by: Begley Law Group

By:  Thomas D. Begley, Jr., Esquire, CELA and Marianne Johnston, Esquire

Long-term care is expensive no matter the setting. The monthly cost of a nursing home in New Jersey today is approximately $12,500 – $17,500.  Assisted living residents may pay anywhere from $6,500 to $12,500 per month.  An individual hiring an aide from a licensed agency to provide care in the home will pay at least $29 per hour.  Very few people can afford such care over a long period of time and those who can do not want to deplete their life savings on such expenses.  As Elder Law attorneys we counsel clients with a wide range of resources regarding “spending down” for Medicaid eligibility.  Factors such as the length of time available for planning, the individual’s marital status, and the amount of the individual’s assets and monthly income determine the range of strategies available to protect assets.


In New Jersey, the Medicaid program generally utilized for payment of long-term care, known as “Medicaid Managed Long-Term Services and Supports” (MLTSS), allows a Medicaid applicant to own a maximum of $2,000 in countable resources.  If the applicant is married, his or her spouse is permitted a Community Spouse Resource Allowance (“CSRA”) without jeopardizing the institutionalized spouse’s eligibility for benefits.[1] In 2024, the CSRA is the greater of $30,828 or one-half of the couple’s countable resources not to exceed $154,140.[2]  These figures are adjusted on January 1 of each calendar year.


Very few assets fall into the category of non-countable in terms of Medicaid eligibility.  The following resources do not count in the financial eligibility determination for benefits:

  • Home. The primary residence and lot are excluded if occupied by the institutionalized person or the community spouse. Absence of more than six months creates a presumption that the home no longer serves as the principal residence.[3]  If the Medicaid applicant is single, New Jersey places a maximum cap on the equity of the home that is considered non-countable.  The maximum cap is $1,071,000.[4]
  • Automobile. One automobile is exempt.[5]
  • Personal Effects and Household Goods[6]
  • Wedding Ring and Engagement Ring[7]
  • Medical Equipment. Needed by an institutionalized person or a member of his household.[8]
  • Burial Fund. A prepaid funeral is permitted, provided the funeral director places the payment in an irrevocable trust for this purpose or provided that a life insurance policy is irrevocably assigned to the funeral director.[9]
  • Inaccessible Resources. Resources which cannot be liquidated through no fault of the applicant.[10]
  • Term Life Insurance. Term life insurance is not countable because it has no cash value.[11]
  • Whole Life Insurance with a Maximum Face Value of $1,500[12]


If an applicant is married, resources owned individually by the institutionalized spouse and the community spouse or owned jointly by them are pooled together to determine Medicaid eligibility.  In other words, how a couple titles their assets is irrelevant. Medicaid looks at their resources as one pot.  Unlike some other states, New Jersey considers retirement accounts of both the institutionalized spouse and the community spouse as countable resources.


♦ Spend Down and Conversion of Countable Resources.  In advance of submitting a Medicaid application, the applicant and applicant’s spouse may spend down funds on anything for which they receive fair market value.  An applicant may wish to spend down assets by any of the following:

  • Pay off debts,
  • Pay for services,
  • Prepay real estate taxes, or
  • Take a vacation.

♦ Convert Countable Assets to Non-Countable Assets.  We recommend that our clients take action to convert countable resources into non-countable resources.  The following actions may be taken to make the conversion:

  • Pay off or reduce mortgage on primary residence – increases equity in non-countable asset.
  • Buy household goods or personal effects.
  • Make home improvements.
  • Purchase life estate in children’s home.
  • Community Spouse may convert traditional IRA to Roth IRA and pay taxes on the conversion.
  • Purchase prepaid funeral and burial plot.
  • Buy more expensive home.
  • Buy a new car.
  • Purchase a Medicaid-compliant annuity.

If the applicant is married, an analysis must be done as to whether the spend down or conversion should be done before or after the submission of the Medicaid application.

