Financial Mishaps to Avoid
Can Everyday Financial Decisions Put Your Medicaid Eligibility at Risk?
Many seniors make routine financial moves — for estate planning, paying for care, or helping loved ones — without realizing some of these actions could disqualify them from Medicaid-funded long-term care. Even transactions that seem harmless, like paying a family member for help, can trigger ineligibility if they conflict with Medicaid’s strict rules.
Understanding Medicaid’s financial eligibility criteria, knowing common pitfalls, and exploring safer alternatives are essential for protecting benefits.
What Are Medicaid’s Financial Rules for Long-Term Care?
For long-term care Medicaid, most states set the asset limit at $2,000 for a single applicant. Some assets — like your primary home, personal items, and one vehicle — are exempt, while others count toward this limit. Not knowing which assets are exempt can lead to costly mistakes.
To prevent “gifting” away assets to qualify, Medicaid enforces a 60-month Look-Back Period in most states, reviewing transfers to ensure nothing was sold below market value or given away. Violations result in a Penalty Period of ineligibility.
Note: California removed its asset limit in 2024 and is phasing out its Look-Back Period entirely by July 2026.
What Are the Most Common Financial Mistakes Seniors Make?
Creating a Totten Trust
Also known as a Payable-On-Death bank account, a Totten Trust is revocable — meaning its funds are counted toward Medicaid’s asset limit. While it’s a simple estate planning tool, it doesn’t shield assets from Medicaid. A Medicaid Asset Protection Trust (MAPT) is a better alternative, but it must be set up well before applying for Medicaid to avoid Look-Back violations.
Paying a Loved One Without a Family Caregiver Contract
Paying a child or other relative for care without a written agreement often counts as a “gift” under Medicaid rules. A Family Caregiver Contract documents the relationship, services, and reasonable pay rate, ensuring payments are recognized as legitimate compensation.
Gifting Money
The IRS gift tax exclusion (e.g., $19,000 per recipient in 2025) does not apply to Medicaid eligibility. Most states consider any gift a Look-Back violation, though a few allow small exceptions (e.g., Indiana permits $1,200/year to relatives; Pennsylvania allows $500/month).
Selling a Home Below Market Value
While your home is usually exempt, selling it for less than fair market value creates a “gift” of the difference — a Look-Back violation. Quick-sale companies and discounted family deals often fall into this trap.
Placing a Home in a Revocable Living Trust
Some states treat homes in revocable living trusts as countable assets, removing their exempt status. A MAPT can protect the home but must be created well in advance of Medicaid application.
Purchasing Whole Life Insurance with a High Face Value
Policies over $1,500 in face value (combined) may have their cash surrender value counted as an asset. Term Life Insurance avoids this problem since it has no cash value.
Buying a Tax-Deferred Annuity
Deferred annuities are revocable and counted toward the asset limit. Immediate Annuities, if structured correctly, are Medicaid-compliant and start payouts immediately without building cash value.
How Can a Medicaid Planner Help?
If you’ve unknowingly violated the Look-Back Rule or purchased non-compliant financial products, a Medicaid Planner can help fix the issue — often by converting assets into exempt forms, such as transforming a deferred annuity into an immediate annuity.
