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Many families don't realize Medicaid can claim the house later

By Robert Powell, CFP - Retirement, Senior Editor TheStreet

Updated May 29, 2026 8:43 AM

Many families discover Medicaid estate recovery only after a loved one dies and the state seeks repayment for long-term care costs from the estate.

For many households, Harry Margolis, author of Get Your Ducks in a Row, said the family home is the largest asset they own. And under Medicaid rules, that home can become a target for recovery efforts after death, even if it was exempt while the person was alive.

In an interview, Margolis explained that Medicaid is governed by a mix of federal and state rules. States must attempt recovery for certain long-term care expenses, but they have broad discretion in how aggressively they pursue estates and what assets they can reach.

That means outcomes can vary dramatically depending on where someone lives, how property is titled and whether planning was done years in advance.

What Medicaid estate recovery means for you

Families caring for aging parents or spouses should understand that qualifying for Medicaid often involves trade-offs, according to Margolis.

A house may be protected while someone is alive, but that does not necessarily mean it is protected after death.

Ownership structure matters. Probate assets may be exposed to recovery in some states, while jointly owned property, trust assets or life estates may avoid recovery in others.

Planning late is still better than not planning at all, Margolis said. But waiting can limit options because transfers into certain trusts can trigger a five-year Medicaid ineligibility period.

Medicaid rules vary sharply from state to state

Margolis said Medicaid generally limits applicants to about $2,000 in countable assets, though spouses may be allowed to retain more.

Homes are usually exempt during life. That exemption is what creates confusion later.

"The state's required under the federal Medicaid rules to try to recover what it's spent on your care during your life," Margolis explained.

Some states only pursue recovery against probate assets. Others can reach non-probate property as well.

That distinction matters because probate assets pass through court after death, while non-probate assets may transfer automatically through joint ownership, trusts or beneficiary designations.

In Massachusetts, Margolis said Medicaid estate recovery generally applies only to probate property.

"So trust property, joint ownership property, life estates, they're all protected from Medicaid estate recovery," he said.

Trust planning can protect homes but creates other risks

Families often use irrevocable trusts to shield homes from estate recovery. But Margolis said those transfers carry consequences.

Moving a home into an irrevocable trust can trigger a five-year lookback penalty, making someone temporarily ineligible for Medicaid benefits.

Revocable living trusts create different complications.

Margolis said Massachusetts treats homes in revocable trusts as countable assets for Medicaid eligibility purposes, meaning applicants may need to move the property back into their own names.

That can expose the house to probate and estate recovery later.

The rules also differ widely across states, creating confusion for families who assume strategies that work in one place apply everywhere else.

Married couples face difficult tax and planning tradeoffs

Ownership decisions become especially complicated when one spouse enters a nursing home and the other remains healthy.

Margolis said elder law attorneys often recommend putting the house solely in the healthy spouse's name. That can help prevent the property from ending up entirely in the Medicaid recipient's estate if the healthy spouse dies first.

But that strategy can also create tax consequences.

He described a recent case involving a highly appreciated home.

If the husband's name was removed from the deed before death, the family could lose part of the step-up in basis that would normally occur when he died.

That created a difficult balancing act between Medicaid planning and tax planning.

"Do you leave it in joint names because you assume he's going to die first, which is most likely, so you can get the step up in basis, but then you take the risk that she dies first?" Margolis said.

In that case, he said the family decided the Medicaid planning risk outweighed the tax concern because of the spouses' health differences.

Hardship waivers may help some families keep a home

Federal Medicaid rules require states to offer hardship waivers in certain circumstances.

Margolis said low-income or disabled heirs may qualify for relief from estate recovery efforts.

But the process can be unforgiving.

Some states require waiver applications to be filed within strict deadlines tied to probate proceedings. Missing those deadlines can eliminate otherwise valid claims.

Families facing estate recovery should investigate whether hardship exemptions exist in their state, he said.

Critics say estate recovery hurts lower-income families most

Margolis said there is growing criticism of Medicaid estate recovery because it disproportionately affects poorer households.

Families with greater wealth are more likely to hire elder law attorneys and engage in advance planning.

Lower-income households often do not seek legal guidance and may have few assets beyond the family home.

That can leave surviving children with little inheritance after the state seeks repayment.

"It's the people with fewer assets who are probably not going to want to spend money on lawyers, who don't do planning, and are more likely to ultimately get hit by estate recovery," Margolis said.

He said there is legislation and advocacy aimed at eliminating estate recovery entirely.

Full Interview with Harry Margolis

Below is a transcript of the interview with Margolis, edited for brevity and clarity.

