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A common concern among elderly persons applying for (or receiving) nursing home care or other assistance from Medicaid is what will happen to their home. This is also frequently a concern of adult children whose mother, father, or both parents need Medicaid assistance to reside in a nursing home facility. Can Medicaid take the home when the elderly individual moves to a nursing home? Can the state take the home after the Medicaid recipient dies? What if a spouse or another family member lives in the home? Is there a way for the home to be protected as inheritance for family? Unfortunately, these are complicated questions and the answers depends on a family’s specific situation.
Medicaid Estate Recovery Program Rules
All 50 states and the District of Columbia have Medicaid Estate Recovery Programs (abbreviated as MERP or MER). These programs became mandatory with the passing of the Omnibus Budget Reconciliation Act of 1993. Following the death of a Medicaid recipient 55+ years old, MERPs attempt reimbursement of long-term care costs for which the state paid for that individual. This can be for in-home care, community based care, such as adult day care and assisted living services, or nursing home care. Medicaid Estate Recovery is also mandatory for deceased Medicaid recipients under the age of 55 if they were receiving nursing home care.
It is via one’s remaining estate that the state attempts to be repaid. Often, the only asset of any significant value that remains at the time of a Medicaid recipient’s death is their home, and it is often through the home that the Medicaid agency is reimbursed. However, if the deceased has a surviving spouse, a minor child under 21 years old, or a disabled or blind child of any age, Medicaid cannot attempt Estate Recovery to recover long-term care costs. Furthermore, most states have a limited timeframe in which they can file for Estate Recovery. This is generally one year following the death of a Medicaid recipient.
MERP rules are not consistent across the states. Some states, such as Florida, file for Estate Recovery following the death of the surviving spouse. Other states, such as California and Texas, prohibit Estate Recovery after the surviving spouse dies. The only exception is if the surviving spouse was also a Medicaid recipient.
Another consideration of Medicaid Estate Recovery Programs is that one’s situation and estate planning techniques have an impact on whether or not Medicaid will be able to collect reimbursement from the sale of one’s home. Learn more about MERP.
Can Medicaid Take My Home? Different Scenarios Explained
Single and live alone in the home
Medicaid cannot take one’s home if they live in it and their home equity interest is under a specified value. In other words, the home is exempt; it is not counted towards Medicaid’s asset limit of $2,000 (in most states). Home equity is the home’s value after subtracting any debt against it. Equity interest is the home equity amount in which the individual owns. In 2023, home equity interest is generally limited to $688,000 or $1,033,000, depending on the state in which one resides. California is an exception and does not have a home equity interest limit. See state specific limits.
For Medicaid beneficiaries who receive long-term care assistance from Medicaid and are 55+ years old at the time of death, a state’s Medicaid agency will file an Estate Recovery claim for reimbursement of home and community based care costs. Once the home is sold, the state will likely collect all or some of the proceeds from the sale as reimbursement. There are some exceptions in which the state cannot attempt Estate Recovery. This includes having a child who is under 21 years old or having a child of any age who is disabled or blind.
Single and moving to a nursing home
When one relocates to a nursing home, they should provide a written statement of “Intent to Return” home. This will allow one’s home to remain exempt under Medicaid rules as long as their home equity interest is under a specified value. Home equity is the home’s value minus any debt against it. Equity interest is the home equity amount in which the individual owns. In 2023, the equity interest limit is generally either $688,000 or $1,033,000. CA is an exception and has no limit. See equity interest limits by state. Some states only allow “Intent to Return” for a limited time (i.e., 6 months). If this is the case, and one hasn’t returned home within the allotted time frame, the home becomes a countable asset. This would very likely make one ineligible for Medicaid. One would then have to sell their home and use the proceeds to pay for their nursing home care until they are financially eligible for Medicaid.
With an “Intent to Return” statement, one still needs to pay their home expenses, such as property taxes, insurance, and mortgage. If friends and family do not help cover these costs, maintaining the home isn’t feasible for long. This is partly because of Medicaid’s small asset limit (generally $2,000). However, what really limits one from covering these expenses is that nearly all of a Nursing Home Medicaid beneficiary’s income must go towards their cost of care. Essentially, they are limited to a Personal Needs Allowance of approximately $30 – $200 / month. However, with “Intent to Return”, a nursing home beneficiary may be able to keep a portion of their income as a Home Maintenance Allowance / Home Maintenance Deduction for up to six months to cover their home expenses.
The state may file a TEFRA lien against one’s home if it is believed that their stay in a nursing home is permanent. With a lien, a legal claim is made against the home to collect debt. This does not mean that the home must immediately be sold. It simply means that when it is sold, the state will receive money from the sale for reimbursement of the cost of Medicaid-funded nursing home care. If the home is sold while one is still alive, the proceeds from the sale will likely disqualify one from Medicaid until the proceeds are “spent down” on one’s nursing home care. If one moves back home, the lien against it will be removed.
