What Is Medicaid Planning, and Why Should You Start Early?

As healthcare costs continue to rise, many families face the challenge of affording long-term care. Medicaid is a vital program that helps cover the costs of nursing homes, assisted living, and in-home care for eligible individuals in New York and New Jersey. However, qualifying for Medicaid requires careful planning due to the program’s strict income and asset limits.

Without proper Medicaid planning, individuals may need to deplete their life savings before becoming eligible, leaving little to pass on to loved ones. Early planning can help protect assets while ensuring access to necessary care. This article explains what Medicaid planning is, why it’s important to start early, and how you can safeguard your financial future while qualifying for benefits.

What Is Medicaid?

Medicaid is a joint federal and state program that provides healthcare coverage to low-income individuals, including long-term care services. While Medicare covers limited long-term care costs, Medicaid can pay for a much broader range of services, including nursing home stays, assisted living, and in-home care for daily living activities.

Each state has its own Medicaid rules, including eligibility requirements and available benefits. Applicants must meet strict income and asset limits to qualify, making proper planning essential for those who may require long-term care in the future.

Why Is Medicaid Planning Important?

Many people assume they can simply apply for Medicaid when they need it, but eligibility is based on financial need. Those who exceed income or asset limits must either “spend down” their resources or risk being denied coverage. Medicaid planning helps individuals and families structure their assets in a way that preserves wealth while ensuring they meet eligibility criteria.

Strict Eligibility Requirements

Medicaid imposes strict financial limits on applicants. These limits vary by state and are subject to change.

• In New York, for applicants seeking community Medicaid benefits, an individual is allowed to keep non-exempt resources of $31,175 (up from $30,182 in 2023) and income of $1,732 plus a $20 unearned income credit (up from $1,677 plus a $20 unearned income credit in 2023). Individuals seeking nursing home Medicaid are still limited to only $50 a month of income but are allowed to keep non-exempt resources of $31,175 (up from $30,182 in 2023). (as of 2024).
• In New Jersey, the asset limit for an individual is $2,000.  The income limits are $2,829 per month for an individual and $5,648 per month for a couple. 

Without strategic planning, individuals may be forced to spend down their savings, leaving little for their spouse or heirs.

Avoiding the Look-Back Period

Medicaid enforces a five-year look-back period (or 30 months for assisted living in New York). Any gifts or asset transfers made during this period could result in penalties that delay Medicaid eligibility.

If an individual gives away assets or sells property below market value within this timeframe, they may be penalized with a period of ineligibility. Planning in advance allows individuals to transfer assets strategically and avoid last-minute penalties.

Protecting Your Assets

Proper Medicaid planning ensures that assets are legally protected while allowing individuals to qualify for benefits. Without a plan, savings, property, and other financial resources may need to be exhausted before Medicaid coverage begins. By using legal strategies, such as trusts and exemptions, individuals can secure their financial future while still receiving the care they need.

How Medicaid Planning Works

Medicaid planning involves restructuring finances and assets to meet eligibility requirements while preserving wealth for family members. Several strategies can be used, depending on an individual’s financial situation and long-term care needs.

Use of Trusts

Trusts are one of the most effective tools for Medicaid planning. They allow individuals to protect assets while ensuring they do not exceed Medicaid’s financial limits.

A Medicaid Asset Protection Trust (MAPT) is an irrevocable trust that shields assets from being counted for Medicaid eligibility. Once assets are placed in the trust, they no longer belong to the individual, but the trust can still generate income for the beneficiary. This strategy must be implemented well in advance to avoid the look-back period.

In New York, individuals often use Pooled Income Trusts to protect excess income while still qualifying for Medicaid. These trusts allow disabled individuals and seniors to deposit excess income into a trust to be used for their benefit without jeopardizing eligibility.

Spousal Protections

Medicaid includes protections for the spouse of an applicant, known as the community spouse, to prevent financial hardship.

• The Community Spouse Resource Allowance (CSRA) allows a healthy spouse to keep a portion of the couple’s assets. In New Jersey, the community spouse’s share of the couple’s countable resources is the greater of $30,828 or one-half of the couple’s total resources, not to exceed $154,140. The home equity maximum limit is $1,071,000.  The CSRA in New York is similar.
• The Monthly Maintenance Needs Allowance (MMNA) ensures that the community spouse retains enough income to cover living expenses.  In New Jersey, the MMNA is $2,555 per month (effective until June 30, 2025).  New York’s Monthly Maintenance Needs Allowance (MMNA) is called the Community Spouse Monthly Income Allowance (CSMIA).  As of 2024, the CSMIA in New York is $3,853.50 per month.