Robert Powell: In many states, there's something called Medicaid estate recovery. For many, this might come as a surprise, but it's not a surprise to Harry Margolis. He's the author of Get Your Ducks in a Row and knows what people need to know about Medicaid estate recovery. Harry, welcome.

Harry Margolis: Good to see you, Bob.

Robert Powell: Likewise. Where to begin?

Harry Margolis: Medicaid is the program we have for people who don't have their own health insurance, but you have to qualify by being low income and low assets.

For the most part, you're limited to about $2,000 in assets. If you have a spouse on Medicaid, you may be able to keep about $150,000 in assets. Those are what they call countable assets - bank accounts, stocks, retirement accounts and things like that.

Retirement accounts are a bit of a gray area because different states have different rules.

You are also allowed to keep your home. That's where estate recovery really comes in.

What the Medicaid program says is that while you're alive, you can qualify under these asset limits, and for the most part people don't have much other than their home. But when you die, the state is required under federal Medicaid rules to try to recover what it spent on your care during your life.

That's known as Medicaid estate recovery.

Even though Medicaid is a federal-state hybrid system, there's a lot of variation among states.

Some states only seek recovery from probate assets and not non-probate assets. Other states seek recovery from both.

Probate assets are property in your name that passes through probate court. Non-probate assets are things with beneficiary designations, joint ownership or trusts.

Those may escape estate recovery.

In Massachusetts, for instance, estate recovery only applies against probate property. Trust property, joint ownership property and life estates are protected from Medicaid estate recovery.

That leads to the question of how you plan to avoid estate recovery. For most people, their major asset is their home and they want to pass it on to their children.

One option is putting the home into a form that avoids probate.

The problem is the Medicaid agency is trying to minimize costs and fulfill its recovery obligations, so it imposes penalties for some planning steps.

Any transfer of property into an irrevocable trust is going to cause a five-year period of ineligibility for benefits.

Transfers into a revocable or living trust don't create the five-year penalty because you still own the property. But in Massachusetts, the state says if the house is in that form of ownership, it becomes a countable asset for Medicaid eligibility purposes.

So you may have to take it out of the revocable trust and put it back in your own name, making it subject to probate and estate recovery.

The rules differ from state to state, which makes this complicated.

States are also required to have hardship waiver provisions.

If a child inheriting the home is low income or disabled, they may qualify for a waiver and avoid estate recovery. But again, the rules vary by state.

Some states have draconian processes where you have to apply for the waiver within a certain number of days after probate starts or you lose the right to apply.

But if you're in a situation where Medicaid is seeking estate recovery, you should at least look into that possibility.

Robert Powell: Given that many people own their home jointly, the surviving spouse presumably doesn't have much to worry about?

Harry Margolis: Right. If one spouse is in a nursing home receiving Medicaid coverage and the home is jointly owned, when that spouse dies the property passes to the healthy spouse.

But what happens if the healthier spouse dies first and then the property passes fully into the name of the spouse in the nursing home?

We often advise clients to put the house entirely in the healthy spouse's name and redo the estate plan so everything doesn't automatically pass to the spouse in the nursing home.

However, there can be tax consequences.

We recently had a case involving a house that had appreciated significantly. The husband went into a nursing home.

If we transfer his name off the house and put it solely in the wife's name, then when he dies you lose the step-up in basis at his death.

So the question becomes: do you leave it in joint names because you assume he's going to die first and get the step-up in basis, while taking the risk that she dies first?

In this case, given the health differences, it was worth the risk.

Robert Powell: Given the complexity and the fact that laws vary by state, it sounds like people need professional guidance well in advance.

Harry Margolis: Definitely. But I always say it's never too early or too late to plan.

Even in situations where one spouse already needs care, there's still a lot you can do once you understand the facts on the ground.

Robert Powell: We covered a lot of ground. Anything we missed or that bears repeating?

Harry Margolis: There's a growing movement to eliminate estate recovery because research shows it hits poorer families harder.

By definition, if you're getting Medicaid, you're not rich.

People with more assets are more likely to consult elder law attorneys and do planning in advance. People with fewer assets are less likely to spend money on lawyers, less likely to plan and more likely to get hit by estate recovery.

In terms of generational wealth transfer, it affects those families the most even though they have less to leave behind in the first place.

There's legislation aimed at getting rid of estate recovery entirely.

Robert Powell: I'm sure that would be welcome news to many people who probably don't even realize they're subject to it.

Harry, as always, thank you for sharing your knowledge and wisdom with our viewers and listeners.

Harry Margolis: Thank you.

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This story was originally published May 29, 2026 at 8:33 AM.