Medicaid estate recovery — what happens to the house after they die

This article is for educational purposes only and does not constitute medical, legal, or financial advice. Every family situation is different, and you should consult with appropriate professionals about your specific circumstances.

Your parent passes away. They spent their final years in a nursing home on Medicaid. The nursing home costs were substantial—Medicaid paid over $500,000 during those years. You're now handling their estate. The house is paid off, worth $400,000, and you assumed you'd sell it and distribute the proceeds to the heirs. Then you get a letter from the state. The Department of Medicaid is seeking repayment for the money it paid toward your parent's nursing home care. The bill is $500,000. The state wants to place a lien on your parent's house.

This moment—when you realize that the inheritance is being claimed by the state,is when most families first understand Medicaid Estate Recovery. It feels like the government is seizing what was rightfully your parent's. It feels unfair that Medicaid, after paying for care, now wants to reclaim money from the estate. But it's legal. It's how the system works. And it's been the law for decades, even though most families have never heard of it until it's too late to plan around it.

What Medicaid Estate Recovery Is: The Law Behind Reclaiming Costs

Every state has a Medicaid Estate Recovery Program, known as MERP. The law exists at the federal level but varies in how states implement it. The basic concept is straightforward: Medicaid pays for your parent's care. When your parent dies, the state seeks repayment from their estate.

The reasoning is the same as the reasoning behind spend-down. If your parent had assets, they should have used those assets for care before asking Medicaid to pay. When your parent dies with a house or other assets, those assets should go toward reimbursing the state for what Medicaid paid. The public program shouldn't absorb all the cost while heirs inherit assets.

The law applies to people sixty-five or older who received Medicaid-covered long-term care. If your parent got Medicaid to pay for a nursing home, assisted living, or related services, the estate can be pursued for recovery. Some states are more aggressive about it than others. Some states pursue recovery even in cases where doing so would be harsh. Other states have mechanisms for hardship exceptions.

The recovery is often substantial. A parent who spent five years in a nursing home at $10,000 per month means Medicaid paid $600,000. The state would seek to recover that entire amount from the estate. If the house is worth $400,000 and that's the main asset, the state gets most of it. The family gets little or nothing.

What Assets States Can Recover: Targeting the Probate Estate and Beyond

Not every asset is equally vulnerable to Medicaid recovery. Some assets pass outside your parent's probate estate and might be harder for the state to reach. Other assets are clearly in the estate and vulnerable.

Assets in your parent's probate estate,assets that pass through the will and go through court,are the primary target. If your parent owned the house outright in their name, the house goes through probate and is vulnerable to recovery. If your parent owned a car, bank accounts, or investments in their name alone, these are vulnerable. When the state seeks recovery, it focuses on the probate estate first.

Some states stop there. They pursue recovery only against the probate estate. But many states have expanded MERP to include non-probate assets. If your parent had a transfer-on-death account that bypassed probate, some states can still pursue that. If your parent had certain types of trusts, some states argue they're still part of the estate for recovery purposes. This is where state variation becomes critical. The same asset might be protected in one state and vulnerable in another.

Life insurance proceeds are generally protected from recovery. If your parent had a life insurance policy with a named beneficiary, the proceeds go to that beneficiary and don't pass through the estate. They're harder for Medicaid to reach. Retirement accounts with named beneficiaries are often similarly protected.

Real property is usually the target. Your parent's house is valuable, it's clearly an asset, and it's usually identifiable. If your parent owns the house and dies, the house is exposed to estate recovery claims. The state can place a lien against the house. When it's sold, the state gets paid from the proceeds.

Protecting the House: The Homestead Exception and Living Restrictions

Most states don't recover against your parent's home if the home is occupied by the surviving spouse or a dependent child. The homestead exception recognizes that some people need to live somewhere, and it would be cruel to force them out of their home to pay Medicaid recovery.

If your parent is survived by a spouse, and that spouse lives in the home, the state typically cannot recover against the house. The surviving spouse's right to remain in the home is protected. This is a significant protection and one of the reasons some families protect assets by transferring the home to the surviving spouse.

If your parent is survived by an unmarried minor child living in the home, the home is usually protected. The child needs somewhere to live, and the state won't force the child and custodial parent out of the house.

But if your parent is unmarried, or if the surviving spouse dies after your parent, the protection disappears. The home becomes vulnerable.

An adult child living in the home is another gray area. Some states protect the home if an adult child who is disabled or who cared for the parent lives there. Other states don't grant this protection. The rules vary, and this is an area where it's important to know your specific state's rules.

When Adult Children Living in House Changes Things: Caregiver Rights

Some states recognize a different kind of protection when an adult child lived in the home and provided care for the parent. If your sister lived in your parent's house and provided care,cooking, cleaning, personal assistance,with the understanding that she would inherit the house, some states recognize this as a reason not to pursue recovery. She provided a benefit to the parent. The parent benefited from her labor. Recovering against the house in this situation seems unfair.

