Medicaid pays for most long-term care in America, but the program is means-tested. An older adult typically needs countable assets under $2,000 and income at or below roughly $2,982 per month to qualify for nursing-home or HCBS Medicaid in 2026. Most families do not arrive at those numbers by accident. They get there through planning, and the rules governing that planning are strict, federal, and unforgiving when ignored.

This guide explains how Medicaid planning actually works in 2026: the 5-year look-back, the assets you can keep, the legal spend-down strategies that work, the grey-zone strategies that need a specialist, and the illegal moves that create penalties worse than paying for care out of pocket. It is educational, not legal advice. Anyone planning a transfer of more than a few thousand dollars should hire a licensed elder-law attorney.

By Brevy Care Team · Last verified April 17, 2026

Why Medicaid Planning Exists

A semi-private nursing home room runs about $9,500 per month nationally. Memory care averages $6,200. Home-based care at 40 hours per week is roughly $5,800. Private long-term care insurance has largely collapsed as an affordable option for new buyers over 70. Medicare pays for up to 100 days of skilled-nursing rehab and nothing after that. The math forces almost every middle-class family into Medicaid eventually.

But Medicaid will not pay while a family still has the resources to pay themselves. Planning is the set of legal steps that convert countable assets into exempt ones, or transfer them far enough in advance that they no longer count. Done well, it protects a surviving spouse, preserves the family home for an adult child, and gets the applicant qualified without wasting assets on care that Medicaid would have covered. Done poorly, it creates a penalty period during which no one pays for care at all.

Countable vs. Exempt Assets

Medicaid divides everything you own into two categories.

Countable assets are anything that can be converted to cash and used for care: checking and savings accounts, CDs, stocks, bonds, IRAs and 401(k)s (in most states), second homes, investment property, and cash-value life insurance above $1,500. These must be under the asset limit (usually $2,000 for the applicant) at the time of application.

Exempt assets are not counted toward eligibility. They fall into a short but important list:

  • The primary residence, as long as the applicant intends to return home or a spouse, minor child, or disabled child lives there. Equity above the state cap (see below) is counted.
  • One vehicle, regardless of value, if used for transportation of the applicant or a household member.
  • Personal effects and household goods — furniture, clothing, appliances, jewelry with personal use.
  • Prepaid irrevocable funeral and burial contracts (limits vary by state, typically $10,000–$15,000).
  • Term life insurance (no cash value) and whole life with face value under $1,500.
  • Certain retirement accounts in payout status in some states.
  • Business assets and income-producing property essential to self-support.

The Home Equity Cap

The home is exempt up to a cap. For 2026, federal law sets that cap between $752,000 (the minimum every state must allow) and $1,130,000 (the maximum a state may allow), indexed annually. States choose where to set their number within that range. Most Midwestern and Southern states use the minimum; California, New York, Hawaii, Massachusetts, New Jersey, and Connecticut use the maximum. Justice in Aging confirms the 2026 projected figures and the upcoming statutory change.

Equity above the cap is a countable asset. A home worth $900,000 with no mortgage in a state using the $752,000 cap has $148,000 in countable equity — enough to disqualify the applicant until spent down or reduced.

Starting January 1, 2028, H.R. 1 (Public Law 119-12, the Budget Reconciliation Act of 2025) replaces the indexed cap with a flat $1 million ceiling for non-agricultural homes. States will lose the ability to raise their cap above $1 million. Families in high-cost coastal states should factor this into multi-year plans.

Hardship waivers remain required by federal law but are unevenly implemented. Protections continue for a spouse, minor child, or blind or disabled adult child living in the home.

The 5-Year Look-Back Period

When someone applies for long-term care Medicaid, the state reviews the previous 60 months of financial records looking for any transfer made for less than fair market value. Gifts, below-market sales, money moved into a trust, paying an adult child's mortgage — all of it counts. The authority is 42 U.S.C. § 1396p(c), applied to transfers on or after February 8, 2006.

Two states diverge:

  • California has no look-back for HCBS waivers and a 30-month look-back for nursing-facility Medicaid. California eliminated its asset limit entirely on January 1, 2024, then reinstated it on January 1, 2026, which has reshaped planning timelines there.
  • New York uses a 30-month look-back for community-based long-term care (community Medicaid) and the full 60 months for institutional Medicaid.

How the Penalty Is Calculated

The penalty divisor is the average monthly cost of a private-pay nursing-home room in the applicant's state. Divide the total uncompensated value of gifts made during the look-back by that divisor, and the result is the number of months the applicant is ineligible for Medicaid.

The hardship exception under 42 USC § 1396p(c)(2)(C) allows states to waive a penalty that would deprive the applicant of medical care or necessities of life, but these are granted rarely and case by case.

Protecting the Community Spouse

Spousal impoverishment rules, in place since 1988, prevent a healthy spouse from being forced into poverty when the other spouse enters a nursing home. Two allowances do most of the work.

