How to Protect Your Assets from Nursing Homes

The post-2024 shift in Medi-Cal’s asset-related policies (and the possibility of a reversal) have confused many Medi-Cal recipients. Those with both Medi-Cal and Medicare may find themselves particularly scared.

Assets don’t factor into Medi-Cal eligibility as of mid-2025; however, this will change in January of 2026. Thee Medi-Cal Estate Recovery program has remained in effect all this time and shows no signs of disappearing.

Because it takes effect after recipients’ deaths, it’s critical to understand this program’s parameters well in advance. Depending on your situation, there may be ways to protect your assets from being claimed to cover nursing home costs

Common Protection Strategies

Irrevocable Trusts

Utilizing an irrevocable trust (sometimes called a Medi-Cal trust in this case) can help protect assets from a nursing home. For example, if the recipient’s house becomes the property of an irrevocable trust, it is no longer an asset they own.

As such, under California law, it cannot count against Medi-Cal eligibility (even when the asset limits are reinstated). Also, because the Estate Recovery program can only claim assets subject to probate, a trust protects the home from being taken as Medi-Cal repayment.

The receipient can still live in the house held by the trust. Similarly, they can use any other assets placed in trust: furniture, vehicles, and so on.

In addition, provisions can be written into the trust so that children, grandchildren, or other beneficiaries receive the house after the Medi-Cal recipient passes.

Using Assets to Pay Off Debts and Expenses Income counts toward program eligibility. Recipients can only earn 138% of the federal poverty line or less per year.

As such, potential Medi-Cal applicants should strongly consider paying off existing bills with current income or assets. For example, one can repay credit card debt, prepay real estate tax, cover life insurance premiums, or even prepay funeral expenses.

When applying for Medi-Cal, it is important to pay bills prior to receiving benefits so the well spouse can reduce demands on the assets he or she is allowed to keep. A couple can pay off current debts, prepay real estate tax, insurance and some other large bills as well as prepay funeral expenses.

Spousal Impoverishment Rule

This California law helps prevent the spouse of someone receiving (or waiting to receive) long-term nursing care from financial crisis. First, any income belonging to the spouse doesn’t factor into the applicant’s eligibility if it rises above the FPL threshold. But this regulation also allows a Medi-Cal recipient to allocate a certain amount of their income to their spouse to keep them afloat.

Consider the following example: Tom and Sally Smith have a house and $217,000 of savings in the bank when Tom enters a nursing home for a long-term stay. The Medi-Cal spousal impoverishment rules let Sally keep $195,000 as her protected allowance.

After Tom’s admission to the nursing home, Sally spends the $20,000 excess by paying off the mortgage on the couple’s home, some credit card debt, and making an advance payment on real estate taxes. Because Sally now has only $195,000 and Tom has only $2,000 left, Tom is eligible for Medi-Cal.

How to Protect Parents’ Assets from Nursing Homes: A Checklist

Protecting your parents’ assets from nursing home costs is a daunting proposition for many families, but it’s not an insurmountable challenge. With proper planning, assistance from an expert estate planning attorney, and a clear understanding of the relevant laws, families can keep their parents’ financial legacy intact.

Here’s a step-by-step guide to help safeguard your parents’ assets:

