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Medicaid Planning


You should consult with a lawyer before relying on this handout because new laws, new regulations, and new court decisions can change the Medicaid rules.


1.  “Allowable Transfer” means basically a sale, purchase, gift, or donation of assets that doesn’t affect one’s Medicaid eligibility.

2.  “Non-allowable Transfer” means a sale, purchase, gift, or donation of assets that can affect one’s Medicaid eligibility.

3.  “Community Spouse” means the spouse of a nursing home resident, but only if the spouse doesn’t live in a nursing home.  (Example:  Alice & Tom are married.  Alice resides in a nursing home.  Tom lives in his own house.  Tom is a “community spouse.”)


To qualify for Medicaid coverage of nursing home care, a person must: 

1)  be at least 65 years old, blind or disabled,

2)  be in need of intermediate or skilled nursing home care (no coverage for custodial care), and

3)  be eligible under income and asset limitations established by the Illinois Dept. of Human Services.

Income Limitations:  

To qualify for Medicaid benefits, the person's countable income must be less than the  nursing home's private pay rate.

(Example:  Joe is in a nursing home which charges him $4,800 per month.  Since Joe has over $5,500 in income per month because of Social Security and two great pensions, Medicaid won’t pay for Joe’s nursing home care.  If Joe had $2,600 in income per month, then Medicaid would pay for some of Joe’s nursing home costs—if Joe had less than $2,000 in the bank.) 

Countable income is determined by adding all income in the nursing home resident's name and subtracting certain deductions:  a personal needs allowance of $30 monthly, dependent spouse and dependent child allowance, medical bills not paid by Medicaid, medical insurance premium payments (such as a Medicare supplement policy). 

If spouses are living separately because one of them is in a nursing home, then the income of each of the spouses is considered separately from the date the Medicaid applicant enters the nursing home.  If the community spouse individually has more income than the Community Spouse Maintenance Needs Allowance ($2,610 in the year 2008), that money can be kept for the community spouse.

Exempt Assets:  

The following property is considered exempt and therefore, is not considered when deter-mining Medicaid eligibility. This is what the nursing home resident may keep as his own. (This is not an all-inclusive list.)

     1)  $2,000 in cash or other assets {“$2,000 asset disregard”}

     2)  homestead property  (if the nursing home resident plans to return home or the home is occupied by the resident's spouse, sibling, minor child, or disabled child)

     3)  personal items and house-hold goods of "reasonable value"  ("reasonable value" means the equity value in personal items and household goods not totaling over $2,000)

     4)  engagement rings, wedding rings, and items needed because of an individual's medical or physical condition (e.g., wheel-chair) are exempt regardless of their value

     5)  a vehicle of unlimited value if owned by (or transferred to) the community spouse or unlimited value if owned by the nursing home resident if certain conditions apply (otherwise the nursing home resident's vehicle is exempt up to a value of $4,500, with any value above that being applied toward the $2,000 asset disregard)

    6)  term life insurance policies with no cash value

    7)  $1,500 for either {A} life insurance in which the face value is not more than $1,500; if the face value totals over $1,500 then the cash value is applied toward the $2,000 asset disregard  or{B}a revocable prepaid burial fund of $1,500 or less (with excess applied toward the $2,000 asset disregard) or {C}an irrevocable prepaid burial fund of $5,219 or less (with excess applied toward the $2,000 asset disregard) fund may be exempt

**  Note:  the interest on a prepaid burial plan or burial

    8)  burial spaces & burial items for the Medicaid applicant, his/her spouse, and other immediate family members  (including burial plots, urns, mausoleums, vaults, caskets, markers, headstones, plaques, fee to open and close the grave--but not including prayer cards, flowers, visitor’s book)

Transfers of Assets:

     The U.S. government requires states to penalize nursing home residents who, during or after the 36-month period immediately before applying for Medicaid, transfer assets for less than fair market value.  If you give away assets, or sell assets for an amount below their true value, and then apply for Medicaid within 36 months of such gift/transfer, there may be a period of ineligibility.  (This does not mean that gifts cannot be given during such 36-month look-back period.  But any gifts should be done carefully with the advice and supervision of a lawyer who is knowledgeable about Medicaid.)

