How, When & Why to Protect a Family’s Financial Assets When Applying for Medicaid Long Term Care

Medicaid Long Term Care is meant for seniors with limited financial assets, but there are also many allowable ways to protect a family’s assets and still qualify for Medicaid. These methods can help Medicaid Long Term Care applicants save their financial resources for their own use and to leave as a family inheritance, and help them meet Medicaid’s two financial requirements – the asset limit and the income limit.


When & Why Medicaid  Applicants Need to Protect Their Financial Assets

Seniors should begin protecting their financial assets while they are still healthy and before they apply for Medicaid Long Term Care. That’s because some strategies have to be implemented prior to submitting their application or they will be ineligible. One method even needs to be completed five years before the application date.

Medicaid Long Term Care applicants need to protect their financial assets for two primary reasons:

  1. To qualify for Medicaid
  2. To preserve their resources for themselves and their family

Medicaid Long Term Care has two financial requirements – the asset limit and the income limit. These can change depending on the type of Medicaid Long Term Care (discussed in the next section) and the state, but in general they are very low. So, some seniors may worry about needing to sell off or spend all their assets to qualify, but this doesn’t have to be the case. There are methods (discussed below) to keep resources from counting against Medicaid’s financial limit, and most of these methods also allow Medicaid applicants, and/or their families, to continue using the resources. This includes the home, but that won’t be the focus of this article. To learn how Medicaid applicants can protect their home, click here.

Some of these methods, like buying a Medicaid Compliant Annuity, can help a senior qualify for Medicaid Long Term Care and allow them to continue to use their financial resources while they’re still alive. Other methods will help protect resources after the Medicaid recipient has died. This is necessary because states are required to try and collect reimbursement for Medicaid Long Term Care through the estate of the deceased recipient. They do this through their Medicaid Estate Recovery Programs (MERPs). The MERPs try to collect from the Medicaid recipient’s estate while it is in probate (the process of distributing resources via a last will and testament) or in some cases outside of probate. Estate recovery rules can change dramatically from state to state, but you can learn about them by clicking here.


Protecting Financial Assets and the 3 Types of Medicaid Long Term Care

There are three types of Medicaid Long Term Care relevant to seniors – Nursing Home Medicaid, Home and Community Based Services (HCBS) Waivers and Aged, Blind and Disabled (ABD) Medicaid. Applicants to all three programs need to protect their financial assets (and continue protecting once they are Medicaid beneficiaries) because all three have asset limits, and all three are subject to estate recovery. It’s important to note that protecting resources from Medicaid’s financial criteria doesn’t mean they’re necessarily protected from estate recovery, and vice versa. This will be explained in more detail below.

Nursing Home Medicaid pays for all the expenses related to nursing homes, including room and board, for people who need that level of care, which is known as a Nursing Facility Level of Care (NFLOC). HCBS Waivers can provide long-term care goods and services to seniors who need a NFLOC but live in their home or somewhere else in the community (like the home of a family member). ABD Medicaid offers general healthcare coverage for anyone aged (over 65) with limited financial resources, but it will also provides long-term care services and supports for its recipients who show a need for those kind of benefits.

In most states in 2024, the asset limits for ABD Medicaid are $2,000 for an individual and a combined $3,000 for a married couple. This means an individual must have $2,000 or less in countable assets to qualify, and a married couple must have less than $3,000 combined. Medicaid considers the assets of a married couple to be jointly owned, but there are some exceptions. Most assets are countable, but some can be exempt, which means they won’t be counted toward the limit. The 2024 ABD Medicaid income limits in most states are between $943/month and $1,751/month for an individual, and between $1,415/month and $2,593/month combined for a married couple. Almost all income is counted toward the limit, but there are ways to become eligible if you have too much income.

The financial requirements for Nursing Home Medicaid and HCBS Waivers are a little less severe. The 2024 asset limits in most states for Nursing Home Medicaid and HCBS Waivers are $2,000 for an individual and either $3,000 or $4,000 combined for a married couple with both spouses applying, and the 2024 income limits are $2,829/month for an individual and $5,658/month combined for a married couple with both spouses applying. For a married couple with just one spouse applying to either Nursing Home Medicaid or HCBS Waivers, the 2024 income limit is $2,829/month for the applicant spouse, while the income of the non-applicant spouse is not counted. The asset limits in most states is $2,000 for the applicant spouse and $154,140 for the non-applicant spouse. This is due to the Community Spouse Resource Allowance, which is one of Medicaid’s spousal protections that you can read about by clicking here.

 TOOLBOX: To figure out the exact financial criteria for your specific situation, go to our Medicaid Eligibility Requirements Finder.

