The rules allow some assets to stay protected: an exempt home within limits, transfers to a spouse, a share of savings and income for the spouse at home, spending on permitted items, and certain irrevocable trusts. They penalize gifts and other transfers for less than fair market value made inside the look-back, which each state applies.
Most people facing this question are sitting with a parent, a husband or a wife who needs nursing-home care now or will soon, and a monthly bill that savings cannot carry for long. They want to know whether the house is safe, whether the spouse at home will have enough to live on, and whether it is too late to plan at all. This page walks through how the rules work, one piece at a time.
What Medicaid Asset Protection Means
Medicaid asset protection is not a single product or trick. The phrase covers the rules that decide whether a person qualifies for Medicaid's long-term-care coverage, meaning nursing-facility care and home- and community-based services, and what a family keeps along the way. It does not describe other Medicaid coverage. For most children, parents and adults, Medicaid uses an income test with no asset test at all, but people whose eligibility rests on age (65 and older), blindness or disability are generally judged under Supplemental Security Income (SSI) methods, as the CMS eligibility policy page explains. Those methods do look at assets, other than the resources the law excludes.
Federal law, mainly 42 U.S.C. § 1396p, sets the framework every state must follow. Each state then runs its own program, with its own limits, forms and procedures. A federal rule is a floor and a structure, not a description of any one state's program.
This page does not cover Medicare, private long-term-care insurance or veterans' benefits.
Countable and Exempt Assets: What Medicaid Counts
A countable asset is one Medicaid counts when deciding whether an applicant is under the resource limit. An exempt asset (also called an excluded asset) is one Medicaid does not count toward that limit. Countable assets typically include bank accounts, investments, real estate other than the home, and most other property. The dollar limit itself depends on each state's current rules; for one state's figures, see this site's page on California Medi-Cal asset limits.
The primary home is commonly exempt, but not without limit. Under 42 U.S.C. § 1396p(f), long-term-care coverage is barred for a person whose home equity is above the home-equity limit, unless a spouse, a child under 21, or a blind or disabled child lives in the home.
Other commonly exempt categories include one vehicle, personal belongings and prepaid burial arrangements. The full list, and the conditions on each item, vary by state.
For married couples, a separate federal rule matters at the outset: when an institutionalized spouse applies, all resources held by either spouse or both are treated as available to the applicant, "regardless of any State laws relating to community property," except for the share protected for the spouse at home, under 42 U.S.C. § 1396r-5(c)(2).
The Look-Back Period and How Transfer Penalties Work
The look-back period is the window before a Medicaid application during which the agency reviews gifts and other transfers. Federally, it is 60 months for any transfer made on or after February 8, 2006, under 42 U.S.C. § 1396p(c)(1)(B)(i). The statute's text sets the date as one that is "36 months (or, in the case of payments from a trust... or in the case of any other disposal of assets made on or after February 8, 2006, 60 months) before" the first date the person both is institutionalized and has applied for Medicaid. States do not all apply the same look-back, so the period that controls a given case depends on that state's current rules.
A penalty period is a stretch of time during which a person is ineligible for nursing-facility-level coverage because of transfers for less than fair market value. Under 42 U.S.C. § 1396p(c)(1)(E)(i), for a person in an institution its length equals the total uncompensated value of all assets transferred by the person or the spouse on or after the look-back date, divided by the average monthly cost to a private patient of nursing-facility services in the state (or, at the state's option, in the community where the person is institutionalized) at the time of application. States may not round down a partial month.
The start date follows its own rule. Under 42 U.S.C. § 1396p(c)(1)(D)(ii), for a transfer made on or after February 8, 2006, the penalty begins on the later of the first day of a month during or after which assets were transferred and the date the person is eligible for Medicaid and would otherwise be receiving institutional-level care under an approved application, but for the penalty, and not during another period of ineligibility. The same start-date rule applies to a gift made four years ago and to one made last month, as long as both fall inside the look-back.
Not every transfer is penalized. Federal law lists exceptions, including a transfer to the person's spouse, which carries no transfer penalty under 42 U.S.C. § 1396p(c)(2)(B)(i). Other exceptions exist, each with its own conditions.
Annuities have their own rules. Under 42 U.S.C. § 1396p(c)(1)(F), buying an annuity is treated as a transfer for less than fair market value unless the state is named as remainder beneficiary. In plain terms, the state must be first in line for the remainder for at least the total Medicaid paid for the person, or second in line after a community spouse or a minor or disabled child, in which case the state moves to first if that spouse or the child's representative disposes of the remainder for less than fair market value. Separately, under 42 U.S.C. § 1396p(c)(1)(G), an annuity bought by or for someone who has applied for nursing-facility or other long-term care coverage counts as an asset for the transfer rule unless it is tied to certain individual retirement arrangements the statute lists, or it is irrevocable, nonassignable, actuarially sound and pays equal amounts with no deferral and no balloon payments.
Trusts and Medicaid: Revocable, Irrevocable, and Asset-Protection Trusts
When a person, a spouse or someone acting for them sets up a trust with at least some of the person's money, that trust "can be considered available" to the person for Medicaid eligibility, according to the CMS eligibility policy page. The federal trust rules sit within 42 U.S.C. § 1396p.
A revocable trust, one the person can change or cancel, is treated as a countable asset because the person keeps control. That is why a revocable "family trust" set up for estate reasons generally does not protect assets from Medicaid.
An irrevocable trust may keep assets out of countable resources, but only depending on its terms: who can benefit, and what the trustee is allowed to pay out. If the person could receive payments from it, that portion may still count.
A Medicaid Asset Protection Trust is an irrevocable trust designed so that assets put into it are not counted as the person's resources once the look-back has passed. Moving assets into it is a transfer, so it is subject to the look-back and can lead to a penalty period.
The trade-off, then, is control against protection. No trust type is best for every family; which structure, if any, fits depends on the state, the assets, the timing and the family.