Long-Term Care in Katy, TX: Will Nursing Home Costs Deplete Your Savings?
Margaret spent 40 years building wealth. She and her husband paid off their home, accumulated retirement savings, and created a comfortable life. Then Margaret was diagnosed with early-onset dementia at 68. Within three years, she needed full-time care in a nursing home. The monthly cost was $7,500. Margaret’s family made the agonizing choice to place her in a facility, but they quickly realized that her retirement savings would be depleted in five years, leaving nothing for her husband or their children. Margaret’s husband sat across from a Medicaid caseworker who explained that Margaret’s assets were “over the limit” for Medicaid coverage. The caseworker suggested they “spend down” their savings on her care until everything was gone. That’s when the family realized they should have planned ahead. With proper Medicaid planning and the right trust structure, Margaret’s family could have protected a significant portion of their assets while still qualifying for Medicaid to cover her long-term care. Instead, they watched decades of careful financial planning evaporate to pay for nursing home bills. This is the reality for thousands of Texas families every year. Medicaid can provide critical financial assistance for long-term care, but only if you understand the rules and plan ahead. The good news is that Texas law allows you to protect your assets while still qualifying for Medicaid, but the planning has to happen before you need care, and it has to be done right.
Key Takeaways
- Medicaid can pay for long-term care in Texas, but only if your assets and income fall below strict limits (as of 2026, under $2,000 in assets and under $2,982 in monthly income for individuals)
- The five-year look-back period means Medicaid will examine all asset transfers made within five years before your application date
- Asset transfers made during the look-back period can trigger a penalty period of Medicaid ineligibility
- Irrevocable Medicaid trusts, when properly structured and funded before you need care, can protect assets while still allowing you to qualify for Medicaid
- Qualified Income Trusts (Miller Trusts) allow people with income above the limit to become income-eligible for Medicaid
- Without proper planning, your family could lose hundreds of thousands of dollars to nursing home costs
Understanding Medicaid Coverage for Long-Term Care in Texas
Medicaid is a federal and state program that pays for healthcare services for low-income individuals and families. In Texas, Medicaid covers certain long-term care services, including nursing home care, assisted living facility care, and home and community-based services through Medicaid Waiver programs.
The problem is that Medicaid is means-tested, which means your eligibility depends on your income and assets. If you have too much money, you don’t qualify. As of January 2026, the asset limits for individual long-term care Medicaid applicants in Texas are:
- Countable assets must be at or below $2,000 for individuals
- Monthly income must be at or below $2,982 (or $2,901 under the waiver program)
For married couples, the rules are more complex. The spouse not applying for Medicaid (called the community spouse) can keep their home, one vehicle, and up to 50% of the couple’s combined assets, up to a maximum of $157,920 as of 2026.
What Assets Are Counted?
Medicaid counts most assets against the limit, including bank accounts, investment accounts, real estate (other than your primary home if you’re still living there), vehicles (over one), life insurance with a cash value, and property you own. Your primary residence is generally exempt if you or your spouse lives there, and one vehicle is exempt regardless of value.
What Medicaid doesn’t count includes your primary home (if occupied), one vehicle, personal property like furniture and jewelry, life insurance with no cash surrender value, and properly structured trust assets that meet Medicaid rules.
The Income Limit
Texas follows an “income cap” model for Medicaid eligibility. This means that even if your assets are under the limit, if your income exceeds the monthly cap, you don’t automatically qualify. However, Texas offers a solution through Qualified Income Trusts (discussed later) that allows people above the income cap to still qualify.
The Five-Year Look-Back Period and Penalty
Here’s where Medicaid planning gets critical. Texas has a five-year “look-back period” for long-term care Medicaid. This means that when you apply for Medicaid, the state will examine every financial transaction you made during the five years before your application date.
The look-back period is designed to prevent people from giving away all their assets or selling assets below market value just to become eligible for Medicaid. If Medicaid finds improper transfers during the look-back period, it imposes a “penalty period” of ineligibility.
