Can Medicaid take my home? There’s good news and bad news about estate recovery

For many Americans approaching retirement age, the prospect of needing long-term care looms large. According to the U.S. Department of Health and Human Services, about 70% of people turning 65 today will need some type of long-term care services in their remaining years. This care can range from help with daily activities to round-the-clock nursing care, and the costs can be staggering.

The Genworth Financial Cost of Care Survey reveals that the national median annual cost for a private room in a nursing home is $108,405. With such high costs, many seniors turn to Medicaid to help cover their long-term care expenses. However, this decision often comes with concerns about asset protection, particularly when it comes to the family home.

Medicaid is a means-tested program, which means applicants must meet their state’s strict financial eligibility requirements before Medicaid starts paying for care. To be eligible for Medicaid long-term care benefits, an individual must have limited income and assets. As of 2025, most states allow individuals to keep no more than $2,000 in countable assets ($3,000 for couples). However, some assets are considered exempt and don't count toward this limit. Income limits, ranging from $2,829 a month for a single individual age 65 or older to a married couple’s combined income of $5,658 if both are Medicaid applicants.

Medicaid also has strict rules about transferring assets. The program looks back at all financial transactions for the five years preceding the Medicaid application (known as the "look-back period"). If they find that assets were given away or sold for less than fair market value during this time, they may impose a penalty period during which the applicant is ineligible for benefits.

When it comes to Medicaid eligibility, particularly for long-term care, there are certain assets that are considered exempt from the Medicaid spend-down process. The spend-down process refers to the requirement that an individual must deplete most of their countable assets before qualifying for Medicaid. However, some assets are protected to ensure that the applicant and their spouse (if applicable) are not left completely destitute. It's important to note that while there are federal guidelines, specific rules can vary by state. Here's a look at assets typically exempt from Medicaid spend down:

• Primary residence. In most states, the applicant's primary home is exempt, with some limitations. There's usually an equity value limit (often between $700,000 to $1 million, adjusted annually). The home remains exempt if a spouse, dependent child or disabled adult child lives there. Some states place a lien on the home to recover costs after the Medicaid recipient's death. Other states will make a claim against your estate.
• Personal property and household items. Furniture, clothing, jewelry and other typical personal effects are usually exempt. There may be limits on the total value in some states.
• One vehicle. Typically, one automobile is exempt, regardless of value. Some states may have restrictions on the value or require that the vehicle be used for medical transportation.
• Life insurance policies. Term life insurance policies are typically exempt as they have no cash value. Whole life insurance policies may be exempt if the total face value is below a certain amount (often $1,500).
• Funeral and related expenses. In most states, prepaid funeral and burial expenses are exempt from Medicaid spend-down requirements. While not always required, irrevocable funeral trusts are often the preferred method for exempting funeral expenses of up to $15,000 in most states. Once established, the funds in an irrevocable funeral trust are protected from Medicaid spend-down requirements.
• Retirement accounts. Treatment varies by state, but many exempt retirement accounts if they're in payout status. Some states may consider the income from these accounts but exempt the principal.
• Assets for self-support. Property essential for self-support, like farm equipment or tools used in a trade, may be exempt.
• Community spouse resource allowance (CSRA). When one spouse needs Medicaid for long-term care, the other spouse (community spouse) can keep a portion of the couple's countable assets. The amount varies by state but is typically between $30,828 and $154,100 (as of 2024, adjusted annually).
• Income-producing property. Some states exempt property that produces income essential to the applicant's self-support. However, some states define the exemption narrowly. In most states, rental real estate is not exempt.
• Certain trusts. Special needs trusts and pooled trusts may be exempt if they meet specific criteria. These trusts must be established and managed according to strict guidelines.
• Long-term care insurance partnership programs. In states with these programs, assets equal to the amount paid out by a qualifying long-term care insurance policy are exempt.
• Cash and liquid assets. A small amount of cash is typically allowed, often around $2,000 for an individual or $3,000 for a couple (varies by state).

It's important to note that while your home is generally exempt during your lifetime, it may be subject to estate recovery after your death. When dealing with Medicaid asset exemptions, it's essential to recognize the complexity and variability of the rules. These regulations differ substantially from one state to another, and even between counties in the same state, adding layers of intricacy to the process. Furthermore, the financial thresholds for exemptions aren't set in stone; they're frequently adjusted on a yearly basis to account for economic changes. It's also worth noting that some exemptions come with strings attached, either lasting for a limited time or being subject to specific conditions.

