Medicaid Planning 2026: Protecting Your Home From Medicaid Estate Recovery

Attorney RJ Connelly III Certified Elder Law Attorney Professional Fiduciary

"For countless families, a home represents far more than just four walls—it serves as a foundation of cherished memories, stability, and generational wealth. The threat posed by Medicaid Estate Recovery to this essential asset can cause significant anxiety and confusion, underscoring the importance of proactive, informed planning," stated Attorney RJ Connelly III, professional fiduciary and certified elder law attorney. "Planning ahead is not solely about safeguarding assets; it is about ensuring peace of mind for families navigating complex long-term care decisions. In today's blog, as part of our Medicaid 2026 series, we focus on protecting your home from Medicaid estate recovery using permissible strategic legal planning."

This blog will discuss the Child Caregiver Exception and the Sibling Exception, as well as Lady Bird Deeds, which, while not recognized in Rhode Island, Massachusetts, or Connecticut, are relevant for our readers in Florida, Michigan, Texas, Vermont, and West Virginia. When applied judiciously, these tools can make a meaningful difference in Medicaid planning.

Understanding Medicaid Estate Recovery: The Basics and Beyond

Medicaid Estate Recovery is a federal requirement implemented by states to recoup long-term care costs paid on behalf of Medicaid recipients by seeking repayment from their estate after death. Usually, the family home is the most significant asset at risk.

As Attorney Connelly observes, “Most people are surprised to learn that their home is not automatically protected. Estate recovery often catches families off guard, and without proper planning, the consequences can be severe.”

States typically recover costs for nursing facility services, home and community-based services, and related hospital and prescription drug benefits. The process begins after the Medicaid recipient passes away, with the state filing a claim against the estate during probate. If the home is included in the probate estate, it could be sold to satisfy the Medicaid claim. Exceptions and strategies exist—understanding them is crucial before a crisis occurs.

Home Protection Strategies: A Comprehensive Overview

Protecting your home requires knowledge, legal guidance, and timely action. Among numerous strategies, three stand out: the Child Caregiver Exception, the Sibling Exception, and the Lady Bird Deed. Each approach functions differently and demands specific documentation and planning. Let’s examine them in depth.

The Child Caregiver Exception: Federal Medicaid regulations allow a home to be transferred to an adult child without penalty if that child provided care that delayed the parent’s entry into a nursing facility for at least two years. This exception recognizes the vital role family members play in supporting elders and is codified in the Medicaid program to prevent penalizing caregivers who sacrifice to keep loved ones at home. To qualify, the adult child must prove:

• They lived in the parents’ home for at least two years immediately before the parent entered a nursing facility.

• They provided care that allowed the parent to remain at home rather than enter Medicaid-funded care.

• Documentation from health care providers attesting to the child’s support was essential to delaying institutionalization.

Attorney Connelly advises, “This exception rewards families who step up to provide care, often at great personal sacrifice. The paperwork is crucial—keep detailed logs of care provided, correspondence from doctors, and evidence of residency. The transfer occurs during the parent’s lifetime, not after death, and the home is thus excluded from estate recovery."

• Pros: Allows home transfer to a caregiving child without penalty, keeps property in the family, and acknowledges family support.

• Cons: Strict requirements for residency and documentation; must be transferred before the parent’s death.

• Example: An adult daughter lives with her father, helps with meals, medication, and daily activities for over two years. Physicians confirm her care was delayed in nursing facility placement. The father transfers the home to her, exempting it from Medicaid recovery.

  
  

The Sibling Exception: The Sibling Exception, another federal provision, permits a home to be transferred to a sibling who has an equity interest in the property and resided there for at least one year before the Medicaid recipient’s institutionalization. This exception is especially vital when siblings have co-owned homes for years or when one sibling has provided long-term support. Qualification requires:

• Proof of ownership or equity interest (deed, mortgage, tax records).

• Residency for at least one year prior to the applicant’s admission to a facility.

• Documentation demonstrating financial contributions and shared living arrangements.

  
  

Attorney Connelly notes, “The sibling exception is often overlooked, but it can be a lifeline for families where brothers or sisters have shared living arrangements for years. Document residency and contributions carefully. As with the caregiver exception, this transfer must be made during the Medicaid recipient’s lifetime."

• Pros: Protects homes shared among siblings; recognizes equity interest and residency; avoids estate recovery.

• Cons: Requires co-ownership and proof of residency; must occur before death; limited applicability.

• Example: Two sisters co-own a house. One enters a nursing facility and applies for Medicaid. The healthy sister, who has lived there for years, receives the home, free from estate recovery claims.

Lady Bird Deeds: A Lady Bird Deed, or enhanced life estate deed, is a unique instrument available only in select states (Florida, Michigan, Texas, Vermont, and West Virginia). It allows a homeowner to transfer their property to a named beneficiary (often a child or loved one) while retaining full control during their lifetime. This includes the ability to sell, mortgage, or otherwise modify the property without the beneficiary’s consent. Upon death, ownership automatically passes to the beneficiary, bypassing probate and, critically, avoiding Medicaid Estate Recovery because the home is not part of the estate subject to recovery.

Attorney Connelly explains, “The Lady Bird Deed is a powerful tool because it keeps the home out of your probate estate, which means Medicaid can’t recover against it after your passing. The flexibility and control it provides are unmatched. But keep in mind, only a handful of states allow this legal instrument.”

To implement this strategy, ensure your state recognizes Lady Bird Deeds and consult an attorney for proper drafting. The deed must precisely state the retained powers and designate clear beneficiaries. It’s also wise to discuss implications with beneficiaries—such as property tax changes, insurance, or capital gains liability. In states without Lady Bird Deeds, similar results may be achieved through alternative legal mechanisms, but the Lady Bird Deed offers simplicity and security when available.

• Pros: Maintains homeowner control, avoids probate, shields property from Medicaid recovery.

• Cons: Only available in certain states, requires careful drafting and consideration of potential tax consequences.

• Example: A widowed mother in Florida uses a Lady Bird Deed to name her son as beneficiary. She retains full rights until her death, at which point the property automatically transfers to her son, and Medicaid cannot claim the home.

A Final Word

"Navigating Medicaid Estate Recovery is complex, but with strategic foresight and legal guidance, families can successfully shield their homes," stated Attorney Connelly. "Begin by understanding relevant laws, gathering documentation, and consulting experienced attorneys. Child Caregiver, Sibling Exceptions, and Lady Bird Deeds are powerful tools—when used properly, they ensure your home remains a legacy, not a liability. But remember, each family’s situation is unique, and laws can vary by state. Early action, thorough documentation, and professional advice are key to preserving your home and peace of mind through all life’s transitions."

The information presented within this blog is intended exclusively for general informational purposes and should not be construed as legal, financial, or healthcare advice. The content, materials, and insights provided may not reflect the most recent developments in these fields and, therefore, should not be relied upon for personal or professional decisions. Further, this blog may contain links to third-party websites, which are included solely for the convenience of our readers. It is essential to note that Connelly Law Offices, Ltd. does not automatically endorse or recommend the contents of these external sites. Given the complexities and nuances of legal, financial, or healthcare matters, we strongly encourage individuals to consult a qualified attorney, a professional fiduciary advisor, or a healthcare provider regarding any specific issues or concerns. Your well-being and informed decision-making are of paramount importance to us.