Protecting assets when Medicaid is needed

Photo by Sasun Bughdaryan | Unsplash

By Maurie Backman
Posted on October 21, 2026

Q: My mom suddenly needs to be in a nursing home. Should I spend down her assets so she qualifies for Medicaid?

A: If you’re in a situation where your mother needs nursing home care, you may be thinking your only option is to spend down her assets so she can qualify for Medicaid. Unlike Medicare, Medicaid does pay for long-term care. But whittling an older parent’s money down to their last dime may not be the only solution.

Of the various retirement costs you may know to plan for, healthcare is perhaps the trickiest. Fidelity estimates that the average 65-year-old retiring in 2025 could incur $172,500 in medical expenses throughout their later years. And that estimate doesn’t even account for long-term care.

The Administration for Community Living reports that someone turning 65 today has an almost 70% chance of needing long-term care services in their lifetime. And not surprisingly, women tend to need care for a longer period than men (3.7 years on average, compared to 2.2 years for men).

The problem, though, is that long-term care needs can arise suddenly. And if you think Medicare will pay for it, you’re sorely mistaken.

Medicare will only cover the cost of care that’s medical in nature. Long-term care is generally custodial, which is a big distinction.

Needing help with everyday activities like dressing and bathing is a common byproduct of aging. But unless it’s associated with a specific illness, injury or surgical procedure, Medicare is unlikely to pick up the tab. That’s why Medicaid has been the principal payer for 60% of people who need nursing home care.

Ways to protect assets and still qualify for Medicaid

Middle-class older adults who are comfortable but not wealthy often fall into a trap. They have too many assets to qualify for Medicaid, but not enough money to pay for nursing home care without eventually going broke.

As Evan Farr, a Certified Elder Law Attorney based in Fairfax, Virginia, explains, there’s a general $2,000 limit on spendable assets to qualify for Medicaid. However, he said, “experienced elder law attorneys help people protect assets every day” while qualifying for Medicaid.

In fact, Farr said, married couples can often protect all of their assets in these situations. And there are numerous legal and ethical asset protection strategies that knowledgeable attorneys can use.

In addition, Medicare provides some protections for the spouse of someone who needs nursing care, called the Community Spouse Resource Allowance.

The singles trap

The rules are different and, unfortunately, less favorable for single people.

“But we still have strategies,” Farr said, which can commonly protect 40% to 70% of a single person’s assets.

“Some money will have to be spent down to pay for care, but not all,” he said.

So if you’re in a situation where you have a parent who needs nursing home care, don’t just go on a spending spree. Instead, consult a professional to establish a trust.

Michael Murray, AIF, CPFA, and president/financial planner at Peabody Wealth Advisors in Massachusetts, agrees.

“As a single person, the best strategy would be to talk to an eldercare attorney about setting up an irrevocable trust,” he said, or discussing other strategies to protect assets.

How to spend down assets

What does spending down assets to qualify for Medicaid look like? “You can’t just gift your money to a child,” Murray said.

Instead, assets can be spent in helpful ways, such as prepaying for a funeral or making home improvements.

So there are ways to get nursing home coverage through Medicaid without spending down every last penny you or a loved one worked hard to save.

However, both Murray and Farr agree that strategic Medicaid planning is not a substitute for long-term care planning or long-term care insurance.

In fact, Murray recommends prioritizing long-term care insurance and not waiting too long, since the underwriting requirements for these policies can be quite strict.

Farr, meanwhile, explains that while Medicaid commonly covers the cost of nursing home care, assisted living is a different story.

“A huge percentage of people wind up needing the assisted living level of care, sometimes for five to 10 years before they ever need nursing home care,” he said. “That lower level of care won’t be paid for by Medicaid.”

Recent Medicaid cuts

In July of 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. It included roughly $1 trillion in Medicaid cuts.

While many of those cuts target younger Medicaid beneficiaries, nursing home residents are vulnerable too. One major consequence is that reduced Medicaid reimbursements may force nursing homes to cut staff and whittle down services. Today more than 570 nursing homes are at risk of cuts and closures, according to the nonprofit Protect Our Care.

Following the OBBBA, the Centers for Medicare & Medicaid Services also repealed the minimum staffing requirements for nursing homes.

States have had some leeway to set the maximum home equity a Medicaid applicant could have. But the new law stipulates that starting in 2028, applicants must have no more than $1 million in home equity, regardless of inflation.

The OBBBA also reduced retroactive Medicaid coverage. Justice in Aging, an advocacy organization, called the change “unwelcome news for Medicaid applicants,” adding, “advocates should emphasize to their clients the importance of applying promptly.”