Medicaid Asset Protection Trust and Rental Property: 2026 Rules
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Quick Answer
A Medicaid asset protection trust only works if the assets are gone from your hands more than 60 months before you apply: federal law looks back 60 months from the application date, and anything given away inside that window, or placed in an irrevocable trust you cannot draw principal from, is divided by your state's monthly nursing-home price to set a period with no coverage. As of October 20, 2026, the 2026 home equity limit is $752,000 at the floor and $1,130,000 at the ceiling (CMS, December 9, 2025, unchanged in the April 27, 2026 update). A rental, an LLC interest or a non-traded REIT share is not a home: it counts at market value less debt, and being hard to sell does not stop it counting. On a $600,000 rental given away, our arithmetic gives a penalty of 41.55 months in California ($14,440), 43.59 in western New York ($13,765), 74.75 in Indiana ($8,027) and 2,286 days in Texas ($262.37 a day).
Key Takeaways
- The look-back is 60 months for a disposal of assets on or after February 8, 2006, and for trust payments or trust portions treated as disposals (42 U.S.C. 1396p(c)(1)(B)(i)). It runs back from the first date you are both in an institution and have applied.
- The penalty is the total uncompensated value transferred on or after the look-back date, divided by the average monthly private-patient cost of a nursing facility in the state at the time of application (1396p(c)(1)(E)). A state may not round down fractions (E)(iv).
- The clock that blocks coverage does not start at the gift. It starts at the later of the first day of the month of the transfer or the date you are otherwise eligible and would be receiving institutional care but for the penalty (1396p(c)(1)(D)(ii)).
- Illiquid is not exempt. Social Security’s rules say liquidity “has no effect on a resource’s countability” (SI 01110.300), and non-publicly traded stock “cannot be converted to cash within 20 working days” as a rule, with the burden of proving its value on you (SI 01140.220).
- A rental is non-home real property counted at market value less debt (SI 01140.100). The SSI-method exclusion for income-producing property is $6,000 of equity at a 6% return (SI 01130.503), so on a $600,000 rental almost all of it counts (our arithmetic).
- Trusts: a revocable trust’s corpus is your resource; in an irrevocable trust, any portion payable to you under any circumstance is your resource, and any portion that can never reach you is a transfer dated from when the trust was set up or payment was foreclosed (1396p(d)(3)).
- Home equity: CMS 2026 limits are $752,000 minimum and $1,130,000 maximum. Public Law 119-21 section 71108 changes this from January 1, 2028: a state may choose up to $1,000,000 for a non-agricultural home, and any indexed amount above $1,000,000 is deemed $1,000,000.
- Estate recovery applies to people who were 55 or older when they got nursing facility, home and community-based and related hospital and drug services; the mandatory estate is the probate estate, and each state may extend it to assets passing outside probate, including a living trust (1396p(b)).
CSV · 74 rows
Medicaid transfer, trust, home equity and estate recovery rules: 42 U.S.C. 1396p, CMS 2026 standards, Public Law 119-21 section 71108, SSA POMS resource rules and 2026 state penalty divisors, with a $600,000 worked example
74 rows: look-back, penalty formula, exemptions, trust and recovery text from 42 U.S.C. 1396p; CMS 2026 home equity and resource standards; Public Law 119-21 section 71108; SSA POMS resource rules; 2026 divisors for California, New York, Indiana and Texas; and the $600,000 worked example marked as our arithmetic.
Why this page is about illiquid assets, not about the trust
Most pages on a Medicaid asset protection trust explain the trust. The expensive questions come earlier: does the asset count at all, and what is the penalty if it moves? For a reader holding a rental building, an LLC or limited partnership interest, or shares of a non-traded REIT or business development company, those two answers differ from the answers for a bank account, and the federal statute and Social Security’s manual give them in plain words. This page reads them from the sources, then runs the arithmetic on one $600,000 rental.