But this protection isn't automatic, and the rules are vague. It's not in the law explicitly. It's sometimes upheld in court challenges, sometimes not. If you're in this situation,an adult child who provided substantial unpaid care in the parent's home,document it. Keep records of what you did. If the state pursues recovery and you believe there's a caregiver exception, you might be able to argue it, but it requires evidence.

This is another reason elder law attorneys matter. They know whether your state recognizes caregiver rights. They know how to argue it effectively if it applies to your situation. They might be able to negotiate with the state.

Planning to Protect Assets: Strategies That Work

There are legal strategies to protect your parent's home from recovery, but they require planning years in advance. The most straightforward strategy is the five-year rule. If your parent transfers the home to their children five years or more before applying for Medicaid, the transfer is outside the look-back period. The home isn't counted as your parent's asset for Medicaid eligibility purposes. And when your parent dies, the home isn't in their estate, so the state can't recover against it.

This strategy works if you know long in advance that your parent might need Medicaid. A parent who's sixty years old and might need nursing care at eighty has time to transfer the home legally and completely avoid recovery. But it requires action now, not later. And it requires your parent to actually own the home again by the time they need care. If your parent transfers the home to you and then has a reversal of fortune, the transfer has already happened. The home is yours. Your parent can't un-transfer it.

Some families use trusts to protect assets. Irrevocable trusts created more than five years before Medicaid application might protect assets from both Medicaid's reach and later from recovery. But trusts are complicated. They require specific wording. They require the property to actually be retitled into the trust. They require maintenance and proper administration. An irrevocable trust that's drafted incorrectly might not protect assets. A trust that's created too close to Medicaid application might be considered a transfer and result in penalties.

The general rule is that planning must happen years in advance. If your parent needs care in six months and hasn't planned, protecting assets is very difficult. If your parent is healthy and might need care in ten years, there's time to plan and protect resources legally.

After Your Parent Dies: Estate Recovery Process

When your parent dies, the state's recovery process begins. The state learns of your parent's death through death certificate records or through facility reports. The Medicaid agency calculates what it paid for your parent's care. It sends a bill to the estate.

This bill is sent to the personal representative of the estate,the executor or administrator. If no will exists and no personal representative has been appointed, the state might send bills to whoever seems to be in charge of the estate. The bill states the amount owed and gives a timeframe for payment, usually thirty to sixty days.

At this point, the family faces a decision. Pay the bill, negotiate with the state, or contest it. Paying immediately clears the claim but costs the estate potentially hundreds of thousands of dollars. Many families can't pay immediately. They need to sell the house first. The state might allow this.

Negotiating with the state is sometimes possible. If the family can show undue hardship, the state might reduce the claim. If the recovery amount exceeds the estate's value, the state might accept what's available. These negotiations are more likely to succeed if an attorney is involved. The state negotiates differently with private citizens than with attorneys.

Contesting the claim is possible but rare and usually unsuccessful. The family would have to argue that the state's calculation was wrong or that an exception applies. If the parent really didn't receive the services claimed, or if documentation shows the parent didn't qualify for Medicaid, a contest might work. But generally, families don't win these contests.

The Emotional Reality Behind Recovery Laws: Frustration Is Valid

When a family gets an estate recovery bill, the frustration is understandable. They feel like Medicaid is "taking" money that belonged to their parent. They feel like the government is stealing the inheritance. They might feel like their parent worked hard, paid taxes their whole life, and now the government is reclaiming family assets.

But here's the policy rationale: Medicaid is a program for people without resources. When your parent had a $400,000 house and Medicaid paid for $500,000 in care, the situation seems unfair to everyone except the government's perspective. From the government's view, why should the public program bear all the cost when the family had assets? The family got to keep the house for free during the parent's life, and the parent got care. The state paid for care that the parent probably should have paid for themselves with their assets.

That reasoning doesn't make estate recovery feel fair, but it's the logic behind it. The law treats Medicaid as a safety net for people without resources, not as a benefit for people with assets who want to preserve those assets for heirs.

If estate recovery happens to your family, you'll likely feel angry. You'll feel like the system is unfair. Both those feelings might be valid. Estate recovery is a real consequence of Medicaid long-term care. Understanding it ahead of time lets you plan around it, which is why planning matters so much. Families who understand the system can arrange their affairs to protect assets. Families who don't understand don't have that option.

How To Help Your Elders is an educational resource. We do not provide medical, legal, or financial advice. The information in this article is general in nature and may not apply to your specific situation. If you are concerned about a loved one's cognitive health or safety, consult with their healthcare provider or contact your local Area Agency on Aging for guidance and support.