By taking advantage of these protections, married couples can preserve financial stability while one spouse qualifies for Medicaid.

Gifting and Transfers

While gifting assets within the look-back period can lead to penalties, strategic gifting outside of the five-year window can help reduce countable assets and facilitate Medicaid eligibility. Early planning ensures that gifts are made in a way that does not trigger penalties.

Spend-Down Strategies

For individuals who exceed Medicaid’s asset limits, carefully spending excess resources can help achieve eligibility. Permissible expenses may include:

• Home modifications or improvements
• Paying off outstanding debts
• Purchasing prepaid funeral and burial plans

By reallocating funds in an allowable manner, applicants can meet Medicaid’s financial requirements without simply giving away their savings.

Purchasing Exempt Assets

Certain assets are exempt from Medicaid calculations, meaning they do not count toward eligibility limits.

• A primary residence is typically exempt if the individual (or their spouse) continues to live there. In 2024, the home equity limit in both New York and New Jersey is $1,071,000.
• Other exempt assets include personal belongings, one vehicle, and certain retirement accounts.

Purchasing exempt assets is a legitimate way to reduce countable wealth while preserving financial security.

Why Early Medicaid Planning Matters

Avoiding Last-Minute Penalties

Waiting until the last minute to plan for Medicaid can lead to costly mistakes, particularly if assets were transferred within the look-back period. Early planning allows for smoother asset transfers and a higher chance of qualifying without penalties.

Preserving More Assets

The sooner you begin Medicaid planning, the more options you have to protect your assets. Individuals who start early can take advantage of trusts, spousal protections, and other strategies to safeguard their wealth.

Reducing Stress on Family Members

Without a plan in place, loved ones may be forced to make difficult financial decisions when long-term care becomes necessary. Medicaid planning removes uncertainty and ensures a clear path forward for family members.

Common Mistakes to Avoid

One of the biggest mistakes individuals make is waiting too long to start Medicaid planning. Delaying the process often leads to rushed decisions, which can result in penalties or unnecessary asset loss.

Attempting to handle Medicaid planning without professional guidance is another common error. Medicaid rules are complex and vary by state. DIY planning can lead to costly mistakes, such as improper asset transfers or failing to use available exemptions.

Gifting assets without considering the look-back period is also a frequent misstep. Uninformed gifting may cause Medicaid ineligibility for months or even years. Consulting an estate planning attorney helps individuals navigate these potential pitfalls.

How an Attorney Can Help with Medicaid Planning

Medicaid planning is a highly specialized area of law. An experienced attorney can assess your financial situation and recommend tailored strategies to protect assets while ensuring Medicaid eligibility.

A lawyer can also assist in drafting and implementing trusts, ensuring compliance with Medicaid regulations in New York and New Jersey, and guiding individuals through the application process to avoid penalties or delays.

Final Thoughts

Medicaid planning is a crucial step in securing long-term care while protecting your financial legacy. By starting early and working with a knowledgeable attorney, you can navigate the complexities of Medicaid, avoid penalties, and ensure financial security for both yourself and your loved ones.

If you’re ready to begin Medicaid planning, our experienced attorneys in New York and New Jersey are here to help. Contact us today for expert guidance tailored to your unique situation.

Mitchell C. Beinhaker, Esq. is a business lawyer and estates attorney who runs a solo legal & consulting practice representing business owners, entrepreneurs, executives, and professionals. Through his 30+ years of experience, Mitchell has handled business development, marketing, firm management, along with business transactional work for clients of the firm. He has extensive experience with corporate governance, commercial transactions, real estate, and risk analysis. Using his years of practical experience, he drafts contracts, negotiates purchases, and can manage outside counsel for any corporate situation. For business owners and executives, he creates and implements estate plans, along with succession plans to help companies continue for future generations. 

Mitchell is the co-author of 10 Ways to Get Sued by Anyone & Everyone:  the small business owners guide to staying out of court, available in paperback and kindle from Amazon.

If you need legal help with any of our services, contact our office for a free consultation.  You can email us at info@beinhakerlaw.com.  To learn more about Mitchell and his practice, visit beinhakerlaw.com.

Beinhaker Law and Mitchell C. Beinhaker, Esq. do not guarantee the accuracy of any information provided in this article.  Its not to be construed as advice of any kind.  Be sure to check with your local professionals before making any decisions.