Does Assisted Living Take All Your Money? Spend-Down and Look-Back

No, assisted living does not take all your money. Federal and state rules protect a specific set of assets even after you turn to Medicaid, and the answer to whether assisted living takes all your money is that your home (up to an equity ceiling), one vehicle, personal belongings, prepaid burial arrangements, and a spouse’s share of income and savings are shielded by law. What you do generally have to spend is your countable cash and investments, because Medicaid only steps in once those drop to your state’s limit. With national median costs near $5,900 per month, most people pay privately for a stretch before that happens.¹

What Medicaid Actually Pays For in Assisted Living

Medicaid is the main government program that picks up long-term care costs once personal funds run low, but its role in assisted living is narrower than in a nursing home. In most states, Medicaid does not pay the room-and-board portion of an assisted living bill. It pays for the care-related services — help with daily activities, medication management, and similar support — through Home and Community-Based Services (HCBS) waivers. You cover room and board yourself, usually out of Social Security, a pension, or other income.

Not every state offers an assisted living waiver, and the ones that do often have waiting lists or enrollment caps. If your state has no such waiver, Medicaid long-term care coverage may be available only in a nursing home. Contacting your state Medicaid office early matters because waitlist length and program design vary.

The Spend-Down: What You Have to Use Before Medicaid Helps

To qualify for Medicaid long-term care benefits, you have to reduce your countable assets to your state’s threshold. The traditional limit, tied to the federal Supplemental Security Income standard, is $2,000 for a single applicant. A growing number of states have adopted higher limits — some above $30,000 — or eliminated the asset test for certain categories. The number that applies to you depends entirely on where you live.

Countable assets include cash, bank accounts, certificates of deposit, stocks, mutual funds, and real estate beyond your primary home. The spend-down has to be for your benefit: paying for care, buying clothing or personal items, or paying off legitimate debts. Simply giving money away or hiding it can disqualify you.

Income Limits and Qualified Income Trusts

Medicaid also caps income. About half the states use an income cap set at 300 percent of the federal SSI benefit rate, roughly $2,900 per month. Exceed the cap by even a dollar in those states and you are normally disqualified from long-term care Medicaid. The remaining states use a “medically needy” approach that allows higher incomes but requires you to spend the excess on medical bills before Medicaid pays.

In income-cap states, a Qualified Income Trust (often called a Miller Trust) closes the gap. It is an irrevocable trust set up solely for the applicant. Each month, income above the cap goes into the trust, which then pays the facility. The trust must name the state as beneficiary for any funds remaining at death, so the state can be reimbursed for its Medicaid outlays. A Miller Trust generally requires an attorney and must be in place before the first month of Medicaid eligibility.

What You Get to Keep

The spend-down rules include exemptions that stop you from losing everything. Your primary home is the biggest one. As long as your home equity falls below a federally set ceiling, it does not count toward the asset limit. For 2025, that ceiling ranges from $730,000 to $1,097,000 depending on the state, and it is adjusted annually for inflation.² To keep the exemption, you generally need to show intent to return home, or a spouse or dependent must still live there.

Other assets that typically do not count:

One vehicle, regardless of value.
Personal belongings, including furniture, clothing, and jewelry.
Irrevocable prepaid burial contracts and a small amount set aside for burial.
Term life insurance with no cash surrender value.
Medical equipment such as wheelchairs, walkers, and other mobility aids.

Retirement Accounts Are a Coin Flip

Treatment of IRAs and 401(k)s varies sharply by state. Many states treat an account in regular payout status — meaning you are taking required minimum distributions — as an income stream rather than a countable asset. If the account is not in payout status, most states count the full balance. Check your state’s rule before applying so you are not blindsided by a denial.

The Five-Year Look-Back

Federal law establishes a 60-month look-back covering every financial transaction in the five years before you apply for Medicaid. Gifts, below-market sales, and transfers to family members inside that window trigger a penalty period during which Medicaid will not pay.³

The penalty length is the value transferred divided by the average monthly cost of nursing facility care in your state. Give away $100,000 in a state where that average is $10,000, and you face a 10-month penalty during which you owe the facility yourself.³

Transfers That Don’t Trigger a Penalty

Federal law carves out specific exceptions:

A transfer of the home to an adult biological or adopted child who lived there for at least two consecutive years immediately before the move to a facility and provided care that delayed institutionalization.
A transfer of the home to a sibling who already has an ownership interest and lived in the home for at least one year before institutionalization.
Transfers of any asset to a child under 21 or to a blind or disabled child of any age.
Transfers between spouses.

