How Do You Protect Assets From Nursing Home Costs? Medicaid Planning in New Jersey

The short answer: the tools exist, they are legal, and they work best when used years before care is needed. Medicaid pays for long-term care only after a person’s countable assets are down to 2,000 dollars, and it penalizes gifts made within the five years before applying. Within those rules, New Jersey families protect a home and savings by funding an irrevocable trust more than five years ahead, by using the protections the law gives a spouse who stays at home, by transferring a home to a child who provided care, and, when time has run out, by combining gifts with annuities or other structures that shorten the penalty. None of this is a secret. All of it depends on the details of federal law and on New Jersey’s 2026 figures, which this article sets out.

This is an overview of Medicaid planning for New Jersey residents, with notes on New York and Connecticut where the rules differ. For how Medicaid recovers what it paid after death, see our article on New Jersey Medicaid estate recovery.

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What Does It Take to Qualify for Medicaid Long-Term Care in New Jersey?

New Jersey delivers long-term care Medicaid through the Managed Long Term Services and Supports program, which pays for nursing home care, assisted living, and care at home. Eligibility has a clinical side and a financial side. Clinically, a state nurse must find that the applicant needs hands-on help with three or more activities of daily living. Financially, two limits apply.

Assets. The applicant may own no more than 2,000 dollars in countable resources as of the first day of the month. The home, one vehicle, personal belongings, an irrevocable funeral trust, and a few other items are not counted. Everything else is: bank accounts, brokerage accounts, retirement accounts, the cash value of life insurance above a small threshold, and real estate other than the home.

Income. New Jersey is an income-cap state. Under the Division of Medical Assistance and Health Services’ 2026 standards, an applicant with gross monthly income above 2,982 dollars is not eligible unless the excess is routed through a Qualified Income Trust, also called a Miller trust. The trust is a simple document and a dedicated bank account; income deposited into it is disregarded for eligibility and used toward the cost of care. New York and Connecticut do not use an income cap; an applicant there with high income simply pays more toward care.

The home. The home is exempt while the applicant or a spouse lives there or the applicant intends to return, subject to a home equity limit that federal law sets and adjusts annually. New Jersey applies the higher federal figure, which for 2026 is 1,130,000 dollars of equity.

How Does the Five-Year Look-Back Work?

Under 42 U.S.C. 1396p(c), the state examines every transfer the applicant or spouse made for less than fair market value during the 60 months before the application. Gifts to children, transfers to most trusts, sales below value, and unexplained cash withdrawals all count. The total is divided by a “penalty divisor” representing the average daily cost of nursing home care in the state, and the result is the number of days the applicant is ineligible for Medicaid payment of long-term care.

Two features of the rule drive most planning. First, the divisor. New Jersey’s Medicaid Communication 26-04 set it at 420.67 dollars per day effective April 1, 2026, so a gift of 100,000 dollars produces a penalty of 237 days. Second, the start date. Since the Deficit Reduction Act of 2005, the penalty begins not when the gift was made but on the date the applicant is “otherwise eligible,” meaning in a nursing home, or needing that level of care, and down to 2,000 dollars in assets. A family cannot give away money, wait out the penalty at home, and then apply. The penalty starts only after the money is gone.

A transfer made more than 60 months before the application is invisible. That is the whole logic of planning early.

What Transfers Are Exempt From the Penalty?

Federal law lists transfers that carry no penalty no matter when made:

• To a spouse, or to another person for the spouse’s sole benefit.
• To a child who is blind or permanently and totally disabled, or to a trust solely for that child.
• To a trust for a disabled person under 65, including the applicant, if the trust repays Medicaid at the beneficiary’s death.
• Of the home to a child under 21 or a disabled child; to a sibling who has an equity interest in the home and lived there for at least a year before the applicant entered a facility; or to an adult child who lived in the home for at least two years before the applicant’s institutionalization and provided care that kept the applicant out of a nursing home during that period.

The last of these, the caregiver child exemption, is the most valuable and the most often missed. A daughter who moved in to care for her mother for three years can receive the house outright, with no penalty and outside estate recovery, if the family can document her residence and the level of care. Medical records, a physician’s letter, and a caregiving log assembled while the care is happening make the difference; reconstructing them at the application is much harder.

How Does an Asset Protection Trust Work?

The Medicaid asset protection trust is an irrevocable trust to which a parent transfers the home and often other assets, keeping the right to live in the home and, in many designs, the right to the trust’s income, but giving up the right to the principal. Because the parent cannot reach the principal, it is not a countable resource, and because the transfer to the trust is a gift, the five-year look-back applies. Funded five years before an application, the assets in the trust are protected from the spend-down and, because the parent holds no title at death, from estate recovery.

The trust must be drafted with several tensions in mind. It must deny the parent access to principal firmly enough that Medicaid does not count it, while preserving enough control, such as a power to change beneficiaries, that the assets receive a stepped-up basis for the children at the parent’s death and the parent keeps the homeowner’s capital gain exclusion. It should allow the trustee to sell the house and buy another. And it must be administered as a trust: the parent cannot borrow from it, direct distributions, or treat it as a personal account without undermining it. Our article on keeping a vacation home in the family covers the design choices in more detail, and our article on directed trusts explains how the trustee role can be structured.

What Protections Does a Spouse at Home Have?

Federal spousal impoverishment rules, applied in New Jersey through N.J.A.C. 10:71-4.8, let the spouse who remains in the community, the “community spouse,” keep assets and income that would otherwise be spent on the other spouse’s care.

