Common Financial Mistakes to Avoid
Many families make routine money decisions, for estate planning, paying for care or helping relatives, without knowing how Long-Term Care Medicaid will see them. Some of those decisions can cause a penalty, a denial or the loss of savings that could have been protected. This guide covers the most common mistakes and what to do instead.
Figures change periodically. Double-check current amounts before relying on them.
1. Giving money away to “get under the limit”
The mistake: Giving savings to children or grandchildren shortly before applying, thinking it will help qualify.
Why it hurts: Gifts made in the 60 months before applying (in most states) can lead to a penalty period, a stretch of time when Medicaid will not pay for care. The penalty starts only once the person has applied and is otherwise eligible, so the family may face months of unpaid bills.
Instead: Spend down on allowed costs, or explore exempt transfers. See Look-Back and Gifts.
2. Relying on the IRS gift rule
The mistake: Thinking gifts within the federal gift tax exclusion ($19,000 per person in 2026) are safe.
Why it hurts: The IRS rule is for gift tax only. Medicaid has no yearly safe amount. Any gift can be reviewed. See Gifts and the look-back.
3. Paying family for care without a written agreement
The mistake: Paying a son or daughter for help, without paperwork.
Why it hurts: Without a written agreement made before the care is given, payments to family are usually treated as gifts.
Instead: Use a written personal care agreement with reasonable pay and records of the care provided. See Personal care agreements.
4. Adding a child to the deed
The mistake: Putting a child’s name on the home’s deed to “protect” it.
Why it hurts: Adding a child as a co-owner is a gift of part of the home and can cause a penalty. It can also create capital gains tax for the child later and expose the home to the child’s creditors or divorce.
Instead: Learn about exempt home transfers, Lady Bird deeds where available, and the child caregiver exemption.
5. Selling the home or a car to family for less than it is worth
The mistake: Selling property to a relative at a “family price.”
Why it hurts: The difference between fair value and the price is treated as a gift.
Instead: Sell at fair market value, with an appraisal.
6. Spending down the wrong way
The mistake: Paying the nursing home privately with every dollar, without looking at other options.
Why it hurts: Savings may be spent that could have been used on exempt items, debts or home repairs, or, for married couples, protected for the spouse at home.
Instead: Learn which assets are exempt, and how the spousal rules work, before spending.
7. Thinking a POD account or living trust protects money
The mistake: Believing a payable-on-death account, “in trust for” (Totten) account or revocable living trust shields assets.
Why it hurts: These are all still owned and controlled by the person, so they are fully countable.
Instead: Understand the difference between revocable and irrevocable arrangements. See Revocable vs. irrevocable trusts.
8. Adding a name to a bank account
The mistake: Making a child a joint owner on a bank account.
Why it hurts: The full balance is usually still counted, and withdrawals by the child can be treated as gifts. See Joint bank accounts.
9. Cashing out retirement accounts without a plan
The mistake: Withdrawing a whole IRA at once to spend down.
Why it hurts: A large withdrawal can create a large income tax bill. In some states, the account might have been exempt in payout status.
Instead: Learn your state’s rule first. See Retirement accounts.
10. Overlooking life insurance cash value
The mistake: Forgetting about an old whole life policy.
Why it hurts: If the face value is over $1,500, the cash value counts and can put someone over the limit. See Life insurance.
11. Waiting too long to apply
The mistake: Waiting until all savings are gone before applying.
Why it hurts: Medicaid can pay for care in the months before the application if the person would have qualified then. That window is 3 months today and drops to 2 months for applications from January 1, 2027. Waiting can mean missing coverage that was available. For married couples, waiting can also mean spending money the spouse at home could have kept.
Instead: Learn the rules early. See How to apply.
12. Leaving things off the application
The mistake: Not reporting an account, a gift or property.
Why it hurts: Applications are signed under penalty of perjury. States check bank records and property records. Leaving things out can lead to denial, repayment demands or fraud charges.
Instead: Report everything. If you are unsure whether something matters, report it and explain.
13. Missing deadlines
The mistake: Not answering a request for documents on time.
Why it hurts: Missed deadlines are one of the most common reasons for denial.
Instead: Track every due date. Ask for more time in writing before the deadline if needed.
14. Not planning for the spouse at home
The mistake: Assuming the spouse at home must spend everything too.
Why it hurts: The spouse at home can keep a share of assets (up to $162,660 in 2026) and income (at least $2,705 a month from July 1, 2026). Couples who do not know this may spend money they could have kept.
Instead: See Spousal impoverishment rules.
15. Trying to do it all alone
The mistake: Handling a complex application with gifts, a home, a spouse or trusts without experienced help.
Why it hurts: Each mistake above is easier to make alone. The cost of one error can be months of unpaid care.
Instead: Consider working with a Certified Medicaid Planner (CMP). Professional fees vary and can be significant (see How to apply for typical published ranges), so ask about cost up front.
Warning signs that you may need help now
Some situations make mistakes much more likely. If any of these apply, it is a good time to slow down and get experienced help before taking action:
- a parent has just entered, or is about to enter, a nursing home;
- there have been gifts, loans or “help” to family in the past five years;
- a child or other relative is on the deed or a bank account;
- one spouse needs care and the other will stay home;
- income is close to or over the state’s cap;
- there is a home or business that the family wants to keep;
- an application has been denied, or a penalty notice has arrived.
A short checklist before moving any money
- Write down what you want to do and why.
- Ask: is this a gift, or is it spending on the applicant’s own needs at fair value?
- Ask: does this change who owns something?
- Ask: could this affect income, taxes or the spouse at home?
- Keep records of every transaction.
- If unsure, wait and ask before acting.
Real-world examples
The early gift. A father gave his son $40,000 for a home down payment three years before entering a nursing home. When he applied, the gift caused a penalty of several months. The son did not have the money to return. The family had to find a way to pay the nursing home during the penalty.
The forgotten policy. A mother’s application was denied because an old whole life policy with a $6,000 cash value put her over the limit. Once it was found, the cash value had to be spent down before she could qualify, delaying coverage by a month.
The lost spousal protection. A couple spent nearly all their savings on the husband’s nursing home before applying, not knowing the wife could have kept a large share under the CSRA. That money could have stayed with her.
The missed deadline. A family did not answer a request for one bank statement within ten days. The application was denied and had to be filed again, and the new application date meant weeks of unpaid care.
Mistakes with timing
Timing errors are some of the most expensive:
- Applying too early. If assets are still over the limit, the application is denied, and the family may have to start over.
- Applying too late. Waiting can mean months of private payment that might have been covered, since retroactive coverage is limited.
- Spending down in the wrong month. Asset tests are usually based on the balance at a particular point in the month. Spending after that point may not help until the next month.
A Certified Medicaid Planner (CMP) can map out the timing.
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Last updated for 2026. General information only, not legal or financial advice. Medicaid Answers is a free educational resource published by Medicaid Answers Foundation.