Medicaid Planning 2026 - A Discussion on "Half a Loaf" Strategies in Medicaid Planning

Attorney RJ Connelly III Certified Elder Law Attorney Professional Fiduciary

"As an elder law attorney deeply committed to helping families protect what they've worked so hard to achieve, I’ve witnessed firsthand the challenges that come with planning for long-term care," said professional fiduciary and certified elder law Attorney RJ Connelly III. "Medicaid Planning has become an essential step for many individuals and families as the cost of long-term care continues to rise dramatically across the United States. Nursing home expenses, often exceeding $100,000 per year, can quickly deplete a family’s life savings. Without proper planning, families may be forced to liquidate assets, sell their homes, or even face bankruptcy in an effort to meet Medicaid’s strict financial eligibility criteria. The stakes are high, but with strategic planning—and guidance from experienced professionals—families can safeguard a portion of their legacy and ensure loved ones receive the care they need."

"In today's blog, I’ll be sharing insights on 'half a loaf' strategies in Medicaid Planning, one of the key planning techniques designed to preserve assets while still qualifying for essential benefits. My goal is to provide you with clear, actionable information so you can make informed choices for your family’s future. Thank you for joining me as we explore this important topic together."

The Origin, Purpose, and Legal Foundation of the Half a Loaf Strategy

The “half a loaf” strategy is an advanced Medicaid Planning technique designed to help applicants qualify for Medicaid long-term care benefits while preserving a substantial share of their assets. The phrase “half a loaf” refers to the idea that, through strategic gifting and spend-down, applicants can keep half or more of their assets rather than losing everything to nursing home costs.

This approach became popular after Medicaid instituted transfer penalty rules, and although the Deficit Reduction Act of 2005 made the process more complex, it remains a viable, sophisticated tool when implemented correctly.

At its core, the strategy works within Medicaid’s asset transfer penalty system. When someone applies for Medicaid, the government reviews any asset transfers (“gifts”) made during the five years prior to the application (the “look-back period”). If assets were gifted during that time, Medicaid imposes a penalty period—a length of time during which benefits are not paid—based on the amount transferred. The “half a loaf” plan calculates a gift and uses the remaining assets to pay through the penalty period, allowing more resources to remain with the family.

How the “Half a Loaf” Strategy Works

"Half a loaf" strategies involve seeking compromise solutions that provide partial benefits when the optimal outcome is unattainable, enabling parties to make progress despite challenging circumstances. Let's explore some of these;

Assessment of Assets: The process begins with a thorough review of all countable assets, including bank accounts, investments, real estate (excluding a primary residence, which may be exempt), and other property. Understanding exactly how much is available is crucial for planning.

Calculation of Gift and Penalty Period: Working with Medicaid’s regional “penalty divisor” (the average monthly cost of care in the applicant’s state), professionals calculate how much can be gifted to trigger a penalty period that the remaining assets can cover. For example, if $100,000 is gifted and the penalty divisor is $10,000, the penalty period would be 10 months.

Making the Gift: The applicant makes an outright gift of a calculated amount to children, other relatives, or an irrevocable trust. This immediately triggers the penalty period upon Medicaid application.

Creating a Promissory Note or Private Annuity: The remaining funds are used to purchase a promissory note (a formal, interest-bearing loan to a trusted family member) or a Medicaid-compliant annuity. These tools convert otherwise countable assets into a stream of income that is either returned to the applicant or used to pay for care during the penalty period.

Paying for Care During the Penalty Period: The income from the note/annuity, together with the remaining cash, is used to pay for nursing home care during the penalty period established by the gift.

Qualifying for Medicaid: Once the penalty period expires, the applicant has spent down enough assets to qualify for Medicaid, and Medicaid begins paying for their long-term care. The gifted assets remain safe with the designated recipients.

Common Programs and Techniques Used with Half a Loaf Strategies

When implementing "half a loaf" strategies, a variety of common programs and techniques are used to maximize effectiveness and achieve balanced outcomes. Let's review them.

Outright Gifting: Direct transfers of cash or property to family members or to an irrevocable trust, intended to maximize the value protected from Medicaid spend-down.

Promissory Notes: Legal documents representing a loan from the applicant to a family member; the note must be actuarially sound, fully repayable within the applicant's life expectancy, and provide for equal periodic payments with no balloon payment. This structure is essential for transforming countable resources into a non-countable income stream for Medicaid eligibility.

Medicaid-Compliant Annuities: Immediate payout annuities that are irrevocable, non-transferable, and name the state as a remainder beneficiary up to the amount Medicaid pays for care. These can help shelter assets and provide funds during the penalty period.

