Medicaid spend-down is the process of legally reducing countable assets to the program limit so an applicant can qualify for long-term care coverage, and in Texas that limit is $2,000 in countable resources for an individual. Spending down does not mean wasting money. It means converting countable assets into exempt ones, or into care and goods the applicant genuinely needs.
For families in El Paso County, this usually comes up fast. A parent has a hospital stay, the discharge planner says skilled nursing, and someone realizes private pay will not last. Texas delivers long-term care Medicaid largely through STAR+PLUS managed long-term services and supports, and applications in this area are handled through the county and regional offices serving El Paso County.
This page explains the rules as they stand for 2026, with particular attention to the one asset that trips up more applications than any other: an old life insurance policy. It is education only, not legal advice.
In This Article
- What Counts and What Does Not
- The Life Insurance Rule Most Families Miss
- Selling a Policy Is a Sale, Not a Gift
- Legitimate Spend-Down Options
- When One Spouse Stays Home
- Texas Estate Recovery Is a Real Factor Here
- A Practical Sequence for El Paso Families
- Free Policy Review Before You Surrender Anything
- Frequently Asked Questions
What Counts and What Does Not
Countable resources include checking and savings, non-retirement investments, second properties, extra vehicles, and the cash surrender value of most life insurance. Exempt resources typically include the primary home within an equity limit while the applicant or a spouse lives there, one vehicle, household goods and personal effects, and irrevocable burial arrangements.
The distinction is not intuitive. A family can look at a bank statement and correctly guess it counts, then be blindsided that a $150,000 whole life policy with $28,000 of cash value counts too, while a paid-off house in the Upper Valley does not.
Income is evaluated separately from assets, and Texas uses an income cap for institutional Medicaid with a qualified income trust, often called a Miller trust, as the standard fix when income runs over the cap.
The Life Insurance Rule Most Families Miss
In most states, life insurance is disregarded only when the total face value across all policies owned by the applicant is $1,500 or less. That threshold is on face value, not cash value, and it aggregates every policy. Once total face value exceeds it, the cash surrender value of those policies becomes a countable resource.
So a policy bought in 1994 with a $100,000 death benefit is never exempt under that rule, no matter how small its cash value. And if its cash value is $30,000, the applicant is $28,000 over the $2,000 limit before anyone looks at the bank account.
This is the exact point where families discover a policy is not a legacy asset sitting quietly in a drawer. It is the thing blocking eligibility, and it has to be dealt with one way or another.
Selling a Policy Is a Sale, Not a Gift
The federal look-back is 60 months for transfers made for less than fair market value. Signing a policy over to an adult child is a transfer for less than fair market value, and it can produce a penalty period during which Medicaid will not pay, calculated from the value given away.
Selling the policy in an arm’s-length transaction at fair market value is different. Value received equals value given up, so a documented sale generally should not create a transfer penalty. The proceeds become cash, which is countable, and then get spent down through the normal allowable categories.
Keep the paperwork. A clean file with the purchase contract, the escrow record, and the disclosure forms is what turns a sale from a caseworker’s question into a non-issue.
Legitimate Spend-Down Options
An irrevocable funeral trust or a prepaid burial contract converts countable cash into an exempt arrangement, which is usually the first tool families reach for. Home repairs and accessibility modifications, such as a walk-in shower, a ramp, or a new roof on the family home, spend money on an exempt asset rather than a countable one.
Buying or repairing a vehicle for the exempt car, paying off legitimate debt, and prepaying property taxes and insurance are all standard. A written caregiver agreement can compensate a family member for care actually provided, but only if it is drafted properly in advance, at a market rate, with documented hours; done informally, it looks like a gift.
What is not allowed: giving money to grandchildren, paying a relative’s bills, or moving money into an account with someone else’s name on it. All of that lands squarely inside the look-back.
| Asset | Countable for Texas Medicaid? | Common planning move |
|---|---|---|
| Checking and savings | Yes | Spend down on exempt or allowable categories |
| Primary home (applicant or spouse resides) | Generally exempt within equity limits | Repairs and accessibility modifications |
| Life insurance, total face value over $1,500 | Yes, at cash surrender value | Compare surrender, paid-up, and market sale |
| Life insurance, total face value $1,500 or less | Generally disregarded | Usually left alone |
| One vehicle | Generally exempt | Repair or replace with countable cash |
| Irrevocable funeral trust or prepaid burial | Exempt within limits | Standard first spend-down step |
| Gift to an adult child | Not a spend-down | Triggers the 60-month look-back penalty |
When One Spouse Stays Home
Spousal impoverishment rules exist so a healthy spouse is not left destitute when the other enters care. The community spouse can keep a protected share of the couple’s countable resources, the Community Spouse Resource Allowance, within a federal floor and ceiling that is adjusted annually; verify the 2026 numbers before planning around them.
