California Medi-Cal Spend Down: Asset Limits, Exemptions, and Penalties

If your countable resources exceed California’s Medi-Cal asset limit, a California Medi-Cal spend down means converting that excess into exempt assets or legitimate expenses before you apply, rather than giving money away. Starting January 1, 2026, a single applicant can keep $130,000 in countable assets, with $65,000 added for each additional household member up to ten people.¹ Get above that line and Medi-Cal will not cover long-term care until you spend down. Do it the wrong way, through gifts or below-market transfers, and you can lock yourself out of coverage for months.

The Limit You Have to Get Under

The 2026 countable asset threshold is $130,000 for one person and $195,000 for a married couple applying together. The limit applies to the non-MAGI Medi-Cal programs, including Long-Term Care, the Aged, Blind, and Disabled program, Medi-Cal with a Share of Cost, the 250% Working Disabled Program, and Medicare Savings Programs.¹

If you were already enrolled while asset testing was suspended, you don’t lose coverage on January 1. You must report assets at your first annual renewal that falls after that date. Someone with an October renewal month won’t disclose until October 2026. That delay is useful, but spending down in a rush rarely goes well, so the planning should start earlier.

Which Assets Count, and Which Don’t

Only countable assets push you over $130,000. Exempt assets sit outside the calculation entirely, which is why most spend-down work is really a conversion from one category to the other.

Exempt assets include:

Your primary home, as long as you, your spouse, or a dependent relative lives there or you intend to return. California currently applies no equity limit. A federal $1 million home equity cap is scheduled to begin October 1, 2028, with an exception for homes where a spouse, minor child, or disabled child lives.¹
One primary vehicle, regardless of value.¹
Household items and personal belongings.
Retirement accounts (IRAs, 401(k)s, Keoghs, work-related pensions) when the account is held by someone other than the applicant. If the applicant owns the account, the county eligibility worker evaluates it under more complex rules.²
Term life insurance with no cash surrender value.
Whole life insurance where the combined face value of all policies is $1,500 or less. Above that threshold, the cash surrender value becomes countable.
Irrevocable burial trusts, with no cap on the amount.³
Up to $1,500 in revocable burial funds held in a separate, designated account.³

Countable assets are essentially everything else: bank accounts, CDs, stocks, bonds, mutual funds, non-retirement investment accounts, and second homes or rental property, though up to $6,000 of equity in non-home real estate may be exempt.² Cash surrender value in whole life insurance above the $1,500 face value threshold counts too.

Spend-Down Moves That Actually Work

The guiding rule is simple. Every dollar you spend has to buy something at fair market value or cover a real obligation of the applicant. Overpaying for anything looks like a disguised gift, and so does a transfer dressed up as a sale.

Put Money Into the Home

Because the primary residence is exempt with no current equity cap, home improvements are among the most effective conversions. A new roof, HVAC replacement, bathroom renovation, wheelchair ramp, or widened doorways all turn countable cash into exempt home equity. Accessibility work has the added benefit of helping an applicant or community spouse stay in the home longer, but the improvements don’t have to be medical to qualify.

Pay Off Debt

Paying down a mortgage, credit card balances, car loans, or outstanding medical bills reduces countable cash dollar for dollar. Paying down the mortgage is doubly useful because it also builds equity in an exempt asset.

Buy Exempt Assets at Fair Value

Replacing an aging primary vehicle, buying needed furniture, or purchasing clothing and personal items all shift funds from countable to exempt. Pay market rates. Inflated prices invite the same scrutiny as a gift.

Prepay Recurring Obligations

Property taxes, homeowner’s insurance, and similar recurring bills can be prepaid. The money leaves your countable balance and covers legitimate expenses you’d have paid anyway.

Fund an Irrevocable Burial Trust

This is one of the strongest tools California still allows. An irrevocable funeral trust is exempt with no dollar cap, so a substantial sum can be moved out of countable assets in a single step. The funds must be held by an authorized trustee (a bank, trust company, or cemetery authority, among others) and irrevocably designated for funeral, cremation, or burial expenses.³ A separate revocable burial fund of up to $1,500 in a dedicated account can sit alongside it.