     If a nursing home resident desires to take advantage of  the Community Spouse Asset Allowance and the assets cannot be transferred immediately, the resident is allowed up to 90 days from the date on the written notification to make the transfer.  If a court order is required, extra time may be given.  Ownership of the asset does not affect eligibility during this time.

The Community Spouse Asset Allowance:

     This allowance is $104,000 in Illinois (as of Jan. 2008), the highest amount allowable under federal law.  This allowance is the maximum amount of non-exempt assets the resident of a nursing home may transfer (without affecting eligibility) to his/her community spouse or to another individual for the sole benefit of the community spouse.  It is not mandatory that a resident transfer assets to a community spouse.  The community spouse must provide information to the Dept. of Human Services regarding his/her assets, or the Community Spouse Asset Allowance isn’t allowed.

     If the community spouse already has more than $104,000 of his/her own personal assets (e.g., bank accounts, stocks, bonds, life insurance cash value, etc.), then the community spouse may be able to keep his/her assets (and thus not be limited to $104,000).  The figure of $104,000 is the limit of what the nursing home resident may possibly transfer to the community spouse (assuming the community spouse had no assets of his/her own); but the assets already owned by the community spouse must be considered/counted.

     If the wife has a total of $30,000 worth of her own individual assets (such as bank accounts, life insurance cash value, stocks--not counting the home and one vehicle), then the husband (the nursing home resident) could transfer $74,000 of his assets to his wife.  If the wife had no assets of her own, then the husband could transfer $104,000 of assets to his wife. 

     Be aware that the nursing home resident cannot necessarily transfer assets to the community spouse.  It depends on what the community spouse already owns.  For example, if the community spouse already owns the house, the car, and $104,000 worth of other assets; then the nursing home resident cannot transfer anything to the community spouse.  It is best to seek legal advice about what transfers can and should be considered. 

     A nursing home resident may also transfer personal belongings, household goods and one vehicle for the sole benefit of the community spouse regardless of the dollar value and without affecting Medicaid eligibility (that is, if the community spouse doesn’t have a car already).

The Community Spouse Maintenance Needs Allowance:

     Since January 1, 2008 the monthly allowance in Illinois has been $2,610---the highest amount allowable under federal law.  The amount established as the Community Spouse Maintenance Needs Allowance (CSMNA) is deducted in the determination of income available to apply to the cost of long-term care.  Unless a court order requires support in a greater amount or as the result of a fair hearing, the CSMNA is $2,610 (deducting the gross income of the community spouse, if any).  In other words, if a nursing home resident receives income (Social Security, pension benefits, annuity payments, etc.), up to $2,610 may be given monthly to the community spouse; any income the community spouse receives from other sources is deducted from the possible $2,610 the community spouse might get from the nursing home resident.

Example:  Matt and Jane are married.  Matt, who lives in a nursing home, gets $700 in Social Security and $600 in pension benefits monthly.  Jane gets $600 Social Security per month, but no pension.  If Matt otherwise qualifies for Medicaid benefits, then the money he gets every month from Social Security and his pension can be given to Jane because adding Matt’s $1,300 in monthly benefits to Jane’s $800 monthly Social Security totals less than the allowable amount of $2,610.

Non-Allowable Transfers Made to Qualify for Medicaid:

     If the Illinois Dept. of Human Services determines that a non-allowable transfer (e.g., such as a gift of $12,000 to a child) was made to qualify for benefits, the Medicaid applicant is ineligible for benefits for a specified number of months, depending on the value of the assets transferred and the cost of a semi-private room in the nursing home where the applicant is residing.  However, depending on the value of any non-allowable transfers and when such transfers were made, the Medicaid ineligibility period may have expired by the time the applicant applies for benefits, and the applicant may be allowed to receive Medicaid benefits from the time of application.  Gifts can often be made (but don’t make gifts without first getting proper advice)

The Look-Back Period:

     The Dept. of Human Services wants to know not only what a Medicaid applicant owns when applying for benefits, but also (1) what his/her spouse owns, and (2) what assets did the Medicaid applicant (and spouse) transfer without receiving full compensation during the look-back period.  In the case of individuals, the look-back period is 36 months (this will change to 60 months).  Already, in the case of assets transferred to or from trusts, the look-back period is 60 months--this is a complicated area that you should discuss with a lawyer. 

