Trust Law/Level IV · Trusts that care/4.2 Old age and long-term care/Lesson 5

Protecting the family home

How US Medicaid treats the family home during life, when a lien or estate recovery can reach it, and which transfers of the home are exempt.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

The home usually is not counted while the applicant, spouse or dependant lives there or return is intended, but 2026 equity limits run from $752,000 to $1,130,000 by state unless a spouse or a child under 21, blind or disabled lives there.
Transferring the home to a spouse, a child under 21 or blind or disabled, a co-owning sibling resident one year, or a caregiver child resident two years carries no look-back penalty; the recipient takes the donor’s tax basis, losing the death step-up.
Estate recovery waits until a surviving spouse dies and while a child under 21, blind or disabled survives. Where a state recovers only from probate estates, a transfer-on-death deed may keep the home out; states may expand the estate definition.
No Medicaid lien may be placed on the home while a spouse, a child under 21 or blind or disabled, or a co-owning sibling resident a year lawfully lives there; every state must also offer an undue-hardship waiver.
Selling may qualify for the IRC §121 exclusion of $250,000 single or $500,000 joint if owned and lived in two of the last five years; the catch is that cash proceeds become countable resources for Medicaid.

MaterialsYour state Medicaid agency’s information on the home, home equity limits and estate recoveryThe deed to the home, showing whose name it is inA list of who lives in the home and since when, such as a spouse, children or siblings

Wonder

What happens to my house if I need nursing care and qualify for Medicaid?
Can the state recover the cost of care from the house after I die?
Can I give the house to a family member without a penalty?

Explore

In the United States, Medicaid for long-term care has a resource limit set by each state; many follow SSI’s $2,000 for an individual, and a spouse living at home can keep more under the spousal impoverishment rules. The home is usually not counted while the applicant or certain relatives live there, or while the applicant intends to return, depending on state rules. So the questions about the home are less about the resource test and more about equity limits, liens, transfers and recovery after death.
There is a home equity cap. Under 42 U.S.C. §1396p(f), a person whose equity in the home is above a limit cannot get Medicaid for nursing-home or other long-term care, unless a spouse, or a child who is under 21 or blind or disabled, lives there. Each state picks a limit between a federal minimum and maximum that rise with inflation: CMS lists $730,000 and $1,097,000 for 2025, and $752,000 and $1,130,000 for 2026. From 1 January 2028, Public Law 119-21 (July 2025) caps the maximum at $1,000,000 for homes not on agricultural land.
Federal law limits liens during life. Under §1396p(a), a state may place a lien on the home of a person in a nursing home or other institution only if, after notice and a hearing, it decides the person cannot reasonably be expected to return home. No such lien is allowed while a spouse, a child under 21 or blind or disabled, or a sibling with an equity interest who lived there for at least a year before admission lawfully lives in the home. Any such lien ends if the person is discharged and returns home.
After death, estate recovery applies. The Omnibus Budget Reconciliation Act of 1993 made it mandatory: under §1396p(b), a state must seek to recover from the estate of a person who was 55 or older what it paid for nursing-facility services, home and community-based services, and related hospital and prescription drug services, and it may choose to recover more. Recovery may happen only after a surviving spouse has died, and not while there is a surviving child under 21 or blind or disabled. States must also offer an undue-hardship waiver.
What counts as the ‘estate’ matters for trusts. At a minimum, states recover from assets that pass through probate. Under §1396p(b)(4)(B), a state may also choose to reach assets that pass outside probate, including through joint tenancy, a life estate or a living trust, so in those states a revocable living trust does not by itself keep the home out of recovery. Separately, some transfers of the home during life are exempt from the look-back penalty under §1396p(c)(2)(A), such as to a spouse or a caregiver child (lesson 4.2.3).
Qualified personal residence trusts (QPRTs) are a federal estate-tax tool under IRC §2702, not a Medicaid tool; lesson 5.2.4 covers them. For Medicaid, what happens to a home depends on who lives there, the state’s equity limit, its definition of ‘estate’, and how the home is titled. Families typically involve an elder-law attorney or a benefits counsellor, and the state Medicaid agency can explain its estate-recovery rules and hardship waivers. This lesson describes the rules; it does not suggest what to do with any particular home.

Key facts

Under 42 U.S.C. §1396p(f), home equity above a state-chosen limit bars Medicaid long-term care unless a spouse or a child under 21 or blind or disabled lives there.
CMS lists home equity limits of $730,000-$1,097,000 for 2025 and $752,000-$1,130,000 for 2026; from 2028 the maximum is capped at $1,000,000 for non-agricultural homes.
Under §1396p(a)(2), no lien may be placed on the home while a spouse, a child under 21 or blind or disabled, or a qualifying sibling with an equity interest lawfully lives there.
The Omnibus Budget Reconciliation Act of 1993 made estate recovery mandatory for long-term care paid for people aged 55 or older.
Recovery must wait until after a surviving spouse dies, and cannot happen while there is a surviving child under 21 or blind or disabled.
Under §1396p(b)(4)(B), states may define the estate to include non-probate assets such as joint tenancy and living-trust property.

Exercise nine, six, three, one

9CollectList up to 9 facts about the home (some families have fewer), such as whose name is on the deed, who lives there and since when, any mortgage, an approximate value and your state.

6ClusterSort them into 6 categories: ownership and title, people living in the home, ages and disabilities of relatives, value and debt, state rules, and facts you are unsure about.

3DistillReduce the 6 categories to 3 questions: whether the home is counted during life, whether a lien could apply, and whether estate recovery could reach it after death.

1CrystallizeWrite 1 sentence naming the fact about the home that most affects how Medicaid would treat it, and whom you would ask to confirm it.

Fact check

Dates, figures and claims checked against the published sources listed below.

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