Why Gifting Backfires

The instinct to just hand money to the kids is the costliest mistake in Medi-Cal planning. Starting January 1, 2026, Medi-Cal reviews 30 months of financial transactions before a nursing home application to find gifts or below-market transfers.¹ Transfers made before January 1, 2026 carry no penalty, even if they fall inside the 30-month window. Only transfers on or after that date can trigger consequences.

How the Penalty Is Calculated

When Medi-Cal identifies a disqualifying transfer, it divides the amount by the state’s 2026 Average Private Pay Rate for nursing facility care, which is $14,440 per month. Give away $57,760 and the penalty is four months of Medi-Cal ineligibility for nursing home coverage ($57,760 ÷ $14,440 = 4).⁴ The penalty cannot exceed 30 months from the date of transfer.⁵ During the penalty, you pay privately. At California nursing home rates, even a short penalty runs tens of thousands of dollars.

Transfers That Don’t Trigger a Penalty

Not every transfer counts. Transfers of exempt property, most notably the primary home to a spouse, carry no penalty.⁴ The look-back targets nursing home coverage specifically; it does not apply to home and community-based services. And a sale for fair market value is not a gift, so it never enters the penalty analysis.

Hardship Waivers

If a penalty period would deprive you of necessary care, you can request an undue hardship waiver by showing the transferred assets cannot be recovered and that denial of coverage would leave you unable to receive essential medical care or basic necessities. The facility can request the waiver on your behalf with your written consent. These are granted sparingly and require substantial documentation.

If You Have a Spouse at Home

When only one spouse needs long-term care, federal spousal impoverishment rules protect the spouse who stays in the community from being wiped out.

The Community Spouse Resource Allowance

The Community Spouse Resource Allowance (CSRA) lets the non-applicant spouse keep part of the couple’s combined countable assets. For 2026, the CSRA runs from a floor of $32,532 to a ceiling of $162,660.⁶ The amount is set from a financial snapshot taken when the applicant first enters institutional care for a continuous stay of at least 30 days. Medi-Cal totals the couple’s countable assets on that date, and the community spouse keeps half, subject to the floor and ceiling. A couple with $200,000 in countable assets, for example, leaves the community spouse with $100,000.

Income Allocation

If the community spouse’s own monthly income is below the Minimum Monthly Maintenance Needs Allowance (MMMNA), they can receive part of the institutionalized spouse’s income to make up the shortfall. The 2026 MMMNA floor is $2,643.75 per month, and may be higher with significant shelter costs, but the allocation cannot push the community spouse above $4,066.50.⁶ Medicare premiums and other health insurance costs paid by the community spouse are deducted from their gross income before the MMMNA comparison, which often matters for spouses near the threshold.

Think About Estate Recovery While You Plan

Spend-down decisions shape what happens after death. California can seek recovery of amounts paid for nursing facility care, home and community-based services, and related medical costs for beneficiaries aged 55 and older.⁷

For deaths on or after January 1, 2017, California recovers only from assets that pass through probate. Property held in a living trust, in joint tenancy, with a life estate, or through other probate-avoidance arrangements is beyond reach. IRAs, work-related pension funds, and life insurance also fall outside recovery unless they name the state as beneficiary or revert to the probate estate. Recovery is barred entirely if the beneficiary leaves a surviving spouse or registered domestic partner, a child under 21, or a blind or disabled child of any age.⁷ Payments for In-Home Supportive Services and Medicare Savings Program cost-sharing are also exempt.

Heirs who receive a claim can apply for a hardship waiver within 60 days of the claim letter.⁸ California’s “homestead of modest value” waiver applies when the estate’s main asset is a home with a fair market value at or below 50% of the county average. A separate caregiver waiver applies when an heir provided care for two or more years that delayed the beneficiary’s admission to a long-term care facility and continues to live in the home. Structures like a living trust set up during the spend-down phase, not after death, are what put these outcomes within reach.

1
Department of Health Care Services. Asset Limit Frequently Asked Questions
2
Department of Health Care Services. MC007 Medi-Cal General Property Limitations
3
New York Codes, Rules and Regulations. 22 CCR 50479 Burial Funds
4
Department of Health Care Services. Medi-Cal Questions and Answers
5
Department of Health Care Services. ACWDL 23-28
6
Department of Health and Human Services. 2026 SSI and Spousal Impoverishment Standards
7
Medicaid.gov. Estate Recovery
8
Department of Health Care Services. Substantial Hardship Criteria