Can Medicare or Medicaid Take Your House in a Trust?

Medicare cannot take your house whether it is in a trust or not, because Medicare does not pay for long-term nursing home care and has no legal authority to place liens or recover costs from your estate. The program that can reach your home is Medicaid, and whether a trust actually protects the house depends on what kind of trust it is and when you funded it. A revocable living trust offers no protection at all. A properly drafted irrevocable trust, funded more than five years before you apply for Medicaid, usually does.

Medicare Is Not the Program You’re Worried About

Medicare covers hospital stays, doctor visits, prescription drugs, and a limited stretch of skilled nursing facility care after a qualifying hospital stay.¹ It does not cover long-term custodial care, meaning the ongoing help with bathing, dressing, eating, and other daily activities that most people picture when they think of a nursing home stay.²

Because Medicare does not pay those long-term care bills, it has no reason and no mechanism to recover them from your estate. There is no Medicare estate recovery program. Every serious question about trusts, homes, and government payback is a Medicaid question.

What Medicaid Estate Recovery Actually Does

Medicaid is the primary payer for long-term nursing home care in the United States.³ Federal law requires every state to run a Medicaid Estate Recovery Program. After a Medicaid recipient who was 55 or older dies, the state must try to recoup what it spent on that person’s nursing facility care, home and community-based services, and related hospital and drug costs.⁴

How far the state can reach depends on how it defines “estate.” At minimum, every state can recover from assets that pass through probate. Federal law also lets states adopt an expanded definition that captures anything the deceased held any legal interest in at death, including jointly owned property, assets in a living trust, and property transferred through a life estate.⁴ In an expanded-definition state, avoiding probate does not, by itself, avoid recovery.

A Revocable Trust Will Not Protect Your Home

A revocable trust, often called a living trust, does nothing to shield your home from Medicaid. Federal law treats the entire corpus of a revocable trust as a resource available to the person who created it. Payments from the trust to you count as income; payments to anyone else count as asset transfers subject to Medicaid’s transfer penalties.⁴ The reason is straightforward: because you can revoke the trust and take the assets back whenever you want, Medicaid acts as though you never gave them up.

So a home held in a revocable trust is counted for eligibility, and after your death it remains reachable by estate recovery. Revocable trusts have real uses, chiefly avoiding probate, but Medicaid protection is not one of them.

An Irrevocable Trust Can Protect Your Home, With Conditions

An irrevocable trust works differently because you give up control. Once you transfer your home into it, you cannot revoke the trust, reclaim the property, or direct the trustee to spend trust assets on you. Because you no longer control the asset, Medicaid’s treatment turns on whether any payment from the trust could still reach you under any circumstances.⁴

If the trust is written so that principal can never be distributed to you or for your benefit, that portion of the trust is not counted as an available resource. Medicaid instead treats the transfer as a disposal of the asset on the date the trust was funded, or the date your access was cut off, whichever is later. That disposal triggers the look-back and penalty rules described below. Trust income that can still be paid to you does count toward eligibility, but the home itself may be protected.

How a Medicaid Asset Protection Trust Is Built

A Medicaid Asset Protection Trust is an irrevocable trust designed specifically to hold your home while preserving future Medicaid eligibility. You can receive income the trust generates, but you have no access to principal. You cannot serve as trustee, sell the home on your own, borrow against it, or direct distributions to yourself. A trusted family member, often an adult child, usually serves as trustee. In most cases you can still live in the home even though the trust owns it.

The tradeoff is control. You cannot change your mind, take out a reverse mortgage, or sell the property without the trustee. Legal fees to draft and fund the trust typically run several thousand dollars, and the trust must be in place well before you need long-term care. If it is properly drafted and funded more than five years before you apply, the home is not counted as an available asset, and in most states it also sits outside estate recovery.

The Five-Year Look-Back

Transferring your home into an irrevocable trust is a gift for Medicaid purposes, and Medicaid looks back 60 months from the date you apply for benefits to find any such transfer.⁴ If the transfer falls inside that window, the state imposes a penalty period during which you are ineligible for long-term care coverage. The penalty length is the value of the transferred asset divided by the state’s average monthly private-pay nursing home cost. A $300,000 home in a state averaging $10,000 per month yields a 30-month penalty.

Here is the trap: the penalty does not start on the date of the transfer. It starts only once you have moved into a nursing home, spent down to the Medicaid asset limit, applied, and been approved but for the disqualifying transfer. A trust funded four years before you need care can leave you uncovered exactly when you need coverage, with no Medicaid dollars flowing during the penalty. That gap is the single biggest risk in doing this kind of planning too late.

Home Transfers That Never Trigger a Penalty

Federal law exempts several transfers of a home from the penalty rules, no matter when they happen. You can transfer your home without penalty to:

Your spouse.
A child under 21, or a child of any age who is blind or permanently disabled.
A sibling who has an equity interest in the home and lived there for at least one year immediately before you entered a nursing home.
An adult son or daughter who lived in the home for at least two years before you were institutionalized and who provided care that let you stay home rather than move into a facility. The state must confirm the caregiving role.⁴

The caretaker child exemption catches many families out. A child who visited often and helped with errands does not qualify. The child must have actually lived in the home and provided care substantial enough to have delayed institutional placement. States require documentation, and claims fail regularly for lack of evidence. If this exemption might apply to your family, gather medical records and build a paper trail now, not after filing a Medicaid application.

Who Stops Estate Recovery After Death

Even when a home would otherwise be subject to recovery, federal law blocks or defers collection when the Medicaid recipient is survived by:

A spouse, at any age and in any state of health.
A child under 21.
A child of any age who is blind or permanently disabled.⁵

States must also offer a hardship waiver. If recovering against the estate would cause undue hardship for the heirs, for instance when the home is the family’s sole income-producing asset or a working farm, the state may waive or reduce the recovery.⁴ Waivers are not automatic. Heirs have to apply and prove the hardship meets state criteria.

One thing that surprises families: recovery does not happen instantly. The state files a claim against the estate the way any other creditor would. If the home is the main asset and a protected person is still living there, recovery is effectively deferred until that person leaves or dies. But once the protection lapses, the state’s claim is still waiting. Planning around estate recovery works when it starts years before a Medicaid application, not after benefits are already flowing.

1
Medicare.gov. Medicare Coverage of Skilled Nursing Facility Care
2
Medicare.gov. Long Term Care Coverage
3
Medicaid.gov. Medicaid
4
Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
5
Medicaid.gov. Estate Recovery