Medicaid long-term care benefits can provide essential support for nursing home or in-home care when private funds run low. However, these benefits are an interest-free loan from the state. Texas aggressively pursues repayment through the Medicaid Estate Recovery Program, or MERP, after the recipient passes away. For many families, the family home is the primary target for recovery.
The M Firm examines how Texas homeowners can protect their residences from MERP claims while maintaining eligibility for benefits. Strategic planning using Lady Bird deeds, trusts, and careful timing can preserve the home for heirs without violating program rules.
Understanding Texas Medicaid Estate Recovery
Texas must attempt to recover the cost of long-term care services from a recipient’s estate after death. This includes nursing home care, waiver services, and related hospital stays or prescriptions. Recovery only occurs after the death of both spouses if married, and only from assets that pass through probate.
MERP claims are filed against the probate estate, making non-probate transfers particularly valuable. The program has no dollar limit. It can pursue the full value of benefits paid, though hardship waivers and exemptions provide some relief. Homeowners who fail to plan may find their residence sold to satisfy the claim, leaving heirs without their family legacy.
Exemptions That Protect the Homestead
Texas law provides several exemptions that can shield the home from recovery:
- Surviving spouse living in the home
- Child under age 21
- Blind or disabled child of any age
- Sibling with an equity interest who lived there continuously for at least one year before institutionalization
- Caregiver child who lived there for at least two years and delayed institutionalization
These exemptions require documentation such as tax returns, utility bills, or Social Security disability letters. However, they only apply to the deceased recipient’s share of the home. Community property rules complicate matters for married couples, where each spouse owns half regardless of title.
The Power of Lady Bird Deeds
A Lady Bird deed, or enhanced life estate deed, is one of Texas’s most effective tools for avoiding MERP on the homestead. The homeowner retains full control during life, including the right to sell, mortgage, or revoke the deed. Upon death, the title automatically passes to named beneficiaries outside of probate.
Because the home never enters the probate estate, MERP cannot make a claim against it. The deed avoids the five-year look-back period for asset transfers since no gift occurs during life. Properly drafted and recorded Lady Bird deeds are widely accepted among Texas Medicaid caseworkers and are explicitly recognized as a valid planning technique.
Homeowners can change beneficiaries or revoke the deed at any time, providing flexibility while securing post-death protection. This makes Lady Bird deeds particularly attractive for single individuals or couples where one spouse anticipates future long-term care needs.
Transfer on Death Deeds as an Alternative
Transfer-on-death deeds offer similar probate-avoidance benefits. Texas law allows owners to designate beneficiaries who receive the property automatically upon death. Like Lady Bird deeds, these deeds keep the home out of probate and thus beyond MERP’s reach.
The primary difference is that transfer-on-death deeds are irrevocable once recorded. Homeowners must be certain of their beneficiary choices. Both deed types require proper execution and recording in the county where the property is located to be effective.
Medicaid Asset Protection Trusts
For more complex situations or larger estates, a Medicaid Asset Protection Trust, or MAPT, can shelter the home from both eligibility counting and estate recovery. These irrevocable trusts must be established at least five years before applying for Medicaid to avoid transfer penalties.
The trust owns the home, but the grantor retains certain rights, such as the right to occupy the property and receive income from it. Upon the trustor’s death, the trust assets pass to the beneficiaries without probate. MAPTs offer greater control over distribution than deeds and can hold other assets as well.
Trusts require careful drafting to comply with Texas rules and avoid tax pitfalls. Professional guidance ensures the trust structure aligns with both Medicaid regulations and the family’s long-term goals.
Timing and the Five-Year Look Back
Any transfer of the home for less than fair market value triggers Medicaid’s five-year look-back period. Transfers within this window before applying for benefits create a penalty period of ineligibility. The penalty length depends on the home’s value divided by Texas’s average monthly nursing home cost.
Lady Bird deeds and transfer-on-death deeds avoid this issue because no transfer occurs during the owner’s lifetime. Irrevocable trusts or outright gifts require the five-year waiting period. Planning well before care needs arise is essential to maintain eligibility while protecting assets.
Protecting Community Property Interests
Texas community property rules mean spouses each own half of the assets acquired during marriage, including the home. If one spouse receives Medicaid, MERP can pursue the surviving spouse’s half-interest after both spouses pass away. Deeds and trusts must account for spousal interests to provide full protection.
Spousal transfers to convert community property to separate property can be useful but must comply with Medicaid transfer rules. Postnuptial agreements clarifying property characterization help avoid disputes during planning or after one spouse’s death.
Hardship Waivers and Small Estates
Texas offers hardship waivers if recovery would cause significant financial hardship for heirs. Factors include low income, high medical expenses, or educational needs. Estates valued under $10,000 or with Medicaid costs under $3,000 may also escape recovery.
These options require proactive documentation and application. Planning with deeds or trusts often provides more certainty than relying on waivers after death.
Coordinate With Overall Estate Planning
Home protection strategies work best when integrated with wills, trusts, powers of attorney, and beneficiary designations. A comprehensive plan addresses not only the homestead, but also personal property, retirement accounts, and life insurance.
Regular reviews ensure documents reflect changing circumstances such as property improvements, refinancing, or family changes. Professional coordination prevents conflicts between Medicaid planning and other estate goals.
Securing Your Home with The M Firm
Medicaid Estate Recovery poses a real threat to the family home for Texans who need long term care. Lady Bird deeds, transfer on death deeds, and asset protection trusts offer proven ways to keep the residence out of probate and beyond MERP’s reach.
Homeowners in Colleyville and the Dallas-Fort Worth metroplex facing these concerns look to The M Firm for guidance. Attorney Marla Mundheim assists clients in selecting and implementing the right combination of deeds, trusts, and estate planning tools to preserve the family homestead while maintaining Medicaid eligibility. Reach out to The M Firm today to discuss how to protect your home from estate recovery.