Medicaid Wants You Broke? Stop! Here Are 5 Legal Ways to 'Spend Down' Your Assets on Yourself

You know the rule: To qualify for Medicaid Long-Term Care, you essentially need to be broke (usually having less than $2,000 in countable assets).

So, you sit on your $100,000 savings account, terrified. You think, "If I give this to my kids, I get a penalty. If I keep it, the nursing home takes it. I'm trapped."

Here is the secret: Medicaid punishes "Gifting" (giving money away), but they typically do NOT punish "Spending" (getting fair value in return).

Instead of handing your life savings over to the nursing home, you can legally "Spend Down" that money on exempt assets that improve your quality of life. Here is the ultimate guide to the 5 smartest things to buy before you file that Medicaid application.

Medicaid Wants You Broke?

1. Pay Off Debts (Mortgage & Credit Cards) - With a Warning

This is the most effective strategy. Cash in the bank is "countable" (bad). But your primary home is "exempt" (good, protected up to approx. $750,000 - $1.13 million in equity for 2026).

The Strategy: Take your $100,000 cash and pay off credit card bills, car loans, or your mortgage.

⚠️ Critical Warning: Estate Recovery

Paying off the mortgage makes your home 100% yours. However, after you die, Medicaid's "Estate Recovery Program" may try to seize the house to pay back your care costs. Before paying off the mortgage, ask an attorney about a "Lady Bird Deed" or "Transfer on Death Deed" to protect the home from this clawback.

2. The "Home Renovation" Loophole

Is your house ready for aging? Medicaid allows you to spend money on home improvements and maintenance.

What you can buy:

• New roof, windows, or HVAC system.
• ADA-compliant bathroom upgrades (walk-in tubs, grab bars).
• Wheelchair ramps and stairlifts.
• New furniture or appliances.

The Rule: It must be for the applicant's primary residence. You cannot pay to renovate your daughter's kitchen. That would be a penalized gift.

3. Buy a New Car (Yes, Really)

Medicaid rules generally allow one vehicle of any value to be exempt, especially if it is used for the transport of the applicant or by the community spouse.

The Strategy: If you are driving a 15-year-old beater, trade it in. Use your savings to buy a safe, reliable, new vehicle for your healthy spouse. Even if you spend $40,000, that car is generally protected. It is a legitimate transfer of value.

4. Prepaid Funeral & Burial Expenses

It sounds morbid, but it is practically mandatory. You can purchase an Irrevocable Funeral Trust.

What to include: Casket, plot, headstone, funeral service, and even flowers.
Why it works: Most states allow you to prepay roughly $15,000 per spouse (check your state limit). This money is instantly removed from your "countable" pot, and your family won't have to scramble for funds later.

5. Personal Care Contracts (Paying Your Kids)

This is the advanced move. You cannot give your daughter $20,000 for taking care of you. That is a gift.

BUT, you can employ her. If you sign a formal, written "Personal Care Agreement" before services begin, you can pay her a fair market wage (e.g., $25-$30/hour) for cooking, cleaning, and driving you to doctors.

• Requirement: It must be in writing and signed before care starts (no retroactive payments).
• Requirement: The pay must be reasonable for your local area.
• Tax Trap: Your daughter MUST report this money as Taxable Income to the IRS. If she hides it, it looks like a gift/kickback, and you will be penalized.

Spend It, Don't Give It

The "Look-Back Period" looks for gifts, not purchases. The government does not expect you to live in squalor.

If you have $50,000 or $100,000 "too much" to qualify for Medicaid, don't write a check to the nursing home yet. Fix the roof. Buy the new car. Pay off the Visa. Secure your family's comfort first.

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Disclaimer: Medicaid "Spend Down" rules vary strictly by state. For example, California has much higher asset limits ($130,000+) starting in 2026, while New York also differs. Always consult a Certified Elder Law Attorney in your specific state before spending large sums.