Medicaid Planning Series 2026 Part 3 - Medicaid's Estate Recovery Program

Attorney RJ Connelly III Certified Elder Law Attorney Professional Fiduciary

Good morning! If you are reading this on the original publication date of January 26, Southern New England is waking up to a major winter storm that has blanketed parts of our region with more than a foot and a half of snow. The landscape is transformed, but with this beauty comes significant challenges.

We want to remind our older adults and anyone with health concerns to use extra caution when clearing snow. Shoveling can strain the heart and muscles, especially for individuals with pre-existing conditions. Please dress warmly in layers, take frequent breaks, and avoid overexertion. If possible, seek help from a neighbor or a professional service. Remember, icy sidewalks and driveways increase the risk of slips and falls, so use salt or sand for traction and wear boots with good grip.

If you do not need to travel, it is best to stay indoors until roads and walkways have been properly cleared and conditions have improved. Your safety is the top priority during and after a significant winter storm. Now on to today's blog.

"Before we begin a detailed discussion of asset protection techniques, we must first address how to qualify for long-term care Medicaid when an individual’s assets exceed the limits set by federal and state regulations. A key part of understanding why Medicaid planning is so important is having a clear grasp of Medicaid’s Estate Recovery Program," said professional fiduciary and certified elder law Attorney RJ Connelly III.

Medicaid’s Estate Recovery Program (MERP), sometimes also abbreviated as MER, is a mandatory process through which a state’s Medicaid agency seeks reimbursement for the long-term care costs it has paid on behalf of a Medicaid beneficiary. These costs can include nursing home care, Home and Community-Based Services designed to prevent premature institutionalization, and hospital or prescription drug expenses related to long-term care.

"Estate recovery occurs after the Medicaid recipient’s death and is typically pursued against assets held in the recipient’s name at the time of death—most commonly, the individual’s home," continued Attorney Connelly. "Through these remaining estate assets, Medicaid attempts to recover the funds it expended. In Part Three of our 2026 Medicaid Planning Series, we will take a closer look at how the Medicaid Estate Recovery Program works and why proactive planning is essential."

Medicaid Asset Recovery

When we talk about “assets,” many people think first of real property, such as a primary residence. However, an estate can also include cash, checking and savings accounts, stocks and bonds, remaining funds in a Qualified Income Trust and/or Irrevocable Funeral Trust, vehicles, and most other items of value.

A person’s home is often the last remaining asset of substantial value from which Medicaid can seek reimbursement. This can be surprising because an occupied home is generally treated as an exempt asset for Medicaid eligibility purposes. Exempt for eligibility, however, does not necessarily mean protected from MERP after death. Unless appropriate planning strategies are implemented during life, the home is frequently subject to Estate Recovery. It is important to note that a life insurance policy is generally protected from Estate Recovery if a beneficiary is properly designated other than the insured’s estate.

The 1993 Omnibus Budget Reconciliation Act (OBRA) requires all states to seek reimbursement of certain long-term care costs through a Medicaid Estate Recovery Program for individuals:

• Age 55 and older who received long-term care services; and

• Individuals under age 55 who are permanently institutionalized (for example, in a nursing facility).

Before OBRA, the decision to adopt an Estate Recovery Program was left to each state’s discretion. Today, while federal law mandates that states operate MERP and sets baseline rules, the specific procedures and scope of recovery remain state-specific. For example, some states attempt to recover not only long-term care costs, but also the costs of additional Medicaid services.

Funds collected through MERP are returned to the state’s Medicaid program and used to help pay for services for other beneficiaries. This is one of the primary reasons that careful, proactive Medicaid planning is so important.

How MERP Works

Following the death of a Medicaid recipient, Medicaid generally sends a letter to the deceased’s relative—usually a beneficiary or the executor of the estate—requesting reimbursement of all long-term care costs it previously paid on the recipient’s behalf. Essentially, the letter informs the family that the Medicaid agency intends to file a claim for repayment. Medicaid cannot collect more from an estate than the amount it paid. For example, if the state paid $200,000 but the estate is worth $275,000, Medicaid can recover only $200,000.

Under MERP, all states are required to seek recovery from the deceased Medicaid recipient’s “probate estate.” Not all assets, however, pass through probate. Probate is the court process through which the deceased’s will is validated (if there is one), the value of the estate is determined, debts are paid, and any remaining assets are distributed to beneficiaries. Assets that go through probate include those titled solely in the deceased’s name or, if jointly owned, those held as “tenants in common.” With tenants in common, the beneficiary of the deceased’s share is named in the will, meaning the other owner does not automatically inherit the deceased’s share. It is important to note that probate laws differ by state.

States also have the option to attempt recovery from assets that do not go through probate. This is known as an “expanded” definition of estate recovery and may include assets held jointly other than as tenants in common, life estates, and assets held in a living trust. Massachusetts and Rhode Island are probate-only states, while Connecticut operates under the expanded definition of estate recovery.

