How to Avoid MERP in Texas: Protecting Your Home From Medicaid Estate Recovery

What MERP Can and Cannot Reach

The Texas Medicaid Estate Recovery Program seeks reimbursement for long-term care benefits paid by the state — nursing home care, STAR+PLUS HCBS waiver services, and Community Attendant Services — for recipients age 55 and older. After the recipient dies, HHSC files a claim against the probate estate.

The critical word is probate. Texas MERP is limited to assets that pass through the probate process — property transferred by will or intestate succession. Assets that transfer directly to beneficiaries outside of probate are excluded from recovery.

This distinction is the foundation of every MERP protection strategy. The goal isn't to hide assets from the state. It's to ensure the homestead passes through a non-probate channel before the recipient dies.

Strategy 1: Lady Bird Deed

A Lady Bird Deed (Enhanced Life Estate Deed) is the most established MERP protection tool in Texas. Your parent transfers the home to beneficiaries while retaining full control during their lifetime — the right to live there, sell it, mortgage it, collect rent, and revoke the deed entirely.

At death, the property automatically transfers to the named beneficiaries outside of probate. Because the transfer bypasses the probate estate, MERP has no statutory basis to claim it.

Why the Lady Bird Deed works better than a standard life estate deed: in a standard life estate, the parent loses the right to sell or mortgage the property without the beneficiaries' consent. A Lady Bird Deed preserves full control, which means Medicaid treats the home as the parent's exempt homestead throughout their lifetime (no transfer penalty under the five-year look-back).

Cost: $500–$1,500 through an elder law attorney. This is a document that needs to be drafted correctly — a poorly worded deed can void the life estate, create an unintended completed gift (triggering a Medicaid transfer penalty), or fail to record properly.

Strategy 2: Transfer on Death Deed (TODD)

The TODD is simpler and cheaper than a Lady Bird Deed. Your parent files a deed that transfers the property to named beneficiaries upon death. It's revocable, avoids probate, and doesn't trigger a Medicaid transfer penalty because the transfer isn't complete until death.

A properly recorded TODD is a non-probate structure excluded from state recovery claims. Because the deed must be recorded before death, have a Texas elder-law attorney review the deed and the family's Medicaid circumstances before relying on it.

Best for: Families seeking a revocable non-probate transfer for the homestead. If Medicaid benefits are in play, have a Texas elder-law attorney compare the TODD with a Lady Bird Deed before choosing.

Strategy 3: Survivor Exemptions

MERP is legally prohibited from filing a recovery claim when certain survivors exist:

• A surviving spouse — any living spouse blocks MERP entirely
• A surviving child under age 21
• A surviving child of any age who is blind or permanently and totally disabled
• An unmarried adult child who lived in the home continuously for at least one year before the parent's death

If any of these conditions exist at the time of the parent's death, MERP cannot touch the homestead. Period. No deed transfer required.

The caretaker-child exemption (the last bullet) is the one most families overlook. If an unmarried adult child moved in to provide care and has been living in the home for at least 12 consecutive months before the parent dies, the home is exempt from recovery — even without a Lady Bird Deed or TODD.

Strategy 4: Non-Probate Account Designations

MERP reaches probate assets. These designations keep financial accounts out of probate:

• Payable on Death (POD) designations on bank accounts
• Right of Survivorship (ROS) designations on joint accounts
• Named beneficiaries on life insurance, IRAs, 401(k)s, and annuities

Review every account your parent owns. Any account without a beneficiary designation or survivorship clause will fall into the probate estate — and MERP's claim follows.

Strategy 5: The Undue Hardship Waiver

If MERP does file a claim, heirs can request an Undue Hardship Waiver using HHSC Form 5006 within 60 days of receiving the state's Notice of Intent to File a Claim. Hardship waivers are granted when:

• The homestead is the primary income-producing asset of the heirs (generating at least 50% of their livelihood)
• Recovery would cause the heirs to become eligible for public assistance

Additionally, heirs can deduct documented out-of-pocket expenses they paid to maintain the home (property taxes, insurance premiums, essential repairs) or costs they paid to provide care that delayed the parent's nursing home placement.

Separately, if the gross family income of the inheriting heirs is below 300% of the Federal Poverty Guidelines, up to $100,000 of the homestead's value is completely exempt from recovery under Texas rules.

What NOT to Do

Don't transfer the home outright during the parent's lifetime. An outright transfer within the five-year look-back period triggers a Medicaid eligibility penalty. The penalty duration is calculated by dividing the transfer value by the state daily penalty divisor of $262.37. A $200,000 home transferred as a gift creates a 762-day penalty period — over two years of Medicaid ineligibility.

Don't assume the homestead is safe just because your parent lives there. The homestead exemption protects the home from Medicaid during the parent's lifetime. At death, if the home passes through probate, MERP can claim it — unless one of the survivor exemptions above applies.

Building the Protection Plan

The Aging in Place in Texas guide covers MERP protection as part of the complete financial planning framework — Miller Trusts for the income cap, spousal asset protections (CSRA), Lady Bird Deed walkthroughs, and the hardship waiver process. Homestead protection is one piece of a plan that needs to be coordinated with the Medicaid application timeline.

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