Debunking Medicaid : Texas Medicaid Estate Recovery on Your Home

Key Takeaways

• Texas Medicaid cannot take your home while you're alive - recovery only happens after death through the Medicaid Estate Recovery Program (MERP)

• Your home is completely protected if your spouse, disabled child, or child under 21 continues living there after your passing

• MERP only applies to probate assets - using legal tools like Lady Bird Deeds can help your home avoid the probate process entirely

• Planning ahead is crucial - asset protection strategies implemented before needing Medicaid provide the strongest protection

• Sage Senior Support helps Texas families navigate Medicaid planning and sell homes as-is with care, making the process faster, less stressful, and aligned with long-term goals.

The fear is real—and often misunderstood. Many Texas families worry that accepting Medicaid benefits means eventually losing their home to the government. While there's truth behind this concern, the reality is far more nuanced than most realize. With proper planning and understanding of Texas Medicaid estate recovery rules, you can protect your family home while still getting the care you need.

The key is understanding exactly how the Medicaid Estate Recovery Program (MERP) works in Texas—and taking action before you need long-term care.

Texas Medicaid Can't Take Your Home While You're Alive

Let's address the biggest misconception first: Medicaid cannot and will not take your home while you're alive. Period. Even if you're receiving Medicaid benefits for nursing home care or home-based services, your primary residence remains protected during your lifetime. This protection exists regardless of whether you plan to return home from a facility or how long you've been receiving benefits.

Texas Medicaid does consider your home an exempt asset when determining eligibility, with some equity limits. For 2025, you can have up to $730,000 in home equity and still qualify for Medicaid long-term care benefits. This exemption is what allows many Texans to receive necessary care while maintaining ownership of their homes.

The risk to your home only comes after death, through what's known as the Medicaid Estate Recovery Program. Even then, numerous exceptions and planning options exist that can prevent recovery entirely.

How the Texas Medicaid Estate Recovery Program Actually Works

The Texas Medicaid Estate Recovery Program (MERP) was established in 2005 as required by federal law. Its purpose is straightforward: to recover costs paid by Medicaid for long-term services from the estates of deceased recipients. However, MERP operates with significant limitations that savvy planners can use to their advantage.

MERP only applies to Medicaid recipients who were 55 or older when receiving services, and only for certain types of long-term care services. Furthermore, in Texas, MERP can only recover from assets that pass through probate—this distinction is crucial for protection planning.

When MERP Claims Can Be Filed Against Your Home

After a Medicaid recipient passes away, the Texas Health and Human Services Commission (HHSC) must be notified. HHSC then determines whether to file a MERP claim against the estate. This claim can only be filed if the deceased person's home passes through the probate process. If your home transfers outside of probate—through proper planning tools like a Lady Bird Deed—it becomes unreachable by MERP.

MERP claims are also limited by timing. The state must file its claim within four months after receiving notification of death or within 90 days after receiving the personal representative's written notice. If the state misses these deadlines, they may lose their right to recovery.

What Types of Medicaid Services Are Subject to Recovery

Not all Medicaid benefits trigger estate recovery. MERP specifically targets long-term care services, including:

• Nursing facility services

• Home and Community-Based Services (HCBS) waiver programs

• Community Attendance Services and Supports (CLASS)

• Hospital and prescription drug services related to the above

Regular Medicaid health insurance (like that provided to lower-income families with children) does not trigger MERP. This distinction matters because many Texans receive different types of Medicaid benefits throughout their lives.

The Critical Difference Between Medicaid and Medicare Recovery

Many people confuse Medicaid with Medicare, but they operate under completely different rules. Medicare is federal health insurance primarily for those 65 and older, regardless of income. Medicare has no estate recovery program—you can receive Medicare benefits your entire life without any risk to your home or estate.

Medicaid, however, is means-tested healthcare for those with limited income and assets. Only Medicaid has an estate recovery program. Understanding this difference is crucial when planning for long-term care needs and protecting your assets.

