When a family member needs nursing home care, Medicaid is often the only realistic way to pay for it long-term. But qualifying for Texas Medicaid isn't as simple as showing that you can't afford the bills. The state looks back at your financial history -- and what it finds can delay or complicate your eligibility.
This is called the five-year look-back period, and understanding it is essential for any family planning for long-term care.
What Is the Look-Back Period?
When you apply for Medicaid to cover nursing home costs in Texas, the state reviews all financial transactions made during the 60 months (five years) before the application date. The purpose is to identify any transfers of assets that were made for less than fair market value -- in other words, gifts or transfers designed to reduce your countable assets so you qualify faster.
If the state finds such transfers, it imposes a penalty period -- a stretch of time during which Medicaid will not pay for your nursing home care, even if you otherwise qualify.
How the Penalty Period Is Calculated
The penalty period is calculated by dividing the total value of disqualifying transfers by the statewide average monthly cost of nursing home care in Texas, as published by HHSC (sometimes called the "penalty divisor"). As of 2025, this figure is approximately $7,698 per month. This amount is updated periodically by HHSC.
Example: If you gave $77,000 to your children within the look-back period, and the penalty divisor is $7,698, you would face a 10-month penalty period during which Medicaid would not cover your nursing home costs.
This penalty begins on the date you would otherwise be eligible for Medicaid -- not the date of the transfer. This is a critical distinction that catches many families off guard.
What Counts as a Transfer?
The look-back rule applies to a wide range of transactions, not just obvious gifts:
- Cash gifts to children or grandchildren
- Adding someone to a deed or bank account
- Selling property below market value (the difference is treated as a gift)
- Paying someone else's debts or expenses
- Surrendering a life insurance policy for less than its value
- Creating a trust and transferring assets into it (depending on the trust type)
Essentially, any time you gave away something of value -- or received less than what it was worth -- the state may treat it as a disqualifying transfer.
What Is Exempt?
Not every transfer triggers a penalty. Texas recognizes several important exceptions:
- Transfers to a spouse are generally exempt
- Transfers of a homestead to a spouse, a disabled child, a child under 21, a caretaker child (who lived in the home and provided care for at least two years before the Medicaid application), or a sibling with an equity interest
- Transfers for fair market value -- if you sold something at its true worth, there's no penalty
- Transfers that were returned -- if the assets were given back before the Medicaid application
- Irrevocable burial trusts and prepaid funeral expenses within certain limits
Common Mistakes Families Make
We see these mistakes regularly in our practice:
- Giving the house to the kids "just in case" -- This is the most common planning error. Transferring a homestead to children within five years of a Medicaid application creates a large penalty and may also trigger capital gains tax issues.
- Waiting too long to plan -- The five-year clock starts from the date of transfer, not the date of application. Planning done four years before a crisis is far more effective than planning done four months before.
- Hiding transfers -- Medicaid reviews bank statements and tax returns. Unreported transfers can result in application denial and potential fraud allegations.
- Assuming all trusts protect assets -- Revocable trusts generally do NOT protect assets from Medicaid. Only certain properly structured irrevocable trusts may offer protection, and they must be established well outside the look-back period.
The Bottom Line: Plan Early
The five-year look-back period is not a trap -- it's a rule you can plan around. But the key word is plan. Families who start thinking about Medicaid five or more years before they need it have dramatically more options than those who start planning in a crisis.
At WG Law, we help North Texas families develop Medicaid planning strategies that comply with the law while preserving as much wealth as possible for the family. If you have a parent approaching the age where long-term care may be needed, the time to start planning is now.