One framing point (our reading). Federal law sets the transfer penalty, the trust rules, the home equity cap and the recovery duty. Resource limits, valuation practice, divisors and how far recovery reaches are largely set or applied state by state. Where this page uses Social Security’s SSI manual (POMS) for resource rules, many states follow SSI methods for older applicants, but a state may not, so treat those rows as the federal baseline and check your state’s manual.
How each asset counts as a resource
A resource, in Social Security’s test, needs an ownership interest, a legal right to access or convert the property, and legal ability to use it for support (SI 01120.010). Counting does not depend on how fast it sells.
| Asset | How it counts (SSI-method baseline) | What the sources say | What a transfer does |
|---|---|---|---|
| Your home | Excluded, but subject to the home equity cap | A home is property you own that is your principal place of residence (SI 01130.100); the cap in 1396p(f) is $752,000 to $1,130,000 in 2026 | A transfer of the home is penalized unless an exemption applies, such as a transfer to a spouse or to a child who lived there two years as a caregiver (1396p(c)(2)(A)) |
| Rental property (non-home real property) | Counted at current market value less debts on it | “Count the current market value” as a resource and count the “equity value” when there is a mortgage (SI 01140.100) | A gift or sale below market value is a transfer for less than fair market value; the uncompensated part enters the penalty formula |
| Rental income-producing exclusion | Up to $6,000 of equity may be excluded | Only if the property produces a net annual return of at least 6% of the excluded equity (SI 01130.503) | Does not protect a building worth hundreds of thousands (our reading) |
| Property used in a trade or business | Excluded regardless of value if in current use | Trade or business property essential to self-support is excluded regardless of value or rate of return (SI 01130.501) | Whether a rental portfolio is a trade or business is a fact question we did not find answered in the sources; ask the state |
| LLC or limited partnership interest | Counts if you can legally convert it to cash or use it for support | A legal bar to sale, such as a co-owner who legally blocks sale, can mean it is not a resource that month (SI 01120.010); a state may look through to the assets inside (not read) | Giving the interest away is a transfer at fair market value; how a state values a minority interest is set in its own manual (not read for this page) |
| Non-traded REIT or BDC shares | Counted; liquidity does not change countability | Liquidity “has no effect on a resource’s countability” (SI 01110.300); non-publicly traded stock “cannot be converted to cash within 20 working days” as a rule and the burden of proving value is on the individual (SI 01140.220) | Gifting shares transfers their value; the value you can document, for example from a NAV statement, drives the penalty (our reading) |
| Revocable trust | Corpus is a resource | “The corpus of the trust shall be considered resources available to the individual” (1396p(d)(3)(A)(i)) | Moving an asset into it changes nothing for eligibility |
| Irrevocable trust, principal can reach you | The reachable portion is a resource | If there are any circumstances under which payment could be made to you, that portion is your resource (1396p(d)(3)(B)(i)); SSA applies this “no matter how unlikely or distant in the future” (SI 01120.201) | Payments to anyone else from that portion are transfers |
| Irrevocable trust, principal can never reach you | Not a resource, but a transfer | A portion from which no payment could under any circumstances be made to you is treated as assets disposed of as of the date the trust was set up or payment was foreclosed (1396p(d)(3)(B)(ii)) | Starts a 60-month look-back (1396p(c)(1)(B)(i)) |
Two details change the real-estate answer. First, the federal definition of “assets” includes income and resources you are entitled to but do not receive because of your own action or the action of someone acting for you (1396p(h)(1)). Second, an asset held jointly is considered transferred “when any action is taken, either by such individual or by any other person, that reduces or eliminates such individual’s ownership or control” (1396p(c)(3)), so adding a child to a rental deed or letting a co-owner sell can itself start the clock (our reading).
The 60-month look-back, and when the clock really starts
For a person in a nursing facility, the look-back date is 60 months before “the first date as of which the individual both is an institutionalized individual and has applied for medical assistance under the State plan” (1396p(c)(1)(B)(ii)(I)). A transfer made before that window is not counted. Our arithmetic: a gift completed on October 20, 2026 is outside the look-back only for an application after October 20, 2031.
