What You Need to Know About Medicaid and Protecting Your Mom’s House
I get asked this all the time: “Should we put mom’s house in a trust in case she needs nursing home care?”
In today’s Tuesday Triage episode, I answer that question through the story of a listener named Eileen. She’s 73, lives alone in upstate New York, and owns her home. Her son-in-law thinks she should put her house in a trust to “protect it from the government.” Eileen’s not so sure.
While putting a house in a trust can sometimes help protect assets from Medicaid estate recovery, it can also backfire.
The Five-Year Lookback and the Penalty Period
People get spooked when they hear about the Medicaid “five-year lookback.” If you transfer property (without receiving fair market value payment for it) within five years of applying for Medicaid, that transfer triggers a penalty period during which Medicaid won’t help with long-term care costs.
Before you worry about penalties, you have to ask: Is this trust even a good idea in the first place?
A Quick Primer on Medicaid vs. Medicare
Let’s get our terms straight:
Medicare is the federal program for people over age 65.
Medicaid is a joint federal-state program for people with limited income and resources.
Only Medicaid covers long-term nursing home care for individuals who qualify both medically and financially.
Owning your home doesn’t disqualify you from becoming financially eligible for Medicaid. In New York, you can keep your house (if your equity is under $1 million), a car, retirement accounts, and up to $32,000 in savings and still qualify.
The government isn’t going to swoop in and seize the house the moment someone applies for Medicaid.
What About Estate Recovery?
After someone dies, their state’s Medicaid program can seek reimbursement for long-term care expenses paid on their behalf. This is called Medicaid Estate Recovery, and yes, it can include placing a lien on the house.
That’s what Eileen’s son-in-law is trying to avoid. His suggested solution was to move the house into a Medicaid Asset Protection Trust.
What a Medicaid Asset Protection Trust Actually Does
These trusts are irrevocable. That means:
Eileen gives up ownership of the house
She can’t sell or borrow against it
She can’t get the proceeds if it’s sold
She can’t be the trustee or beneficiary
In other words, she gives up all control.
If Eileen transfers her house into this trust and then applies for Medicaid within five years, the fair market value of the home at the time of the transfer triggers a penalty period. This period is a gap during which Eileen has to self-fund her care, potentially at $14,000/month in upstate New York.
When Good Intentions Create Bad Plans
These trusts are often set up with the best intentions. But I’ve seen them create real problems:
The person at the center of the plan ends up with no access to their own equity
The trust backfires during the five-year lookback
The house is sold by beneficiaries who need the cash for themselves, not the person who built the home and the life inside it
Put on Your Oxygen Mask First
One of the guiding principles I come back to in estate planning is this: Does this plan actually serve the person at the center of it?
Just like the airplane oxygen mask, take care of yourself first. You can’t preserve a legacy by sacrificing the comfort, dignity, and choices of the person who is the legacy.
Sometimes, the best legacy isn’t a house. It’s knowing your parent had what they needed. That they were cared for. That their life wasn’t boxed in by an irrevocable trust and a hope that everything would go exactly as planned in a best-case scenario.
Tune in to Go Deeper
In today’s episode of The Death Readiness Podcast, I walk through Eileen’s story, explain how Medicaid Asset Protection Trusts work, and share a real-life example of buying a house with a Medicaid lien on it.
If you’ve been feeling pressure to “act fast” or put your parent’s house in a trust just in case, listen first. Medicaid planning is complicated. The stakes are high. And the answers are rarely simple.
Listen here:
