How to Avoid Assets Going to a Nursing Home

Oct 26, 2025 3 min read •

Elder Law estate-planning Medicaid Planning

According to the National Council on Aging, the average cost of a private nursing home room exceeds $9,700 per month, a figure that can quickly deplete a lifetime of savings. Fortunately, proactive planning allows you to learn how to avoid assets going to a nursing home, ensuring your wealth is protected for future generations.

Quick Summary

This guide details proactive strategies and crisis planning methods to protect your assets from long-term care costs, including using irrevocable trusts, understanding Medicaid's look-back period, and employing legal 'spend down' options.

Key Points

Start Early: Begin asset protection planning at least five years in advance of needing long-term care to avoid Medicaid's 'look-back' period penalties.
Use Irrevocable Trusts: Transfer ownership of assets like your home and investments into an irrevocable trust to make them non-countable for Medicaid eligibility.
Beware of Gifting: Large gifts made within the five-year look-back period can trigger a penalty period of Medicaid ineligibility.
Consider Medicaid-Compliant Annuities: For married couples in a crisis, a Medicaid-compliant annuity can convert excess assets into an income stream for the healthy spouse.
Legally 'Spend Down' Assets: You can legally reduce your assets by paying off debt, making home improvements, or purchasing exempt items like pre-paid funeral plans.
Hire an Elder Law Attorney: Due to the complexity of rules, consulting a qualified elder law attorney is the best way to ensure proper planning and avoid costly mistakes.
Plan for Estate Recovery: Understand that even exempt assets like your home can be subject to Medicaid estate recovery after your death unless protected by a trust or another exemption.
Differentiate Trust Types: A revocable living trust does not protect assets from nursing home costs, as the assets are still under your control.

Proactive Planning: Acting Before the Need Arises

Taking steps to protect assets well before needing long-term care offers more options and greater control. A key element is understanding Medicaid's five-year "look-back" period, which scrutinizes asset transfers made within this timeframe.

Using an Irrevocable Trust

An irrevocable trust is a significant tool for asset protection. Assets like your home or investments are transferred to the trust and managed by a trustee, removing them from your name and thus from Medicaid's countable assets. Establishing and funding the trust at least five years before a Medicaid application is essential for this strategy to be effective. You lose control over assets in an irrevocable trust, which is the basis of its protective function.

Gifting Assets

Gifting assets can reduce your estate's value, but timing is critical. Gifts must occur outside the five-year look-back period to avoid penalties and a period of Medicaid ineligibility. Proper documentation and legal counsel are recommended.

The Caregiver Agreement

A written caregiver agreement can provide legitimate compensation to a family member for care services. Payments are considered a valid asset spend-down if reasonable for the area. This can be used even within the look-back period with a legally sound contract.

Crisis Planning: When Time is Limited

Even with an imminent need for long-term care, some asset protection strategies are available.

The Medicaid-Compliant Annuity

For married couples where one spouse needs immediate long-term care, a Medicaid-compliant annuity can convert excess assets into an income stream for the healthy spouse. These annuities have specific state requirements, including being irrevocable and naming the state Medicaid agency as a beneficiary.

The "Spend Down" Strategy

Medicaid rules allow for reducing countable assets by spending them on your own needs. This can include purchasing exempt items like a vehicle or furniture, paying off debts, or making necessary home improvements.

Key Differences Between Planning Strategies


Feature	Proactive Planning (e.g., Irrevocable Trust)	Crisis Planning (e.g., Medicaid Annuity)
Timing	Must be implemented at least 5 years before applying for Medicaid.	Can be used when a long-term care need is imminent.
Asset Control	You lose control over the assets once they are placed in the trust.	Assets are converted into an income stream; they are no longer liquid assets.
Best For	Individuals with significant assets who want to preserve their legacy for heirs.	Married couples with excess assets who need one spouse to qualify for Medicaid quickly.
Flexibility	Less flexible due to the irrevocable nature of the trust.	Offers a last-minute solution but has stricter rules and fewer options.
Medicaid Look-Back	Effective in bypassing the look-back period if done correctly and early.	Addresses asset limits during the look-back period by converting countable assets.

The Threat of Medicaid Estate Recovery

Medicaid Estate Recovery allows states to recoup costs for long-term care from a deceased recipient's estate, potentially including their home. Exceptions exist, such as for a surviving spouse or a minor/disabled child residing in the home. Assets within a properly structured irrevocable trust are typically protected from estate recovery.

The Role of a Qualified Elder Law Attorney

The complexities of state and federal regulations make consulting an elder law attorney highly advisable. They can help avoid costly errors in asset transfers or Medicaid applications, create a personalized plan based on your situation, and provide guidance during a crisis.

Conclusion

Protecting assets from nursing home costs requires thoughtful and timely planning. Proactive strategies like using irrevocable trusts or long-term care insurance offer strong protection, while crisis planning provides options when time is limited. Understanding the five-year Medicaid look-back period is key. Collaborating with an elder law attorney is essential to navigate these complexities, protect your assets, and preserve your legacy.

LegalZoom: How to Protect Your Assets from Nursing Home Costs

Frequently Asked Questions

The 'look-back' period is a five-year timeframe before you apply for Medicaid during which state officials will review your financial records for any asset transfers for less than fair market value. Improper transfers within this period can result in a penalty period of ineligibility for benefits.

Giving away your house, or any other asset, within the five-year look-back period is a violation of Medicaid rules and will result in a penalty. To protect your home, you must either transfer it well in advance or use specific legal strategies like a life estate or an irrevocable trust.

When you fund an irrevocable trust, you transfer legal ownership of your assets to the trust itself. Because you no longer legally own the assets, they are not counted toward Medicaid's asset limits, thereby protecting them from being used for long-term care costs.

Yes, long-term care insurance can protect your assets by covering the high costs of nursing home care, assisted living, or in-home care. If you have coverage, you may not need to rely on Medicaid, which has strict asset limits.

This is considered a crisis planning situation. An elder law attorney can help with strategies like legally spending down assets on exempt items, utilizing spousal asset protection, or purchasing a Medicaid-compliant annuity for married couples.

Yes. After a Medicaid recipient dies, the state is required to attempt to recover the costs of long-term care from the deceased's estate, which can include the home. This is known as Medicaid estate recovery, but it can often be avoided with proper legal planning, such as using an irrevocable trust.

Filial responsibility laws, which exist in more than half of U.S. states, can make adult children financially responsible for their parents' care. While they are not commonly enforced, an improperly handled Medicaid application or an unpaid nursing home bill could potentially trigger legal action.

A revocable trust offers no protection from nursing home costs because you maintain control over the assets, and Medicaid considers them available. An irrevocable trust removes the assets from your control, providing true asset protection from Medicaid spend-down requirements.

References

Medical Disclaimer

This content is for informational purposes only and should not replace professional medical advice. Always consult a qualified healthcare provider regarding personal health decisions.