Community Spouse Resource Allowance (CSRA)

The community (healthy) spouse keeps a portion of the couple's combined countable assets. In 2026, that amount is at least $32,532 and up to $162,660, with states choosing where to set their limit inside the federal range. Most states use a 50% calculation: the community spouse keeps half of the couple's combined countable assets, subject to the federal floor and ceiling. Source: CMS / Medicaid Planning Assistance.

Monthly Maintenance Needs Allowance (MMNA)

If the community spouse's own monthly income is low, a portion of the institutionalized spouse's income can be diverted to them. The 2026 MMNA minimum is $2,643.75 per month through June 30, 2026; the maximum, effective January 1, 2026, is $4,066.50 per month. A fair hearing can raise the MMNA further when the community spouse has documented high housing costs.

Getting a clear picture of what counts and what's exempt for your specific household is the first real step. If you're weighing whether to apply now or spend down first, talk to Polaris — our assistant will walk through your state's rules and point you to a local elder-law attorney if the situation warrants one.

These approaches convert countable assets into exempt ones or into services the applicant would have bought anyway. They carry no look-back penalty because fair value is received.

Pay off debt. Mortgages, credit cards, medical bills, car loans — paying existing legitimate debt is a dollar-for-dollar reduction in countable assets with no transfer penalty.

Home modifications and repairs. A new roof, a wheelchair ramp, a walk-in shower, an HVAC replacement, or a stair lift converts cash into equity in the exempt primary residence. This is one of the most under-used legal strategies. Document every dollar with receipts.

Prepay an irrevocable funeral contract. Most states allow $10,000–$15,000 per person prepaid. The contract must be irrevocable and name the funeral provider. Revocable policies are still countable.

Purchase exempt items. Replace an aging vehicle, upgrade household furnishings, buy medical equipment and mobility aids, update hearing aids and dentures. The receipts matter.

Pay for care privately during planning. Hours of home care, adult day-care fees, in-home therapy, and medical expenses all legitimately reduce countable assets.

Written caregiver agreements with family. A family member can be paid to provide care under a formal, signed caregiver contract that predates services, specifies duties and rates, tracks hours, and pays at market rate. Without the written agreement, payments look like gifts and trigger the transfer penalty. Most states require that the agreement be in place before care is delivered.

The Spend-Down Path in Medically-Needy States

About 32 states and DC run a medically-needy program that lets applicants with income above the special-income limit qualify by "spending down" excess income on medical bills each month or quarter. A $3,500-per-month retiree in a state with a $1,200 medically-needy income level can still qualify for Medicaid, but must spend the $2,300 difference on medical expenses before Medicaid starts paying. Texas, Florida, and about a dozen other states are "income cap" states and do not offer medically-needy — applicants over the income limit there must use a Miller Trust (Qualified Income Trust) to become eligible.

Grey-Zone Strategies (Consult an Attorney)

These are legal in the right circumstances but easy to misuse. None of them should be attempted without an elder-law attorney.

Medicaid Compliant Annuities (MCAs). A single-premium immediate annuity, structured to meet DRA 2005 requirements, converts a lump of countable assets into a stream of income for the community spouse. The annuity must be irrevocable, non-assignable, actuarially sound, and name the state as remainder beneficiary up to the amount of Medicaid paid. When done correctly, an MCA protects the full CSRA-exceeding amount for the community spouse. When done wrong, it counts as a transfer and triggers a penalty.

Promissory Notes and Private Care Contracts. A properly drafted promissory note that meets DRA requirements (actuarially sound, equal payments, no deferral, non-cancellable on death) is recognized as a legitimate asset conversion. Again, the details matter — a casual family IOU will not qualify.

Gifting with Accepted Penalty. Some families gift a portion of assets, accept the resulting penalty period, and pay privately during the penalty while preserving the gift. This is sometimes called the "half-a-loaf" or "gift-and-penalty-divisor" strategy. The math can work in some states and not others; the attorney has to model it.

Irrevocable Income-Only Trusts (IIOT) / Medicaid Asset Protection Trusts (MAPT). Assets moved into an irrevocable trust more than 60 months before application do not count toward eligibility. The trust must be truly irrevocable and the applicant cannot retain access to the principal. This is the strategy most often associated with "the 5-year rule." It is the strongest protection but requires the longest lead time.

What's Illegal

These are clearly prohibited and frequently prosecuted.

Hiding assets. Failing to disclose accounts, property, or transfers is Medicaid fraud under 42 USC § 1320a-7b, punishable by fines, disqualification, and in some states, prison.

Fraudulent transfers after application. Moving assets during the application process or after becoming eligible is fraud, not planning.

Backdated or sham caregiver agreements. An agreement dated last year but signed today, or one that pays a non-caregiving relative, is treated as an uncompensated transfer.

Transferring a home to an ineligible adult child. The caregiver-child exception (transfer to an adult child who provided care in the home for at least 2 years that prevented institutionalization) is narrow and often misapplied. Transfers to adult children who did not live in the home and provide care are treated as gifts.