Assets. The community spouse keeps a Community Spouse Resource Allowance equal to one-half of the couple’s combined countable assets as of the start of the institutionalized spouse’s continuous care, subject to a floor and a ceiling that New Jersey set for 2026 at 32,532 dollars and 162,660 dollars. A couple with 400,000 dollars in countable assets sees the community spouse keep 162,660 dollars; the institutionalized spouse must spend the rest to 2,000 dollars, on care, on exempt assets, or on planning structures.

Income. The community spouse keeps all of their own income and may receive a Community Spouse Monthly Maintenance Needs Allowance from the institutionalized spouse’s income. Under New Jersey’s Medicaid Communication 26-05, effective July 1, 2026, the base allowance is 2,705 dollars a month, increased by the community spouse’s shelter costs above 811.50 dollars, including a utility allowance of 878 dollars, up to a federal maximum. A community spouse whose own income is below the allowance receives the difference from the institutionalized spouse’s income before Medicaid takes the rest as the cost share.

Raising the allowances. A community spouse whose income, even with the maintenance allowance, is not enough to live on can ask for a larger resource allowance to generate income, through a fair hearing or a court order. A Medicaid-compliant annuity purchased with the excess assets, discussed below, is the most common tool for turning countable assets into the community spouse’s protected income.

Spousal refusal. New York’s Social Services Law section 366(3)(a) lets a community spouse refuse to make their income and assets available, forcing Medicaid to evaluate the applicant alone, subject to the State’s right to sue the refusing spouse later. New Jersey has no comparable statute. Its rules permit a waiver of the spousal resource assessment only in narrow hardship circumstances, and families should not count on it.

What Can Be Done When Care Is Needed Now?

Families who did not plan five years ahead are not without options. These are the structures that work inside the look-back, each of which requires precise execution:

• Spend-down on exempt assets. Paying off the mortgage, repairing the home, prepaying an irrevocable funeral trust, and replacing an old car convert countable money into exempt assets at full value, with no penalty because fair value was received.
• Caregiver agreements. A written contract under which a family member is paid a market rate for care actually provided, prospectively, lets the applicant compensate a child without the payments being treated as gifts. Payments for past care, or without a contract, are gifts.
• The gift-and-annuity plan. Often called “half a loaf,” this combines a gift to the children with the purchase of a Medicaid-compliant annuity that pays the applicant an income stream during the resulting penalty period, sized so that the annuity income plus the applicant’s other income covers the nursing home bill until the penalty expires. The gift is preserved. The annuity must meet the federal rules in 42 U.S.C. 1396p(c)(1)(F) and (G): irrevocable, non-assignable, actuarially sound, paid in equal installments with no balloon, and naming the State of New Jersey as remainder beneficiary. The calculation depends on the penalty divisor, the applicant’s income, the facility’s private rate, and the applicant’s life expectancy, and a miscalculation leaves the applicant without coverage.
• Annuities for the community spouse. A Medicaid-compliant annuity purchased for the community spouse with assets above the resource allowance converts them to that spouse’s income, which Medicaid does not count against the institutionalized spouse.
• Transfers to a disabled child or a special needs trust. Exempt from the penalty at any time, as described above.
• Curing a gift. A gift returned in full before the application erases the penalty for that gift. A partial return reduces it proportionately.

What Should Families Not Do?

• Give everything to the children and hope. Outright gifts expose the assets to the children’s creditors, divorces, and deaths, forfeit the stepped-up basis, and, if made within five years, produce a penalty that begins only after the parent is impoverished.
• Add a child’s name to accounts or the deed. New Jersey treats a joint account as the applicant’s to the extent of contributions and treats adding a child to a deed as a gift of half the house. Neither protects anything, and both complicate the application.
• Rely on a revocable trust. Assets in a revocable trust are fully countable and fully recoverable. The trust avoids probate and nothing else.
• Pay cash without records. New Jersey’s application guidance states that “checks written to ‘cash’ will result in a transfer penalty” unless documented. Every large withdrawal in the five-year window needs a receipt or an explanation.
• Wait. Every year that passes before the trust is funded is a year the family may need.

How Do New York and Connecticut Differ?

The federal framework is the same, and the states diverge on details that matter. New York has no income cap and permits spousal refusal. New York also has a 30-month look-back for community-based long-term care that has been enacted but repeatedly postponed, and a New York family planning for home care should confirm its status. Connecticut’s asset limit is 1,600 dollars rather than 2,000, and Connecticut has no income cap. Both states apply the same 60-month look-back for nursing home care and the same exempt transfers. A family with a parent in one state and children in another should plan under the law of the state where the parent will apply.

Our article on whether Medicare pays for housekeeping describes the New Jersey, New York, and Connecticut programs that pay for care at home, which are the programs most of this planning is designed to reach.

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Medicaid planning is not about hiding assets. It is about using the rules Congress and the State wrote, on time and correctly. At Milvidskiy Law Group, we help families protect their homes and savings, qualify for the care they need, and handle the application from start to approval. Learn more about our Medicaid planning services.

This article is for general informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship. Medicaid rules and figures change every year and depend on individual facts. The 2026 New Jersey figures cited are from Division of Medical Assistance and Health Services Medicaid Communications 26-01, 26-04, and 26-05, and federal rules from 42 U.S.C. 1396p, all verified in September 2026; they should be confirmed before relying on them.