Can Medicaid Take My Home?

Homeownership is part of the American Dream. People work hard throughout their lives to own a home, and it is often their most valuable and significant possession.

When health begins to fail and the need for long-term care arises, clients often ask me a fear-filled question: Can Medicaid take my home?

The short answer is that Medicaid does not automatically take your home when you apply for long-term care benefits. A primary residence may be excluded when Medicaid determines eligibility. However, that protection is subject to important conditions, and the state may later seek reimbursement through Medicaid estate recovery.

Whether your home is protected depends on your circumstances, who lives in the home, how the property is titled, whether you intend to return, and what planning was completed before you needed care.

Is a Home Counted When You Apply for Medicaid?

Medicaid is a joint federal and state program that can help eligible individuals pay for nursing facility care and other long-term services and supports. Eligibility for long-term care Medicaid depends on medical, income, and asset requirements.

A primary residence may be treated as an exempt asset. This means the home’s value may not be counted as an available resource that must be spent before Medicaid will help pay for care.

However, calling a home “exempt” does not mean it is protected under every circumstance or that Medicaid can never seek reimbursement from its value.

When Is a Home Exempt for Medicaid Eligibility?

A home may remain exempt when the Medicaid applicant or recipient intends to return to it.

The home may also receive protection when certain close relatives continue to live there, including:

• A spouse
• A child who is younger than 21
• A child of any age who is blind or disabled

Additional protections may apply when a sibling with an ownership interest resides in the home.

These rules are intended to protect Medicaid recipients and certain close family members from immediately losing their residence when long-term care becomes necessary.

When Can a Home Lose Its Exempt Status?

The protection may change when the homeowner permanently enters a nursing facility and no longer intends to return home.

Factors that may affect the home’s treatment include:

• Whether the owner intends to return
• Whether a spouse or other protected relative lives in the home
• The owner’s equity interest in the property
• How the home is titled
• Whether the home produces income
• Whether the property has been transferred
• Which state’s Medicaid rules apply

A home can also become subject to a Medicaid estate recovery claim after the owner dies.

Because Medicaid eligibility rules are complex and state-specific, a homeowner should not assume that the property is protected simply because it was initially treated as exempt.

What Is Medicaid Estate Recovery?

Medicaid estate recovery is the process through which a state seeks reimbursement from the estate of a deceased Medicaid recipient for certain benefits paid on that person’s behalf.

Federal law requires states to seek recovery for certain long-term care expenses paid for Medicaid recipients age 55 or older. Depending on the program and applicable state law, the recoverable expenses may include:

• Nursing facility services
• Home and community-based long-term care
• Related hospital services
• Related prescription drug services
• Other Medicaid services included in the state’s recovery program

The state may file a claim against the deceased recipient’s estate. If the estate includes a home, the claim can affect whether the property can be transferred or sold without first resolving the amount owed.

The Centers for Medicare & Medicaid Services explains the federal estate recovery requirements.

Can Medicaid Place a Lien on a Home?

Under limited circumstances, a state may place a lien on the real property of a Medicaid recipient who is permanently institutionalized.

Federal rules generally restrict lifetime liens when certain family members live in the home. Protected residents may include:

• The recipient’s spouse
• A child younger than 21
• A blind or disabled child of any age
• A sibling with an equity interest who meets the residence requirements

A lien can interfere with selling or refinancing the property until the state’s claim is addressed.

A Medicaid estate recovery claim after death and a lien placed during life are related concepts, but they are not the same process. The timing and rules governing each one must be evaluated separately.

When Is Medicaid Estate Recovery Prohibited?

A state may not recover from the estate while the deceased Medicaid recipient is survived by:

• A spouse
• A child younger than 21
• A child of any age who is blind or disabled

Federal law also requires states to establish a process for waiving estate recovery when recovery would create an undue hardship.

The existence of a protected survivor may prevent or delay recovery, depending on the circumstances and applicable rules. It does not necessarily mean that every possible future claim against the property has been permanently eliminated.

Does Medicaid Have a Five-Year Lookback Period?

When a person applies for long-term care Medicaid, the state generally reviews transfers made during the five years before the application.