How the Penalty Period Is Calculated
The penalty is calculated by dividing the total value of improper transfers by Texas’s monthly penalty divisor. As of 2026, the penalty divisor is approximately $7,339 per month. So if you gave away $73,390 during the look-back period, you’d be ineligible for Medicaid for approximately ten months (10 × $7,339 ≈ $73,390).
During that penalty period, you have to pay for your own care out of pocket. Medicaid won’t pay anything. Once the penalty period ends, your Medicaid coverage begins, assuming you still meet the asset and income limits.
What Counts as an Improper Transfer?
Any transfer of assets for less than fair market value counts as an improper transfer. This includes gifts to family members, selling property for below market value, adding someone’s name to your accounts or property without receiving fair value in return, and paying off someone else’s debts.
Gifts to your spouse don’t count as improper transfers and don’t trigger a penalty. But gifts to anyone else, even family members you’re trying to help, can cost you dearly.
The Importance of Planning Before the Look-Back Period
This is the most critical concept to understand about Medicaid planning. Because of the five-year look-back, you need to start planning for Medicaid well before you need care. The best time to establish Medicaid protection is when you’re healthy and independent.
If you wait until you or your spouse is diagnosed with a serious illness, or until you’re already showing signs of needing care, it’s often too late. Any major asset transfers made after that point will be scrutinized by Medicaid and likely trigger a penalty period.
The ideal Medicaid planning starts five to ten years before you might need long-term care. This gives you time to properly structure your assets, fund trusts, and ensure everything is in order without triggering penalties.
Medicaid Asset Protection Trusts
An irrevocable Medicaid Asset Protection Trust (MAPT) is one of the primary tools used to protect assets while still allowing you to qualify for Medicaid. It works by removing assets from your personal ownership and placing them in a trust that’s managed by a trustee you select.
How Medicaid Trusts Work
When you create an irrevocable Medicaid trust and transfer assets into it, those assets are no longer considered your personal property for Medicaid eligibility purposes. You give up control of the assets and direct ownership, but the trust can be structured to benefit you and your family members. The trustee manages the assets and can distribute income to you or use the trust to pay for your care expenses.
The key word is “irrevocable.” Once you create the trust and fund it, you cannot change the terms, dissolve the trust, or take the assets back. That’s what makes it work for Medicaid. Because you’ve given up control and ownership, Medicaid doesn’t count those assets against your eligibility limit.
The Critical Requirement: The Trustee Cannot Be You
For the trust to qualify under Medicaid rules, you cannot be the trustee. A neutral third party has to manage the trust and make distribution decisions. This is often a family member, a professional trustee, or a combination of both. The trustee has a fiduciary duty to manage the trust properly and cannot simply hand money back to you whenever you want it.
Trust Distribution Rules
The way the trust is structured determines whether the assets remain protected. The trust can typically distribute income to you, but distributions from the principal directly to you can make those assets countable for Medicaid eligibility. A properly structured Medicaid trust will have provisions that allow the trustee to use trust funds for your care, medical expenses, or supplemental needs without violating Medicaid rules.
Timing Is Everything
Assets must be transferred into a Medicaid trust at least five years before you apply for Medicaid benefits. If you transfer assets into a trust less than five years before your application, Medicaid will treat the transfer as a disqualifying gift and impose a penalty period.
This is why starting early is so important. If you fund a Medicaid trust today and then need long-term care in five years and one month, the assets are fully protected and you can qualify for Medicaid immediately. But if you fund the trust and need care in four years, you’ll face a penalty period waiting for benefits.
Qualified Income Trusts (Miller Trusts)
For people whose income exceeds the Medicaid cap (as of 2026, over $2,982 per month for individuals), a Qualified Income Trust, also called a Miller Trust, provides a solution.
How Miller Trusts Work
A Qualified Income Trust is an irrevocable trust into which you deposit your “excess” income, the amount that pushes you over the Medicaid income limit. Once that income is in the trust, it no longer counts toward your Medicaid eligibility. The trustee manages the trust and can only use the funds for specific purposes, such as paying unreimbursed medical expenses, nursing home copays, or other qualified expenses.
