For most Texas families, the home is the single largest asset. When a spouse or parent needs nursing home care and Medicaid becomes part of the conversation, one of the first questions is always: "Will we lose the house?"
The short answer is: probably not while you're alive -- but it's more complicated than that. Here's what Texas families need to know about protecting the homestead when Medicaid is involved.
The Texas Homestead Exemption and Medicaid
Texas law provides strong homestead protections, and Medicaid eligibility rules respect those protections. Under current rules:
- Your home is an exempt asset for Medicaid eligibility purposes, as long as you (or your spouse) intend to return home, or your spouse still lives there. There is an equity limit -- as of 2025, $713,000 in countable home equity for a single applicant (this amount is adjusted annually by CMS) -- but most Texas homes fall within this range.
- Medicaid cannot force you to sell your home to qualify for benefits.
- Your spouse can continue living in the home without it affecting the Medicaid applicant's eligibility.
So while your loved one is alive and receiving Medicaid, the home is generally safe.
The Real Risk: Medicaid Estate Recovery
The risk comes after the Medicaid recipient passes away. Texas participates in the federal Medicaid Estate Recovery Program (MERP), which requires the state to seek reimbursement from the estates of deceased Medicaid recipients for benefits paid on their behalf.
Here's how it works:
- After the Medicaid recipient dies, the Texas Health and Human Services Commission (HHSC) files a claim against the estate
- The claim covers all Medicaid-paid nursing home costs, prescription drugs, and certain other benefits
- The homestead is subject to recovery -- but only after the death of a surviving spouse, and only if there is no surviving child who is under 21, blind, or disabled
This means if a surviving spouse is living in the home, MERP cannot touch it during their lifetime. But once both spouses have passed, the state can file a claim against the property.
Strategies for Protecting the Home
There are several legal strategies families use to protect the homestead from Medicaid estate recovery. Each has trade-offs:
1. Lady Bird Deed (Enhanced Life Estate Deed)
A Lady Bird Deed allows you to retain full control of your home during your lifetime while automatically transferring it to your beneficiaries upon death -- outside of probate. Because the property passes outside of the estate, MERP generally cannot recover against it.
Advantages:
- You keep full control (can sell, mortgage, or lease)
- No gift for Medicaid look-back purposes
- Avoids probate
- Preserves the homestead exemption
- Beneficiaries receive a stepped-up tax basis
Limitations:
- Must be set up while you still have capacity
- Does not protect against liens placed during your lifetime
2. Irrevocable Trust
An irrevocable trust can hold the home and remove it from your countable estate. However, this must be done outside the five-year look-back period to avoid Medicaid penalties. The home must be properly transferred and the trust must be structured so that you do not retain too much control.
3. Transfer to a Caretaker Child
If an adult child has lived in the home and provided care that delayed the need for nursing home placement for at least two years, the home can be transferred to that child without triggering a Medicaid penalty. This is a specific statutory exemption that requires documentation.
4. Spousal Protections
If one spouse needs Medicaid for nursing home care, the home is protected for the community spouse (the spouse who remains at home). The community spouse can continue living there, and MERP cannot recover against the home during the community spouse's lifetime.
What NOT to Do
- Do not simply transfer the deed to your children without professional guidance. This can trigger look-back penalties, create tax problems, and even put the home at risk if a child has creditors, a divorce, or a lawsuit.
- Do not assume a revocable trust protects you. Revocable trusts are transparent to Medicaid -- the assets inside are counted as yours.
- Do not wait until a Medicaid application is imminent. Most protection strategies require advance planning, often five or more years ahead.
Start the Conversation Early
Protecting your home from Medicaid requires planning -- not last-minute paperwork. The earlier you start, the more options you have. At WG Law, we help families across McKinney, Southlake, and North Texas develop strategies that protect the homestead while ensuring access to the care benefits your family needs.