Table of Contents
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 in order 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 other 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 used to be optional, but became mandatory with the passing of the Omnibus Budget Reconciliation Act of 1993. Following the death of a Medicaid recipient, MERPs attempt to be reimbursed the funds in which the state paid for long-term care 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. Please note that with the exception of nursing home care, if the deceased Medicaid recipient was not 55+ years old, he/she is exempt from MERP. Being exempt means the state will not attempt to recover funds paid for long-term care Medicaid.)
It is via estate recovery that the state attempts to be reimbursed its cost, and often the only asset a deceased Medicaid applicant still has of any significant value at the time of death is his/her home. To be very clear, estate recovery does not apply when a Medicaid recipient is still living. It only applies when he/she passes away and is unmarried. Said another way, if a Medicaid applicant dies and still has a living spouse, Medicaid cannot attempt to recover long-term care costs. Furthermore, most states have a limited timeframe (generally one year following the death of a Medicaid recipient) in which they can file for estate recovery.
It is important to mention that not all states run their MERP programs the same way. Therefore, there are some differences based on the state in which one resides. 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
As long as you live in your home, and your equity interest (the value of your home in which you outright own by yourself) is under a specified limit, Medicaid cannot take it. In other words, it is not counted towards Medicaid’s asset limit, which in most states is $2,000. As of 2021, one’s home equity interest must be under $603,000 or $906,000, depending on the state in which one resides. For state specific equity interest limits, click here.
If your home is exempt (not counted towards the asset limit) and you receive long-term care assistance from Medicaid, once you pass away, the state will file an estate recovery claim to be reimbursed for your cost of home and community based care. Therefore, once your home is sold, the state will likely collect all or some of the proceeds from the sale as reimbursement. That said, there are some exceptions in which the state cannot attempt estate recovery, such as if you have a child under 21 years old or have a child that is disabled or blind.
Single and moving to a nursing home
WWhen you relocate to a nursing home, you must provide a written statement that indicates your “intent to return home”, which will allow your home to remain exempt under Medicaid rules if you have an equity interest (the value of the home you own by yourself) in it under a specified value. (In 2021, the equity interest limit is either $603,000 or $906,000. To see what the equity interest limit is in the state in which one resides, click here.). Essentially, an “intent to return home” statement protects your home from Medicaid while you reside in a nursing home facility. Without an “intent to return home” statement, your home would make you ineligible for Medicaid. Therefore, you would have to sell it and use the proceeds for your nursing home care until you are financially eligible for Medicaid.
If you opt for an “intent to return home” statement, remember that expenses for the home, such as property taxes, insurance, and mortgage, will still need to be paid. Without friends and family helping to cover the cost of home expenses, this isn’t feasible given the small Medicaid asset limit (generally $2,000) and personal care allowance (approximately $30 – $100 / month) for a person on nursing home Medicaid. (The majority of one’s income is required to go towards the cost of nursing home care).
If the state believes that your stay in a nursing home will be a permanent arrangement, the state can file a lien against your home. 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 have “spent down” the proceeds on your nursing home care. If you are able to move back into your home, the lien against it will be removed.
It’s also important to note, upon your death, the state is able to file a claim against your estate, which includes your home, in order to collect funds for repayment of your nursing home care expenses.
Single and grown children live in the home
Your home is considered exempt, regardless of your equity interest (the value of the home in which you outright own) in it, as long as one of your grown children is disabled or blind. To be clear, if you have all healthy adult children, your home is not considered to be an exempt asset, even if they live in it. However, you can file an “intent to return home” statement, indicating that you plan to move back home in the future. This will protect your home from Medicaid while you are alive. Once you die, Medicaid will try to collect for the amount that they paid for your long-term care costs via Medicaid estate recovery. Even after your death, if you have a disabled, blind, or minor child, the state is not able to take your home. There is another exception called the caregiver adult child exemption, which allows a Medicaid recipient to transfer their home to a healthy adult child under certain circumstances. Learn more below under “Caregiver Exemption”.
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. However, 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. This holds true regardless of the equity value in your home. However, the best way to handle this situation is to have the title of the home in solely your name. As the spouse of the Medicaid applicant, the home can be transferred to you without violating Medicaid’s look back period. Transferring the home to yourself will also protect your home from Medicaid making an estate recovery claim (a claim 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 death. As stated above, some states, such as California, do not attempt estate recovery if the community spouse outlives the institutionalized spouse.