Who Is Protected From Texas Medicaid Estate Recovery?

Texas law provides several important exemptions that prevent MERP from recovering against estates, even when a Medicaid recipient received qualifying services. These exemptions offer automatic protection for many families without requiring complex planning.

Surviving Spouse Protection

One of the strongest protections under Texas MERP law applies to surviving spouses. If your spouse is still living when you pass away after receiving Medicaid benefits, MERP cannot file a claim against your estate. This protection is absolute and requires no special planning—it applies automatically regardless of whether your spouse lives in the home or receives benefits themselves.

This protection exists because lawmakers recognized the potential hardship that estate recovery could cause to elderly spouses who might be left without financial resources. The protection continues for the surviving spouse's entire lifetime, meaning MERP will never pursue recovery as long as your spouse lives.

Minor and Disabled Children Exemptions

MERP claims are also prohibited when the deceased Medicaid recipient is survived by a child who is under 21 years of age, blind, or permanently and totally disabled (as defined by Social Security standards). This protection applies regardless of whether the child lives in the home, though residence in the home can provide additional layers of protection.

For parents of disabled adult children, this exemption is particularly valuable. It ensures that a home can be preserved for a disabled child's benefit, even after both parents have passed away. The disability determination must be officially established, typically through Social Security disability criteria.

Low-Value Estate Exemptions

Texas also recognizes that pursuing recovery against small estates often costs more than the state would recover. For this reason, MERP claims are not pursued when the value of the estate is $10,000 or less, or when the potential recovery amount would be $10,000 or less. Additionally, MERP won't file claims when recovery would not be cost-effective, though this determination is made on a case-by-case basis.

For homeowners with smaller properties or limited equity, this exemption may provide automatic protection without requiring complex planning. However, with Texas property values increasing rapidly, fewer estates qualify for this exemption each year.

Undue Hardship Waivers and How to Qualify

Even when no automatic exemptions apply, families can request an undue hardship waiver to prevent MERP recovery. Texas recognizes several specific hardship situations, including cases where the home is the primary income-producing asset for survivors (like a family farm), where recovery would result in the loss of shelter for a survivor who has limited income, or where other compelling circumstances exist.

The hardship waiver process requires submitting a formal application with supporting documentation within 60 days of receiving the MERP claim notice. Success often depends on thorough documentation and understanding exactly what qualifies as hardship under Texas rules.

5 Legal Tools to Shield Your Home From Medicaid Claims

1. Lady Bird Deeds (Enhanced Life Estate Deeds)

The Lady Bird Deed (officially called an Enhanced Life Estate Deed) is perhaps the most powerful tool for protecting Texas homes from MERP claims. This special deed allows you to transfer your property to beneficiaries while retaining complete control during your lifetime, including the right to sell, mortgage, or even cancel the transfer.

What makes Lady Bird Deeds uniquely valuable for Medicaid planning is that they keep the property out of probate. Since MERP can only recover from probate assets in Texas, property transferred via a Lady Bird Deed is completely protected from Medicaid estate recovery claims, regardless of value.

Unlike other property transfers, executing a Lady Bird Deed does not trigger Medicaid's five-year lookback period, making it one of the few planning tools that can be implemented even after you've started receiving Medicaid benefits. The deed must be properly drafted and recorded to be effective, typically requiring assistance from an attorney familiar with Texas Medicaid rules.

Example: Lady Bird Deed Protection
Mrs. Johnson, age 79, owns a home worth $300,000 and needs nursing home care. After executing a properly drafted Lady Bird Deed naming her daughter as the remainder beneficiary, she applies for and receives Medicaid benefits. Mrs. Johnson maintains full control of her home during her lifetime. Upon her death three years later, the home transfers automatically to her daughter, completely avoiding probate and MERP recovery. Texas Medicaid paid $185,000 for Mrs. Johnson's care but cannot recover any of these costs from the home.