Medicaid Liens:

     The Illinois Dept. of Human Services will file a lien against the homestead property of a nursing home resident, no matter what the value of the property, if the Medicaid applicant has been in a nursing home for at least 120 consecutive days unless

1)  the applicant's spouse is living in the home, or

2)  the applicant's minor child, disabled child, or blind child lives in the home, or

3)  the applicant's sibling (who is a joint owner of the home and has lived continuously in the home for at least one year before the applicant entered a nursing home) resides in the home.

4)  a child of the applicant lives in the home and that child took care of the applicant for 2 years or more (and if such care had not been provided the applicant would have had to enter a nursing home 2 years or more previously)

**  Note:  The lien doesn’t cause the property to lose its exempt asset status; meaning that the Dept. of Human Services won’t require that it be sold.

Claims Against Medicaid Recipient's Estate and Recipient's Surviving Spouse:

 The State of Illinois can file a claim against the estate of a deceased Medicaid recipient's estate and the estate of the deceased recipient's surviving spouse to recoup money paid out on behalf of the Medicaid recipient.  Human Services has a brochure entitled “Property Liens & Estate Claims.”

Illinois law reads in part, under section “305 ILCS 5/5-13:  “To the extent permitted under the federal Social Security Act, the amount expended under this Article (1) for a person of any age who is an inpatient in a nursing facility, an intermediate care facility for the mentally retarded, or other medical institution, or (2) for a person aged 55 or more, shall be a claim against the person’s estate or a claim against the estate of the person’s surviving spouse, but no recovery may be had thereon until after the death of the surviving spouse, if any, and then only at such time when there is no surviving child who is under age 21, or blind, or permanently and totally disabled.  This Section, however, shall not bar recovery at the death of the person of amounts of medical assistance paid to or in {sic} his behalf to which he was not entitled; provided that such recovery shall not be enforced against any real estate while it is occupied as a homestead by the surviving spouse or other dependent, if no claims by other creditors have been filed against the estate, or if such claims have been filed, they remain dormant for failure of prosecution or failure of the claimant to compel administration of the estate for the purpose of payment.  The term “estate”, as used in this Section, with respect to a deceased person, means all real and personal property and other assets included within the person’s estate, as that term is used in the probate Act of 1975; however, in the case of a deceased person who has received (or is entitled to receive) benefits under a long-term care insurance policy in connection with which assets or resources are disregarded to the extent that payments are made or because the deceased person received (or was entitled to receive) benefits under a long-term care insurance policy, “estate” also includes any other real and personal property and other assets in which the deceased person had any legal title or interest at the time of his or her death (to the extent of that interest), including assets conveyed to a survivor, heir, or assignee of the deceased person through joint tenancy, tenancy in common, survivorship, life estate, living trust, or other arrangement.  The term “homestead”, as used in this Section, means the dwelling house and contiguous real estate occupied by a surviving spouse or relative, as defined by the rules and regulations of the Illinois Department, regardless of the value of the property….” 

The Use of Trusts:

     Previously trusts were often used to shelter assets.  However, the laws have changed to restrict the use of trusts to protect assets from being available to pay for nursing home care.  Some basic information follows on trusts and Medicaid eligibility.  For detailed information about this topic, consult a lawyer who works in the Medicaid area.

What if some of my assets are

in my revocable trust?

     The assets in the trust are considered available to you, because you have the power to revoke (change or cancel) the trust. Thus putting assets into a revocable trust doesn’t protect them if a person seeks Medicaid benefits.  If assets are transferred from a revocable trust to another person (spouse, child, grand-child, nephew, etc.), such actions are treated as transfers of assets by the individual (who is being considered for Medicaid). 

