Medicaid Estate Recovery: Is Your Deed Safe?

If you qualify for Medicaid, you don’t have much money in your accounts. But you’ve held onto your deed. Maybe your adult children are helping with household expenses, expecting the home to stay in the family. But will it? Or will Medicaid claim your home after your death—as repayment for benefits extended to you while you were alive?

Here’s what you might be asking and some points to think about while you’re in the position to plan.

Who might try to recover the Medicaid benefits I use during my life?

Your home state might. According to the Medicaid.gov “Estate Recovery” page, state Medicaid programs must recover certain Medicaid benefits paid on behalf of recipients aged 55 or older.

Medicaid is run by the federal and state governments jointly. When older adults rely on Medicaid benefits for long-term services and supports, states must later seek repayment from the recipient’s probate estate, as required by federal law. In other words, the home state will hit up the person’s estate to pay back debts before heirs can receive anything.  

Am I likely to need Medicaid at some point?

Most older adults do come to need long-term care assistance. And this assistance can add up to tens of thousands of dollars over time.

With nursing home costs now running in the range of $10K per month, it’s easy to see how a lifetime of savings can be gone in just a few years.

Most people who need continuing care rely on Medicaid when they’ve depleted their financial accounts.

But I’m going on Medicare. Won’t that cover my costs?

Many people assume this until they apply for Medicare and learn the ropes. Medicare does cover treatment or rehab for set periods. But as a person begins to need continuing help with everyday tasks, Medicare backs off. And that’s regardless of where living assistance is provided—at home or at an assisted living or nursing care site.

So, the senior turns to Medicaid. The state will come back for the Medicaid funds after the senior passes away. Sometimes the state can place a lien for continuing care costs even before death—when a person goes into residential care and is not expected to return home.

Is setting up a trust the best way to guard a home from Medicaid estate recovery?

We cannot give financial or legal advice here, so please speak with a lawyer experienced in estate planning. The lawyer you hire can examine your situation and all the obligations that may be tied to your home. The lawyer can also tell you whether money remaining in a trust after death may be used to reimburse Medicaid.

You might decide to create a life estate at least five years before you anticipate applying for Medicaid. Then, your deed can safely pass to your “remainder” beneficiary. Use caution here; if you and the remainder beneficiary decide to sell, the sale proceeds can become assets that disqualify you from assistance.

The Medicaid Asset Protection Trust is known as an especially strong form of protection. With a MAPT, the deed holder irrevocably transfers control to the trust—but keeps the home’s value safe for heirs. The trust must be set up at least five years before the homeowner needs to apply for Medicaid.

Simply quitclaiming your deed into a revocable trust will not shield your home against estate recovery.

Does joint ownership protect the home?

Joint ownership means the survivor safely keeps the home—in states that only make recovery claims on probate assets. Other states, like New Jersey, can reach certain assets that bypass probate, including some jointly owned assets. In contrast, Missouri’s Medicaid estate recovery does not touch property that passes outside probate, such as joint tenancy with right of survivorship.

Not only spouses but also siblings with ownership interests who have already been living in the home for a year or more might have protections when a deed holder must move into continuing care.

Enhanced life estate (“lady bird”) deeds are valid in Florida, Vermont, Michigan, Texas, and West Virginia. These can protect Medicaid eligibility.

What costs will a state recover from probate?

States impose liens for continuing care and related hospital and prescription charges. Some go after any and all Medicaid costs. But help received through Medicare Savings Programs is not subject to estate recovery. (Medicare participants with minimal assets can apply for these programs.)

Estate recovery is deferred while a surviving spouse is alive. Also, the state can’t recover if the deceased is survived by a child under age 21 or a disabled child of any age.

Will the state put my household at risk of serious financial hardship?

Household members should apply to the state’s Medicaid department for an undue hardship waiver if Medicaid recovery is creating serious financial problems.

Heirs should know that if someone dies with zero assets, the state may not hit up the surviving family members for repayment.

Also, to help a surviving spouse continue living independently, a “spousal impoverishment” provision shields assets up to a certain amount.

What if I borrow against my equity now and get these bills paid off?

Many deed holders try hard to pay their healthcare charges. By the time they meet their states’ eligibility rules for Medicaid, they’re low on funds. Maybe they want to borrow against the home to keep paying for care. This depletes the one store of value they still have—the home.

Especially in today’s economy, exhausting a senior’s resources can be devastating for their families. People inheriting as little as $5,000 are more than twice as likely as survivors who receive nothing to become deed holders, says Realtor.com®.

Does it make sense to let households lose everything when an ailing homeowner dies? Or is Medicaid estate recovery one more element in a nationwide affordability crisis? You be the judge.