How to Protect Assets From Nursing Home Costs

Legitimate options exist, and timing decides which ones are still open to you. Planning done five or more years before care is needed has real choices available. Planning done the month a parent enters a nursing home has very few, and the tactic families reach for first, giving money to the children, is the one that backfires hardest.

Read this alongside what Medicaid actually counts as an asset, because families often try to protect things that were never counted in the first place.

Why timing decides everything

When you apply for Medicaid long-term care, the state reviews your finances for the previous five years in almost every state. This is the look-back period. Any transfer for less than fair value during that window, a gift, a below-market sale, money moved to a trust, is penalized.

The penalty is not a fine. It's a period of time during which Medicaid will not pay for your care, calculated from how much you transferred divided by an average monthly cost of care your state sets. Transfer a large sum and the penalty can run for months or years.

The cruel part is when the penalty starts: not at the transfer, but when the person is otherwise eligible and needs care. So the family has given the money away and is then told to pay privately during the penalty, at exactly the moment they have least.

What does not work

• Giving money to children shortly before applying. The single most common and most damaging mistake. Not knowing about the rule is not a defense.
• Selling the house to a relative cheaply. A below-market sale is a partial gift, and the discount is the penalized amount.
• Moving money into a spouse's name alone. Medicaid counts the couple's combined assets. This achieves nothing.
• A revocable living trust. Excellent for avoiding probate, useless for Medicaid. If you can take assets back out, Medicaid still counts them.
• Simply spending down at a casino or on gifts. Undocumented large withdrawals get questioned and can be treated as transfers.

What does work

These are real tools. All of them are state-specific and most need an attorney to set up correctly:

• Spending on yourself. Always allowed, at any time, no penalty. Pay off a mortgage or credit cards, repair the roof, replace an unreliable car, buy hearing aids or dental work, prepay a funeral and burial. You've converted countable money into exempt value.
• An irrevocable trust, set up early. Assets you genuinely give up control of stop being yours. It only helps if it's done more than five years before applying, and giving up control is real, not a formality.
• The spousal protections. If a spouse remains at home they already keep the house, a car, between $32,532 and $162,660 in assets, and a minimum monthly income of at least $2,705. These need no clever planning; they're built in.
• Exempt transfers. Some transfers carry no penalty at all, including a home to a spouse, to a child under 21 or with a disability, to a caregiver child who lived there two years and delayed the nursing-home move, or to a sibling with an equity interest who lived there a year.
• A qualified income trust. In states with a hard income cap, this handles income above the limit. It solves eligibility, not asset protection.

Figures shown are 2026 amounts, last verified July 17, 2026. Source: CMS, Center for Medicaid and CHIP Services; Social Security Administration.

When to bring in an elder law attorney

Talk to one if the estate includes a home you want to keep in the family, if a transfer has already happened in the last five years, if a business or farm is involved, if a spouse is staying at home with significant assets, or if an application has already been denied.

An attorney in your state is worth the fee here because the rules that matter, how the estate is defined, which transfers are exempt, whether a trust works, are state law and change. Be wary of anyone selling a single product as the answer, particularly annuities marketed at seminars.

We don't recommend individual attorneys and we don't take referral fees for sending you to one. Your state bar association's referral service and the National Academy of Elder Law Attorneys both maintain directories.

Common questions

What is the Medicaid five-year look-back?

A review of your finances for the five years before you apply, in almost every state. Transfers for less than fair value in that window create a penalty period when Medicaid won't pay. California's rules differ and are changing.

Can I give away the annual tax-free gift amount and stay safe?

No. The annual gift-tax exclusion is an IRS rule and has nothing to do with Medicaid eligibility. Gifts inside the look-back period are penalized regardless of how small each one was, and they're added together.

Is it too late if a parent is already in a nursing home?

Not necessarily. Spending on the applicant's own benefit is still allowed, the spousal protections still apply, and some transfers remain exempt. The options narrow, but "too late to do anything" is usually wrong.

Will an irrevocable trust definitely protect my house?

Only if it's set up well before you apply and you genuinely surrender control. Keeping the right to revoke it, or to take assets back, means Medicaid still counts them. This is not a do-it-yourself document.

Sources

• Centers for Medicare and Medicaid Services, "Updated 2026 SSI and Spousal Impoverishment Standards," CMCS Informational Bulletin, April 27, 2026, for the spousal protection figures.
• Centers for Medicare and Medicaid Services, "2026 SSI, Spousal Impoverishment, and Medicare Savings Program Resource Standards," CMCS Informational Bulletin, December 9, 2025.
• Each state's own Medicaid agency for look-back rules, penalty divisors and exempt transfers where you live.

Written and reviewed by Owen Hastings. Last reviewed July 30, 2026. Read our editorial policy for how we source and check these figures.