The statute names three ways a penalty can be avoided or cured: the transfer fell within an exemption, a satisfactory showing is made that the assets were transferred exclusively for a purpose other than to qualify, or “all assets transferred for less than fair market value have been returned to the individual” (1396p(c)(2)(C)); an undue hardship waiver also exists (1396p(c)(2)(D)).
The penalty period has a start rule that surprises people. It begins on “the first day of a month during or after which assets have been transferred for less than fair market value, or the date on which the individual is eligible for medical assistance under the State plan and would otherwise be receiving institutional level care … based on an approved application for such care but for the application of the penalty period, whichever is later” (1396p(c)(1)(D)(ii)). In practice that means the penalty is served after you have spent down to the resource limit and are in care, not while you are still well and paying privately (our reading).
The divisor arithmetic on a $600,000 rental
The formula is the total uncompensated value divided by the average monthly private-patient cost of nursing facility services in the state at the time of application, and a state “shall not round down” fractions of a month (1396p(c)(1)(E)). States publish their own number. These are the four we could read from the state’s own document.
| State | Divisor (state document) | Penalty on a $600,000 gift (our arithmetic) | Notes from the state document |
|---|---|---|---|
| California | $14,440 a month (DHCS ACWDL 26-03, February 9, 2026) | 41.55 months | Property limits returned January 1, 2026 at $130,000 for one person; no period of ineligibility is calculated for disqualifying transfers made between January 1, 2024 and December 31, 2025 |
| New York, New York City | $15,282 a month (DOH GIS 25 MA/14) | 39.26 months | Seven regional rates; the rate in effect at the date of application for the region of the facility; effective January 1, 2026 |
| New York, Western region | $13,765 a month (DOH GIS 25 MA/14) | 43.59 months | Same document; Rochester is $15,675 and Long Island $15,193 |
| Indiana | $8,027 a month for applications filed on and after July 1, 2026 (FSSA manual 3006.00.00) | 74.75 months | Applications from July 1, 2025 through June 30, 2026 used $7,651 |
| Texas | $262.37 a day from September 1, 2025 (HHSC handbook I-5100) | 2,286 days, about 75.1 months | Round down to whole days; the example is 600,000 divided by 262.37 = 2,286.85 days |
What the table shows (our reading): the same $600,000 gift costs 39 to 44 months of lost coverage in California and New York and about 75 months in Indiana and Texas, because their divisors are lower. Each penalty month is a month in which the family pays the nursing home about the divisor, so the penalty approximately consumes the amount given away. That is the reason the gift is only useful if it is outside the window, or if only part of the estate is moved.
Our arithmetic for the rental, step by step. Suppose a rental worth $600,000 with no mortgage is owned by a 70-year-old. Under the SSI-method baseline, up to $6,000 of equity can be excluded if the property returns 6% net; the other $594,000 counts, against a federal SSI resource standard of $2,000 for an individual (CMS, 2026), though states set their own limits (California’s is $130,000). If instead the owner deeds it to a child for nothing in 2026 and applies for nursing facility coverage after the transfer, the uncompensated value is $600,000, and the Indiana penalty is 600,000 divided by 8,027 = 74.75 months. If the owner had a $150,000 mortgage, only the $450,000 of equity is the uncompensated value in a gift of the equity (our reading); in California that is 450,000 divided by 14,440 = 31.16 months.
What an irrevocable trust changes, and what it does not
A Medicaid asset protection trust is an irrevocable trust in which you do not keep a right to principal. The federal rule is that, with the listed exceptions, the trust rules apply without regard to the purposes for which a trust is established, whether the trustees have or exercise discretion, or any restrictions on when or whether distributions may be made (1396p(d)(2)(C)). So the label does not decide; the payment rule does.