Assets Held in Trust:

     If a person has money in a revocable trust that he/she desires to give away, then it is advisable to first transfer the money into his/her own personal account that is not in the trust, and from that personal account write a check to the person you want to make a gift to.  Don’t make gifts without getting the proper advice (especially if you are in a nursing home or will soon be entering a nursing home).  Gifting can often be done, even if the person is residing in a nursing home. 

What if some of my assets are in an irrevocable trust?

     The maximum amount of payment permitted under the irrevocable trust is considered in determining eligibility, whether or not the maximum amount is actually distributed to the individual. For example, if the trust document states that all income could be paid out to the individual, then all income is considered available even if the trustee does not pay out all of the income.  If the trust states that only $500 can be paid out each month, then only $500 is considerable available to pay for the nursing home resident’s expenses (if the trust was properly set up and was done at the right time).  If the trust document states that all income and principal could be paid out to the individual, then all income and principal is considered available to the individual even if the trustee does not pay out all of the income and principal to the individual.  As to the assets that cannot be paid to the individual, such assets are subject to the look-back period--and may cause a period of  ineligibility.  The look-back period normally being 36 months (60 months in the case of trusts). 

What is considered a non-allowable transfer of assets?

1)  When Lou withdraws money from a joint bank account with Pete, and the money is not used for Pete’s benefit.  (Pete is the Medicaid applicant, and it was all Pete’s money in the account.)

2)  Adding another person on as a joint owner of a piece of property, (when the person added doesn’t contribute or pay to be a joint owner).

3)  Transferring assets into an irrevocable trust

4)  Giving assets away

5)  Selling assets for less than fair market value (Example: Mother sells her $12,000 car

to son for only $2,000.)

6)  Buying an asset and paying more than the fair market price  (Example:  Sara buys her sister Joan’s car for $25,000, but the car is really only worth $15,000; thus Sara has made a gift to Joan of $10,000.)

What happens if an Applicant has made non-allowable transfers (gifts) during the look-back period?

     The burden is on the Medicaid applicant to show that a transfer was not made in order to qualify for Medicaid benefits, otherwise an ineligibility period will be assessed against the applicant (however such ineligibility may not cause a problem, depending on how much was given away and when it was given away).   (Example: In May 2005 Pat is healthy and isn’t expected to enter a nursing home, in that month she gave $30,000 so that her grandson could have an operation.  In 2008 Pat enters a nursing home and applies for Medicaid benefits.  Pat should not be penalized for giving away the $30,000 in 2006 if she proves to Human Services why she gave away that money and that she was not expected to enter a nursing home back then.)  In addition, the ineligibility period may have already expired and thus it may not be a problem now for Pat.

PAM & AL:  Pam has to put husband Al into a nursing home.  Pam needs answers to these questions and others:

1. What assets can be transferred to me (Pam) without causing Al  to lose Medicaid benefits? 

2.  What should we do about our jointly-owned assets (real estate, stocks, bank accounts, etc.)?

3.  Pam presently has Al listed as a beneficiary of her will and a life insurance policy.  Should Pam make changes?

4.  Al and his brother jointly own a piece of real estate in Ohio together as tenants in common.  How does that affect Al’s eligibility for Medicaid?

5.  Al has an IRA.  Will the IRA have to be cashed in and used for Al’s care? 

6.  Will Al be able to keep his life insurance policy?  Can Al  transfer ownership of the policy?

7.  Will Pam be able to receive any of Al’s monthly income?


1.  Make your decisions while you are healthy.  Don’t wait.

2.  You should consider having a lawyer prepare these documents for you: a will and/or a trust, a power of attorney for property (with gifting authorization), a power of attorney for health care, and a living will. 

3.  Elderly persons who desire to save some of their assets for relatives, rather than have all their money spent up on nursing home care, should consider (a) putting a gifting provision in their property powers of attorney, and (b) making gifts before they must enter a nursing home (because then more assets can be saved for loved ones). 

Gifts can often be made even if the person has entered a nursing home, as long as the person hasn’t applied for Medicaid benefits. Gifting for Medicaid planning purposes should be done only after consulting with a knowledgeable attorney. 

There are various plans that can be considered in order to protect the real estate for loved ones.  Each option has advantages and disadvantages, and the plan that is best for one family may not be right for another. 

