Medicaid Estate Recovery Programs: When Medicaid Can and Cannot Take One’s Home

Last updated: January 02, 2022

Introduction

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.

 A Simple Answer: As long as either the Medicaid beneficiary or their spouse lives in the home, Medicaid cannot take it or force a sale. However, there are many complexities and nuances.

 

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. MERP does not apply if the deceased Medicaid recipient has a living spouse. In this case, Medicaid cannot attempt recovery of 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.

Not all states run their MERP programs the same way. For instance, in some states, such as Florida, if the Medicaid recipient passes away, leaving a surviving spouse, the state will try to recover long-term care costs after the surviving spouse dies. Other states, such as California and Texas, prohibit estate recovery following the death of a surviving spouse preceded in death by a Medicaid recipient. 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 funds from the sale of one’s home. For additional information about MERP, click here.

 

Can Medicaid Take My Home? Different Scenarios Explained

Single and live alone in the home

Medicaid cannot take your home if you live in it and your home equity interest is under a specified value. In other words, it will not count towards Medicaid’s asset limit, which in most states is $2,000. Home equity interest is the value of your home in which you outright own. In 2022, home equity interest is generally limited to $636,000 or $955,000, depending on the state in which one resides. California is an exception and does not have a home equity limit. See state specific limits.

If your home is exempt (not counted), you receive long-term care assistance from Medicaid, and pass away at the age of 55 or older, the state will file an estate recovery claim for reimbursement of home and community based care costs. Once your 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, disabled, or blind.

 

Single and moving to a nursing home

When you relocate to a nursing home, you should provide a written statement of intent to return home. This will allow your home to remain exempt under Medicaid rules if you have an equity interest under a specified value. Home equity interest is the portion of your home’s value in which you own. In 2022, the equity interest limit is generally either $636,000 or $955,000. 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 you haven’t returned home within the allotted time frame, your home becomes a countable asset. This would very likely make you ineligible for Medicaid. You would then have to sell your home and use the proceeds for your nursing home care until you are financially eligible for Medicaid.

With an “intent to return home” statement, you will still need to pay your 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. 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 care allowance of approximately $30 – $200 / month.

The state may file a TEFRA lien against your home if it is believed that your stay in a nursing home is permanent. With a lien, a legal claim is made against your home to collect debt. This does not mean that you have to immediately sell it. It simply means that when your house is sold, the state will receive money from the sale for reimbursement of the cost of your Medicaid-funded care. If the home is sold while you are still alive, the proceeds from the sale will disqualify you from Medicaid until you “spend down” the proceeds on your nursing home care. If you move back home, the lien against it will be removed.

Upon your death, the state will file a claim against your estate to collect funds for repayment of your nursing home care expenses. This includes your home.

 Not all states use liens as a means of reimbursement for Medicaid funded long-term care. While estate recovery is required by all states, liens are not.

 

Single and grown children live in the home

Your home is exempt, regardless of your home equity interest, if one of your grown children living in the home is disabled or blind. Home equity interest is the value of your home in which you outright own. To be clear, if you have all healthy adult children living in your home, it is not an exempt asset. However, you can file an intent to return home statement, indicating that you plan to move home if you are able. This, in most cases, will protect your home from Medicaid while you are alive. Once you die, Medicaid will attempt reimbursement of long-term care costs via Medicaid estate recovery. However, the state cannot take your home if you 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 your spouse moves into a Medicaid-funded nursing home, you are considered the community spouse, and as such, you are entitled to keep your home. There is no home equity value limit. However, it is best to have just your name on the house title. As the non-applicant spouse, the home can be transferred to you without violating Medicaid’s look back period. While your home is safe from estate recovery if your spouse passes away and you are living, it isn’t necessarily safe from MERP following your death if the home isn’t solely in your name. Therefore, transferring the home to yourself will protect it from Medicaid estate recovery. The state will not be able to make a claim against the home, even after your death, to be paid back for the cost of your spouse’s nursing home care. This is because the home will no longer be a part of your spouse’s estate upon their death.

 

Married and one spouse in nursing home passed away

As long as there is a living spouse who lives in the home, it 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 spouse who lives in the nursing home 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 what is called “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 the couple has a blind or disabled child, including one that is grown. 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, you can sell your home while on Medicaid, but with the risk of losing Medicaid eligibility. Once your 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. Violating this rule results in a period of 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.

 Important: Medicaid estate recovery is mandatory in all states following the death of persons of any age who received Medicaid-funded nursing home care and for persons 55 years and older who received Medicaid-funded long-term care. This includes home and community based long-term care, such as assisted living services through a Medicaid Waiver. Learn more about MERP, how it works, and exceptions to the rules.

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.

 

Irrevocable Trusts

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. In an oversimplified explanation, 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 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 begin phasing in a 30-month “look back” in 2022.

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 has 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”, which 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.

 

Caregiver Exemption

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 child also must have provided a level of care during this time that delayed the parent’s need for nursing home care. More.

 

Sibling Exemption

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.

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