MW 'I'm not sure what to do': My husband has dementia and needs care. Will Medicaid go after our money if I use it to pay off our mortgage?

By Quentin Fottrell

'We still have around $300,000 left on our mortgage'

Dear Quentin,

My husband of 20 years is elderly and has dementia. While I am trying to keep him at home as long as possible, it is almost inevitable that he will end up in an assisted-living or memory-care facility. As you are aware, they can cost $100,000 a year. I understand that when you run out of money, Medicare will step in to cover the cost. They will take whatever assets they can recover but can't take your house. Our investments have always been kept separate. We still have around $300,000 left on our mortgage. I hold the power of attorney for my husband. I'm not sure what to do.

If I pay that off now will it protect that money or will they say it was just done to protect it? I could give substantial money to my children but, again, would they see that as just a diversionary tactic? Will they take my money after his funds run out?

The Wife

Related: My stepmother inherited 100% of my father's estate. She's leaving everything to her two kids. Is that fair?

Dear Wife,

Mortgage payments are not part of the five-year look-back rule.

Medicaid is a needs-based program. To be eligible, in most states, your husband must have no more than $2,000 in countable assets, which includes bank accounts and investments, and $2,901 a month in income (or $5,802 for married applicants). There is a five-year Medicaid look-back to review whether you divested yourself of assets to qualify for benefits, but the ineligibility period or the penalty is not automatically five years, it depends on how much and when the transfers were made. There are also exceptions to the five-year look-back rule: They include paying off debts, buying medical devices and making home renovations for accessibility.

"Paying off a mortgage on an exempt asset is generally a good idea," says Candace Dellacona, a principal and shareholder in Offit Kurman's estates and trusts practice group in New York. "Those funds should definitely not be gifted to your children as any asset transferred within five years of a nursing-home admission will assess a 'penalty period.' Medicaid assesses the penalty period by taking the amount of the transfer, in this case $300,000, and dividing it by the Medicaid 'penalty divisor.' The penalty divisor varies greatly from state to state because it is based on the average monthly cost of a long-term-care facility in that state."

There are exceptions to the five-year look-back rule: They include paying off debts and renovating for accessibility.

In New York, for example, the penalty divisor is approximately $14,500. In Alabama, the Penalty Divisor is $7,300. "This means transferring $300,000 to your children in [New York City] would result in a period of ineligibility for your husband of nearly 21 months; in Alabama, the period of ineligibility would be 41 months," she adds. "Medicaid is a federal program but implemented at the state and local level. Accordingly, the Medicaid rules regarding eligibility, resources, and income are treated differently from state to state. It is imperative to consult with an elder law attorney licensed in your state of residence."

With respect to whether Medicaid would "take" your money, it depends on where you live and how much you have, Dellacona says. "In Florida, Rhode Island, New York and Ohio, a planning tactic called 'spousal refusal' ostensibly allows the non-Medicaid spouse to hold on to her assets and sign a document 'refusing' to contribute her money toward the cost of care for the Medicaid spouse," she adds. "This is not a silver bullet, however. Even in states that allow a spouse to sign a 'refusal,' Medicaid may still demand contribution of the non-Medicaid spouse's assets to pay for the cost of the Medicaid-spouse's care."

A prospective Medicaid recipient's 401(k) and IRA are countable for eligibility, although rules vary by state.

Rules vary by state. A prospective Medicaid recipient's 401(k) and IRA are countable for eligibility, although rules vary by state. A person's home is generally exempt as long as it is a principal residence and your equity doesn't exceed a certain amount. Other exemptions, depending on where you live, include one automobile as long as it's used to get to and from work, used to obtain medical treatment or is essential because you have a disability. Personal property used as investments _ such as artwork _ may not be exempt, although clothing, furniture, wedding rings etc. are usually exempt.

Some states, including Florida, New York and California, have rules that exempt a primary residence from assets calculated by Medicaid under certain circumstances. In many states, you or your spouse need to live in the home or have plans to return to it (if it's empty) if you wish the property to remain exempt from Medicaid. While one's home is generally not counted toward Medicaid's asset limit, it is not exempt from Medicaid's Estate Recovery Program, the American Council on Aging says. Your state Medicaid agency may attempt reimbursement of care costs through whatever estate of the deceased remains, and that includes the home, it adds.

If you are a Medicaid recipient and receive an inheritance, for example, you must report it to your state Medicaid agency.

There are other strict rules governing Medicaid, income and assets: If you are a Medicaid recipient and receive an inheritance, for example, you must report it to your state Medicaid agency. Generally, this should be reported within 10 calendar days. Inheritance paid solely to your sister will likely not be counted 90 days after Medicaid eligibility is approved; but if you received an inheritance and commingled that with your joint assets, that would obviously affect your husband's eligibility.

Some people plan ahead by establishing an irrevocable trust before the five-year look-back rule. By transferring your assets into an irrevocable trust, you no longer own them and, therefore, they are exempt from Medicaid. And now the catch: A Medicaid Asset Protection Trust (or irrevocable income-only trust) can protect the assets of a person who wishes to apply for Medicaid, as long as this is done before the look-back period. You can include stocks and bonds, bank accounts and CDs, and secondary properties. With a MAPT, you are giving up control of these assets. Medicaid can challenge the trust, and the challenge can be complex and expensive.

I hope this allows you to plan ahead and enjoy the time you have with your husband.

Related: 'He ended up homeless and penniless': My uncle conned my father into signing over their mother's house. What can I do?

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.

The Moneyist regrets he cannot reply to questions individually.

Previous columns by Quentin Fottrell:

'I wish Dad were here': I received $500,000 after my late father's wrongful-death lawsuit. My adviser suggests annuities. How do I invest it?

'I'm conflicted': I have two sons - one is a hard worker with kids and the other is a 'carefree' actor. Should I leave the 'family man' more money in my will?

My sisters want to hide $170,000 of our mother's money from Medicaid by adding their names to her bank account. What should I do?

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-Quentin Fottrell

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March 14, 2025 09:55 ET (13:55 GMT)

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