Each exception carries documentation requirements — proof of residency, medical records showing the care provided, or evidence of a sibling’s equity stake. An elder law attorney can help you set these up well before applying.

If You Have a Spouse Still Living at Home

When one spouse enters a facility and the other stays home, federal spousal impoverishment rules protect the at-home spouse from being wiped out. They live in 42 U.S.C. § 1396r-5 and apply during the Medicaid eligibility determination.⁴

The Community Spouse Resource Allowance (CSRA) lets the at-home spouse keep a share of the couple’s combined assets. In 2026, the maximum CSRA is $162,660 and the minimum is $32,532.⁵ Most states calculate the CSRA as half of the couple’s total countable resources at the time of institutionalization, within those floor and ceiling amounts.

Income is protected separately through the Minimum Monthly Maintenance Needs Allowance (MMMNA). If the at-home spouse’s own income falls below a set floor — roughly $2,555 per month in most states during 2026 — they can receive a portion of the institutionalized spouse’s income to bring them up to that level.⁴ The at-home spouse can also request a fair hearing if the standard allowances leave them in hardship.

The Personal Needs Allowance

Once Medicaid begins paying, most of your income goes to the facility. Every state, though, sets aside a small monthly amount for personal expenses like toiletries, clothing, and phone bills. It ranges from $30 to $200 per month depending on the state. The facility cannot require you to hand it over.

Estate Recovery After Death

Federal law requires every state to seek reimbursement from a deceased Medicaid recipient’s estate for long-term care costs paid on their behalf, if the person was 55 or older when receiving benefits. The Medicaid Estate Recovery Program (MERP) primarily reaches the home and any remaining assets.³

The state cannot pursue recovery while certain family members are alive. Recovery is barred when the deceased is survived by a spouse, a child under 21, or a blind or disabled child of any age. The state also cannot place a lien on a home while a spouse, minor child, disabled child, or sibling with an equity interest lives there. States must offer hardship waivers where recovery would cause severe financial harm.⁶ The caregiver child and sibling equity transfers described earlier can also shield the home from MERP after your death.

Other Ways to Cut What Comes Out of Your Pocket

VA Aid and Attendance

Veterans and surviving spouses who receive a VA pension may qualify for an added monthly payment called Aid and Attendance, which can help cover assisted living. To qualify, you must need help with daily activities like bathing, dressing, or feeding, or you must be bedridden, in a nursing home, or have severely limited eyesight.⁷

As of December 2025, your net worth (assets plus annual income) cannot exceed $163,699.⁸ The primary home and a reasonable amount of personal property do not count, similar to Medicaid’s exemptions. The VA has its own look-back period for asset transfers, so giving away money to meet the limit can also produce a penalty. Applications can take several months.

Long-Term Care Insurance and Partnership Programs

A long-term care policy purchased before you need care can cover a large share of assisted living costs and delay or eliminate the spend-down. Some states run Medicaid Long-Term Care Partnership programs that let you protect assets equal to the amount your insurance paid out. If your policy paid $200,000 in benefits, you could keep an extra $200,000 and still qualify for Medicaid.³

The Medical Expense Deduction

If the primary reason you live in an assisted living facility is medical care, the IRS lets you deduct the full cost, including meals and lodging, as a medical expense. If you are there mainly for personal reasons, you can still deduct the portion covering medical or nursing care. Medical expenses are deductible only to the extent they exceed 7.5 percent of your adjusted gross income. Long-term care insurance premiums are also partially deductible, with age-based caps; in 2026, a person over 70 can deduct up to $6,200.⁹ Keep detailed records, because separating medical from personal living costs usually requires documentation at tax time.

1
AHCA/NCAL. Assisted Living Facts and Figures
2
Department of Health and Human Services, Centers for Medicare and Medicaid Services. 2025 SSI, Spousal Impoverishment, and Medicare Savings Program Resource Standards
3
Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
4
Office of the Law Revision Counsel. 42 USC 1396r-5 – Treatment of Income and Resources for Certain Institutionalized Spouses
5
Medicaid.gov. Spousal Impoverishment
6
Medicaid.gov. Estate Recovery
7
Veterans Affairs. VA Aid and Attendance Benefits and Housebound Allowance
8
Department of Veterans Affairs. Veterans and Survivors Pension and Parents Dependency and Indemnity Compensation Cost-of-Living Adjustments
9
Internal Revenue Service. Publication 502 – Medical and Dental Expenses