| Choice | Eligibility effect | Source | What to ask |
|---|---|---|---|
| Keep the rental in your name | Counts as a resource at market value less debt | 1396p; SI 01140.100 | Can it be converted to cash, and how does the state value it? |
| Gift it to a child outright | Transfer; penalty on the uncompensated value if inside 60 months | 1396p(c)(1) | Which divisor applies on the application date? |
| Revocable trust | No protection; corpus is your resource | 1396p(d)(3)(A)(i) | Is the trust really revocable? |
| Irrevocable trust that can pay you principal | Reachable portion counts as your resource | 1396p(d)(3)(B)(i) | Is there any circumstance in which principal could reach you? |
| Irrevocable trust that can never pay you principal | Transfer on the date of the trust or when payment was foreclosed; 60-month look-back | 1396p(d)(3)(B)(ii); 1396p(c)(1)(B)(i) | Who is trustee, who is beneficiary, and who pays the property tax? |
| Transfer to a trust solely for a disabled child or for a disabled person under 65 | Not penalized | 1396p(c)(2)(B)(iii)-(iv) | Does the trust meet the statutory words, such as “solely for the benefit”? |
For rental property specifically, the trust does not change what it costs to own. A trust that owns a rental still has a lender with a due-on-sale clause, a property tax bill and a tax return, and moving title can have income and gift tax effects that are separate from Medicaid. We cover the lender and title questions for a revocable trust in our guide to deeding real estate into a living trust and the gift-tax reporting of illiquid interests in our Form 709 guide. A gift to a child also gives the child your tax basis rather than a step-up at death (our reading); see our step-up in basis guide. A gift of a home with a retained term is a different tool, covered in our QPRT guide, and it is a gift for Medicaid purposes too (our reading).
A life estate deed is one more way to split ownership; it is outside this page beyond one point: the statute treats a purchase of a life estate interest in another person’s home as an asset disposal unless the buyer lives there at least one year (1396p(c)(1)(J)).
The home equity limit: 2026 numbers and the 2028 change
The home is excluded as a resource, but not without limit. The statute denies nursing facility and other long-term care coverage if “the individual’s equity interest in the individual’s home exceeds $500,000,” lets a state raise that to no more than $750,000, and indexes both amounts for inflation from 2011 (1396p(f)(1)). The cap does not apply when a spouse, or a child under 21 or blind or disabled, lives in the home (1396p(f)(2)), and using a reverse mortgage or home equity loan to reduce equity is allowed (1396p(f)(3)).
CMS’s December 9, 2025 bulletin sets the 2026 values: minimum $752,000 and maximum $1,130,000. Its April 27, 2026 update changed only the monthly maintenance allowances, and shows the same home equity figures.
| Item | 2026 (CMS) | From January 1, 2028 (Public Law 119-21 section 71108) |
|---|---|---|
| Minimum (statutory base indexed) | $752,000 | Still indexed, but any indexed amount above $1,000,000 is deemed to be $1,000,000 |
| State-option maximum, non-agricultural home | $1,130,000 | A state may elect up to $1,000,000 (the new clause (ii)) |
| Home on a lot zoned for agricultural use | Within the same range | The state-option ceiling stays at $750,000 (indexed) under the amended clause (i) |
| Where the limit applies | Nursing facility and other long-term care services | Section 71108(b) adds that section 1902(r)(2) (less restrictive methodologies) cannot be read to let a state skip the limit for nursing facility and other long-term care services |
The correction to the usual summary: the 2028 law does not remove or raise the cap. It lowers the top of the range, from $1,130,000 in 2026 to $1,000,000 from January 1, 2028 (our reading of the text). Because the cap is about the home, a rental building is not covered by it: a rental is counted in full as a resource (SI 01140.100), which is why the home and the rental are planned differently.
Estate recovery after death
Estate recovery is a separate question from eligibility. A state must seek recovery from the estate of a person who was 55 or older when receiving nursing facility services, home and community-based services and related hospital and prescription drug services, and may extend it to other items (1396p(b)(1)(B)). Recovery may be made only after the death of a surviving spouse and when there is no surviving child under 21 or blind or disabled (1396p(b)(2)(A)), and a state must have an undue hardship waiver procedure (1396p(b)(3)(A)).
