Common Medicaid-Planning Mistakes Families Make

 Posted on September 03, 2026 in Incapacity Planning

Most families who are thinking about Medicaid aren’t doing it because everything is going well. Usually, a serious event or catastrophe has already happened. Dad fell; Mom's dementia has gotten worse. A parent who was living independently suddenly needs help taking a bath. A child, sibling, or caregiver brings up the option of assisted living or a nursing home, and then the family sees what long-term care actually costs.

According to CareScout's 2025 Cost of Care Survey, the median cost of a private nursing-home room in Illinois was $9,000 per month. This is a shocking number for most families. Naturally, it triggers subsequent questions: "Doesn't Medicare pay for this?" "Can Mom just give us her money before she applies for Medicaid?"

Unfortunately, Medicaid planning has rules that are very different from ordinary estate planning or tax planning. Trying to plan retroactively for financial eligibility is very difficult and often prevents elderly loved ones from getting the care they need. 

If you are helping an aging parent in 2026, understanding the most common mistakes people make with Medicaid planning can save your family significant trouble. Our Yorkville, IL estate planning attorney has solutions that can help you prepare for a future where your parents or loved ones need Medicaid-dependent care. 

Does Medicare Pay for a Nursing Home?

Medicare can pay for certain short-term skilled nursing or rehabilitation services. For example, someone who leaves the hospital after surgery may qualify for Medicare-covered rehabilitation in a skilled nursing facility for a short time.

However, Medicare does not generally pay for long-term custodial care. That means it doesn’t usually pay for nursing home or assisted living care when an older adult can no longer safely live alone.

For many people, this information is an unexpected and highly unpleasant surprise. Imagine your 82-year-old mother has dementia. She does not need daily medical treatment in a hospital, but she wanders at night, can’t remember her medications, and needs help getting dressed. She may need long-term residential care – but who pays for it? 

Medicaid is sometimes the answer. Medicaid can cover qualifying long-term care for people who meet medical and financial eligibility rules. However, Medicaid is income-dependent, and many families need careful estate planning to ensure they are eligible. 

Can Parents Transfer Money to Their Children to Become Eligible for Medicaid?

How exactly one becomes eligible for Medicaid depends on a few factors. Eligibility isn’t as straightforward as giving excess income and assets to your children. 

What Is the Five-Year Medicaid Lookback?

When someone applies for Medicaid coverage for long-term care, Illinois reviews that person’s financial transfers during the five years before the application. The state is looking for assets that were given away or transferred for less than their fair market value.

Let’s say your father has $100,000 in savings and needs nursing home care. He gives each of his two children $50,000 and applies for Medicaid a month later. The money isn’t in his account anymore, but Medicaid won’t just say, "He no longer owns it, so he qualifies for coverage."

Instead, the gifts can create a penalty period during which Medicaid will not pay for his long-term care. Illinois calculates that penalty based on the value of the transferred assets and the cost of long-term care.

The problem of getting care for your father hasn’t been fixed, and your family is left in a really terrible situation: Dad needs care now, the money has already been transferred, and Medicaid still won’t pay for the nursing home.

Do Genuine Parental Gifts to Children Affect Medicaid Eligibility? Aren't You Allowed to Give Away a Certain Amount Every Year?

You may have heard that someone can give children a certain amount each year without filing a federal gift-tax return. That’s a tax rule, so it doesn’t affect Medicaid. It might not cause any problems with the federal gift tax, but it still counts as a transfer for Medicaid purposes. 

Can I Put My Parent’s House in My Name to Get Them on Medicaid?

Illinois Medicaid rules specifically look at transfers of real estate for less than fair market value. The Illinois Public Aid Code, including 305 ILCS 5/5-2.1, addresses transfers of property made for less than fair market value.

Suppose your mother owns a $300,000 home outright. She signs a deed giving the house to you for $1 because everyone assumes you will inherit it eventually anyway. From the family's perspective, nothing dramatic happened. From Medicaid's perspective, however, she transferred a valuable asset without receiving fair value in return.

