How to Protect Your Home from Medicaid Estate Recovery Programs

Seniors who own homes can qualify for Medicaid, but that doesn’t mean their home is safe. After a Medicaid recipient passes away, states are required by law to try and collect reimbursement for the long-term care Medicaid paid for during the beneficiary’s life. They attempt to collect from the Medicaid recipient’s estate. This is known as Medicaid Estate Recovery, and it happens in every state.

If the recipient was a homeowner, the home is usually the most valuable asset in their estate. So, the state might force the sale of a home to cover long-term care costs. Instead of staying in the family, the home could be sold to pay for bills you probably thought Medicaid was covering. However, there are ways you can protect your home from Medicaid Estate Recovery. Read on to learn more or connect with us to discuss how to protect a home.


How Medicaid Estate Recovery Works

Every state has a Medicaid Estate Recovery Program (MERP) that will try and collect reimbursement for Medicaid expenses. Most states confine this to long-term care expenses, but some states will try and collect Medicaid expenses that aren’t from long-term care. But states are never allowed to collect more than what they paid.

The estate recovery process usually begins with the state’s MERP sending a letter to a family member or representative soon after the Medicaid recipient’s death stating the MERP’s intention to attempt recovery for Medicaid expenses. In some states, however, a family member or representative of the Medicaid recipient is required to notify the state of the recipient’s death, and that notification will trigger the estate recovery process.

In just over half of the states, MERPs limit their estate recovery to the deceased recipient’s probate estate. These are known as “probate-only” states. Resources in the probate estate are held in name by only the deceased Medicaid recipient and are scheduled to be passed on in a Will and Testament. Probate resources do not include joint assets such as retirement accounts, life insurance policies or bank accounts that been legally designated as TOD (transfer on death), POD (pay on death) or anything similar.

In just under half the states, MERPs will attempt recovery from assets that do not go through probate in addition to those that go through probate. These are known as “expanded recovery” states. Some of these states may also try and collect reimbursement through the estate of the Medicaid recipient’s spouse after the spouse’s death.

When a deceased Medicaid recipient’s estate goes to probate court to be distributed, a representative from the state’s MERP will be there attempting to collect reimbursement. The MERP’s claim may take priority over all other claims, depending on the state, but otherwise most state’s probate laws generally treat the MERP like any other creditor. If the estate does not have enough other resources to cover the Medicaid long-term care costs, and it probably won’t, the home will need to be sold and the proceeds will be used to cover the costs. If there is anything remaining, it can then be distributed to the inheritors according to the Will and Testament or state laws.


How Liens Work

Some states will use liens to ensure they can attempt recovery via a Medicaid recipient’s home. In those states, a lien will be placed on the home as soon as the homeowner starts receiving Medicaid benefits or at some point in time before their death. The lien prevents the home from being sold. When the Medicaid recipient dies, the state will sell the home if that is the only way it can collect reimbursement for the long-term care expenses.

There are certain circumstances and strategies that can prevent the state from using a lien, and that can protect a home from MERP entirely detailed in the next section.


Occupants Who Keep the Home Protected from Medicaid Estate Recovery

The home will be safe from Medicaid Estate Recovery if the deceased Medicaid recipient’s spouse, minor child or disabled child of any age lives there. This means the state can not place a lien on the home or attempt recovery via sale of the home if any of those people are living there.

Expanded recovery states might attempt recovery through the sale of the house after the death of an occupying spouse, but this will not happen in probate-only states. No matter what kind of a state you live in, probate-only or expanded recovery, we recommend married Medicaid recipients put their home in their spouse’s name only.

It should also be noted that some states may attempt recovery after an occupying minor child turns 21, but this is unlikely.


Undue Hardship Waivers

If the sale of the home for estate recovery purposes causes undue hardship for any of the survivors, most states will not attempt recovery. Instead, they will grant an undue hardship waiver. The rules and limits governing undue hardship waivers can vary greatly by state, as can most of the rules about Medicaid Estate Recovery. In general, however, undue hardship waivers may be granted if there are occupants in the home (other than a spouse, minor child or disabled child, who automatically prevent recovery) who would not be able to find another dwelling if the home was sold. Or if the home was also part of a family business, like a farm, and the sale would cause harm to the business, then an undue hardship waiver might be granted. Or if sale of the home would force any of the survivors to apply for state aid (including Medicaid), an undue hardship waiver might be granted.