Estate Recovery: The Backside of the Planning Problem

Medicaid planning does not end at eligibility. Under OBRA '93 (42 USC § 1396p(b)), every state is required to recover payments from the estate of a deceased Medicaid enrollee who was 55 or older at the time of service for nursing-facility, HCBS, and related hospital and prescription-drug expenses. States may recover additional costs at their option.

The Medicaid Estate Recovery Program (MERP) typically files a claim against the deceased's probate estate. Some states — including California, Florida, Texas, and Georgia — limit recovery to the probate estate. Others use an expanded definition that reaches jointly held assets, life estates, and living-trust assets outside probate.

Protections. States may not recover while a surviving spouse is alive, while a child under 21 survives, or while a blind or disabled child of any age survives. After those conditions end, the state can typically reopen the claim.

State thresholds. Some states set minimum estate values below which they don't pursue recovery — Texas at $10,000, Georgia at $25,000, and others vary. See the ASPE Medicaid Estate Recovery report for the federal framework.

Estate planning and Medicaid planning overlap here. Moving the home into an enhanced life estate deed ("Lady Bird deed" in Florida, Michigan, Texas, Vermont, and West Virginia) or into an irrevocable trust well before application passes the home outside probate and out of MERP's reach in most states. Other states have closed those loopholes by expanding the definition of estate.

When to Hire an Elder-Law Attorney

Simple situations sometimes do not need an attorney. A single applicant with modest assets, no home, and no gifts in the past 5 years can often apply without professional help or use the state's free Area Agency on Aging counselors.

Hire an attorney if any of the following apply:

  • Combined countable assets above $100,000
  • A home with equity above the state cap
  • A married couple where one spouse needs care and the other does not
  • Gifts, transfers, or property sales below market value in the past 5 years
  • A retirement account that your state counts (not a payout-exempt state)
  • A family business, farm, or rental property
  • Complex second-marriage or blended-family situations
  • An irrevocable trust already in place

Look for a certified elder-law attorney (CELA) through NAELA (National Academy of Elder Law Attorneys). CELA certification requires 5 years of elder-law practice, 40 hours of continuing education in elder law, and passage of a full-day exam. It's one of the more rigorous specialty credentials in legal practice.

State bar referral services and free legal-aid organizations (often available for seniors under 60% AMI) are good starting points for families who cannot afford an attorney. Most elder-law attorneys offer a flat-fee Medicaid planning engagement of $4,000–$10,000, which is almost always less than the cost of a single month in a nursing home.

What Medicaid Planning Doesn't Do

Planning does not make someone medically eligible. Every state requires a functional assessment — typically a Nursing Facility Level of Care (NFLOC) determination — confirming the applicant needs help with activities of daily living before long-term care Medicaid will pay. Financial eligibility and medical eligibility are separate tracks.

Planning also does not speed up HCBS waiver waitlists. Waivers are federally capacity-limited, and 44 states have waitlists totaling about 692,000 people as of 2024. A well-planned applicant still takes a number.

Finally, planning does not eliminate the estate-recovery bill. It can shelter specific assets — the home most often — but the state's claim on paid benefits does not disappear.

FAQ

Common Questions

Ideally 5 years before you think you'll need nursing-home care, because the look-back is 60 months. Transfers and trust funding made more than 5 years before application fall outside the look-back entirely. In practice, most families start 1–2 years out, and an attorney works with what's available — often a mix of exempt-asset conversions and a shorter-horizon MCA or promissory-note strategy.

The IRS annual gift-tax exclusion is a tax rule, not a Medicaid rule. Medicaid counts any uncompensated transfer during the look-back, regardless of size. A $19,000 gift to each child in January 2025 is still a reportable transfer if you apply in 2026 or later.

Not while you're alive. The home is exempt during your lifetime if you, a spouse, or a dependent relative lives there or if you intend to return. After death, the Estate Recovery Program files a claim for Medicaid payments made on your behalf. In most states this can be satisfied by selling the home from the estate, but protections exist for a surviving spouse or disabled child.

You can pay privately during the penalty period, then start Medicaid coverage after it expires. You can also appeal and request a hardship waiver if denial would deprive you of medical care or necessities. Approvals are rare but possible. Most families combine a private-pay bridge with an attorney's appeal.

Transfers between spouses are unlimited and unpenalized, including during the look-back. But this does not help if both spouses eventually need long-term care, and it does not change what the couple owns jointly for eligibility purposes.

Medicaid planning is the one area of eldercare where a generic article cannot answer your question — every state's rules diverge, and your specific mix of assets, income, and family situation controls the outcome. If you're within 2 years of needing long-term care, start with Polaris for a read on your state's rules, or go straight to a NAELA-certified elder-law attorney for a planning engagement.

BC

Brevy Care Team

Expert eldercare guidance from Brevy's team of healthcare professionals and researchers.