Irrevocable Trusts: Used in some cases to protect assets from spend-down, provided the trust is properly structured and not under the applicant's control. Assets placed in such trusts may be protected from future Medicaid recovery as well.

Spousal Refusal and Transfers: In states that permit spousal refusal, a healthy spouse may refuse to support an institutionalized spouse, thereby protecting more assets. Transfers between spouses are generally exempt from Medicaid penalties and can be part of a broader planning strategy.

How a Family Avoided Bankruptcy with a Half a Loaf Strategy

The Bennetts, a hard-working family from southern New England, were suddenly thrown into turmoil when Jim, the hardworking father and primary breadwinner, just a few years from retirement, suffered a serious brain injury at work. The accident left Jim unable to care for himself, and doctors recommended immediate placement in a skilled nursing facility.

The family quickly learned that the cost for such care was staggering—$12,500 every month. With $150,000 in countable assets, Jim was ineligible for Medicaid, which has strict financial eligibility limits. The Bennetts faced the terrifying prospect of their entire life savings being wiped out in just over a year, leaving little for Jim’s wife and their children’s future needs.

Feeling overwhelmed, the family sought advice from our office, and our Medicaid Planning team clearly and concisely explained their options. We recommended the “half a loaf” strategy—an approach that helps families like the Bennetts protect a portion of their assets.

Here’s how it worked for them: The Bennetts decided to give $75,000 as a gift to their children, knowing that Medicaid would impose a penalty period for this transfer. In their state, the penalty divisor was $12,500, so the $75,000 gift triggered a 6-month penalty period (calculated by dividing $75,000 by $12,500).

To address the remaining $75,000, the Bennetts used those funds to purchase a Medicaid-compliant promissory note. This special financial tool enabled repayment in equal installments over six months, during which Jim was ineligible for Medicaid coverage. Each month, the payments from the note, combined with Jim’s Social Security and income from his pension, were enough to cover the nursing home bill, preventing the family from draining the rest of their savings all at once.

At the end of the 6-month penalty period, Jim was finally eligible for Medicaid assistance. The $75,000 gifted to the children was preserved, helping to support Jim’s wife and maintain the family’s stability through a difficult time.

The process was far from simple—it required our staff to track complex Medicaid rules, ensure accurate calculations, and prepare all necessary legal documents to satisfy government scrutiny. But for the Bennetts, this planning meant peace of mind and a financial lifeline when they needed it most.

How Our Medicaid Planning Team Navigates Emergency Situations

Connelly Law’s Medicaid Planning professionals are adept at using "half a loaf" and related strategies in emergency situations when families are facing urgent nursing home admission and immediate asset spend-down. Their process involves:

Comprehensive Asset Review: Quickly assembling a complete picture of the client's assets, income, and family situation.

Customized Strategy Development: Calculating the optimal gift amount and penalty period based on state-specific Medicaid guidelines and the client's unique needs.

Implementing Legal Instruments: Drafting and executing necessary documents, such as promissory notes, annuities, and irrevocable trusts, ensuring absolute compliance with Medicaid’s strict requirements.

Coordinated Timeline Management: Orchestrating the timing of gifts, spend-down, and application submission so that care is continuously funded, and eligibility is achieved at the earliest possible moment.

Providing Ongoing Support: Guiding clients through application, audit, and appeals processes, and acting as advocates in communications with Medicaid agencies, nursing homes, and family members.

Our expertise helps clients avoid costly errors, maximize asset preservation, and secure the best possible outcome—even under tight deadlines and stressful circumstances.

A Final Note

"Medicaid’s complexity and punitive rules can be overwhelming for families facing a health care crisis. The 'half a loaf' strategy, with its creative use of gifting and financial planning tools, offers a powerful way to protect family assets and ensure access to essential long-term care," said Attorney Connelly. "However, these strategies must be executed with precision and up-to-date legal knowledge. Experienced firms like ours provide not only technical expertise but also compassionate guidance to navigate emergency Medicaid Planning, giving families peace of mind and the tools to preserve their financial future."

The information presented within this blog is intended exclusively for general informational purposes and should not be construed as legal, financial, or healthcare advice. The content, materials, and insights provided may not reflect the most recent developments in these fields and, therefore, should not be relied upon for personal or professional decisions. Further, this blog may contain links to third-party websites, which are included solely for the convenience of our readers. It is essential to note that Connelly Law Offices, Ltd. does not automatically endorse or recommend the contents of these external sites. Given the complexities and nuances of legal, financial, or healthcare matters, we strongly encourage individuals to consult a qualified attorney, a professional fiduciary advisor, or a healthcare provider regarding any specific issues or concerns. Your well-being and informed decision-making are of paramount importance to us.