♦ Medicaid Compliant Annuities.  The purchase of a single premium Medicaid compliant annuity is a strategy that can save substantial assets.  Such annuities provide a stream of income and are not considered countable assets. By the community spouse purchasing such an annuity, the sick spouse may become financially eligible for benefits quickly.  When a married individual receives Medicaid benefits, the community spouse’s income does not have to pay for the sick spouse’s long-term care.  Therefore, the income stream the community spouse receives from a Medicaid compliant annuity is protected from spend-down.

Medicaid compliant annuities may also be useful for single applicants.  If gifting by a Medicaid applicant is expected to result in a transfer penalty, such annuities may generate income to help pay for care during the penalty period.

To be Medicaid compliant, the annuity must:

  • be irrevocable;
  • be non-assignable;
  • be actuarily sound;
  • make payments immediately and in equal amounts during the annuity’s term with no deferral and no balloon payments; and name the State as remainder beneficiary in first position for the amount the State pays out in benefits unless there is a Community Spouse, or minor or disabled child, in which event the State must be named in the second position.

Courts have held an annuity is actuarially sound if it term is shorter than the annuitant’s life expectancy as determined in accordance with the Social Security Administration’s actuarial publications.

When considering the purchase of an annuity it is critical to choose one that is Medicaid compliant.  Purchasing the wrong type of annuity may cause the annuity owner or the annuity owner’s spouse to be ineligible for Medicaid.


♦ Look-Back Rule.  There is a 5-year look-back for transfers of assets.[13] All transfers of assets for less than fair market value must be reported on the Medicaid application if they occurred within 5 years.  Transfers occurring more than five years before the application date are not considered. During the application process, the county caseworker will scour the statements of all accounts owned by the applicant and applicant’s spouse to determine if any gifts were made during  the look-back period.

♦ Transfer Penalty.  With limited exceptions, a transfer of assets for less than fair market value will result in Medicaid’s imposition of a penalty.  The transfer penalty is a length of time during which Medicaid will not pay benefits and the penalty does not begin to run until the applicant is otherwise eligible for benefits.[14] In other words, the penalty will not start until the applicant has met all eligibility requirements, including being spent down to $2,000.  Thus, transfer penalties can create financial hardship because the family will have to find some other way to pay for care until the penalty ends.  To calculate the penalty length, the total value of identified gifts is divided by the average daily cost of nursing home care in New Jersey, currently $384.57.  The quotient is the length of the penalty in days.

♦ Transfer of Assets Strategies.

  • Five Year Plan. Because most asset protection strategies involve the gifting of assets, you must plan for the penalty unless the client has been wise and engaged in asset protection planning while healthy. In such cases, the client can transfer assets to an irrevocable grantor trust (recommended) or directly to the children (not recommended) and wait five years before making any Medicaid application.

Because many parents are interested in preserving the value of their home, they may consider transferring their residence to a grantor trust while reserving the right to use and occupy. When five years has passed from the date of recording the deed transferring the property to the trust, the residence is protected from spend down on Medicaid and any estate recovery claims by the State of New Jersey.

  • Transfer Assets and Pay through Penalty. If a Medicaid applicant has high monthly income or receives benefits from a long-term care insurance policy, an individual may be able to protect assets by transferring all assets and having the gift recipient pay any shortfall needed to pay for care during the penalty period. Such a strategy requires the individual to file a Medicaid application at the time of the transfer so the individual must be clinically eligible and financially eligible but for the planned transfer.

Other transfer strategies may include the use of the following:

  • Care Agreement
  • Income Only Trust for the Community Spouse
  • Children’s Trust
  • Disability Annuity Trust
  • Disability Annuity Special Needs Trust

♦ Factors to Consider When Selecting Assets to Transfer.