For example, if your monthly income is $3,500 and the Medicaid income cap is $2,982, you have $518 in excess income each month. A Miller Trust allows that $518 to be deposited into the trust, removing it from your Medicaid income calculation. You’re now income-eligible at $2,982, even though your actual monthly income is higher.
Key Requirements for Miller Trusts
The trust must be irrevocable. The trustee cannot be you. The trust can only be used for specific qualified expenses. A copy of the trust must be provided to the state, and Medicaid must be named as beneficiary for any remaining funds after your death.
Miller Trusts are particularly valuable for people on fixed incomes like Social Security or pensions that exceed the Medicaid cap. They allow people to qualify for Medicaid without having to dramatically reduce their spending or give away income to family members.
Coordinating Medicaid Planning With Other Estate Planning Documents
Medicaid planning doesn’t happen in a vacuum. It needs to be coordinated with your overall estate plan, including your will, revocable living trusts, durable power of attorney, and medical power of attorney.
The Challenge of Multiple Trusts
If you’re using a revocable living trust to avoid probate and manage your affairs if you become incapacitated, and you’re also using an irrevocable Medicaid trust to protect assets, these trusts need to work together seamlessly. Assets in your revocable trust will be counted for Medicaid purposes, while assets in an irrevocable Medicaid trust will not.
Many people have to split their assets between the two trusts, keeping some in the revocable trust for flexibility and immediate access, and placing other assets in the irrevocable Medicaid trust for protection.
Planning for the Spouse
If you’re married, Medicaid planning becomes even more complex. The community spouse (the one not applying for Medicaid) has greater asset protections, and you need to structure your estate plan to take advantage of those protections while still allowing the applicant to qualify.
Protecting Your Home
Your primary residence is generally exempt from Medicaid’s asset limits if you or your spouse lives there. However, the state can impose a lien on your home after you receive Medicaid benefits, and upon your death, the state can seek repayment from your estate for Medicaid benefits paid on your behalf.
To fully protect your home, you may want to transfer it into an irrevocable trust before the look-back period. However, this is complex because you might want to keep the ability to live in your home or make changes to it, and an irrevocable transfer gives up that flexibility.
Some people use a technique called a “ladybird deed” or retained life estate deed, which allows you to transfer the home while retaining the right to live there and the right to modify or sell it. These deeds can provide Medicaid protection while maintaining flexibility, but they must be structured carefully to comply with both Texas property law and Medicaid rules.
When It’s Too Late to Plan
If you’re already in need of long-term care or you’ve been diagnosed with a condition that will require significant care soon, traditional Medicaid planning strategies may not work. Transfers made at this point will fall within the five-year look-back period and trigger penalties.
However, even in urgent situations, there are limited planning techniques available. Couples can use spousal transfers to move assets to the community spouse. You can pay for care out of pocket for a period of time, creating a “runway” before you need Medicaid. And Medicaid has some exceptions to the look-back period for certain types of transfers, though they’re limited.
The lesson is clear: start planning early. Even if you’re in your 50s and healthy, if you have significant assets, talking to an elder law attorney about Medicaid planning can protect your family’s wealth.
Special Situations: Second Marriages and Complex Family Dynamics
Medicaid planning becomes much more complicated in blended families or when there’s a significant age difference between spouses. If you’re in your 80s and married to someone in their 60s, and you need long-term care, the rules protecting the community spouse can result in a situation where your younger spouse is entitled to keep a large portion of your assets while you’re on Medicaid.
Similarly, in second marriages, you might want to protect assets for your children from your first marriage rather than relying on your current spouse to pass assets along. Medicaid planning, combined with irrevocable trusts and children’s trusts, can address these concerns.
Frequently Asked Questions About Medicaid Planning and Trusts
- If I put assets in an irrevocable trust, can I ever get them back?
