Medicaid Planning 2026 - Spend Down Regulations for Assets and Income

Attorney RJ Connelly III Certified Elder Law Attorney Professional Fiduciary

"To qualify for Medicaid long-term care services—whether provided at home, in the community, or in a nursing facility—an applicant must meet specific financial criteria, including both income and asset thresholds that are established by each state," stated professional fiduciary and certified elder law Attorney RJ Connelly III. "If an applicant’s income or countable assets exceed these Medicaid limits, they may become eligible by 'spending down' their resources to fall within the required financial parameters. It is important to note, however, that Medicaid imposes strict spend down regulations governing how individuals may reduce their income and assets. For example, gifting assets is explicitly prohibited, and violation of this or other rules will result in denial of Medicaid coverage."

While the term “Spend Down” encompasses both income and asset-reduction strategies, it is most commonly associated with asset spend-down. Therefore, this article focuses on the procedures and considerations involved in Asset Spend Down.

"Medicaid income and asset limits are not uniform nationwide; they vary by state and may change periodically within each jurisdiction," continued Attorney Connelly. "Asset spend-down procedures are recognized in all 50 states, whereas income spend-down applies only in select states. The specific limits often depend on the Medicaid program type and the applicant’s marital status. Nevertheless, a commonality among nearly all Medicaid programs for older adults is the requirement to meet both income and asset limits. In today's blog, we will discuss this process."

Asset Spend Down

To qualify for Medicaid, an applicant must have assets—also referred to as resources—below a specified threshold. If an individual’s assets exceed this limit, even after accounting for all exempt (non-countable) assets, they may reduce (“spend down”) their countable assets in order to become eligible for Medicaid. It is essential to approach this process carefully, as improper spending or transfers can have significant consequences.

For those seeking Medicaid-funded nursing home care or Home and Community Based Services through a Medicaid Waiver, a 60-month Look-Back Period applies. During this period, which immediately precedes the submission of a long-term care Medicaid application, all asset transfers are closely scrutinized. Transfers that involve gifting assets or selling them for less than fair market value within this timeframe may result in a Penalty Period, during which the applicant is ineligible for Medicaid benefits. Please note that the Look-Back Period and its implications will be explored in greater detail in a future blog post.

Income Spend Down

To be eligible for Medicaid, your monthly income must be below a certain limit. If your income is higher, you can still qualify through a process called spend down. This means you use your extra income to pay for medical expenses, such as doctor visits, prescriptions, and insurance premiums. Once you've spent enough to reach the income limit, you can receive Medicaid for the rest of the spend-down period, which usually lasts between 1 and 6 months.

Some states don’t offer this spend-down option and are known as Income Cap States. If you live in one of these states and have too much income, you may qualify by setting up a Qualified Income Trust (QIT), also known as a Miller Trust. You place your extra income into this special trust, which is managed by a third party. The money in the trust can only be used to pay for medical and long-term care expenses, helping you meet Medicaid’s income rules.

Exempt vs Non-Exempt

Not all assets owned by the applicant are counted towards Medicaid’s asset limit. When determining if one is over the asset limit, it is critical to know which assets are counted and which are not. Understanding these distinctions can help applicants accurately assess their Medicaid eligibility and avoid unnecessary denials or delays in coverage.

Countable Assets: Countable (non-exempt) assets are those resources considered when determining eligibility for certain financial assistance programs, as they contribute toward the established asset limit. Often referred to as liquid assets, these are items that can be readily converted into cash without significant loss of value. Examples include cash on hand, funds in checking, savings, or money market accounts, vacation homes, and property not used as a primary residence. Additionally, mutual funds, stocks, bonds, and certificates of deposit all fall into this category.

Retirement accounts such as 401(k)s and IRAs are treated differently by states. In roughly 37 states, these accounts are counted as assets when assessing eligibility. The other states may exempt them, but most require the accounts to be in payout status, meaning the owner must be receiving the required minimum distribution (RMD). Furthermore, about 30 states include the retirement accounts of a non-applicant spouse as countable assets, which can affect the overall asset calculation for married couples.

This comprehensive approach ensures that all easily accessible resources are considered, promoting fairness and consistency in eligibility determinations for financial assistance programs.

Non-Countable Assets: Non-countable (exempt) assets are resources that Medicaid does not include when determining an applicant’s eligibility for benefits. One of the most significant exempt assets is the applicant’s primary home, provided specific requirements are met. The home is automatically considered exempt if the applicant’s spouse, a child under 21 years old, or a blind or disabled child (regardless of age) lives in the residence. If these conditions are not met, the applicant must either currently reside in the home or have a documented Intent to return to the home.