Get good advice and put plans in place while you are healthy.  Don’t wait until a crisis to act.





1.  The Illinois Department of Public Aid sought to recover $78,022 from the Estate of Carl Hegg because of the Medicaid benefits that his wife Mary received while she was in a nursing home.  In this 1995 case, I was able to convince the Illinois Dept. of Public Aid to give up its claim.  The Illinois Dept of Public Aid decided not to test the validity of a 1993 Illinois law that allows the Dept. to seek reimbursement from the estate of a community spouse.  The case was reported in the Nov/Dec 1995 issue of NAELA News.  NAELA means the “National Academy of Elder Law Attorneys.”

2.  Client Sherry’s mother died leaving a federal employee’s life insurance policy worth over $20,000.  The mother did not fill out a beneficiary form naming someone to receive the money.  Daughter Sherry was the only child.  The Illinois Department of Public Aid wanted to receive the money as reimbursement for money spent on the mother’s stay in a nursing  home.  I was able to convince the Illinois Dept. of Public Aid to give up its claim to the money. 

3.  Gladys died in Illinois without a will.  Illinois law directed that her assets be distributed among her next closest relatives—her siblings.  One of her sisters, Irene, was residing in a nursing home and had been receiving Medicaid benefits for years. 

     Irene was entitled to receive about $33,000 as an heir of Gladys.  The Illinois Dept. of  Public Aid wanted all the money.  I suggested a plan to Irene to save some of the money for her 3 children.  Irene signed a power of attorney, which included giving her daughter the power to disclaim assets on Irene's behalf.  The daughter then disclaimed (rejected in writing) part of the inheritance. Irene’s 3 children each received $800.  Because the amount disclaimed was less than the cost of one month’s nursing home care, there was no ineligibility assessed against Irene for the disclaimer. 

4.  I have helped community spouses receive permission from the probate courts in Lake County and McHenry County to have their nursing home resident spouse’s interest in the family homes transferred to the community spouses.  In these cases it was necessary to establish guardianships over the incompetent nursing home residents because they had not signed property powers of attorney which authorized gifts to their spouses (the community spouses).

5.  Son Jerry was residing with mother in her home, and had for basically his whole life (except for military service).  Son Louis was residing in his own home.  Mother became incompetent and son Jerry couldn’t take care of her any more and she had to enter a nursing home.  Son Louis became her guardian, and received court authorization to transfer mother’s home to son Jerry (because of federal and state laws that allow the child to receive the home based on the child having provided mother with at least 2 years of care and support before she entered the nursing home). 

6.  Daughter Alice moved into her  parents’ Waukegan home in the 1980s.  A couple of years later mother died.  Thereafter father needed nursing care, which was provided by the VA for a number of years.  Later father entered a regular nursing home.  Alice consulted with me, afraid that she might have to move out if father’s home is sold to pay for his care.  I advised her that

I could help her save the house for herself, because she provided father with more than 2 years of care before he left to receive nursing home care.  Alice unfortunately procrastinated and waited until father died (and a lien had been placed against the home by the Illinois Dept of Public Aid) before getting back to me.  I convinced the Dept of Public Aid to remove the lien and allow Alice to become the owner of the property (her 2 brothers signed quit claim deeds transferring the interest they inherited from father to Alice). 

7.  I have advised many clients on how gifts of assets can be made to protect assets (often homes) in case the client’s health deteriorates and the client ends up residing in a nursing home.  There are several plans that can be considered to protect the family home and other assets for the children and/or grandchildren as the client chooses. 

8.  I have advised clients when they, or a loved one, were about to enter a nursing home (or sometimes after the person had already begun residing in a nursing home) how gifts could be made to protect assets for loved ones.  You should get advice if you’re thinking of gifting.

I have spoken many times to other lawyers about Medicaid Planning at the Lake County Bar Association’s annual estate planning seminar. 


Copyright 2008 Ronald Runkle

Law Office of Ronald Runkle & Associates, P.C.
236 Center Street - Grayslake, IL 60030
Tel: (847) 548-5950 Fax: (847) 548-6085