29 Jun 30 Common Mistakes When Completing A Nursing Home Medicaid Application Or Planning For Eligibility
The cost of long-term care is great (average is around $7,900/month in Texas). As a result, many apply for long-term care Medicaid for governmental assistance to help pay the facility and drugs. It is not unusual for us to receive calls after either a facility or applicant has submitted an application and made a costly error that could result in ineligibility (resulting in financial responsibility ranging from the difference between the applicant’s income and the private pay rate to as much as the full monthly private pay rate plus drug costs for each month of ineligibility).
The following are some of the most common mistakes that we see:
1. Failure to confirm medical necessity
Many times the agent for the applicant assumes there is sufficient medical necessity for skilled care. This should be confirmed prior to spending a lot of time obtaining information needed for an application.
2. Failure to confirm Medicaid bed availability
There would not be eligibility if the applicant fails to be in a Medicaid bed.
3. Looking at only the net income of the applicant instead of the gross
Usually a Medicare B premium (often $202.90 or more in 2026) and sometimes a Medicare D premium is withheld before a Social Security income deposit is made into an applicant’s bank account. Some even withhold income taxes. Medicaid considers those premiums and taxes withheld as part of the gross income. If the gross income is over the income cap ($2982 per month in year 2026), then there is ineligibility (unless a qualified income trust received that income). IRA required minimum distributions could also result in ineligibility since it would be income in the month of receipt.
4. Using the balances shown on a statement instead of reconciling for end of the month balances
Medicaid looks at end-of-the-month balances on all financial statements to determine balances as of 12:01 am on the first day of the month to verify resource eligibility. If a statement cycle runs mid-month to mid-month, the ending balance shown on the statement may not be the balance as of 12:01 am on the first day of the month and could put the applicant over the resource limit. Furthermore, checks that are written in a month that do not clear until the next month should be reviewed since Medicaid looks at the date of the check.
5. Failure to provide entire financial statements
The state requires all pages to a financial statement even if the statement has no pertinent information on it (such as an advertisement, is intentionally left blank or includes a reconciliation page). If the statement says 1 of 8 pages, then 8 pages must be submitted. Failure to provide the complete statement could result in a delay or even denial.
6. Intent to Return Home
A homestead is generally a non-countable resource if the applicant is either married or if an applicant is single and has an intent to return home (if single, the equity limit in Texas is $752,000 in 2026 and no limit if married and only one spouse needs care). There is a box on the application asking if the applicant intends to return home. There is also a separate form (Notice of Intent to Return Home) to be signed. Many think the applicant will never return home – so they say there is no intent to return home by error or mistake. Each month that there is no proof of intent to return to the homestead would result in ineligibility. Furthermore, it usually takes the state over 3 months to respond. So, if an applicant didn’t realize his or her mistake until receipt of the letter of denial, this would result in an obligation to pay the facility privately for those months of ineligibility until the error is corrected.
7. Homestead is in a Revocable Living Trust
A homestead is generally a non-countable resource. However, if the applicant has deeded his or her homestead to applicant’s revocable living trust, then it would count as a resource which often creates ineligibility.
8. Failure to consider cash surrender value of life insurance policies
If the applicant has one or more life insurance policies with a total face value that exceeds $1500, then the cash surrender value counts as a resource. If the applicant examined that before applying, then there are many options to solve the problem so that eligibility could be obtained.
9. Failure to identify all closed accounts
Since the government is concerned about uncompensated transfers, it checks with the IRS regarding all sources of income (including dividends and interest) within the 5 years prior to application. A failure to identify the closed accounts and where the proceeds went could delay eligibility. Thus, it is a good idea to keep 1099s for 5 years prior to an application.
10. Failure to purchase an annuity within an IRA if the IRA applicant is not old enough to take a RMD or the applicant owns a Roth IRA
Annuities within IRAs do not count as a resource. However, timing is critical.
11. Failure to take advantage of spousal prevention of impoverishment rules and other options
It is not unusual that a spouse of the applicant can keep more resources than the “maximum” if their combined monthly income is low enough. Even if the combined incomes are too great, it is not unusual to purchase a Medicaid compliant annuity in the name of the spouse living in the community to achieve eligibility. Sometimes the community spouse can even try to increase the income allowance.
12. Failure to take advantage of exceptions to transfer penalty rules
In addition to certain trusts, transfers to a spouse or to a disabled child or to certain accounts for the benefit of a grandchild’s, etc. education are just a few of the exceptions. Also, sometimes the applicant can create a “sole benefits” trust if his or her child is receiving Social Security Disability.
13. Failure to take advantage of trusts
If the applicant’s income is too great, a qualified income trust (QIT), formerly known as a “Miller” trust, could be used. If the applicant’s assets are too great and the applicant is under 65, a special needs trust with a payback provision or a pooled trust can be utilized. If the potential applicant plans 5 years in advance, certain irrevocable trusts can be used for the resources to not count, and it can be done without adverse tax consequences.