The estate “shall include all real and personal property and other assets included within the individual’s estate, as defined for purposes of State probate law,” and “may include, at the option of the State,” any other asset in which the individual had “any legal title or interest at the time of death,” including assets conveyed through “joint tenancy, tenancy in common, survivorship, life estate, living trust, or other arrangement” (1396p(b)(4)). Our reading: assets you gave away completely and irrevocably more than 60 months ago are not yours at death, while assets in which you kept an interest, including an income interest, can be reached in a state that uses the expanded definition. Our transfer on death deed state-by-state guide shows which states reach non-probate property.
Decision points before moving a rental or an LLC interest
What the documents make decisive, not a recommendation (our reading):
- The date. Any transfer on or after the look-back date enters the formula, and the formula adds all transfers together (1396p(c)(1)(E)(i)); a gift made in 2026 is safe only for an application after October 20, 2031.
- The state. The divisor, the resource limit and the reach of recovery are state choices; California’s numbers changed on January 1, 2026, and Indiana’s on July 1, 2026.
- The asset. A rental counts at equity, an LLC interest counts if you can legally convert it, a non-traded share counts even if it cannot be redeemed for months (SI 01110.300, SI 01140.220), and the home has its own cap.
- What you keep. A trust that lets principal reach you leaves that portion counted; a trust that cannot starts the look-back.
- Care you can pay for. The penalty runs only once you are otherwise eligible, so the plan has to cover the private-pay years before and during the 60 months.
- Taxes and control. A completed gift changes who owns the rental, who pays tax on its income, and what basis passes on; those are separate from Medicaid.
Who does this work: a Medicaid asset protection trust is drafted and funded by an elder law or estate-planning attorney licensed in your state, and the application is made to the state agency. The match below connects you with fee-only or fee-based financial advisers who can look at the whole balance sheet, including how much you must keep to pay for care and the taxes on any sale. An adviser does not draft the trust and does not decide eligibility. If you already have an attorney, take this page’s sources to that conversation.
This is analysis of public documents, not investment, legal or tax advice.
What a reader can do with this
- Find your state’s divisor and its date. Use the state’s own manual or letter, not a blog; the four we read are in the table above.
- List each illiquid asset with a value you can document: deed and mortgage balance for a rental, the operating agreement and latest capital account for an LLC or LP, the latest NAV statement for a non-traded share. Social Security’s manual puts the burden of proving value on the owner (SI 01140.220).
- Run your own numbers with the formula: the amount you would move, divided by your divisor, compared with the months of care you could pay privately. Remember the formula adds up every transfer in the window.
- Ask your attorney three questions: can principal ever reach me under this trust, who counts as the trustee and beneficiaries, and what does my state do about recovery after death?
- If the home is worth near $752,000 or more, ask whether the state uses the floor, the ceiling, or a figure between; and note the $1,000,000 ceiling from January 1, 2028.
- If your illiquid assets are shares that cannot be redeemed quickly, read their repurchase terms in our real estate crowdfunding liquidity guide before you assume they could pay for care.
FAQ
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An email when the medicaid look-back rule changes numbers change
When a rate, rule or filing behind this page changes: what changed, the one number that matters, and the source to check it yourself.
Sources, read and saved on October 20, 2026: 42 U.S.C. 1396p, United States Code 2024 edition, Government Publishing Office (govinfo.gov); CMS CMCS Informational Bulletins of December 9, 2025 (cib12092025.pdf) and April 27, 2026 (cib04272026.pdf), medicaid.gov; Public Law 119-21, section 71108, govinfo.gov; SSA Program Operations Manual System SI 01110.300, 01120.010, 01120.201, 01130.100, 01130.501, 01130.503, 01140.100 and 01140.220 (secure.ssa.gov); California DHCS All County Welfare Directors Letter 26-03 (February 9, 2026, read from the Internet Archive capture); New York State Department of Health GIS 25 MA/14 (December 22, 2025); Indiana FSSA Indiana Health Coverage Program Policy Manual section 3006.00.00; Texas HHSC Medicaid for the Elderly and People with Disabilities Handbook I-5100 (revision 25-4). Worked examples are our arithmetic. State rules, divisors and valuation practice differ and change; this page reads four states only.
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