Medicaid Estate Recovery Program: What Heirs Need to Know

Your parent received Medicaid long-term care for years. After they pass, you expect to inherit the family home. Then a letter arrives from the state Medicaid agency demanding reimbursement for every dollar Medicaid spent—and the house is how they plan to collect.

The Medicaid Estate Recovery Program (MERP) is a federally mandated program that requires states to seek reimbursement from a deceased Medicaid recipient's estate for long-term care costs. Understanding how it works—and what exemptions exist—can mean the difference between keeping the family home and losing it.

How Estate Recovery Works

Federal law (42 U.S.C. § 1396p) requires every state to operate an estate recovery program. After a Medicaid recipient dies, the state has the right to file a claim against their estate to recover costs paid for:

• Nursing home care
• Home and Community-Based Services (HCBS)
• Hospital and prescription drug costs related to long-term care
• In some states, all Medicaid benefits paid after age 55

The recovery only applies after both spouses have died (if the recipient was married) and only after there are no surviving children who are under 21, blind, or permanently disabled.

States vary in how aggressively they pursue recovery. Some recover only through probate proceedings (targeting assets that pass through the estate), while others use expanded recovery methods that can reach jointly held assets, life estates, and even certain trusts.

The Family Home Question

The primary residence is the most common target of estate recovery—and the source of most families' anxiety. Here's the timeline:

During your parent's lifetime: The home is generally exempt from Medicaid's asset count (as long as equity is below the state threshold of $752,000 to $1,130,000 in 2026). Your parent can keep the home while receiving Medicaid benefits.

After your parent dies: The exemption ends. The home becomes part of the estate, and the state can file a MERP claim against it. In practice, this often means the home must be sold to satisfy the state's claim, or heirs must pay the claim amount from other sources.

Exemptions That Block Recovery

Federal law provides several mandatory exemptions where the state cannot recover:

• Surviving spouse: No recovery can occur while the Medicaid recipient's spouse is alive. The claim is deferred until the surviving spouse also dies.
• Child under 21: Recovery is barred if the deceased has a surviving child under age 21.
• Blind or permanently disabled child: Recovery is barred at any age.
• Caregiver child: If an adult child lived in the parent's home for at least two continuous years immediately before the parent entered a nursing home, and the child's care demonstrably delayed institutional placement, the home can be excluded from recovery. This requires solid documentation—care logs, medical records, and proof of continuous residency.
• Sibling with equity interest: If a sibling has an equity interest in the home and resided there for at least one year before the parent's institutionalization, the home may be exempt.

Additionally, many states offer undue hardship waivers if recovery would deprive heirs of their primary residence or reduce income below the poverty level. These are granted case by case and require a formal application.

State Variations Matter

Estate recovery rules vary significantly by state:

• Indiana (effective July 1, 2026): Expanded the state's window to pursue estate recovery from 120 days to nine months after the date of death. Executors and heirs should wait at least nine months before formally transferring real estate titles.
• Michigan and Massachusetts: Recovery is limited to assets that pass through probate. Assets held in certain trusts, joint accounts with right of survivorship, or through beneficiary designations may avoid recovery.
• California: Significantly reformed MERP in recent years, limiting recovery to probate assets and eliminating recovery for HCBS costs in many cases.

What's Protected from Recovery

An important protection for dual eligible families: the Affordable Care Act (Section 6021) carved out QMB premiums and Medicare cost-sharing payments from estate recovery. If your parent was enrolled in a Medicare Savings Program, the state cannot recover the amounts it paid toward Medicare premiums, deductibles, or coinsurance. Only long-term care expenditures are recoverable.

Strategies to Protect the Home

These strategies must be implemented well before your parent needs Medicaid—ideally more than five years before application to clear the look-back period:

• Irrevocable income-only trust: Transfers the home into a trust that removes it from the estate while allowing the parent to live there and receive any income from it.
• Life estate deed: Transfers ownership to heirs while retaining the parent's right to live in the home. The life estate interest is not subject to estate recovery in many states once the parent dies.
• Lady Bird deed (in states that recognize them, including Florida, Texas, Michigan, and others): Allows the parent to retain full control during their lifetime and automatically transfers the property to heirs outside of probate upon death.

All of these must be done with legal counsel. Transfers within the 60-month look-back window trigger penalties, so timing is critical.

What to Do When You Receive a MERP Notice

1. Don't ignore it. States have strict response deadlines.
2. Check for exemptions. Is there a surviving spouse? A caregiver child who meets the two-year residency requirement? A disabled child?
3. Request an undue hardship waiver if losing the home would leave you without housing.
4. Verify the claimed amount. Request an itemized statement of what Medicaid paid. Errors do occur.
5. Consult an elder-law attorney before agreeing to any payment or signing any documents.

The Dual Eligible Coordination Blueprint covers estate recovery protections alongside the full dual eligibility workflow, including how QMB and MSP payments are shielded from recovery claims.

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