14. Failure to timely apply
A failure to timely apply could result in the loss of months of eligibility. Also, some make the mistake of applying too early (should not apply until the applicant is in a facility that accepts Medicaid and in a Medicaid bed assuming medical necessity). Sometimes uncompensated transfers should be reviewed as there could be a penalty if one applies too soon.
15. Failure to reduce transfer penalties
Sometimes a transfer penalty can be reduced by paying the bills of the applicant or giving back assets transferred.
16. Failure to take IRA required minimum distributions
Under Texas Medicaid rules, a traditional IRA is not counted as a resource if it is in payout status. The timing of the required minimum distribution is also important in determining eligibility based on income.
17. Paying the bills of someone other than the applicant
Long-term care Medicaid is means-tested. So, if an applicant pays a child’s or grandchild’s bills (i.e., car payments) within the 5-year look-back period, the government presumes this was purposefully done to reduce resources so that the government would pay for the applicant’s care.
18. Paying your child as a caregiver
In most states, this is a common spend-down strategy. However, in Texas it is considered a duty of a child to take care of his or her parent. So, this could result in a transfer penalty creating ineligibility based on the amount paid. However, there are some Medicaid waiver programs where a child can be paid through a Medicaid managed care agency. Furthermore, if the potential applicant lives with his or her child, the potential applicant can pay fair market rent to reduce assets which would not be considered a transfer penalty as an uncompensated transfer.
19. Making annual exclusion gifts
Although an individual can gift up to $19,000 (likely to go up to $20,000 in 2027) annually per year, per person without reporting the gift to the IRS, this would be presumed to have been a gift (if applying for long-term Medicaid care) to reduce resources to get below the resource limit (if made within 5 years of the application to hasten Medicaid eligibility). Uncompensated transfers could result in a transfer penalty if made within the 5-year lookback period.
20. Failure to reduce countable resources by paying bills
Sometimes eligibility is hastened by paying the applicant’s existing bills such as a mortgage, taxes, insurance, etc.
21. Failure to accelerate eligibility by buying noncountable resources with countable resources
Eligibility can be accelerated by purchasing non-countable resources (i.e., pre-need funeral, etc.) with countable resources (i.e., checking and savings accounts, etc.)
22. Failure to show proof of real property sale within 5 years
The government checks deed records to see if the applicant sold real estate within 5 years of the date of an application. Proof that it was sold close to fair market value and where the proceeds went should be provided.
23. Failure to provide proof of mineral interest
If the applicant owns any mineral interest, then proof as to the value should be submitted. In Texas, property tax statements are sent annually which can be utilized to determine value. Some states do not do this. If that is the case, then the state uses a formula of 40-times average monthly income to determine its value. If non-producing, the value is $100. If the mineral interest is worth less than $6000 and generates a 6% rate of return, it is non-countable.
24. Failure to designate account as a burial fund
In the case of an applicant who is single, the countable resource limit is $2000 which is determined as of 12:01 A.M. on the first day of the month. Sometimes the countable resources are slightly greater than that. If so, an account that is $1500 or less can be designated as a burial fund so there can be eligibility.
25. Failure to notify of vehicle sold
The state checks vehicle records to see if a vehicle was sold within 5 years of the application. Proof of the sale for fair market value and where the proceeds went should be shown. If the vehicle was gifted, this could result in a transfer penalty. A beneficiary designation through DMV can be used to avoid Medicaid estate recovery.
26. Failure to complete form showing who is authorized representative
In order for the state to talk with someone who is not the applicant, a form must be completed to show authority of representation.
27. Failure to show proof of ownership of joint accounts
If there is a joint account between the applicant and non-applicant, a form must be submitted which states the funds belong solely to the applicant. The form must be signed by the applicant (or applicant’s agent under the POA) and each co-owner on the account.
28. Failure to waive right to cancel pre-need funeral contract
A pre-need funeral contract for the benefit of the applicant (and spouse, if applicable) is non-countable if the applicant waives his or her right to cancel the contract. If the purchase of the preneed funeral is with a life insurance policy, it should be irrevocably assigned to the funeral home. A pre-need funeral contract should be paid in full and not in installments. If there is a failure to do any of these situations, the value of the contract becomes a countable resource and could result in ineligibility.
29. Transfer to a Trump Account
Although a transfer to a Uniform Transfer to Minors Act (UTMA) or an irrevocable 529 are exceptions to the transfer penalty rule since it is for the benefit of education, a transfer from a long-term care applicant to a Trump Account would be penalized since it is considered an investment account.
30. Failure to directly fund UTMA or Irrevocable 529
A transfer to an UTMA or irrevocable 529 for a beneficiary under 21 is an exception to long-term care Medicaid’s 5-year look-back period. If the transfer was made directly to the beneficiary and then transferred to an UTMA or irrevocable 529, then this would be a penalized transfer subject to long-term care Medicaid’s 5-year look-back period.
If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.