To find out if you or your family could be eligible for an undue hardship waiver, get in touch with our team of professionals at Eldercare Resource Planning.


Child Caregiver and Sibling Exemptions

When used properly, the Child Caregiver Exemption and Sibling Exemption will both protect the home from Medicaid Estate Recovery.

With the Child Caregiver Exemption, Medicaid recipients can transfer ownership of their home to a qualified adult child without violating the Look-Back Period. In most states, the Look-Back Period is five years. This means the state will “look back” into the five years of Medicaid applicant’s financial history immediately before they submitted their application to make sure they have not give away any of their assets (including their home), or sold them at less than fair market value, to get under Medicaid’s asset limit for eligibility.

So, in most cases a senior couldn’t simply give their home to their adult child in hopes of getting under Medicaid’s asset limit, but they can if they use the Child Caregiver Exemption. This transfer also protects the home from Medicaid Estate Recovery in both probate-only and expanded recovery states. In order to qualify for this Exemption, the adult child must have lived in the home for at least two years prior to the date their parent began receiving Medicaid benefits, and during that time they must have supplied care that helped their parent remain in the home instead of moving to a nursing home or some other Medicaid-funded institution. The adult child must be biological or adopted. Stepchildren, foster children and other family members can not qualify for this Exemption.

With the Sibling Exemption, Medicaid recipients can transfer ownership of their home to a qualified sibling without violating the Look-Back Period. Like the Child Caregiver Exemption, the Sibling Exemption also protects the home from Medicaid Estate Recovery in probate-only and expanded recovery states. Siblings are qualified for this Exemption if they have an equity interest in the home (co-ownership) and they have lived in the home for at least one year prior to the Medicaid recipient moving out. Siblings must be biological or adopted. Step siblings and foster siblings are not eligible.


Lady Bird Deeds

Lady Bird Deeds can protect a home from Medicaid Estate Recovery, but as of 2024 these deeds are only allowed in five states: Florida, Michigan, Texas, Vermont and West Virginia. In those states, Lady Bird Deeds allow Medicaid recipients to maintain ownership of their home while they are alive, but then immediately transfer ownership after their death to a beneficiary named in the Lady Bird Deed. This transfer prevents estate recovery attempts.


Medicaid Asset Protection Trusts

Any asset placed in a Medicaid Asset Protection Trust (MAPT), including a home, is protected from Medicaid Estate Recovery. However, using one of these trusts violates the Look-Back Period, which we discussed above. So, in order to effectively use a Medicaid Asset Protection Trust, seniors in most states would need to create and use them at least five years before they applied for Medicaid. It’s hard to know when you might need Medicaid long-term care coverage, which makes it difficult to use one of these trusts.

In order to be Medicaid-approved, these trusts must be irrevocable, which means they can’t be changed or canceled after they have been created. A trustee must be named to manage the trust, but their access to the funds in the trust is extremely limited. More on MAPT.


How a Medicaid Planner Can Help Protect Your Home from Medicaid Estate Recovery

Medicaid Estate Recovery can become complicated and litigious, which is why having a Certified Medicaid Planner on your side can prove to be invaluable.

Our team at Eldercare Resource Planning will know the Medicaid Estate Recovery rules and regulations in your state, and how they interact with the probate laws. If your state is an expanded recovery state, they will know just how far it might take that recovery. They know the standards your state will have for granting undue hardship waivers and if you might have a chance of getting one. If your circumstances require extra legal knowledge or action, we partner with Elder Law Attorneys who are ready to help.

Our Medicaid Planners can let you know if using a Child Caregiver Exemption, a Sibling Exemption, a Lady Bird Deed or a Medicaid Asset Protection Trust makes sense for your situation. If they do, we can help you with the eligibility requirements for each of them, as well as getting the timing right and making sure to fill out all the paperwork correctly.

Keeping a home safe and in the family is a big deal. Don’t risk losing it to Medicaid Estate Recovery because you didn’t know all the rules or take all the steps you could. Instead, connect with our team of professionals at Eldercare Resource Planning.

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