1. Understand the “Look-Back” Period: Under the old asset rules, Medi-Cal had a five-year look-back period. It reviewed any assets transferred or sold below market value during this period to determine eligibility. Transferring assets right before entering a nursing home could’ve led to penalties or disqualification from Medicaid benefits for a certain period of time.
2. Irrevocable Trusts: By placing certain assets (including income) into an irrevocable trust, your parents ensure that they are not counted as part of their net worth when determining Medicaid eligibility.
3. Gifts and Asset Transfers: Begin transferring assets early. Gifting money or assets to grandchildren or other family members for education or buying a home can reduce your parents’ net worth. However, remember the possibility that the look-back rule will probably return, so plan accordingly.
4. Purchasing Annuities: Some annuities can turn countable assets into a stream of income, which might help in meeting Medicaid’s asset limit when it returns.
5. Long-Term Care Insurance: Encourage your parents to purchase long-term care insurance, which can cover a significant portion of their nursing home costs (thus preserving their assets).
6. Protecting the Primary Residence: Even under the old rules, Medicaid exempted the primary residence from Medi-Cal considerations. It’s also possible to protect a home by transferring its title to a child who has lived in the house for at least two years and provided care. This prevents the parent from going to a nursing home.
7. Spend-Down Strategies: When the old rules return and your parents have too many assets to qualify for Medicaid, consider a spend-down strategy. This involves spending money on necessary and permissible items like home modifications, medical equipment, and prepaid funeral expenses.
8. Legal Marriage Arrangements: Spousal refusal or annulment is an extreme step, but it can separate a couple’s financial assets. When Medi-Cal brings back its old asset limits, this would allow one spouse to qualify for Medicaid without depleting all the couple’s shared resources.
9. Consult an Elder Law Attorney: The complexities of Medicaid require expert counsel to successfully navigate. An elder law attorney can guide you through the process, ensuring all steps taken are legal and beneficial.
10. Stay Informed: Laws, regulations, and policies can quickly change. Stay updated with the latest in elder care law and Medicaid rules to ensure your parents’ assets are always protected.

Above all, early planning is the key. It’s easier to protect your parents’ assets with foresight than to make last-minute decisions.

How to Avoid a Nursing Home Taking Your House: The Importance of Legal Aid

Legal assistance is critical in these situations. Ideally, you want an attorney with experience in estate planning, elder law, Medi-Cal regulations, or – best of all – a firm covering all these practice areas. Look no further than the Law Offices of Alice A. Salvo.

Based out of Woodland Hills, Alice A. Salvo and her staff have been helping seniors manage the complications of Medi-Cal and the Estate Recovery program for decades. Our firm has saved hundreds of thousands of dollars for elder law clients throughout the greater Los Angeles area and elsewhere in Southern California.

If you’re concerned about protecting assets from nursing home costs, don’t delay. Get in touch with us using the contact form below or give us a call to learn more.

Frequently Asked Questions

What is the Cost of a Nursing Home?

Protecting assets from nursing home costs is the goal for everyone, especially given the high cost of skilled nursing care. This can easily reach $10,000 per month and will certainly exceed that sum for anyone in need of a private room.

Does Medicare pay for nursing home costs?

Medicare only pays for skilled nursing care for a short period of time. As the cost of long-term care can be very high, it is vital to have an estate plan in place to protect assets from a nursing home.

Is there any government program that will pay for nursing home costs.

The government program that pays for most nursing home care in California is Medi-Cal (also known as Medicaid). Some Also, military veterans may qualify for certain benefits from the Department of Veterans’ Affairs to pay for nursing home care.

Applying for Medi-Cal will not necessarily protect assets from nursing home costs, however – especially not when the old asset qualification standards are reinstated. Seniors and their loved ones must prepare for this through proper financial planning.

When protecting assets from nursing home costs, how much income can I make and still qualify for Medi-Cal?

An individual cannot earn more than 138% of the current FPL in annual income to meet Medi-Cal’s standards. Currently, that is $21,597 a year (just under $1,800 per month).

Does an irrevocable trust protect assets from a nursing home?

Irrevocable trusts can shield assets from both the Estate Recovery program and any asset limits that will be reimposed on Medi-Cal in the future.

What are the spousal obligations regarding nursing home costs?

Any one spouse (or registered domestic partner) has the legal responsibility for the other spouse’s nursing home costs. As such, the income and assets of both spouses comes under scrutiny when the spouse in the nursing home applies for Medi-Cal nursing home benefits.

When a married couple has over $195,000 in countable assets, a portion of those assets are at risk from the nursing home spouse’s nursing home expenses.

Lastly, a pre-nuptial agreement that states a well spouse doesn’t have to pay for their sick spouse’s nursing home care can’t be enforced for anyone applying to receive Medi-Cal benefits.