By Keith Lyman , Attorney Washburn University School of Law
Updated by Bethany K. Laurence , Attorney UC Law San Francisco
Nolo was born in 1971 as a publisher of self-help legal books. Guided by the motto “law for all,” our attorney authors and editors have been explaining the law to everyday people ever since. Learn more about our history and our editorial standards.
Each article that we publish has been written or reviewed by one of our editors, who together have over 100 years of experience practicing law. We strive to keep our information current as laws change. Learn more about our editorial standards.
Medicaid requires you to meet strict asset limits to qualify for Medicaid-paid long-term care, so, if you think you might be headed for a nursing home, you might try to give away some assets to qualify for Medicaid. But Medicaid frowns on giving away assets that could have been used to pay for long-term care.
Seniors who anticipate they may need assistance paying for long-term care often want to plan ahead so they don't lose their assets when they have to go to a nursing home or receive other Medicaid long-term care benefits. Some seniors try to give away their home or other assets to their children. They may have heard that other people have done that and had Medicaid pay for a nursing home (or HCBS services). However, the rules changed a while back, and today, it takes real advance planning to protect assets from being considered when your state Medicaid agency determines your eligibility.
Medicaid is a "payer of last resort" and requires that you exhaust all other sources of income before Medicaid will pay for long-term care expenses. With a few exceptions, if you give away your assets, you'll be ineligible to receive Medicaid benefits for long-term care for a period of time after you apply for Medicaid. And the more you give away, the longer your period of ineligibility.
In most states, this period of ineligibility doesn't apply to HCBS waivers (Medicaid-paid home care), but only to nursing and assisted living facilities. (Call your local department of health services to find out if the penalty applies to home health care or other community-based health care services in your state.)
Any asset that you transfer out of your name during a "look-back" period can result in a penalty period during which you're not eligible for Medicaid. The look-back period is five years before you apply for Medicaid benefits. Any gift you make between five years before you apply and your application date is subject to the penalty. If Medicaid finds you're subject to a penalty period, the period of ineligibility begins no earlier than your Medicaid application date.
For example, if a Medicaid applicant in need of a nursing home made a gift of $11,000 four years before applying for Medicaid, Medicaid will start the period of ineligibility at the application date, or when the Medicaid applicant enters a nursing home (whichever date is later), not when the gift or transfer was made.
The length of the period of ineligibility, also called the penalty period, depends on the amount that you gifted or transferred. Medicaid divides the total amount you gifted or transferred by the average monthly cost of nursing home care in your area to come up with the penalty period. For example, if you gifted $50,000 to your child, in an area where the average monthly cost for a nursing home was $10,000, the penalty period would be five months of ineligibility.
Any transfer of assets by you or your spouse for less than fair market value counts toward the penalty period. For instance, if your spouse sells a truck worth $30,000 to your nephew for $15,000, Medicaid will count the $10,000 difference as a gift. Even payments you make to a caregiver or relative for taking care of you could be considered to be gifts if not done properly (with a written agreement).
Prior Medicaid Transfer RuleThe prior rule was that Medicaid would look back three years prior to the date of application to see if a gift was made. And the period of ineligibility would begin from the time of the gift or transfer, not from the date that the applicant applies for Medicaid. Furthermore, when calculating the ineligibility period, the rules required "rounding down," which meant that a gift of $11,000 with a monthly nursing home cost of $6,000 would also result in only one month of ineligibility, because $11,000/$6,000 = 1.83, rounded down to one month. And, a gift of $5,900 would have resulted in no ineligibility period, because $5,900/$6,000 = .98, rounded down to zero. State Medicaid agencies no longer "round down," so an ineligibility period of 1.83 months would not be reduced to one month and a period of ineligibility of .98 would not be reduced to zero.
Most states have a threshold of $2,000 in countable assets. A handful of states (including New York and Illinois) have an asset limit that's much higher, and Connecticut's is lower ($1,600). Check with your local county's department of health, social services, or welfare to find out the asset limit in your state.
California No Longer Has an Asset Limit for MedicaidCalifornia has eliminated its asset limit for Medi-Cal recipients starting on January 1, 2024. People who need long-term care in California will no longer have a reason to transfer their assets before they apply for Medi-Cal. For now, Medi-Cal will still use a look-back period (of 30 months, not five years) for past transfers. Medi-Cal will examine asset transfers made before January 1, 2024 to see if they were gifts. But the look-back period in California is being phased out (each month, the look-back period is reduced by one month) and will no longer be used as of July 2026.
Medicaid counts all of a couple's assets, regardless of whose name the assets are in, when it looks at gifts and transfers. But fortunately, not all assets count toward the limit. Medicaid won't count your car (one car of any value), your household and personal belongings, your wedding and engagement rings, burial plots and pre-paid funeral expenses, and a small whole life insurance policy. And if you intend to return to your home, or if your spouse, minor child, or disabled child currently lives in it, Medicaid won't count your the value of your house, to an extent. Medicaid will only ignore a certain amount of equity in the home; in most states, the ignored amount is $713,000. In a handful of states with a high cost of living, including New Jersey, New York, and Washington, it's $1,071,000.
There are some exceptions to the penalty of ineligibility; Medicaid doesn't penalize all gifts and transfers. The assets that are exempt from being counted as assets for Medicaid eligibility can be freely transferred, so gifts of exempt assets aren't subject to the look-back period and penalty. An example would be the gift of an exempt automobile or a gift of some household goods and furnishings.
Also, gifts made to certain people don't trigger the ineligibility period. This includes gifts to your spouse or your minor or disabled child. And in some cases, transferring your home won't count. Medicaid won't impose a penalty period for the following property transfers:
For more information, see our article on safely transferring assets, which discusses the exceptions to the Medicaid transfer rules.
You can take certain steps to fight a period of ineligibility for Medicaid, but you'll likely need the help of an elder care attorney. If you can recover some of the assets you gave away or transferred for less than their value, your state's Medicaid agency might agree to shorten the penalty period. And in some states, you can request a waiver of the penalty for "undue hardship," if you now don't have money for living expenses. A waiver is hard to get, but your request might be approved if you have no assets left and you can't pay for your housing or food—unless you get Medicaid's help to pay for a nursing home or home care services.
First, contact an attorney or certified Medicaid planner and ask them to review your denial notice to look for errors that can be corrected and to discuss appealing the Medicaid denial.
In most cases, however, you'll be on your own to pay for your long-term care needs if you made a gift within five years of applying for Medicaid, so the best practice is to avoid transferring assets if you think you may need nursing home care soon. Many types of transfers, including buying annuities or giving away life estates, will get you in trouble if not done the right way.
If you want to save your house or other assets for your children or other relatives to inherit, talk to an elder law attorney about what you can do, including setting up an income trust or special needs trust.