  • Carryover Basis. In determining which assets to transfer and which assets to retain, consideration must be given to the fact that the donee (recipient) of a gift receives a “carryover basis.”[15] This means the cost basis of the donee is the same as the cost basis of the donor.  When the transferred assets are sold, the donee must pay income tax on the capital gain.  The best strategy usually is to transfer unappreciated assets to the donee, and reserve appreciated assets for the donor.  That way, any gain on the sale of the appreciated assets can be offset by deducting the cost of the nursing home from income tax.
  • Step Up in Basis. Assets forming a part of the estate of a decedent are included in that person’s estate for federal estate tax purposes. The beneficiary of the estate receives a “step up” in basis with respect to those assets so that the beneficiary’s new basis is the fair market value of the assets as of the date of the death of the decedent.[16]  The benefit to step up is the savings or possible elimination of capital gains tax when the beneficiary sells the inherited asset.
  • Individual Retirement Accounts, 401(k), 403(b) plans. The ownership of these type of retirement accounts cannot be gifted to another individual. The withdrawal of funds from such accounts is a taxable event. Therefore, retirement assets are not good candidates for a gifting strategy.  If some period of private payment to the nursing home or assisted living facility is required, funds from the individual’s retirement accounts should be used for this purpose.  The medical deduction for the qualified long-term services can be used to offset the taxable income resulting from the withdrawal from the retirement plan.

♦ Advantages of Using a Grantor Trust Over Outright Gifts to Other Individuals.

  • In order for a trust to protect assets from Medicaid spend down, the grantor must relinquish all rights to withdraw or compel distributions from the trust.However, a trust allows the grantor to direct, in advance, how the transfer of property is to be managed administered and distributed thereby allowing some control.
  • Risk Avoidance. By transferring assets to trusts as opposed to outright to children, the risk of a child’s creditors attaching the transferred assets or having the assets become involved in a divorce are eliminated. The child would not have to declare the transferred assets on a financial aid application, if they are held by a trust.
  • Tax Benefits. Qualification of the trust as a grantor trust allows the grantor to be taxed on the income earned by the trust at the grantor’s marginal income tax rate even if the income is not distributed to the Grantor.
  • Step-Up in Basis. If the trust assets are included in the grantor’s estate, the trust principal will be included in the grantor’s estate at death and will receive a step-up in basis at that time.[17]
  • Exclusion from Capital Gains on Sale of Principal Residence. If the grantor trust holds the grantor’s primary residence, the grantor’s $250,000 – $500,000 exclusion from capital gain on the sale of a principal residence can be preserved through a properly-structured trust.

♦ Trust Buster Statute.  New Jersey has a statute which provides “Any provision in a contract of insurance, will, trust agreement or other instrument which reduces or excludes coverage or payment for goods and services to an individual because of that individual’s eligibility for or receipt of Medicaid benefits shall be null and void, and no payment shall be made under this act as a result of such provision.” [18]  This statute has not been tested in court.  The law, however, appears only to apply to instruments that provide for mandatory distributions that are then cut back when the individual applies for Medicaid.  For example, language in a trust providing “Upon the beneficiary applying for Medicaid, all income payments to him shall terminate.”

♦ Gift Tax.  If transfers are made in excess of $18,000 per person per year in 2024, then a Gift Tax Return will have to be filed by April 15th of the calendar year following the date of the gift.  In 2024, there is an annual exclusion for gifts of $18,000 per person per year or less.[19]  If a spouse consents, the annual exclusion gift may be increased to $36,000 per person per year.  In addition, there is a lifetime gift tax exemption of $13,610,000 for an individual and $27,220,000 for a married couple,[20] so no tax will be due for gifts which do not exceed the amount of this gift tax exemption.  There is no tax due from the recipient of the gift.  The $18,000 annual exclusion gift will be indexed for inflation in the future.

