Effective Medicaid planning requires time. The 5-year lookback means that most strategies must be implemented years before the need for care arises. That said, there are both advance planning and crisis planning options — and the difference between them can save a family hundreds of thousands of dollars.
Irrevocable Medicaid Asset Protection Trusts (MAPTs). The most powerful advance planning tool. Assets transferred to a properly drafted irrevocable trust more than 5 years before a Medicaid application are not countable resources. The grantor gives up ownership and control — but the trust can be drafted to allow distributions for supplemental needs and to permit the trustee to sell, reinvest, and manage assets. Unlike a life estate deed (which loses its protection if the property is sold), a MAPT protects the proceeds of a sale, not just the specific asset transferred. The trust must be genuinely irrevocable — the grantor cannot retain the right to revoke, amend, or direct distributions to themselves. Revocable trusts provide zero Medicaid protection.
Outright gifts with survival. Gifts made more than 5 years before application are outside the lookback entirely. But you must survive the full lookback period without needing Medicaid — if you apply within 5 years of the gift, it creates a penalty. This is the simplest strategy but the riskiest: you have no safety net if your health declines faster than expected.
Life estate deeds. Retaining a life estate while deeding the remainder interest removes the home from the probate estate (protecting it from estate recovery) while preserving your right to live there. The transfer of the remainder interest is subject to the 5-year lookback. See our detailed coverage in the Real Estate section — including the critical "we need to sell the house" trap that catches many families.
When a family member is already in a nursing home or about to enter one, advance planning is off the table. Crisis planning strategies are more complex, more expensive, and require precise execution — but they can still preserve significant assets.
The Half-a-Loaf Strategy. This is the most widely used crisis planning technique. The concept: instead of giving away everything (which creates a penalty period you can't pay through) or keeping everything (which gets consumed by nursing home costs), you give away approximately half and keep enough to pay privately through the resulting penalty period.
Here's how the math works:
Example — 2026 figures:
Mom has $300,000 in countable assets. Nursing home costs $421.20/day (the 2026 penalty divisor).
Step 1: Give away approximately half — $150,000 — to the children.
Step 2: Apply for Medicaid immediately. The $150,000 gift triggers a penalty: $150,000 / $421.20 = 356 days of ineligibility.
Step 3: Use the remaining $150,000 to pay privately during the 356-day penalty period. At $421.20/day, 356 days costs approximately $150,000.
Step 4: When the penalty expires, Mom qualifies for Medicaid with assets at or near the $2,000 limit. The $150,000 gift is preserved for the family.
The actual calculation is more nuanced — you must account for the applicant's income (which offsets monthly nursing costs during the penalty period), the exact penalty divisor, and a margin of safety. The retained amount must be slightly more than the penalty cost because you need to reach exactly $2,000 in countable assets when the penalty expires, not $0. An error of even a few thousand dollars can leave the applicant with a gap — ineligible for Medicaid, with no money to pay privately.
⚠ Timing Is Critical
The penalty period begins on the date the Medicaid application is filed (or the date the applicant is otherwise eligible, whichever is later) — not the date of the gift. You must apply for Medicaid promptly after making the gift to start the penalty clock running. If you give the money away in January but don't apply for Medicaid until June, you've paid five months of nursing care out of pocket before the penalty even starts running.
Medicaid-Compliant Annuities. The Deficit Reduction Act of 2005 (DRA) created strict requirements for annuities used in Medicaid planning. A properly structured annuity converts a countable lump-sum asset into a non-countable income stream — removing it from the resource test while providing income to pay for care (or to the community spouse).
To be DRA-compliant, a Medicaid annuity must be:
The most common use: a married couple where one spouse enters a nursing home. The community spouse purchases a Medicaid-compliant annuity with the couple's excess countable assets. The annuity payments go to the community spouse as income, while the lump sum is no longer a countable resource. The nursing home spouse can then qualify for Medicaid.
Promissory Notes. Similar concept to annuities — converting a countable asset into an income stream. A family member "borrows" money from the applicant under a formal promissory note. If the note meets the DRA requirements (irrevocable, non-assignable, actuarially sound, equal payments), the principal is no longer a countable resource — only the incoming payments count as income.
Spend-Down on Exempt Items. Converting countable assets to exempt assets is the simplest crisis strategy. Permissible spend-down includes:
Caregiver Agreements (Personal Care Contracts). Paying a family member for care is legitimate — but only with a written, arms-length agreement executed before the care begins. Without a formal contract, Medicaid treats the payments as gifts subject to the lookback penalty. A proper caregiver agreement must include specific services, reasonable compensation (based on local home health aide rates), a defined schedule, and proper tax reporting.
Maximizing the Community Spouse Resource Allowance (CSRA). The community spouse can retain 50% of the couple's combined assets, up to $162,660 (2026). But if the community spouse's share falls below $32,532, they can retain 100% of assets up to that floor. A fair hearing can be requested to increase the CSRA above the standard maximum if the community spouse can demonstrate that the standard allowance is insufficient to meet their needs at the Minimum Monthly Maintenance Needs Allowance (MMMNA) level — currently $3,948.75/month in 2026.
Spousal Refusal. Pennsylvania recognizes the right of a community spouse to refuse to make their assets available for the institutionalized spouse's care. The applicant spouse assigns their right to support from the community spouse to the state, and the state can then choose whether to pursue the community spouse — but in practice, enforcement is inconsistent. This strategy is legally available but carries risk and is typically used as a last resort.
⚠ The Biggest Mistake: DIY Medicaid Planning
We regularly see families who attempted Medicaid planning without legal counsel — transferring the house to a child, gifting money to grandchildren, or creating trusts from online templates. These well-intentioned actions frequently trigger lookback penalties, create tax problems, and can actually make things worse. The intersection of Medicaid law, tax law, and estate planning is genuinely complex. The cost of an elder law consultation is a fraction of the cost of a single month of nursing care.
Our Approach
We provide elder law consultations, coordinate estate plans with Medicaid goals, and handle the probate side when an estate involves a DHS claim. For complex Medicaid applications, crisis planning calculations, and annuity structuring, we work with dedicated elder law specialists who do this every day — and we'll connect you with the right one for your situation. The strategies above require precise execution. A half-a-loaf calculation that's off by $10,000 can leave a family with a devastating gap in coverage.
Free consultations available for most practice areas.
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