Additionally, starting this year, the applicant’s home equity interest—calculated as the home’s market value minus any outstanding debts—must generally not exceed $752,000 or $1,130,000, depending on the state. Note that this home equity limit does not apply to Regular Medicaid.

Other assets that are exempt from Medicaid’s asset limit include burial spaces, Irrevocable Funeral Trusts (up to a state-specific maximum), one automobile, term life insurance, and life insurance policies with a combined face value not exceeding $1,500. Additionally, household furnishings, appliances, and personal items such as clothing and wedding or engagement rings are also exempt. Assets placed in Medicaid Asset Protection Trusts (MAPTs) are not counted towards the asset limit; however, creating such trusts can violate Medicaid’s Look-Back Period rules. Therefore, MAPTs should be established well before the anticipated need for Medicaid-funded long-term care.

Determining Asset Limits and Spend Down

Understanding Medicaid's asset limits can be challenging due to the nuanced distinction between exempt (not counted) and non-exempt (counted) assets. The rules also differ significantly between single applicants and married couples, adding another layer of complexity. To further complicate things, each state sets its own asset limits, meaning the threshold for eligibility can vary depending on where you live. Because of these factors, it's often difficult to accurately determine whether your assets exceed the Medicaid limit and, if so, by how much. It is important to carefully review your state's guidelines or consult with a qualified professional to ensure you have a clear understanding of your situation.

Individual Applicants: In most states, a single elderly applicant is limited to $2,000 in countable assets when applying for benefits, though this limit can vary by state of residence. For example, in 2026, asset limits vary significantly. These differences highlight the importance of checking the specific asset threshold in your state, as it can directly impact eligibility for assistance programs.

Married Couples: Generally, married couples (with both spouses as applicants) can keep up to $3,000 of their combined countable assets. As with individual applicants, there are exceptions to this rule based on the Medicaid program for which the couple is applying. For instance, the $3,000 asset limit is common when both spouses apply for Regular Medicaid.

When couples apply for Nursing Home Medicaid or a Home and Community-Based Services (HCBS) Medicaid Waiver, each spouse is often treated as a single applicant, which can result in higher asset limits than for individuals. In some cases, married couples may be allowed to keep a combined total of $4,000 or more, depending on the specific Medicaid program. Additional variations exist: some programs allow couples to retain higher asset amounts, such as $6,000 or $8,000, depending on circumstances and program requirements. It is important for applicants to consult their state’s Medicaid guidelines, as asset limits and exceptions can vary by program.

Married Couples with One Applicant: When determining Medicaid eligibility for married couples, it’s important to understand how assets are evaluated. Even if only one spouse applies for Medicaid, both spouses’ assets are considered together. This means that the total value of the couple’s resources is counted toward the Medicaid asset limit, regardless of whose name is on the asset.

For Nursing Home Medicaid or long-term care through a Home and Community Based Services (HCBS) Medicaid Waiver, the spouse who is applying (the “applicant spouse”) is typically allowed to keep up to $2,000 in countable assets.

The spouse who is not applying (the “community spouse”) is permitted to retain a larger share of the couple’s assets, known as the Community Spouse Resource Allowance (CSRA). As of 2026, the CSRA can be as high as $162,660 in most states. This rule helps ensure that the community spouse is not left impoverished while the applicant spouse receives care.

The way the CSRA is calculated varies by state rules, which can complicate matters. There are “50% states,” where the community spouse can keep up to 50% of the couple’s combined assets, up to the maximum CSRA limit ($162,660 in 2026). These states also set a minimum CSRA, typically $32,532 in 2026. If half of the couple’s assets is less than this minimum, the community spouse can keep all assets up to $32,532. In “100% states,” the community spouse can keep all of the couple’s assets, but only up to the CSRA maximum of $162,660.

For Regular Medicaid, there is no CSRA. In this case, a married couple is usually limited to a combined $3,000 in countable assets if only one spouse is applying. As with other Medicaid programs, there are certain exceptions to these limits, and some assets may be exempt.

A Final Word

"Asset spend down is a very complex process, and if not managed properly, it can inadvertently violate Medicaid’s Look-Back Rule, resulting in a penalty period of ineligibility," said Attorney Connelly. "However, being over the income or asset limits does not automatically disqualify an individual from Medicaid eligibility. At Connelly Law, our experienced and knowledgeable Medicaid planning staff play a vital role in guiding applicants through the process, helping them reallocate income and assets, preserve resources for healthy spouses, and ensure spend down strategies comply with Medicaid’s Look-Back requirements, which we will explore in depth in our next blog post."

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.