There is also a monthly income allowance that can shift income from the institutionalized spouse to the one at home. These protections are substantial and routinely underused because families assume everything has to be spent.
Resource transfers between spouses are permitted, which makes the timing of an application, and the timing of any policy sale, worth planning deliberately rather than reacting to.
Texas Estate Recovery Is a Real Factor Here
Texas runs an aggressive Medicaid Estate Recovery Program, known as MERP, which files a claim against the probate estate after the recipient dies to recover what the program paid. That means qualifying is not the end of the story; what is left in the estate can be reduced later.
MERP has hardship waivers and exceptions, including limits when there is a surviving spouse or certain dependent heirs, and Texas assets that pass outside probate are treated differently than assets that go through it. The details matter enormously and change with the facts.
Because of MERP, El Paso families should treat the spend-down plan and the estate plan as one project rather than two, and should have both reviewed by a licensed Texas elder law attorney.
A Practical Sequence for El Paso Families
Start by listing every asset, including policies, and marking each as countable or exempt. Then ask the carrier for the cash surrender value of each policy in writing and the reduced paid-up option, so you know the floor before you evaluate anything else.
Next, get a free market review of any policy with a $100,000 or larger death benefit, since that is the tier where the secondary market is active. Only then decide what to sell, what to convert, and what to spend down, and file the application when the numbers actually clear the limit rather than hoping they will.
Applications in this area go through the county and regional offices serving El Paso County. Expect to document everything, twice.
Free Policy Review Before You Surrender Anything
If a policy is standing between your family and eligibility, do not surrender it on reflex. Pine Lake Life Solutions reviews policies with a death benefit of $100,000 or more at no cost and typically pays more than cash surrender value when a policy qualifies. Send the policy cover page and you will get a straight answer about whether a sale is worth pursuing.
Call (305) 209-7183. This page is educational and is not legal, tax, or investment advice. Medicaid rules change, and eligibility decisions turn on individual facts, so work with a licensed Texas elder law attorney before filing.
Frequently Asked Questions
What is the countable asset limit for long-term care Medicaid in Texas?
The individual countable-resource limit is $2,000 for 2026. Certain assets, including the primary home within equity limits, one vehicle, and irrevocable burial arrangements, are generally excluded from that count. Income is tested separately, and Texas uses a qualified income trust when income exceeds the institutional cap.
How far back does Texas look at transfers?
The federal look-back is 60 months for transfers made for less than fair market value, and California has historically been the exception; verify current 2026 rules. Gifts inside that window can create a penalty period during which Medicaid will not pay for care. Documented sales at fair market value are treated differently than gifts.
Why does my mother’s life insurance count if she never cashed it in?
In most states, life insurance is only disregarded when total face value across all policies is $1,500 or less. Above that threshold, the cash surrender value is a countable resource whether or not anyone touches it. A $100,000 policy therefore counts at its cash value, which frequently exceeds the $2,000 limit by itself.
Can I just transfer the policy to my name instead?
That is a transfer for less than fair market value and sits squarely inside the 60-month look-back, which can create a penalty period. Selling the policy in an arm’s-length transaction at fair market value avoids that problem because equivalent value comes back. Keep the contract, disclosures, and escrow records for the caseworker.
Does the family home in El Paso have to be sold?
Generally no while the applicant, a spouse, or certain dependent relatives live there and home equity stays within the applicable limit. The home can still be exposed later through the Texas Medicaid Estate Recovery Program if it passes through probate. Discuss both eligibility and estate recovery with a licensed Texas elder law attorney.
What is MERP and why does everyone in Texas mention it?
MERP is the Texas Medicaid Estate Recovery Program, which files a claim against a deceased recipient’s probate estate to recover what Medicaid paid for their care. Texas enforces it actively, with hardship waivers and exceptions in defined circumstances. It is a reason to plan eligibility and estate matters together rather than separately.
How much protection does a healthy spouse at home get?
Spousal impoverishment rules let the community spouse keep a protected share of countable resources, the Community Spouse Resource Allowance, plus a monthly income allowance in many cases. The dollar figures are federally adjusted each year, so verify the 2026 amounts. These protections are frequently larger than families assume.
Where do El Paso families file the application?
Long-term care Medicaid applications in this area are handled through the county and regional offices serving El Paso County, with services delivered largely through STAR+PLUS managed long-term services and supports. Expect to document every asset, transfer, and policy. An elder law attorney can assemble the file so it clears review the first time.
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Related Reading
- Texas Medicaid Asset Income Limits
- Cash Surrender Value Life Insurance
- Life Settlement Vs Surrender
- Filial Responsibility Law Texas
- Nursing Home Costs El Paso
- Education Center
Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.