There are exceptions and special rules involving certain family members and certain circumstances, but this holds as a general rule. Transferring a home for the purposes of Medicaid eligibility should be planned with the help of an attorney.

Does My Healthy Parent Have to Spend Everything Because My Other Parent Needs a Nursing Home?

If one spouse needs long-term institutional care while the other remains living at home, Medicaid has rules intended to prevent the healthy spouse from becoming impoverished. For 2026, the law allows a "community spouse resource allowance" of up to $162,660. The state also has a community spouse maintenance needs allowance of up to $4,066.50 per month, depending on the community spouse's own income.

The healthy spouse may also generally keep the home, a vehicle, and ordinary household furnishings.Before anyone starts spending or transferring assets, the family should talk to a lawyer to understand what the spouse who doesn’t need care is legally entitled to keep.

Can a Family Member Get Paid for Taking Care of a Parent Without Affecting Medicaid Eligibility?

Adult children often provide care for their parents. A daughter may reduce her work hours, drive her mother to appointments, prepare meals, manage medications, handle bathing, or spend every night at her mother's home because her mother cannot safely be alone.

There is nothing inherently wrong with paying an adult child for legitimate care in a situation like this. However, there can be problems when families start writing large checks to children and later describe those payments as compensation for years of informal caregiving. There needs to be documentation showing what services were provided and what they were worth. Illinois Medicaid officials look closely at these payments to see if they’re legitimate. 

What If My Parent Already Needs Nursing-Home Care?

One of the worst mistakes families make is thinking Medicaid planning is only for wealthy people who started moving assets five years ago. You should talk to an attorney – you may find you have more options than you realize.

Even when long-term care is already needed, there are still important decisions involving:

• Assets and income

• Allowable spending

• What to do with the home

• Previous gifts

• Caregiver arrangements

• Estate recovery

• The Medicaid application 

In working with an attorney, the goal is not to hide money from Medicaid. Rather, it’s to know the laws around this subject. Estate planning attorneys know how to work with them to help you understand the rules so you can get your parents the care they deserve. 

How Can a Medicaid Asset Protection Trust Help Protect Your Family's Assets?

A Medicaid Asset Protection Trust is a powerful planning tool for families who want to protect certain assets while preparing for the possibility that a parent may eventually need Medicaid-funded long-term care.

Unlike a revocable living trust, a properly structured Medicaid Asset Protection Trust is irrevocable. That means the person creating the trust gives up certain rights to take the assets back. Because those assets are no longer fully available to the person who created the trust, they may be excluded when Medicaid makes decisions about financial eligibility for long-term care.

For example, parents may place a home or certain investments into the trust while they are still healthy. They can structure the trust so they continue living in the home and so the property ultimately passes to their beneficiaries. If the trust was created and funded far enough in advance, those assets may be protected if one of the parents later needs nursing-home care.

A Medicaid Asset Protection Trust can also help families protect property from Medicaid estate recovery and make it easier for assets to pass to beneficiaries without probate.

However, transferring assets into this type of trust is subject to Medicaid's five-year lookback period. If a parent transfers her house into the trust today and needs Medicaid-funded nursing-home care next year, the transfer can still affect her eligibility.

This means Medicaid Asset Protection Trusts work best as planning tools, not emergency procedures. A healthy parent who plans several years before long-term care becomes necessary has more options than a family trying to protect assets after a nursing-home admission.

A Medicaid Asset Protection Trust is not right for every family, and it should be created with the understanding of what the person establishing the trust might be giving up. But for families who plan early, it can be an important way to preserve a home and other assets while preparing for future long-term care costs.

Call a Yorkville, IL Estate Planning Attorney Today

If your parents are getting older or your family is worried about how nursing home expenses could affect your family’s entire financial picture, now is the time to act. 

Our Oswego, IL estate planning lawyers at Gateville Law Firm have more than 20 years of legal experience helping families prepare for the future. Schedule a Complimentary Family Wealth Planning Meeting to discuss Medicaid planning, long-term care, estate planning, and the steps your family can take now. Call Gateville Law Firm at 630-780-1034 today.