Can Medicaid Take Your House? The Truth About Nursing Homes and Estate Recovery

Attorney Greg Robinson

Your mother goes into a nursing home next month. Someone at the facility, maybe an intake coordinator or a financial counselor, says the family will need to "spend down the house." I want you to hold onto that phrase for a few minutes, because it sounds like advice and it can cost your family the house.

Attorney Greg Robinson

Here's where it comes from. Long term care Medicaid has an asset limit, and in most states it's $2,000 for an individual. Countable assets are things like checking and savings accounts, CDs, and investments outside a retirement account. Those do have to be spent down on care, legitimate debts, and allowable expenses before Medicaid pays a dime. But the primary residence is generally an exempt resource while your mother is alive. There are equity caps, roughly $713,000 to $1,071,000 depending on the state and the year. And the home generally stays exempt if she signals an intent to return home, or if a spouse, a minor child, or a disabled child lives there. So the house is not what gets spent down. That's the first correction.

Attorney Greg Robinson

Now, panicked families make two catastrophic mistakes. The first is selling the house. The moment it sells, an exempt asset becomes cash, and cash is countable. Your mother is over the limit, and she stays over it until the money is drained paying private rates, often $8,000 to $12,000 or more a month. The second mistake is deeding the house to the kids for ten dollars, or for love and affection. That's an uncompensated transfer, and it triggers the look back penalty. We'll do that math in a moment.

Attorney Greg Robinson

But first, the comforting half answer. Families ask, can Medicaid take my house? And somebody says, not while you're living in it. That's true. It's also incomplete. Under the Omnibus Budget Reconciliation Act of 1993, every state must run a Medicaid Estate Recovery Program. While your mother lives, the home is protected. When she dies, the state becomes a creditor of her estate, seeking repayment for long term care, home and community based services, and related hospital and prescription drug costs paid after age 55. The state can't collect more than it paid. If it paid $153,000 and the estate is worth $300,000, the claim is $153,000. But for many families the home is the only real asset left, so the claim can swallow nearly all of it.

Attorney Greg Robinson

And that's the part that hurts. A home that stayed in the family for three generations, a home that was the first real wealth your people ever built, can be sold after a funeral to repay benefits. Advocates at Justice in Aging make this point sharply: that's how a path to generational wealth gets broken. The exempt home you were told was safe is exactly the asset that gets recovered.

Attorney Greg Robinson

Now the five year look back, which is really sixty months. The most common misunderstanding is the direction of the clock. People think it starts when the transfer happens and runs forward. It doesn't. It runs backward from the date the Medicaid application is submitted. The state looks at the sixty months before you apply and adds up everything given away or sold for less than fair market value.

Attorney Greg Robinson

The math is simple. Total uncompensated transfers, divided by your state's penalty divisor, which is the average private pay cost of a nursing home. The answer is months or days of ineligibility. Take a home worth $240,000 deeded to a child for nothing. In Alabama, the divisor is about $8,200 a month, so that's roughly 29 months of ineligibility. In Texas, the divisor is $242.13 a day, about $7,339 a month, so $240,000 divided by $242.13 is roughly 991 days. That's more than thirty two months.

Attorney Greg Robinson

And here's the trap inside the trap. The penalty doesn't start the day you signed the deed. It starts when your mother is in the facility, has applied, and is otherwise eligible, meaning her cash is already under $2,000. For those months Medicaid pays nothing. The family pays private rates, and by then the house is gone and the savings are gone.

Attorney Greg Robinson

This is where the Medicaid Asset Protection Trust comes in. It's an irrevocable trust. Your parent deeds the home into it, gives up control of the principal, and gives up the role of trustee. But the trust can reserve the right to live in the home for life, which can help preserve homestead tax benefits, and the heirs can receive a stepped up tax basis at death. It's an excellent tool. And here's the hardest truth in this practice area. It needs a clean sixty months. If your mother enters the facility next month, putting the house in that trust now is a transfer inside the look back. It creates the penalty instead of solving the problem. The best tool needs five years you may not have. That's why I keep saying, start the clock in your favor, before the crisis.

Attorney Greg Robinson

And if you truly don't have five years, there are exceptions. A parent can transfer the home without penalty to a child who lived there at least two years before admission and provided care that delayed the need for a facility. A sibling who owns an interest in the home and lived there at least a year can receive it too. And recovery may be deferred while a spouse, a child under 21, or a blind or disabled child survives. Don't sell. Don't deed it to anyone this week. Get one clear starting point, an elder law attorney in your state, before you sign anything. Clear guidance now can make an enormous difference for your family later.