Married and one spouse in nursing home passed away
As long as there is a living spouse and he/she lives at home, the home is exempt from estate recovery. Some states’ Medicaid estate recovery programs attempt to recover long-term care costs after the death of a surviving spouse. Other states do not try to recover costs after the death of a surviving spouse unless he/she was also a Medicaid recipient.
Married and one spouse living at home passed away
Under these circumstances, if the spouse who lives in the nursing home has no “intent” to move back home, Medicaid may demand that the home be sold. In this situation, the proceeds from the sale of the home would make the institutionalized spouse ineligible for Medicaid. The proceeds would then be used towards paying the cost of nursing home care until they were “spent down” to the eligible Medicaid asset limit. At this time, the individual could 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 may 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 prior to the death of 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 try to recover the funds it spent for long-term care. However, if the couple has a disabled, blind, or minor (under 21 years of age) child, the state cannot attempt estate recovery.
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 caretaker child exception. (Learn more below under “Caregiver Exemption”). Another exception would be 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 depending on the state in which one lives.
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. This is because once your home has been sold, it is no longer an exempt (non-countable) asset. Rather, the proceeds from the sale will be counted 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”.
When spending down assets, it is very important that one does not give away assets (in this case, money from the sale of the home), as it violates Medicaid’s look back rule, and will result 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.
Please note: If the deceased has a living spouse, a child under 21 years of age, or a disabled or blind child of any age, the state cannot try to recover costs from the deceased’s estate. Other exceptions also exist.
To learn more about Medicaid estate recovery in your state and how to protect your home from MERP, contact a Medicaid planning professional.
What Can Be Done to Protect the Home?
Keep Assets Out of Probate
In states that only seek Medicaid estate recovery through probate, there are ways for a Medicaid recipient to keep his/her home out of probate. (Remember, 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). This is good news because this means that one can keep their home, and proceeds from selling the home, safe from Medicaid. Remember, 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. Unfortunately, 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.
In addition, 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 only has ownership of his/her home while he/she is alive (he/she is referred to as life tenant), and upon his/her death, home ownership is transferred to another person, often the deceased’s child (referred to as the remainderman).
Another option to protect one’s home is to establish an irrevocable (it cannot be changed or cancelled) trust that holds the title of the home. (In an oversimplified explanation, there is a “trustee” who manages the trust, and the person who created the trust no longer is considered to be the owner of the assets. However, one’s children can be named as beneficiaries, which protects the home as inheritance.) The problem with Medicaid Asset Protection Trusts is timing, as this type of transfer will violate Medicaid’s look back rule and create a period of Medicaid ineligibility. Therefore, this strategy needs to be implemented well before it’s thought one might require Medicaid assistance. Five years to be exact, in order to avoid the look back period. However, one exception is the state of California, which only has a 30-month look back period. (New York is also in the process of implementing a 30-month look back period for long-term home and community based services). Another exception is a married couple with just one spouse requiring nursing home Medicaid assistance. In this situation, if the home is solely in the name of the community spouse, he/she 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 that a long term care insurance policy pays out for the policyholder’s long term care is “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 insurance policy that has paid out $350,000 for his/her 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/her 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 jeopardizing one’s eligibility for Medicaid. (Medicaid has a look back period that if one is found to have violated by gifting assets or selling them for less than they are worth, a period of Medicaid ineligibility will result). However, there is one exception known as the caregiver child exemption or caretaker child exception. This rule allows a parent to transfer his/her home to his/her adult child under the following circumstances without violating the look back period. First, the adult child must have lived with his/her 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). Second, the adult child must have provided care that delayed the necessity of the parent moving out of the home and into a nursing home.
The Sibling Exemption allows the home to be transferred to a sibling who is part owner of the house and who lived in the home for at least one year prior to his/her 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.
Work with a Medicaid Planner
Protecting one’s home from Medicaid is extremely complicated and involves planning and knowledge of federal and state laws. Therefore, with Medicaid planning, it is strongly advised one seek the counsel of a professional Medicaid planner before trying any of the above strategies to protect one’s home from Medicaid’s estate recovery program. Incorrectly transferring ones’ home can result in Medicaid ineligibility. Some states allow estate recovery under an “expanded definition of estate”. This may include life estates, property that is jointly owned, and so forth. Hence, all the more reason to seek professional counsel!