Upon one’s death, the state will file a claim against their estate to collect funds for repayment of nursing home care expenses. This includes one’s home.
Single and grown children live in the home
The home is exempt, regardless of one’s home equity interest, if one has a grown child who is disabled or blind living in the home. However, if one’s grown child is not disabled or blind, the home is not necessarily an exempt asset. A home equity interest limit would apply in all states but California. Generally speaking, the limit is $688,000 or $1,033,000, and is based on the state in which one resides. Home equity is the home’s value minus any debt against it. Equity interest is the home equity amount in which the individual owns. Furthermore, one needs to file an “Intent to Return” home statement indicating that they plan to move home if possible. This, in most cases, will protect one’s home from Medicaid while they are living. After their death, Medicaid will attempt reimbursement of long-term care costs via Medicaid Estate Recovery if they do not have a disabled, blind, or minor child. There is another exception in which Estate Recovery cannot take place. This is called the Child Caretaker Exemption. It allows a Medicaid recipient to transfer their home to a healthy adult child under certain circumstances.
Single and has passed away
After the death of a Medicaid recipient, the state will try to recover the cost of long-term care for which it paid through a home sale. The state cannot do this if the deceased has a child that is disabled, blind, or under 21 years of age.
Married and one spouse moving to a nursing home
When one’s spouse moves into a Medicaid-funded nursing home, the spouse that remains at home is considered the community spouse, and as such, they are entitled to keep the home. While there is no home equity interest limit, it is best to have only the community spouse’s name on the house title. As the non-applicant spouse, the home can be transferred to them without violating Medicaid’s Look-Back Period. While the home is safe from Estate Recovery if the institutionalized spouse passes away while the community spouse is living, it isn’t necessarily safe from MERP following the community spouse’s death if the home isn’t solely in their name. Therefore, transferring the home to the community spouse will protect it from Medicaid Estate Recovery. The state will not be able to make a claim against the home, even after the community spouse’s death, to be paid back for the cost of their spouse’s nursing home care. This is because the home will no longer be a part of that spouse’s estate upon the community spouse’s death.
Married and one spouse in nursing home passed away
As long as there is a living spouse, the home is exempt from Estate Recovery. Some states’ Medicaid Estate Recovery Programs attempt recovery of long-term care costs after the death of a surviving spouse. Other states do not try to recover costs unless that spouse was also a Medicaid recipient. California is one such state that does not attempt Estate Recovery if the community spouse (non-applicant spouse) outlives the Medicaid beneficiary spouse.
Married and one spouse living at home passed away
If the Medicaid recipient spouse lives in the nursing home and has no Intent to Return home, Medicaid may demand that the home be sold. In this situation, the proceeds from the sale would most likely make the institutionalized spouse ineligible for Medicaid. The proceeds would need to pay for nursing home costs until they were “spent down” to the eligible Medicaid asset limit. The individual could then reapply for Medicaid. Even if the home was solely in the name of the spouse who lived at home (the community spouse), the institutionalized spouse could inherit the home via “intestate succession”. This is when a spouse dies without a valid will and the deceased’s assets are passed onto the living spouse. If this happens, the home will be counted as an asset and the institutionalized spouse will be disqualified for Medicaid until the home is sold and the proceeds “spent down” on care.
Both spouses have passed
Depending on the circumstances, a number of scenarios could play out. If both spouses were Medicaid recipients, the state will try to recover the funds in which it spent for long-term care costs. If only one spouse was a Medicaid recipient and passed away before the non-Medicaid spouse, the state may or may not attempt to recover the costs for care. This depends on the state in which one resides. If the non-Medicaid spouse died prior to the Medicaid recipient spouse, the state will initiate Estate Recovery to recover long-term care costs. If the couple has a disabled, blind, or minor (under 21 years of age) child, Estate Recovery by the state is prohibited.
Both spouses have passed, grown children live in home
Assuming both spouses were Medicaid recipients, the state will try to collect funds for repayment of care via Estate Recovery unless the home was previously transferred to one of their adult children via the Child Caregiver Exception. Another exception exists if one of the couple’s grown children is blind or disabled. If only one spouse received Medicaid-funded care and passed away prior to the non-Medicaid recipient spouse, the state may or may not attempt Estate Recovery. The way this situation is handled is state-specific.
Can I Sell My House While on Medicaid?
Yes, one can sell their home while on Medicaid, but with the risk of losing Medicaid eligibility. Once one’s home has been sold, it is no longer an exempt (non-countable) asset. The proceeds from the sale will count towards Medicaid’s asset limit, which is generally $2,000. This, more likely than not, will put a Medicaid recipient over the asset limit and will result in disqualification until the extra assets (the assets over Medicaid’s limit) have been “spent down”.
