Allowed and Not-Allowed Spend-Down Purchases

When a Long-Term Care Medicaid applicant has more countable assets than the limit allows, the excess must be spent down. But not every way of spending money counts. A valid spend-down purchase must benefit the applicant (or the spouse) and be made at fair market value. Purchases that fail that test are treated as gifts and can cause a penalty under the 60-month look-back. This guide lists common allowed and not-allowed purchases, with the reasons, so families can plan with confidence.

Figures change periodically. Double-check current amounts before relying on them.

The two-part test

Ask two questions about every purchase:

1. Who benefits? The applicant, or the applicant’s spouse? Or someone else?
2. Is it fair market value? Does the applicant get something worth what they paid?

If the answer to both is yes, the purchase is generally allowed. If either answer is no, it may be treated as a transfer for less than fair market value.

Generally allowed

Generally not allowed

Gray areas

Some purchases depend on the details and state rules:

• Personal care agreements with family. Many states accept payments to a family caregiver if there is a written agreement made before services are provided, the pay is reasonable for the work, records of hours are kept, and payment is not made in advance for future care. Rules differ a lot, so get advice.
• Buying a life estate in a child’s home. Federal law treats the purchase as a transfer unless the buyer lives in the home for at least one year after the purchase.
• Prepaying a nursing home. Some states allow prepayment of the current month or a deposit. Large advance payments may be treated as an asset that can be refunded.
• Home improvements that mainly benefit others. A new roof on the applicant’s home is fine. A luxury addition for a child who lives there may be questioned.
• Gifts for holidays and birthdays. Small, customary gifts consistent with past behavior are sometimes accepted. Large gifts are not.
• Paying for a funeral for someone else. This is a gift unless it is for the spouse.

Prepaid funerals in more detail

Prepaid funeral arrangements are among the most common spend-down purchases. Key points:

• An irrevocable contract, where the money cannot be refunded to the person, is usually exempt, within any state cap.
• A revocable contract counts as an asset, though some of it may fall under the $1,500 burial fund exclusion.
• Burial space items (plot, casket, vault, headstone, opening and closing of the grave) are generally excluded regardless of value under SSI rules.
• A spouse can have their own arrangements.
• Life insurance can sometimes be assigned to a funeral home to fund the contract.

See Exempt assets and Life insurance.

Documentation

For every spend-down purchase, keep:

• an invoice or receipt;
• the canceled check or bank record;
• a note explaining what it was for, if not obvious;
• for care agreements, the signed agreement and hour logs;
• for home repairs, the contract and before-and-after photos.

States often ask about any withdrawal over a set amount. Without proof, a withdrawal may be treated as a gift.

A worked example

Sam, 82, has $24,000 over his state’s limit. Here is what he considers:

Sam drops the college gift and the payments to his son. He and his family talk to a CMP about a written care agreement for help his son actually provides, and spend the remaining excess on his care.

Common questions

Can I buy a new car if I already have one? One car is exempt. Selling or trading the old car and buying a better one is allowed. Owning two means the second counts.

Can I pay my own future rent? Prepaying rent far ahead may be questioned. Paying current bills is fine.

Can I buy gift cards for myself? They are basically cash and remain countable.

Can I buy a burial plot for my children? Under SSI rules, burial spaces for the applicant’s immediate family can be excluded, which can include children in some cases. Check the state’s rule before buying.

Can I pay a grandchild to drive me to appointments? Possibly, with a written agreement at a fair rate and records. Informal payments are risky.

Can I donate to my church? Donations are generally treated as transfers. Regular, modest tithing may be considered in some states. Ask first.

Questions to ask before any large purchase

• Is this something the applicant will use, or that benefits the spouse?
• Am I paying a normal market price?
• Will the item be exempt once bought, or will it still count?
• Do I have an invoice and proof of payment?
• Could this be seen as a gift to someone else?
• Have we checked the state’s specific rules, such as funeral contract caps?

If any answer is uncertain, pause and ask a Certified Medicaid Planner (CMP) before spending. Undoing a purchase is often harder than avoiding a mistake.

Spend-down for the spouse at home

For married couples, many purchases that would be questioned for a single person are fine, because transfers to a spouse are not penalized. Examples include:

• a newer, reliable car for the spouse at home;
• home repairs and improvements in the home where the spouse lives;
• the spouse’s own prepaid funeral;
• paying off the spouse’s debts;
• the spouse’s medical and dental needs.

These can reduce the couple’s countable assets while improving the spouse’s financial security.

One caution: spending done before the snapshot date can change the total used to figure the spouse’s resource allowance in states that use the half-of-assets rule. Spending done after the snapshot reduces the excess without lowering the allowance. The order matters, so map it out before acting. See The snapshot date.

Related guides

• How the spend-down works
• Spend-down examples
• Gifts and the look-back
• Common financial mistakes

Last updated for 2026. General information only, not legal or financial advice. Medicaid Answers is a free educational resource published by Medicaid Answers Foundation.