Medicaid Estate Recovery Program: What Heirs Need to Know

How Medicaid Estate Recovery Works

Federal law requires every state to attempt recovery of Medicaid long-term care costs from the estates of deceased recipients who were 55 or older when they received benefits. The program is called the Medicaid Estate Recovery Program, or MERP. In practice, it means the state can file a claim against your parent's probate estate — including the family home — to recoup nursing home, home care, or other long-term care expenses Medicaid paid on their behalf.

The state doesn't seize the house while the recipient is alive (with narrow exceptions). The recovery claim activates after death, during the probate process. The executor is legally required to notify the state's recovery unit, and the state then files its claim. If there's no cash in the estate to satisfy the claim, selling the home may be the only option.

Probate-Only vs. Expanded Recovery States

This distinction determines whether creative estate planning can shield the property:

Probate-only recovery states (roughly 23 states) can only pursue assets that pass through probate. If the home was held in joint tenancy with right of survivorship, in a revocable living trust, or under a Lady Bird deed, it passes outside probate and the state cannot touch it in these jurisdictions.

Expanded recovery states — including California, New York, and several others — define "estate" more broadly. They can pursue recovery from assets that pass outside probate, including living trusts, joint tenancies, and life estates. In these states, transferring a house outside probate does not by itself stop Medicaid recovery.

Exemptions That Block Recovery

Federal law mandates certain exemptions that apply in every state:

• Surviving spouse. Federal law bars recovery from the deceased recipient's estate while a surviving spouse is alive, whether or not the spouse lives in the home.
• Child under 21. Federal law bars recovery if the deceased is survived by a child under 21, whether or not the child lives in the home.
• Blind or disabled child. Federal law bars recovery if the deceased is survived by a blind or disabled child of any age, whether or not the child lives in the home.
• Caretaker child. Federal Medicaid transfer rules allow a home to be transferred without a transfer penalty to an adult child who lived there for at least two years immediately before institutionalization and whose care delayed institutionalization. This is not a general MERP exemption.
• Sibling with equity interest. A sibling with an equity interest who lived in the home for at least one year before institutionalization and continues to reside there can prevent a lifetime lien on the home. This is not a general exemption from post-death estate recovery.

Beyond these federal exemptions, most states also allow undue hardship waivers — discretionary exemptions when recovery would leave surviving family members homeless, push them onto public assistance, or cause comparable hardship. The application process varies by state and requires affirmative filing with documentation.

What Third-Party Collection Looks Like

Many states outsource MERP to private collection agencies. Health Management Services (HMS), a Gainwell Technologies company, handles recovery in multiple states. These agencies send formal demand letters to the executor, and the tone can be aggressive and alarming.

Receiving a demand letter means the state is seeking reimbursement; it does not by itself establish that a claim has been filed in probate or that the amount is correct. The executor can raise exemptions, contest the claimed amount, or request a hardship waiver through the applicable state and probate process.

If no exemption applies and no hardship waiver is granted, the claim is paid from estate assets — including proceeds from selling the home — before any inheritance is distributed to heirs.

Planning Steps That Actually Help

If a parent is still alive and receiving or likely to receive Medicaid:

• Document caretaker child status if a child is living in the home and providing care. Keep logs of caregiving activities, medical appointments arranged, and living arrangements.
• Understand your state's recovery scope before transferring property into a trust or joint tenancy. In expanded recovery states, these transfers won't help.
• Don't ignore the demand letter. Read the notice promptly and follow its response deadline; state procedures and timelines differ.

The Property & Real Estate Transfer After Death toolkit includes a Medicaid estate recovery section covering state-by-state recovery rules, exemption qualification checklists, and a hardship waiver application framework for families facing MERP claims.