate future, another asset protection strategy is to convert your countable assets into exempt assets. Some examples of this type of asset conversion are:

  • Pay off mortgage on primary residence.
  • Pay off credit cards or other debts.
  • Pay for needed dental, vision or medical care.
  • Replace existing car with a more expensive car.
  • Make improvements to personal residence, such as a new roof or new windows or add accessibility features.
  • Purchase a prepaid funeral or irrevocable funeral trust.
  • Purchase TV and recliner for room at facility.
Graphic of our Asset Protection and Medicaid booklet

To learn more about protecting assets from Medicaid, request your copy of "Asset Protection and Medicaid" today.