2. Irrevocable Trusts for Asset Protection

For those planning well in advance of needing Medicaid, irrevocable trusts offer powerful protection. By transferring your home to a properly structured irrevocable trust at least five years before applying for Medicaid, you can protect it from estate recovery while potentially maintaining the right to live there for life.

The key requirement is that the trust must be truly irrevocable—you cannot maintain the right to revoke the trust or access its principal. The five-year waiting period (Medicaid's lookback period) is crucial, as transfers to irrevocable trusts within five years of a Medicaid application can trigger ineligibility periods.

3. Transfer to Protected Family Members

In certain circumstances, Texas Medicaid rules allow you to transfer your home to specific family members without triggering penalties or lookback period concerns. These protected transfers include giving your home to your spouse, a child under 21, a blind or disabled child of any age, or a caretaker child who lived in your home and provided care for at least two years that kept you out of a nursing facility.

A particularly valuable exception involves transfers to siblings who have an equity interest in the home and who lived there for at least one year before you entered a nursing facility. These transfers must be carefully documented to ensure they meet all requirements for exemption from penalties.

4. Long-Term Care Insurance as an Alternative

While not directly a home protection strategy, purchasing qualified long-term care insurance can help you avoid needing Medicaid altogether, eliminating estate recovery concerns. Texas participates in the Long-Term Care Partnership Program, which allows individuals with qualified policies to protect assets equal to the amount their policy pays out, even if they later need Medicaid.

5. Medicaid Asset Protection Trusts

Specialized Medicaid Asset Protection Trusts (MAPTs) are designed specifically to shield assets from Medicaid recovery while navigating the complex eligibility rules. Unlike standard irrevocable trusts, MAPTs are structured to comply with both Texas property law and Medicaid regulations.

These trusts must be established at least five years before applying for Medicaid, but they offer more flexibility than outright transfers to family members. The trust can be designed to provide income to you during your lifetime while protecting the principal (including your home) from Medicaid recovery after death.

The 5-Year Lookback Period: Planning Ahead Is Essential

When it comes to Medicaid planning, timing is everything. Texas Medicaid implements a "lookback period" of 60 months (5 years) when reviewing your financial transactions. Any transfers of assets for less than fair market value during this period can trigger penalties, delaying your eligibility for benefits when you need them most.

This lookback period applies to most asset transfers, including gifting your home to children or selling it for significantly below market value. The earlier you implement your protection strategy, the more options you'll have available. Waiting until a health crisis occurs severely limits your protection possibilities.

How Penalties Are Calculated for Recent Property Transfers

If you transfer your home within the 5-year lookback period, Texas Medicaid calculates a penalty period during which you'll be ineligible for benefits. This penalty is determined by dividing the value of the transferred asset by the average monthly cost of nursing home care in Texas (approximately $7,200 in 2025). For example, transferring a $300,000 home could result in a 42-month penalty period during which you'd be responsible for your own care costs.

These penalties can be financially devastating, often exceeding the value of what you were trying to protect. The penalty period begins when you would otherwise be eligible for Medicaid, not when the transfer occurred, making advance planning all the more crucial.

Exempt Transfers That Don't Trigger Penalties

Fortunately, several types of home transfers are exempt from penalties even within the lookback period. These include transfers to your spouse, a disabled child, a caretaker child who lived with you for at least two years, or a sibling with equity interest who lived in the home for at least one year before you entered a facility. Lady Bird Deeds also avoid penalty concerns entirely.

Understanding these exemptions is critical because they can provide protection options even when nursing home admission is imminent. However, documenting that the transfer meets exemption requirements is essential to avoid unnecessary penalties.

What Happens After a Medicaid Recipient Dies

When a Medicaid recipient passes away, Texas law requires that the estate representative notify the Medicaid Estate Recovery Program within 30 days. This notification triggers MERP's assessment of whether to pursue recovery against the estate.

