To qualify for long-term care Medicaid in Texas, an individual applicant generally must be at or below a $2,000 countable-asset limit — and the cash surrender value of a life insurance policy usually counts toward it. That single rule is why so many Houston families discover, weeks into a nursing home stay, that a policy purchased in 1988 is the thing standing between them and coverage.
Texas delivers long-term services and supports through STAR+PLUS, its managed long-term care program. Applications for families in Harris, Fort Bend, Montgomery and Brazoria counties are handled through the county and regional offices serving this area.
This page explains what counts, what does not, which spend-down moves are legitimate, and where selling a policy fits. It is educational only. It is not legal advice, and Medicaid planning should be done with a licensed Texas elder law attorney.
In This Article
- Countable vs. Exempt: What Texas Actually Looks At
- The Life Insurance Rule Most Families Get Wrong
- The 60-Month Look-Back and Why Gifting Backfires
- Legitimate Spend-Down Options in Texas
- Why Selling a Policy Is a Sale, Not a Gift
- Texas Estate Recovery: The Part That Comes Later
- Practical Sequence for a Houston Family
- Frequently Asked Questions
Countable vs. Exempt: What Texas Actually Looks At
“Spend-down” simply means reducing countable resources to the eligibility threshold. The first task is knowing which of your assets Medicaid even counts.
Generally countable: checking and savings, certificates of deposit, brokerage accounts, second vehicles, non-homestead real estate, and the cash surrender value of most life insurance.
Generally exempt: the homestead within applicable equity limits, one vehicle, household goods and personal effects, an irrevocable burial arrangement, and certain income-producing property.
A married couple is treated differently from a single applicant. When one spouse enters care and the other remains at home, the community spouse may keep a protected share of the couple’s resources — the Community Spouse Resource Allowance, or CSRA — plus a minimum monthly income allowance. Those figures adjust annually; verify the 2026 amounts before planning around them.
The Life Insurance Rule Most Families Get Wrong
Here is the specific rule that catches people. In most states, life insurance is disregarded entirely only when the total face value across all policies on the applicant is $1,500 or less. Cross that line, and the policies’ cash surrender value becomes a countable resource.
Read that carefully, because the threshold is measured against face value, not cash value. A $50,000 whole life policy with $9,000 of cash value is not partially exempt — the entire $9,000 counts, because the face amount is far above $1,500. A single modest policy can therefore put an applicant several times over the $2,000 limit by itself.
Term insurance with no cash value generally does not create a countable resource. Whole life, universal life, and other permanent coverage almost always does. Verify current Texas treatment with your attorney or caseworker before relying on this in a live application.
The 60-Month Look-Back and Why Gifting Backfires
The instinct when a policy is in the way is to hand it to a child. That is usually the single worst move available.
Federal law imposes a 60-month look-back on transfers made for less than fair market value. (California is the notable exception with a shorter period — verify current 2026 rules everywhere.) When Texas reviews an application, uncompensated transfers inside that window generate a penalty period: a stretch of time during which the applicant is ineligible for Medicaid payment of long-term care, calculated from the value transferred.
The cruel timing is that the penalty starts when the person is otherwise eligible and already in a facility — which is precisely when the family has no money to pay privately. Gifting a policy to a child does not remove the asset from the analysis. It converts it into a bill that arrives later.
| Asset | Countable for Texas long-term care Medicaid? | Planning note |
|---|---|---|
| Checking, savings, CDs, brokerage | Generally countable | Counts toward the $2,000 individual limit |
| Homestead (within equity limits) | Generally exempt | Still exposed to MERP estate recovery |
| One vehicle | Generally exempt | Additional vehicles usually count |
| Term life insurance, no cash value | Generally not countable | No cash surrender value to count |
| Permanent life insurance, face over $1,500 | Cash surrender value is countable | The rule that most often blocks eligibility |
| Irrevocable funeral trust / prepaid burial | Generally exempt | Must be properly structured and irrevocable |
| Policy gifted to a child | Uncompensated transfer | Exposed to the 60-month look-back penalty |
| Policy sold at fair market value | Proceeds are countable cash | A sale, not a gift; document it thoroughly |
Legitimate Spend-Down Options in Texas
Spending down does not mean wasting money. It means converting countable resources into exempt ones or into things the household actually needs. Common approaches include:
Irrevocable funeral trust or prepaid burial. Prepaying funeral and burial expenses through a properly structured irrevocable arrangement converts cash into an exempt resource and removes a future burden from the family.
Home repairs and accessibility modifications. A new roof, HVAC replacement, walk-in shower, ramp, or widened doorway spends countable cash on an exempt homestead — and often makes an eventual return home possible.
Vehicle purchase or repair. One vehicle is generally exempt.
Paying off debt. Retiring a mortgage, credit card, or medical balance reduces countable assets and monthly obligations at the same time.