You should know that ABD Medicaid and Nursing Home Medicaid are entitlements. This means all eligible applicants are guaranteed by law to receive benefits without any wait. HCBS Waivers, on the other hand, are not an entitlement. Instead, these programs have a limited number of enrollment spots, and once those spots are occupied, additional applicants are placed on a waitlist.


Methods to Protect Financial Assets  when Applying for Medicaid Long Term Care

The items listed below can be used to help seniors keep their financial assets safe from Medicaid’s financial limits or its estate recovery programs, and some of the strategies will even work for both. Implementing these methods can be complicated, as are Medicaid’s rules and regulations. That’s why it’s recommended you consult with a professional, like a Certified Medicaid Planner or an Elder Law Attorney, before attempting to use any of them on your own.

You’ll want to know about one of these rules, the Look-Back Period, before reading any further. To prevent applicants from simply giving way their assets to protect them from counting against the asset limit, Medicaid uses the Look-Back Period. In most states, the Look-Back Period is 60 months (5 years). This means the state will look back into the applicant’s financial history for the five years before they applied and make sure they haven’t given away assets, or sold them at less them fair market value. To learn more about the Look-Back Period, click here.

To learn more about any of the protection methods listed below, click on the underlined link embedded in its description.


Medicaid Asset Protection Trusts

You can protect your financial assets from Medicaid Estate Recovery Programs and the asset limit by placing them in a Medicaid Asset Protection Trust (MAPT). They are expensive to create, so they’re only advised if you have $100,000 in assets or more. But the biggest disadvantage to MAPTs is that they violate the Look-Back Period, which means you would need to create one well in advance of applying for Medicaid (five years in most states) for it to protect your assets from the asset limit.


Medicaid Compliant Annuities

Medicaid Long Term Care applicants can protect their liquid assets from the asset limit and continue to utilize them as income by purchasing a Medicaid Compliant Annuity. The process is fairly straightforward – a senior buys the annuity with a lump sum of money and the company they purchased it from (often an insurance company) returns that sum in regular monthly payments. Those payments will count toward the Medicaid income limit, but the total value of the annuity will be protected from the asset limit. To be Medicaid-compliant, the annuity must name the state as beneficiary. This means the state will get any money remaining in the annuity after the death of the Medicaid recipient to help cover the cost of their long-term care, so Medicaid Compliant Annuities do not protect financial assets from estate recovery.


Spend Down

A common protection method is Medicaid spend down. In basic terms, seniors spend their excess assets until they are down to the asset limit. But the Medicaid applicant can only spend on themselves and their spouse, because spending on anyone else would be a violation of the Look-Back Period. Plus, seniors can’t spend on items they could leave as an inheritance because those items would count against the asset limit. So, spend down is a good strategy for protecting assets from the asset limit and qualifying for Medicaid Long Term Care, but it does not protect financial resources for the applicant’s family.


Irrevocable Funeral Trusts

You can protect your assets in a way that will help your family in the future by placing them in an Irrevocable Funeral Trust (IFT). The value of these trusts is not counted against them asset limit, up to a point ($15,000 in most states in 2024). So, Medicaid applicants can spend their excess income on an IFT to reach the asset limit and qualify for Medicaid, and after they pass their family will not have to pay for their funeral services. IFTs must follow certain Medicaid guidelines depending on the state, like being irrevocable and naming the state as beneficiary.


Long-Term Care Partnership Programs

Long-Term Care Partnership Programs combine private insurance with Medicaid Long Term Care, and their value is exempt from the asset limit. Seniors buy these policies when they’re healthy, and when they’re ready for long-term care the insurance covers it until the value of the policy runs out, and then Medicaid takes over the coverage. Not only does the value of the policy not count toward the asset limit, but if the policy holder dies before the funds in the policy are spent, the remainder is protected from Medicaid Estate Recovery.


Personal Care Agreements

Seniors who are going to be staying at home while receiving long-term care through Medicaid can protect their assets from the asset limit by prepaying for in-home care using a Personal Care Agreement. These are formal contracts that establish what type of care the senior will be receiving and how much it will cost. The caregivers are often family members, so in this way using a Personal Care Agreement is protecting assets for the family. Without a Personal Care Agreement that follows state Medicaid rules, prepaying anyone for care would violate the Look-Back Period and lead to the application being denied and period of ineligibility that could last months of years.


Retirement Accounts

Retirement accounts such IRAs and 401(k)s will usually count toward the asset limit, but not all the time. It depends on their payout status, if they are owned by the applicant or their spouse and the state. For example, IRAs and 401(k)s owned by the applicant’s spouse are exempt in California, but if they’re owned by the applicant they are only exempt if they are in payout status. And all retirement accounts are exempt from the asset limit in the District of Columbia. However, these are the exceptions, and in most cases retirement accounts are not protected from the asset limit or estate recovery. It’s also important for applicants to remember that retirement account payouts will count against their income limit.