If MERP determines that recovery is appropriate (no exemptions apply, and assets exist in probate), they'll file a claim against the estate. Understanding what happens next—and how to respond—can make the difference between losing a family home and preserving it for heirs.

MERP Claim Filing Process and Timelines

After receiving death notification, MERP typically files its claim within 70 days. However, they must file within four months after receiving notification or within 90 days after receiving written notice from the estate's personal representative. Missing these deadlines can invalidate their claim entirely.

The claim will state the amount Medicaid paid for the recipient's care and assert that this amount should be repaid from estate assets. For long-term nursing home residents, these claims can easily exceed $100,000, often surpassing the value of the remaining estate.

How to Respond to a MERP Notice

When you receive a MERP claim notice, you have 60 days to request an exemption or hardship waiver. This request must be in writing and include documentation supporting your claim of exemption. Common exemptions include the presence of a surviving spouse, a disabled child, or proof that the estate qualifies for a low-value exemption.

If you believe no exemptions apply, you can still request a hardship waiver by demonstrating that recovery would cause undue hardship to survivors. MERP must respond to exemption or waiver requests within 60 days, and you have the right to appeal denials through an administrative hearing process.

Priority of Claims in Texas Probate

Even when MERP files a valid claim, it doesn't automatically take precedence over other estate obligations. In Texas probate, MERP claims are classified as Class 7 claims, falling behind funeral expenses, administration costs, secured claims, child support arrearages, taxes, and other higher-priority obligations.

This classification means that if the estate has limited assets, higher-priority claims must be paid first, potentially leaving nothing for MERP recovery. Understanding claim priorities can be valuable when negotiating settlements with MERP.

Common Mistakes That Put Your Home at Risk

Over decades of helping Texas families protect their homes from Medicaid claims, I've seen the same critical mistakes repeatedly jeopardize family legacies. Avoiding these common errors can significantly improve your chances of keeping your home in the family.

Adding Children to Deeds Without Legal Guidance

One of the most frequent mistakes is adding children to property deeds as joint owners in an attempt to protect the home. While this seems logical, it can create serious problems: potential gift tax consequences, exposing your home to your child's creditors, losing valuable capital gains tax benefits, and potentially triggering Medicaid ineligibility. Instead of simple joint ownership, specialized deeds like the Lady Bird Deed provide protection without these drawbacks.

Waiting Until Nursing Home Admission to Plan

Procrastination is perhaps the most costly mistake in Medicaid planning. Once a health crisis occurs and nursing home admission becomes necessary, your options narrow dramatically. The five-year lookback period means that last-minute transfers often trigger extended periods of ineligibility.

Even with limited time, some planning options remain available—but they're far fewer than what's possible with advance planning. Starting the conversation about long-term care planning while you're healthy provides the greatest protection potential.

Ignoring MERP Notices After Death

When a Medicaid recipient passes away, families sometimes ignore MERP notices, hoping the problem will disappear. This approach almost always backfires. MERP notices have strict response deadlines, and failing to respond appropriately can forfeit valuable exemptions and waiver opportunities.

Even when you believe recovery is legitimate, responding properly to notices can help negotiate settlements or payment plans that preserve some assets for heirs. Always consult with an elder law attorney when responding to MERP claims.

Take Action Now to Protect Your Family Home

The most important step in protecting your home from Texas Medicaid estate recovery is taking action before a crisis occurs. Whether you're currently healthy, beginning to need assistance, or helping a loved one plan, understanding your options and implementing appropriate strategies now can preserve your most valuable asset for future generations. Consider scheduling a consultation with an elder law attorney who specializes in Medicaid planning to create a customized protection strategy for your unique situation.

Frequently Asked Questions

Navigating Medicaid estate recovery rules generates many questions. Here are straightforward answers to the most common concerns about protecting your Texas home.

Can Medicaid take my home if I still live in it?

