Protecting the Home When & After Applying for Medicaid Long Term Care

Summary
Depending on specific circumstances, one’s home can cause a Medicaid Long Term Care applicant to be ineligible. Furthermore, should they receive Medicaid-funded long-term care, Medicaid may seek to recover care costs from the beneficiary’s estate, including their home, after their death. This fact is particularly worrisome when family members are using the home or would have been dependent on the proceeds from the estate. Fortunately, if managed correctly, a family can protect their home during the application process, while an individual is receiving benefits, and after they pass away.

Home Protection Scenarios When Applying for Medicaid Long Term Care

Prior to a discussion of how to protect a home, one should understand the impact of home ownership on Medicaid eligibility. Medicaid has an asset limit, and in some cases, the home may be counted towards the limit, causing one to be ineligible. Furthermore, even if the home is exempt (not counted), it does not mean the home is protected from Medicaid Estate Recovery Programs (MERPs) after a Medicaid beneficiary dies. Via MERPs, which are mandatory in each state, the state attempts to collect reimbursement of the long term care costs it paid for the deceased. This is done via one’s estate, and if a Medicaid beneficiary owned a home, it is almost certainly the most valuable part of their estate.

There are three home protection scenarios that will be discussed in this article. In each of these scenarios, the home is generally safe from Medicaid’s asset limit. This is because the home is exempt, regardless of any other circumstances, when the applicant has their spouse, minor child, or disabled or blind child (of any age) living in the home. Therefore, for the most part, rather than focusing on how to protect the home from the asset limit, the focus will be on protecting the home from Medicaid Estate Recovery Programs.

1) When a Medicaid beneficiary lives in a nursing home and their spouse or other family member live in the home.
The home is protected from state Medicaid Estate Recovery Programs when the Medicaid beneficiary’s spouse, minor child, or disabled or blind child (of any age) lives in the home. It is, however, possible that Medicaid will try to recover long-term care expenses when a minor child reaches the age of 21. Fortunately, this isn’t likely to happen often, as there is generally a limited amount of time in which Medicaid can initiate estate recovery. This timeframe is usually within one year of the Medicaid beneficiary’s death.

The home is not protected from estate recovery when a healthy adult child lives in it. There is one exception, which is the Caregiver Child Exemption. This is discussed below under Home Protection Strategies.

2) When a Medicaid beneficiary lives in a nursing home and their spouse who lives in the home passes away.
The home often remains exempt from Medicaid’s asset limit when the non-applicant spouse (the community spouse) in the home passes away, given specific criteria is met. First, the Medicaid beneficiary (the institutionalized spouse) must have an “intent to return” to the home. This means that if the beneficiary’s condition were to improve and they could return home, they would, and they declare this in written form to the state Medicaid office. Furthermore, with the exception of California, the beneficiary must have a home equity interest under a specific value. Home equity interest is the portion of the home’s equity value that the applicant owns minus any outstanding mortgage or debt on the home. The exact limit is state specific, but in 2025, it is usually $730,000 or $1,097,000. To avoid confusion, when the community spouse was living, there was no home equity interest limit.

If the home is not exempt, the value of the home will count towards Medicaid’s asset limit, causing the Medicaid beneficiary to be ineligible for Medicaid. In this case, the home will likely need to be sold and the proceeds used to pay for nursing home care until the money is “spent down” to the asset limit. It is critical that the home nor proceeds from selling one’s home be given away. This is because it would violate Medicaid’s look back period (more detail below) and would result in a period of Medicaid ineligibility.

In this situation, the home is not protected from the state Medicaid Estate Recovery Program.

3) When a Medicaid beneficiary lives in a nursing home and they pass away while their spouse lives in the home.
As long as the non-Medicaid spouse lives in the home, it is protected from the state Medicaid Estate Recovery Program. However, upon the death of that spouse, the state Medicaid agency may attempt reimbursement of long-term care costs paid for the deceased Medicaid spouse. Some states prohibit this from happening, and in those that don’t, there is usually a time limitation of a year following the Medicaid beneficiary’s death in which this can occur.

Home Protection Strategies When Applying for Medicaid Long Term Care

There are several Medicaid Planning strategies that can be used to protect one’s home from your state’s Medicaid Estate Recovery Program. When implementing a strategy, one has to proceed with caution. Some of these strategies are complicated and often the rules governing them are state specific. Furthermore, many strategies violate Medicaid’s Look-Back Period. In most states, the Look-Back Period is five years. This means the state will “look back” in the applicant’s financial history for the five years prior to their application date to make sure no assets were given away or sold for less than fair market value. If you are found in violation of the Look-Back Period, your Medicaid application will be denied and you will be penalized with a period of ineligibility. The length of time of that period depends on the severity of the violation (usually measured by dollar amount) and your state’s rules.

Medicaid Asset Protection Trusts

Medicaid Asset Protection Trusts (MAPTs) protect an applicant’s assets, including their home, from both the asset limit and Medicaid Estate Recovery Programs. This is because the transferred assets are no longer considered owned by the Medicaid applicant. To be a viable option, these trusts must be irrevocable. This means they cannot be changed or cancelled, nor can the assets in the trust be accessed by the applicant. A trustee, other than the applicant, is named to managed the trust. The reasons for which the trustee can access and use the trust funds is very limited. Unfortunately, this planning technique violates Medicaid’s Look-Back Period and needs to be implemented well in advance of the need for Medicaid Long Term Care.

Lady Bird Deeds

A Lady Bird Deed is a life estate deed that is a form of co-ownership that allows a Medicaid recipient’s primary home to automatically transfer to a beneficiary following their death. However, before reading any further, it’s important to know that Lady Bird Deeds are only viable options in FIVE states: Florida, Texas, Michigan, Vermont and West Virginia.

Since ownership does not change until the Medicaid recipient passes away, a Lady Bird Deed does not violate Medicaid’s Look-Back Period, but it does protect the home from Medicaid estate recovery.  Ownership of the home passes directly to the beneficiary of the Lady Bird Deed and the state can not try and collect reimbursement through it for the long-term care it covered for the Medicaid recipient.

However, a Lady Bird Deed does not protect the home from Medicaid’s asset limit. It’s value will still be counted toward the asset limit of the owner, unless it is protected in some other way.

Child Caregiver Exemption

The Child Caregiver Exemption, also called the Adult Child Caregiving Exemption, allows one’s home to be transferred to their healthy adult child without violating Medicaid’s Look-Back Period if certain qualifications are met. This includes the adult child living with the parent for two years immediately preceding being admitted to an assisted living residence or a nursing home. Furthermore, the adult child must have provided a level of care consistent to that which either of these settings would provide. Essentially, with the Child Caregiver Exemption, the adult child is compensated with the home for providing care for the parent and delaying the need for Medicaid Long Term Care.

Consult a Certified Medicaid Planner

The best course of action to protect one’s home from Medicaid is to consult with a Certified Medicaid Planner. These professionals are well skilled and knowledgeable in implementing planning tools to protect the home in all stages of the Medicaid process. While planning strategies and Medicaid Estate Recovery Programs have general rules across all states, many rules are state-specific, especially when it comes to recovery. Unfortunately, if one is not aware of them, it could result in Medicaid ineligibility or your home not being passed down to your family members.

Ideally, planning strategies should to be implemented well in advance of the need for care to avoid Medicaid’s Look-Back Period. But even if Medicaid Long Term Care is needed immediately, Medicaid planners are knowledgeable enough to implement strategies on the fly that will not violate any rules and protect as many assets as possible, all while ensuring you start receiving long term care as soon as possible.