This is commonly called the Medicaid five-year lookback period.

Giving away a home or transferring it for less than fair market value during the lookback period may create a penalty period during which the applicant is ineligible for long-term care Medicaid benefits.

For that reason, simply signing the house over to a child is not a safe Medicaid planning strategy. A transfer that appears straightforward may create serious eligibility, tax, title, creditor, or family problems.

The sooner Medicaid planning begins, the more options may be available. Early planning can also allow the five-year lookback period to begin running before nursing facility care becomes necessary.

Can You Transfer a Home to a Caregiver Child?

One planning strategy may allow a parent to transfer a home to an adult child who provided care.

The caregiver-child exception may apply when the child:

• Lived in the parent’s home for at least two years immediately before the parent entered a nursing facility
• Provided care during that period
• Enabled the parent to remain at home rather than entering a nursing facility sooner

When all requirements are satisfied, the home may be transferred to the caregiver child without the usual Medicaid transfer penalty.

This exception is highly fact-specific. The family may need medical records and other evidence showing that the care provided by the child delayed the parent’s institutionalization.

A child moving into the home does not, by itself, guarantee that the transfer will qualify for the exception.

Can a Home Be Transferred to a Disabled Child?

Federal Medicaid rules also permit certain transfers of a home without imposing the usual transfer penalty.

A transfer may be permitted to:

• The homeowner’s spouse
• A child younger than 21
• A child who is blind or disabled
• A sibling who has an equity interest in the home and meets the applicable residence requirement
• A caregiver child who satisfies the required conditions

These exceptions appear in the federal Medicaid transfer statute, 42 U.S.C. § 1396p.

The transfer must be properly documented and must meet every applicable requirement. Families should not transfer the home before receiving advice based on their specific circumstances.

Can You Keep a Life Estate in Your Home?

Another possible strategy is to retain the right to live in the house during your lifetime while transferring a remainder interest to someone else. That person would generally become the full owner after your death.

A life estate may serve useful estate planning goals, but it comes with risks. It may affect:

• Medicaid eligibility
• The five-year lookback period
• Estate recovery
• Capital gains taxes
• The ability to sell or refinance
• Responsibility for repairs and expenses
• The homeowner’s future control over the property

A life estate should not be created without examining its Medicaid, tax, and property-law consequences.

Can Medicaid Planning Protect Your Home?

Planning strategies may reduce or prevent Medicaid estate recovery in appropriate circumstances. However, there is no single solution that works for every homeowner.

An effective plan may require balancing:

• Medicaid eligibility
• The five-year lookback period
• Estate recovery
• The rights of a spouse or other family members
• Capital gains and estate tax considerations
• The owner’s need to retain control
• The possibility of remaining at home
• The risk that family circumstances will change

Each strategy comes with risks that must be explored before deciding what is appropriate.

An overall plan tailored to the individual requires fitting together several puzzle pieces. There is no cookie-cutter solution. The key is to plan before you or your spouse needs nursing facility care.

When Should You Speak With a Medicaid Planning Attorney?

Speak with a Medicaid planning attorney before:

• Giving your home to a child
• Adding someone to the deed
• Creating a life estate
• Selling the property
• Applying for long-term care Medicaid
• Moving permanently into a nursing facility
• Assuming that the home is protected because a relative lives there

Early advice can help you understand the available options and avoid a transfer that unintentionally causes Medicaid ineligibility.

McDonald Law Firm helps families navigate Medicaid eligibility and estate recovery while working to preserve a home and other assets as part of a balanced estate plan.

To discuss your circumstances, contact Andre O. McDonald, a Howard County, Montgomery County, and District of Columbia estate planning, special needs planning, and Medicaid asset protection attorney.

Call 443-741-1088, 301-941-7809, or 202-640-2133 to schedule a consultation.

DISCLAIMER: THE INFORMATION POSTED ON THIS BLOG IS INTENDED FOR EDUCATIONAL PURPOSES ONLY AND IS NOT INTENDED TO CONVEY LEGAL, INSURANCE, OR TAX ADVICE.