A particularly crucial aspect to bear in mind is the potential consequences of asset transfers. Attempting to qualify for Medicaid by transferring assets can backfire if done within the five-year look-back period, potentially resulting in penalties that could delay eligibility. Given these complexities, seeking professional guidance is often a wise decision. An elder law attorney or a specialist in Medicaid planning can provide invaluable assistance in complying with these intricate rules and regulations.

Lastly, it's important to be aware that individual states may have unique programs that impact how income and assets are evaluated. Programs such as "Income Cap" or "Miller trusts" can significantly affect the calculation of resources for Medicaid eligibility purposes. Understanding these state-specific nuances is crucial for anyone considering or planning for Medicaid coverage.

Medicaid estate recovery is the process by which state Medicaid programs seek reimbursement for long-term care benefits paid on behalf of a Medicaid recipient. Federal law requires states to attempt to recover these costs from the estates of deceased recipients who were 55 or older when they received benefits.

However, there are important limitations on when and how Medicaid can recover these costs:

• Medicaid cannot force the sale of a home during the recipient's lifetime.
• Recovery cannot occur if the home is still occupied by a surviving spouse; a child under 21; a blind or disabled child of any age; a sibling with an equity interest who lived in the home for at least one year before the recipient entered long-term care.

Even when these protections don't apply, Medicaid's claim is limited to the amount of benefits paid or the value of the estate, whichever is less.

In some cases, states can waive estate recovery for Medicaid expenses if it would cause undue hardship to the surviving family members. The definition of "undue hardship" varies by state but generally includes situations where:

• The estate is the sole income-producing asset of the survivors (such as a family farm or business).
• The home is of modest value.
• Recovery would result in the heirs becoming eligible for public assistance.

It's important to note that these waivers are not automatic and must be applied for after the Medicaid recipient's death.

While federal law sets the basic framework for Medicaid estate recovery, states have considerable flexibility in how they implement these rules. Some states are more aggressive in their recovery efforts than others.

For example, some states only seek recovery from assets that go through probate, while others use an expanded definition of "estate" that includes assets that would normally avoid probate, such as jointly owned property or assets in a living trust.

Additionally, some states have implemented "hardship waivers" that are easier to obtain than others. For instance, Massachusetts has a relatively generous hardship waiver policy that protects homes of "modest value" (defined as 50% or less of the average home value in the county).

Given the complexities of Medicaid estate recovery, many people seek strategies to protect their homes and other assets. Some common approaches include:

• Irrevocable trusts. Transferring your home to an irrevocable trust can protect it from estate recovery, but this must be done well before you need Medicaid (at least five years) to avoid penalties. Some states will consider your home in an irrevocable trust as an available asset.
• Life estate deeds. These allow you to retain the right to live in your home for life while transferring ownership to your heirs.
• Long-term care insurance. This can help cover care costs without needing to rely on Medicaid.
• Medicaid-compliant annuities. These can help convert countable assets into an income stream that doesn't affect Medicaid eligibility.

While the prospect of Medicaid taking your home can be alarming, it's important to remember that with proper planning, you can often protect your assets while still qualifying for needed care. However, Medicaid rules are complex and vary by state, so it's crucial to work with an experienced attorney or financial professional who understands the nuances of Medicaid planning.

The question "Can Medicaid take my home?" doesn't have a simple yes or no answer. While Medicaid estate recovery is a reality, there are many factors that determine whether and how much can be recovered from your estate. With careful planning and the right strategies, it's often possible to qualify for Medicaid while still preserving a significant portion of your assets for your heirs.

As you approach retirement age, it's crucial to consider potential long-term care needs as part of your overall financial plan. By understanding Medicaid rules and planning ahead, you can help ensure that you'll have access to quality care if you need it, without unnecessarily sacrificing your life's savings or your family's inheritance.

The key to effective Medicaid planning is to start early and not wait until you need care to start thinking about how to pay for it. Experienced professionals can help you deal with the complex landscape of long-term care planning and asset protection and develop a plan to provide for your care needs and preserve your legacy for future generations.