No. An irrevocable trust cannot be changed or revoked once it’s created. The whole point is that you give up ownership and control so Medicaid won’t count those assets. If you could take them back whenever you wanted, they would still be countable for Medicaid purposes. - Can I create a Medicaid trust and still access my money if I need it?
Your trustee can distribute money from the trust to pay for your care, medical expenses, or other qualified purposes. But you don’t have direct access to the money, the trustee makes distribution decisions. This is actually a benefit because it means the money is protected from creditors and it won’t count against your Medicaid eligibility. - What happens to the trust after I die?
The trust continues after your death, but it’s typically closed and the remaining assets are distributed to the beneficiaries you named in the trust. If you received Medicaid benefits, the state may have a lien on your estate and could seek repayment from the trust assets for benefits paid on your behalf. - Can I transfer my home into a Medicaid trust?
Yes, but it’s complex. If you simply transfer your home into an irrevocable trust and then move into a nursing home, Medicaid might count the home as an improper transfer and impose a penalty. However, if you transfer it well before you need care (outside the look-back period), and the trust is structured properly, it can be protected. - Does Medicaid planning mean I’m trying to avoid paying for care?
Medicaid planning is legal and encouraged. The goal isn’t to hide assets from Medicaid, it’s to structure your assets legally so that you can preserve your family’s wealth while qualifying for Medicaid benefits you’re entitled to. Medicaid is a partnership between you and the government. You pay what you can, and Medicaid helps with the rest. - What’s the difference between legal Medicaid planning and illegal asset hiding?
Legal Medicaid planning follows all the rules and happens well in advance of needing care. Transfers are properly documented, trusts are created with legitimate purposes, and everything is transparent. Illegal asset hiding involves deception, failing to disclose transfers, or fraudulently transferring assets to avoid paying for care. Working with an experienced attorney ensures you stay on the legal side of the line. - How much does Medicaid planning cost?
The cost depends on the complexity of your situation. A simple Medicaid trust might cost $1,500 to $3,000 in legal fees. More complex planning involving multiple assets, spousal situations, or blended families could cost more. But remember, the cost of planning is typically far less than the amount of assets you’ll protect. If planning costs $2,500 and protects $500,000 in assets, it’s an excellent investment. - Can I do Medicaid planning myself using online forms?
Medicaid planning is extremely technical and state-specific. Small mistakes can invalidate trusts or trigger penalties that cost far more than professional fees. Online forms might create a document that looks official but doesn’t actually protect your assets. Working with an experienced elder law or estate planning attorney is strongly recommended. - What if I’ve already made transfers that might trigger Medicaid penalties?
Depending on when the transfers were made and to whom, there might still be options. Talk to an attorney immediately. Some transfers might not be subject to penalties, or there might be techniques to address penalties. But the sooner you address this, the better.
Starting Your Medicaid Planning Today
Long-term care costs in Texas are climbing, and without planning, your family’s lifetime of savings can disappear to nursing home bills. Medicaid can provide critical financial assistance, but only if you’ve planned ahead and structured your assets correctly.
The five-year look-back period means you need to start thinking about Medicaid planning long before you might need care. Even if you’re healthy and independent now, having a strategy in place protects your family’s future and ensures that your wealth goes to the people you love instead of entirely to healthcare costs.
At Brewster Howard Law Firm, we help clients throughout Katy, Katy, Fort Bend County, and nearby communities with comprehensive Medicaid planning. We’ll review your financial situation, discuss your goals for your family’s future, and create a strategy that protects your assets while ensuring you can qualify for Medicaid when you need it.
We’ll coordinate your Medicaid planning with your revocable living trust, durable power of attorney, medical power of attorney, and wills so everything works together seamlessly. We’ll make sure your trusts are properly structured, legally valid, and actually accomplish what you want them to accomplish.
If you have significant assets and you’re concerned about long-term care costs, or if you’ve already been diagnosed with a condition that might require care, don’t wait. Call us today and let’s talk about protecting your family’s future.