While Medicaid cannot attempt estate recovery if there is a surviving spouse, some states will attempt to collect after the death of the surviving spouse, while other states will not. California and Texas, for example, prohibit estate recovery after the death of the non-Medicaid spouse.

Further, some states recover estate taxes only from assets that go through probate, while others use an expanded definition of “estate” and seek reimbursement from assets that do not go through probate.

A state’s estate recovery laws in effect at the time of a Medicaid recipient’s death are the laws that apply. In other words, if the laws changed after an individual became a Medicaid beneficiary, the laws in place at the time of death—not at the time of eligibility—govern the estate recovery process. This complex and evolving framework underscores the importance of early, informed Medicaid planning to protect loved ones and preserve as much of the family estate as legally possible.

Putting a Lien on a Home

Medicaid can place a lien on a Medicaid recipient’s home if they are “permanently institutionalized.” Permanently institutionalized means the individual is residing in a long‑term care facility (i.e., nursing home) and is not expected to return home.

While not all states use liens, a lien is a way to ensure payment of a debt—or, in this context, reimbursement of long‑term care costs. Essentially, it prevents the home from being sold unless the existing debt is paid first.

With the passage of the Tax Equity and Fiscal Responsibility Act (TEFRA) in 1982, states were given the option to use pre‑death liens to prevent Medicaid beneficiaries from transferring their home to a loved one shortly before their death as a means to avoid estate recovery.

It's also important to note that if there is no lien on a Medicaid recipient’s home and they transfer it, the transfer could violate Medicaid’s look‑back rule, resulting in a disqualification penalty period. The family would then have to pay out of pocket for long‑term care costs during the disqualification period.

A lien can be removed by the state if the institutionalized Medicaid recipient unexpectedly returns home. Additionally, a lien is removed if the home is sold and Medicaid is reimbursed.

Selling the home while the recipient is still living, however, is generally not advised. It will most likely result in Medicaid disqualification for long‑term care due to “excess” assets (i.e., assets above Medicaid’s asset limit). Essentially, the home is exempt from Medicaid’s asset limit prior to sale, but if it is sold, the proceeds are counted as a countable asset (cash). In some states, a lien may be released upon the Medicaid recipient’s death, while in others, Medicaid will collect on the lien.

A lien cannot be placed on a Medicaid recipient’s home if any of the following relatives live there:

• Their spouse;

• Their child is under 21 years old;

• Their disabled or blind child (of any age);

• Their sibling who has an equity interest (ownership) in the home and has lived in it for at least 1 year immediately preceding the Medicaid recipient’s nursing home admission.

In addition to the pre‑death TEFRA lien, a state may place a lien on the home following a Medicaid recipient’s death. This is done when there is a survivor, such as a spouse, still occupying the home, and the state intends to collect repayment following that individual’s death. The lien may be lifted if the survivor wishes to sell the home.

Undue Hardship Waiver

The Undue Hardship Waiver (also referred to as the Undue Hardship Exception) allows a state to waive Estate Recovery if pursuing repayment would create an “undue hardship” for the beneficiaries or survivors of a deceased Medicaid recipient.

The specific definition of undue hardship varies by state, but common examples include situations where:

• The asset at issue is the beneficiary’s sole or primary income‑producing resource (for example, a farm or ranch), and loss of the asset would result in a loss of livelihood.

• The property is the primary residence of the surviving beneficiary.

• The home is of “modest” value. While each state defines this differently, it is often set at approximately 50% of the county's average home value.

• The surviving beneficiary would need medical and/or public assistance if Estate Recovery were pursued.

  
  

The process and deadlines for requesting an Undue Hardship Exception are state‑specific and should be outlined in the state’s notice of intent to pursue Estate Recovery. An application for an Undue Hardship Waiver must be supported by appropriate documentation, which may include:

• Recent tax returns

• A copy of the will

• Pay stubs

• Social Security benefit letters

• Bank statements

  
  

Because standards and procedures vary from state to state, and timelines are often short, it is important to review the notice carefully and seek qualified legal guidance as soon as possible after receiving an Estate Recovery claim.

A Final Word

"Understanding Medicaid Estate Recovery and estate planning strategies can be challenging, especially because the rules differ from state to state. That’s why it’s so important to consult with an experienced and knowledgeable elder law attorney about your specific situation," said Attorney Connelly. "We can explain how the laws apply in your state and help you implement strategies to safeguard assets from Estate Recovery so they can be preserved for your loved ones as an inheritance. Ideally, you should seek this guidance well before long‑term care is needed, so you have the widest range of options and the best opportunity to protect what you have worked so hard to build. But in emergencies, there are still options available. We will discuss this in depth in future blogs."

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.