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Medicaid is a federally sponsored program whose participation limits are set by the state in which you reside. It is for those people who have minimal assets and very little income. To be eligible, you basically have to "spend down" your assets to meet the state's eligibility criteria. Legislation has made it increasingly difficult to transfer or gift your assets, either directly or through a trust, and still be eligible for Medicaid without waiting a significant amount of time. Basically, Medicaid has a 60-month look-back period, in which states may delay eligibility for Medicaid benefits if a person has disposed of resources for less than fair market value.

The bottom line is, you'll pay a big price if you're counting solely on Medicaid to pay your nursing home bills someday. You'll virtually have to leave yourself with little or nothing in the bank or divest yourself from possession and control of your assets many years before entering a nursing home. In addition, some states have income limits for Medicaid eligibility.

For more information on Medicaid rules in your state, contact your local Office on Aging.

Your first step is to determine if you should buy a long-term care policy. If you decide you should, there are some things to consider when shopping for the policy. And you may be eligible for tax benefits based on your premiums.