How to Fight Medicaid Estate Recovery: Exemptions, Hardship Waivers, and Protections

A parent spent their last years in a nursing home covered by Medicaid, and now the state wants the house to pay for it. Under federal law, states are required to attempt recovery of Medicaid long-term care costs from the deceased's estate — the Medicaid Estate Recovery Program, or MERP. But "required to attempt" doesn't mean they always succeed. Federal law also mandates specific exemptions and hardship protections that can shield the family home entirely.

How MERP Claims Work

After a Medicaid recipient aged 55 or older dies, the state's recovery unit files a claim against the probate estate. The claim covers Medicaid costs for nursing facility services, home and community-based services, hospital and prescription costs (in states that choose to recover these), and related administrative expenses.

In 23 states, MERP can only target assets that pass through the probate estate. If the home passes outside probate — through joint tenancy, a Lady Bird deed, a living trust, or a transfer-on-death deed — the state can't touch it under probate-only recovery rules.

In states with expanded recovery laws (including California and New York), MERP can pursue both probate and non-probate assets. This means joint tenancies, living trusts, and life estates are exposed to state recovery claims. The distinction between probate-only and expanded recovery states is critical to your strategy.

Mandatory Federal Exemptions

Before you fight the claim itself, check whether the property qualifies for a mandatory exemption. States are required to defer or waive recovery when:

A surviving spouse is alive. MERP cannot pursue recovery from the estate while a surviving spouse is alive, whether or not the spouse lives in the home. The state must wait until the surviving spouse dies; any later recovery is subject to the rules that then apply.

The recipient leaves a child under 21. Federal law bars estate recovery while a child under 21 survives the recipient; the child does not have to live in the home.

The recipient leaves a blind or disabled child of any age. The child must meet Social Security's definition of disability. This exemption does not depend on the child's age or residence in the home.

A sibling with an equity interest lived in the home. If a sibling has an equity interest in the property and has lived there continuously for at least one year before the Medicaid recipient was institutionalized, recovery is deferred while the sibling continues to reside there.

A caretaker child lived in the home. If an adult child lived in the home and provided care that delayed the parent's institutionalization by at least two years (as certified by a physician), the property may be exempt from recovery.

The Hardship Waiver

Federal law requires every state to have an undue hardship waiver process. If none of the mandatory exemptions apply, you can petition the state's recovery unit to waive or reduce the claim based on hardship. Each state defines "undue hardship" differently, but common qualifying factors include:

• The property is the sole income-producing asset of the heirs (a family farm or small business)
• Recovery would deprive the heirs of shelter, and they have no other housing
• The property's equity is less than a specific threshold set by the state
• The heirs are themselves disabled, elderly, or low-income

The waiver process is an administrative hearing, not a court proceeding. You'll typically need to submit financial documentation showing the heirs' income, assets, and housing situation. Some states allow partial waivers — reducing the claim to what the heirs can pay over time rather than requiring an immediate sale.

Timing is critical. Each state sets its own deadline for requesting a hardship waiver. Read the recovery notice and contact the state's recovery unit promptly so you do not miss it.

Strategies That Can Reduce or Block Recovery

Challenge the claim amount. States sometimes overstate the Medicaid costs, include services that aren't recoverable (like Medicaid managed care premiums in states that exclude them), or calculate interest incorrectly. Request an itemized statement and verify every line item.

Check any lifetime transfer separately. Medicaid's eligibility look-back and post-death estate recovery are separate rules. A lifetime transfer can affect eligibility, title, or recovery differently depending on the state; do not assume an older transfer alone shields the home.

Check which state's recovery law applies. Recovery rules depend on the state and the property. If the parent owned property in multiple states, ask counsel how ancillary probate and each state's recovery rules apply; choosing a probate venue does not by itself move the property or shield it from recovery.

Ask about settlement options. Whether the state will consider a compromise depends on state law and the claim. Ask the recovery unit about available options before agreeing to pay the full amount.

Check for both pre-death liens and post-death claims. Some states place a TEFRA lien on the property during the owner's lifetime (while they're permanently institutionalized), but estate recovery may also proceed after death. Even if no pre-death lien was recorded, the state may file a claim against the probate estate; resolve it under state probate rules before distributing property equity.

What Not to Do

Don't transfer the property after death to avoid the claim. Post-death transfers don't remove the property from the estate — the state can void fraudulent transfers and may impose additional penalties.

Don't ignore the recovery notice. Missing a state-specific response, hearing, or hardship-waiver deadline can limit your options. Respond in writing by the deadline stated in the notice, even if you plan to contest the claim.

Don't assume a MERP claim means you'll lose the house. Many claims are reduced or waived through the exemptions and hardship provisions above. According to state audit reports, a significant percentage of initial recovery claims are ultimately reduced or settled for less than the full amount.

If you're navigating Medicaid estate recovery alongside the full property transfer process, the Property & Real Estate Transfer After Death toolkit covers the MERP timeline alongside mortgage, insurance, and tax obligations — with worksheets to track claims, deadlines, and exemption documentation.