No, Medicaid cannot take your home while you're alive, even if you're receiving benefits. The home remains yours for as long as you live. Medicaid estate recovery only happens after death, and even then, numerous exemptions and planning strategies can prevent recovery completely.

Your home is considered an exempt asset for Medicaid eligibility purposes (up to certain equity limits), allowing you to qualify for benefits while maintaining ownership. This protection continues regardless of whether you're receiving care at home or in a facility.

How does a Lady Bird Deed protect my home from Medicaid recovery?

A Lady Bird Deed (Enhanced Life Estate Deed) protects your home by keeping it out of probate. Since Texas MERP can only recover from probate assets, property that passes outside probate through a Lady Bird Deed is completely protected from estate recovery claims. This protection works even if the deed is executed after you begin receiving Medicaid benefits.

• You maintain complete control of your property during your lifetime

• You can sell, mortgage, or even cancel the transfer if desired

• The property transfers automatically at death without probate

• No gift tax concerns or lookback period penalties apply

The deed must be properly drafted to include specific language required by Texas law. Working with an attorney familiar with both real estate law and Medicaid planning ensures your deed provides the intended protection.

What's the difference between exempt and non-exempt assets for Medicaid eligibility?

Exempt assets don't count toward Medicaid's resource limits ($2,000 for an individual in 2025, while non-exempt assets do. Your home is typically exempt if you live in it or intend to return, as are personal belongings, one vehicle, certain prepaid funeral arrangements, and a few other specific asset types. Non-exempt assets include cash, stocks, bonds, additional vehicles, vacation properties, and most investment accounts—all of which must generally be spent down or converted to exempt status before qualifying for Medicaid.

If my spouse receives Medicaid benefits and dies, can I keep our home?

Yes, surviving spouses are completely protected from Medicaid estate recovery. If your spouse received Medicaid benefits and passes away, MERP cannot file a claim against the estate as long as you're still living. This protection continues regardless of whether you remarry or how long you live.

Additionally, special spousal impoverishment protection rules allow the community spouse (the one not in a nursing home) to keep substantially more assets when their spouse applies for Medicaid, including the home regardless of its value.

How do I apply for a hardship waiver if Medicaid tries to claim our family home?

To request a hardship waiver, submit a written request to HHSC within 60 days of receiving the MERP claim notice. Your request should clearly explain why recovery would cause undue hardship and include supporting documentation. Valid hardship situations include cases where the home is the primary income-producing asset for survivors (like a family farm), where recovery would cause loss of shelter for a survivor with limited income, or other compelling circumstances.

Include financial information for survivors, medical documentation if relevant, and any evidence showing special circumstances. HHSC must respond within 60 days, and you have the right to appeal if your request is denied.

MERP Exemption Checklist
✓ Surviving spouse
✓ Child under 21
✓ Disabled child (any age)
✓ Estate value under $10,000
✓ Cost of recovery exceeds value
✓ Home transfers outside probate
✓ Qualified caretaker child
✓ Sibling co-owner who lived in home
✓ Hardship would result from recovery

While estate recovery rules can seem intimidating, they're designed with numerous protections for families. Understanding these protections and planning accordingly can help ensure your home remains with your loved ones rather than being claimed by the state.

Remember that Medicaid estate recovery only applies to services received after age 55, and only for long-term care services. With thoughtful planning—ideally well before care is needed—you can protect your home while still getting the care you deserve. For more information, you can refer to the Medicaid Estate Recovery Program guide.

Ready to Protect Your Home and Secure Care?

Navigating Medicaid and estate recovery can feel overwhelming—especially when a family home is on the line. If selling a home as-is is part of your Medicaid planning, you don’t have to go through the process alone. At Sage Senior Support, we specialize in helping Texas families sell homes quickly, with compassion and care, so you can focus on protecting your loved one’s eligibility for care and preserving family stability.

👉 Contact us today for a no-obligation consultation and discover your options for selling a home as-is with confidence and peace of mind.