Medicaid planning is the process of legally restructuring your finances to meet Medicaid’s eligibility rules while preserving as much of your assets as possible for your spouse and heirs.
Unlike a common misconception, it’s not the same as gifting your money away. Actually, transferring assets to family members is one of the worst things you can do for Medicaid eligibility. It can trigger serious penalties that delay your coverage when you need it. Real Medicaid planning involves converting assets from categories the government counts against you into categories the government does not count, using estate planning strategies that are explicitly permitted under Texas and federal law.
Medicaid planning done right is legal, strategic, and effective. Medicaid planning done wrong—or not done at all—can cost a family hundreds of thousands of dollars.
The Problem: Long-Term Care Is Extremely Expensive
Most people have no idea what nursing home care actually costs until they’re facing it. In Texas, a private room in a skilled nursing facility typically runs between $6,000 and $10,000 per month. That’s $72,000 to $120,000 per year—and care often continues for two, three, or more years.
Medicare, the federal health insurance program most people over 65 are enrolled in, does not cover long-term custodial care. It covers short-term rehabilitation stays, but once a person is considered to need “custodial care” (help with daily activities like bathing, eating, or dressing rather than active medical treatment), Medicare stops paying. Private long-term care insurance can help, but it’s common that many people either can’t afford it or didn’t purchase it early enough.
That leaves Medicaid as the primary program available to cover nursing home costs for most middle-class families. But Medicaid is not automatic. It has strict financial eligibility requirements, and if you don’t plan ahead, you could be forced to spend down nearly everything you own before qualifying.
How Medicaid Eligibility Works in Texas
Countable vs. Exempt Assets
Medicaid divides everything you own into two categories: countable assets and exempt assets.
Countable assets are things the state adds up when deciding whether you qualify. Cash, savings accounts, checking accounts, stocks, bonds, mutual funds, certificates of deposit, and most investment accounts are all countable. If your countable assets exceed the limit—which in Texas is currently $2,000 for a single applicant—you don’t qualify until you’ve spent them down.
Exempt assets, by contrast, are things Medicaid does not count against you. Your main residence is the most important exempt asset in Texas, as long as your equity is below $752,000 (the 2026 limit) and you or your spouse intend to return to it. One vehicle is generally exempt. Household furnishings, personal belongings, and certain types of prepaid burial plans are also typically exempt.
Medicaid planning involves legally converting countable assets into exempt ones—for example, using savings to make home improvements, pay off a mortgage, purchase a reliable vehicle, or prepay certain burial costs. T
The 5-Year Look-Back Period
This is the rule that catches most families off guard. When you apply for nursing home Medicaid in Texas, the state reviews every financial transaction you made during the five years (60 months) before your application. If you transferred money, property, or assets to someone else for less than their full market value—including gifts to children or grandchildren—the state imposes a “penalty period.” During that penalty period, Medicaid refuses to pay for your care, and you’re left covering costs out of pocket.
The look-back period is why Medicaid planning must happen well in advance. If you start planning five or more years before you might need nursing home care, assets can be repositioned without triggering penalties. If you wait until a crisis, your options drop significantly, though experienced attorneys can still often find strategies to protect a meaningful portion of what you own even then.
The Income Limit and the Miller Trust
Medicaid also has income limits, not just asset limits. In 2026, if your gross monthly income exceeds $2,982, you are technically ineligible for nursing home Medicaid—even if that income isn’t nearly enough to pay for a private nursing home.
This is where a Qualified Income Trust, commonly called a Miller Trust, becomes needed. A Miller Trust is a specific legal tool that “reroutes” your excess income so it doesn’t count against the Medicaid eligibility limit. Each month, income above the limit flows into the trust and is used to pay for your cost of care. Without this trust, many people with modest retirement income, a pension plus Social Security, for example, would be stuck in a gap: too much income for Medicaid, not enough to pay the nursing home bill. A Miller Trust solves that problem.
Protecting Your Spouse: The Spousal Impoverishment Rules
One of the biggest fears families have is that one spouse entering a nursing home will financially wipe out the spouse still living at home. Texas and federal law recognize this concern and address it through what are called spousal impoverishment protections.
Under current rules, the “community spouse”—the one living at home—is entitled to keep a significant portion of the couple’s combined assets. In 2026, the healthy spouse can generally retain up to $162,660 in countable assets, in addition to keeping the home, one vehicle, and household belongings. They are also entitled to a minimum monthly income allowance to cover their own living expenses.
This doesn’t happen automatically, however. A Medicaid planning attorney helps ensure the healthy spouse claims everything they’re entitled to under these rules, and can use legal strategies to maximize the amount protected. Without proper guidance, families often leave substantial protection on the table simply because they didn’t know it existed.
Key Tools Used in Medicaid Planning
Irrevocable Asset Protection Trusts These are trusts specifically designed to move assets out of your “countable” column while keeping them in the family. Once the assets are transferred into the trust and five years have passed, they are no longer counted against you for Medicaid eligibility. Your children or other loved ones can be the beneficiaries. The key trade-off is that once assets go into an irrevocable trust, you give up direct control over them. You can’t access what’s inside the trust, can’t cancel it, or update it.
Lady Bird Deeds (Enhanced Life Estate Deeds) A Lady Bird Deed is a rare deed (only allowed in 5 states, including Texas) that allows you to transfer your home to your heirs automatically at death—without going through probate—while retaining full control of the property during your lifetime. More importantly for Medicaid purposes, it protects your home from Medicaid Estate Recovery. When a Medicaid recipient dies, the state is legally entitled to seek reimbursement from their estate for costs it paid. A Lady Bird Deed keeps the home out of your probate estate, so the state cannot claim it.
Qualified Income Trusts (Miller Trusts) As described above, a Miller Trust solves the income-over-the-limit problem that affects many retirees. It’s a required step for anyone whose income exceeds the Medicaid threshold and must be properly drafted and administered to maintain eligibility.
Spousal Transfers Texas law allows unlimited asset transfers between spouses without triggering the look-back penalty. In some situations, this can be used strategically as part of a broader plan to protect assets for the community spouse before applying for Medicaid.
The families who fare best in long-term care situations are almost always the ones who planned ahead. Medicaid planning is about making sure that if the worst happens, your spouse is protected, your home stays in the family, and the life savings you worked decades to build don’t disappear in a matter of months.