A written caregiver agreement. Paying a family member for care can be legitimate, but only under a written contract at fair market rates with documented hours. Without that paperwork it looks like a gift.
Spousal resource transfer up to the CSRA. Moving assets to the community spouse within the allowance.
Why Selling a Policy Is a Sale, Not a Gift
This is the distinction that makes a life settlement relevant to spend-down planning.
Transferring a policy to a child for nothing is an uncompensated transfer and is exposed to the look-back. Selling that same policy on the open market to an unrelated licensed buyer, for a documented fair market price, is an arm’s-length sale. The applicant receives value in exchange, so no gift has occurred and no transfer penalty should follow.
What changes is the form of the asset, not the amount. Cash surrender value becomes cash proceeds — still a countable resource, still needing to be spent down properly. The advantage is that a settlement typically produces more money to work with than surrendering would. A Government Accountability Office study (GAO-10-775) found sellers received roughly four to eight times cash surrender value, and offers commonly land between 10% and 35% of face value.
Documentation is what protects the position: keep the settlement contract, the escrow disbursement record, and evidence the policy was shopped competitively.
Texas Estate Recovery: The Part That Comes Later
Qualifying is not the end of the story. Texas runs an active Medicaid Estate Recovery Program, known as MERP, which can file a claim against the probate estate of a deceased long-term care Medicaid recipient to recoup what the state paid.
MERP has exemptions and hardship waiver provisions, and the mechanics turn on how assets pass at death. Because the claim reaches the probate estate, the way property is titled and whether it passes through probate at all can matter significantly. This is squarely attorney territory and one of the strongest reasons Houston families should get advice before, not after, an application.
Practical Sequence for a Houston Family
A workable order of operations looks like this. Inventory every asset, including every insurance policy — pull the cover pages, not just the names. Get a written cash surrender value figure from each carrier. Identify what is countable and what is exempt. Then, before moving any money, meet with a licensed Texas elder law attorney and map the spend-down against the look-back.
Only then execute: fund the burial arrangement, complete the home repairs, resolve the debts, and decide what to do with any policy standing in the way. Applications are filed through the county or regional offices serving Harris, Fort Bend, Montgomery and Brazoria counties.
If a policy has $100,000 or more in death benefit, Pine Lake Life Solutions offers a free, no-obligation policy review — send the policy cover page or call (305) 209-7183. The review is educational and you stay in control of the policy. This page is not legal, tax, or investment advice and is not an offer to purchase any policy.
Frequently Asked Questions
What is the Medicaid asset limit in Texas for 2026?
Long-term care Medicaid in Texas generally applies a $2,000 countable-asset limit for an individual applicant, alongside income and functional-need tests. Married couples are treated differently, with a protected resource allowance for the spouse who remains at home. Confirm current figures with a licensed Texas elder law attorney before planning.
Does my life insurance policy count against Medicaid in Texas?
If the total face value of all policies on the applicant exceeds $1,500, the cash surrender value is generally treated as a countable resource. Term insurance with no cash value typically does not create a countable asset. This is why a single old whole life policy can block eligibility on its own.
What is STAR+PLUS?
STAR+PLUS is the Texas managed care program that delivers long-term services and supports, including nursing facility care, to eligible adults. It is the program most Houston families encounter after private funds are exhausted. Eligibility is means-tested and includes the countable-asset limit.
How far back does Texas Medicaid look at transfers?
The federal look-back period is 60 months for transfers made for less than fair market value. Uncompensated transfers inside that window can create a penalty period during which Medicaid will not pay for long-term care. Verify current 2026 rules with an attorney, since a small number of states differ.
Can I just give my policy to my son to qualify?
That is generally a costly mistake. Transferring a policy for nothing is an uncompensated transfer subject to the 60-month look-back and can produce a penalty period that starts exactly when the family can least afford it. Selling at fair market value is treated differently because value is received in return.
What are legitimate ways to spend down in Texas?
Common approaches include an irrevocable funeral trust or prepaid burial, home repairs and accessibility modifications to an exempt homestead, buying or repairing one vehicle, paying off debt, a properly documented caregiver agreement at fair market rates, and spousal resource transfers up to the community spouse allowance. Each has requirements, so work with an attorney.
Where do Houston families apply for long-term care Medicaid?
Applications are handled through the county and regional offices serving Harris, Fort Bend, Montgomery and Brazoria counties. Gather asset documentation, carrier statements, and income records before filing, since incomplete applications are a common cause of delay.
What is MERP?
MERP is the Texas Medicaid Estate Recovery Program. After a long-term care Medicaid recipient dies, the state may file a claim against the probate estate to recover what it paid. Exemptions and hardship waivers exist, and how property is titled affects exposure, so this is a question for a licensed Texas elder law attorney.
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Related Reading
- Texas Medicaid Asset Income Limits
- Cash Surrender Value Life Insurance
- Life Settlement Vs Surrender
- Filial Responsibility Law Texas
- Life Settlement Licensing Texas
- 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.