New Jersey does not have a gift tax.  However, New Jersey does have an inheritance tax for assets which are left to persons other than a spouse or lineal ascendants and descendants.  If a transfer is made to someone other than a spouse or lineal ascendants and descendants within three years of the date of death, this constitutes a transfer which falls within the scope of the New Jersey Inheritance Tax.  In that situation an Inheritance Tax Return must be filed and the appropriate tax paid.[21]


It is necessary to explore the capacity of the client to make transfers.  If the client lacks the necessary mental capacity, the transfers may, nevertheless, be accomplished through a Power of Attorney, if the document so authorizes.  Under New Jersey law gifts are not permitted by an attorney-in-fact except to the extent that the Power of Attorney expressly and specifically so authorizes.[22]

The next problem with a Power of Attorney is whether the agent has authority to make gifts to himself.  The agent is a fiduciary.  If the Principal wants the agent to be able to self-deal when making transfers for Medicaid purposes, the Power of Attorney should explicitly authorize such gifts.  The Principal may put conditions in the Power of Attorney as to when the agent might have the right to self-deal.


Guardians are authorized to make transfers for the purpose of obtaining Medicaid eligibility.  A guardianship judgment often requires Court permission before the guardian may gift the ward’s assets.  In the case of In the Matter of Mildred Keri,[23] the New Jersey Supreme Court held that a guardian may make transfers for purposes of obtaining Medicaid eligibility for a ward.  The Court imposed a five-point test:

  1. The spend down plan must not interrupt or diminish an incapacitated person’s care.
  2. The plan involves transfers to natural objects of the person’s bounty.
  3. The plan does not contravene an expressed prior intent or interest.
  4. The plan clearly provides for the best interests of the incapacitated person.
  5. The plan satisfies the law’s goal to effectuate decisions an incapacitated person would make if he or she were able to act.

It is wise to consider making transfers, which are consistent with the estate planning goals of the client.  If inconsistent transfers are made, they may result in litigation from beneficiaries of the estate who consider themselves to be treated unfairly.


Financing long-term care in New Jersey is a complex enterprise.  The rules change quickly and are not always written.  Opportunities are often available to protect the assets of individuals who may need Medicaid to cover the cost of their care. assist the applicant by suggesting various strategies.  Planning for Medicaid financing of long-term care offers an excellent opportunity for elder law attorneys to be of assistance to their clients.

[1] Medicaid regulations refer to the spouse receiving Medicaid benefits as the institutionalized spouse even if the benefits are received in the home, and the healthy spouse is referred to as the community spouse.

[2] CMCS Information Bulletin, 2024 SSI and Spousal Impoverishment and Medicaid Savings Programs Resource Standards, November 14, 2023.

[3] N.J.A.C. 10:71-4.4(b)1i.

[4] 42 U.S.C. §1396p(f); CMCS Information Bulletin, 2024 SSI and Spousal Impoverishment and Medicaid Savings Programs Resource Standards, November 14, 2023.

[5] N.J.A.C. 10:71-4.4.

[6] N.J.A.C. 10:71-4.4(3).

[7] N.J.A.C. 10:71-4.4(b)3ii.

[8] N.J.A.C. 10:71-4.4(b)3iii.

[9] N.J.A.C. 10:71-4.4(9).

[10] N.J.A.C. 10:71-4.4(b)6.

[11] N.J.A.C. 10:71-4.4(b)4.

[12] N.J.A.C. 10:71-4.4(b)4.

[13] 42 U.S.C. §1396p(c)(1).

[14] 42 U.S.C. §1396p(c)(1)(D).

[15] I.R.C. §1015.

[16] I.R.C. §1014(b)(9).

[17] I.R.C. §1014(b)(9).

[18] N.J.S.A. 30:4D-6F.

[19] I.R.C. §2503 (b); Rev. Proc. 2023-48(3)(.43)(1).

[20] I.R.C. §2010; Rev. Proc. 2023-48(.41).

[21] N.J.A.C. 18:26-5.7.

[22] N.J.S.A. 46:2B-8.13a.

[23] In the Matter of Mildred Keri, 181 N.J. 50 (2004).