MERP Texas: How Medicaid Estate Recovery Works and How to Protect Assets

After a parent who received Medicaid-funded long-term care passes away, Texas doesn't simply close the file. The Medicaid Estate Recovery Program (MERP) files a claim against the deceased's probate estate to recover the costs the state paid — nursing home care, STAR+PLUS HCBS services, and related medical expenses provided after age 55.

For many Texas families, the parent's home is the only significant asset left. Understanding how MERP works — and its legal limits — is the difference between keeping the family home and losing it to a state lien.

What MERP Can and Cannot Recover

MERP's authority is limited to the probate estate — assets that pass through the probate process after death. This is a critical distinction.

MERP can target:

• The primary residence if it passes through probate (no surviving spouse, no minor or disabled children living there)
• Bank accounts held solely in the deceased's name
• Personal property and other probate assets

MERP cannot target:

• Assets that bypass probate entirely (joint accounts with right of survivorship, life insurance proceeds, payable-on-death accounts)
• Property transferred via a Lady Bird deed or Transfer on Death Deed before death
• The homestead if a surviving spouse, a child under 21, or a blind/disabled child still lives there

The Hardship Waiver

Texas provides a hardship exemption through HHSC Form 5006. A family member can apply if recovering from the estate would:

• Deprive a surviving heir of their primary residence
• Reduce the heir's income below a threshold (300% of the Federal Poverty Guidelines — approximately $46,950 for a single person)
• Create an undue hardship based on the specific circumstances

The hardship waiver is not automatic. It requires a formal application with supporting financial documentation, and HHSC reviews each case individually.

How Families Protect the Home

The most effective protection strategies are executed while the parent is still alive and has cognitive capacity:

Lady Bird Deed (Enhanced Life Estate Deed)

The parent signs a deed that retains full ownership and control during their lifetime — including the right to sell, mortgage, or revoke — while automatically transferring the property to named beneficiaries at death. Because the transfer bypasses probate, MERP cannot reach it.

A Lady Bird deed does not trigger Medicaid's 60-month look-back penalty because the parent retains full control and the transfer only completes at death.

Transfer on Death Deed (TODD)

Similar to a Lady Bird deed in outcome — the property transfers automatically at death, bypassing probate. Simpler to execute but offers less flexibility if the parent needs to refinance or sell the property during their lifetime.

Payable-on-Death (POD) Designations

Bank accounts and CDs can be designated as payable-on-death to a named beneficiary. The funds transfer immediately upon death without entering probate.

The Timing Problem

All of these strategies require the parent to have cognitive capacity when they sign. A Lady Bird deed, a TODD, or a POD designation all require understanding and voluntary execution.

If the parent has already lost capacity, only an agent acting under a Statutory Durable Power of Attorney with explicit real property and transfer authority — or a court-appointed guardian with court approval — can execute these protective instruments. And guardians typically face additional court scrutiny when transferring real property.

What Happens If You Don't Act

If the parent dies with the home in their name alone and no non-probate transfer mechanism in place, MERP places a lien on the property. The estate cannot distribute the home to heirs until the Medicaid claim is satisfied. If Medicaid paid $150,000 in nursing home costs over several years, that's $150,000 the estate owes before heirs receive anything.

The state does wait until there's no surviving spouse, no minor child, and no disabled child living in the home before enforcing the lien. But once those protections expire, the claim is enforceable.

Planning Ahead

MERP protection is one component of a broader Medicaid planning strategy that includes establishing legal authority (SDPOA and MPOA), managing the look-back period, and setting up a Qualified Income Trust if needed.

The Texas Power of Attorney & Guardianship Kit walks through the full sequence: POA execution, homestead protection options, Miller Trust setup, and the Medicaid application process — coordinated so each step is done in the right order.

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