It is vital that one not gift assets, or in this case, money from the sale of the home, as it violates Medicaid’s Look-Back Rule. Violations result in a Penalty Period of Medicaid disqualification even after the “excess” assets are gone. While one can spend down the extra assets by paying for the cost of their long-term care, other options include purchasing an Irrevocable Funeral Trust and / or an Income Annuity.
Alternatively, contact a Medicaid Planning Professional to learn about estate recovery rules in your state and how to protect your home.
What Can Be Done to Protect the Home?
Keep Assets Out of Probate
Some states only seek Medicaid Estate Recovery through probate, and in these states, there are ways for a Medicaid recipient to keep their home out of probate. Probate is a legal process that involves checking the validity of one’s will, determining the value of the deceased’s assets, and paying any remaining taxes and bills. Keeping the home out of probate keeps one’s home, and proceeds from selling it, safe from Medicaid. This is because only assets solely owned by the deceased go through probate, which means if the house is jointly owned, it will not be included in the probate estate. There is one exception. This is when the home is jointly owned and rather than the deceased’s share of the home automatically inherited by the other owner, the beneficiary is named in the will.
If a home is in a Lady Bird Deed, a type of life estate deed, it will not go through probate. With a Lady Bird Deed, a Medicaid recipient maintains ownership of their home while they are living. Upon their death, home ownership is automatically transferred to another person, often the deceased’s child.
One can protect their home by establishing an irrevocable trust that holds the title of the home. Irrevocable means the terms of the trust cannot be changed or canceled. Essentially, a ”trustee” is named to manage the trust and the trust maker is no longer considered the owner of the assets. However, the trust maker’s children can be named as beneficiaries, protecting the home as inheritance. The problem with Medicaid Asset Protection Trusts is timing. This type of transfer violates Medicaid’s Look-Back Rule and creates a Penalty Period of Medicaid ineligibility. Therefore, this strategy needs to be implemented 60-months prior to applying for long-term care Medicaid. One exception is California, which has a more lenient “look back” of 30-months. New York is also an exception. While the state currently has no Look-Back Period for long-term home and community based services, they plan to implement a 30-month “look back” no sooner than March 31, 2024.
Another exception exists when just one spouse of a married couple receives Nursing Home Medicaid assistance. If the home is solely in the name of the community spouse (non-applicant spouse), that spouse can transfer the home into an irrevocable trust without impacting the Medicaid eligibility of the institutionalized spouse.
Long Term Care Partnership Programs
Long-Term Care Partnership Programs help protect all, or a portion, of a Medicaid applicant’s assets from Medicaid’s asset limit, as well as from Medicaid Estate Recovery. Partnership Programs are a collaboration between a private insurance company that sells long-term care partnership policies and a state’s Medicaid program. Essentially, the same dollar amount paid out by a long-term care insurance policy for the policyholder is the same amount “protected” from Medicaid’s asset limit and from Estate Recovery.
As an example, Joe is applying for long-term care Medicaid and has a long-term care partnership policy that paid out $350,000 for his care. This means he can retain up to $352,000 in assets (Medicaid’s asset limit is generally $2,000, so $350,000 + $2,000 = $352,000) and still qualify for Medicaid. Furthermore, up to $350,000 in assets can be declared “protected” from Estate Recovery. His home is worth $300,000 and he claims his home as “protected”. This means Medicaid cannot try to be reimbursed the funds it paid for his long-term care via the sale of his home following his death. More.
In most cases, the home cannot be transferred to an adult child without violating Medicaid’s Look-Back Period and jeopardizing one’s eligibility for Medicaid. However, there is one exception known as the Caregiver Child Exemption or Caretaker Child Exception. This rule allows a parent to transfer their home to their adult child without violating the Look-Back Period. The adult child must have lived with their parent at least two years prior to the parent moving to a nursing home or assisted living facility paid for by Medicaid. (Please note that it is care services Medicaid pays for in assisted living, not room and board). The adult child also must have provided a level of care during this time that delayed the parent’s need for nursing home care. More.
The Sibling Exemption allows the home to be transferred to a sibling who is part owner of the house. They must have lived in the home for at least one year prior to their sibling moving into a Medicaid-funded nursing home. This must be done correctly in order to avoid violating Medicaid’s Look Back Period and creating a period of Medicaid ineligibility. More on the Sibling Exemption.
Work with a Medicaid Planner
Protecting one’s home from Medicaid is extremely complicated. It involves planning and knowledge of federal and state laws. With Medicaid planning, it is strongly advised one seek the counsel of a Professional Medicaid Planner. Incorrectly implementing a planning strategy or improperly transferring one’s home can result in Medicaid ineligibility. Furthermore, since the rules involving Estate Recovery are state-specific, what may protect a home in one state doesn’t necessarily protect it in another state.