Selling a home while on Medicaid is a high-stakes financial move. Because your mother is already receiving benefits, her home is likely currently treated as an exempt asset (meaning it doesn’t count against her eligibility). However, the moment she sells it, those proceeds turn into cash, which is a countable asset.
In most states, the asset limit for Medicaid is just $2,000. Selling a home will likely put her way over that limit, potentially causing her to lose her benefits immediately.
Will a Trust Protect the Proceeds?
Not immediately. To protect assets from Medicaid, you typically use a Medicaid Asset Protection Trust (MAPT). However, there are two major hurdles for your mother’s situation:
- The five-year lookback rule: Medicaid looks at all asset transfers made within the last 60 months (five years). If she puts the cash from the sale into an irrevocable trust now, it is considered a transfer for less than fair market value. This will trigger a penalty period during which she will be ineligible for Medicaid coverage.
- Revocable vs. irrevocable: A standard revocable living trust provides zero protection. Medicaid views money in a revocable trust as accessible as cash held in an individual’s own name. Only an irrevocable trust works for asset protection, but she must give up control of the money.
What Are the Risks of Selling Now?
If she sells the house and keeps the cash or puts it in a trust today:
- Eligibility loss: She will likely be disqualified from Medicaid until the money is spent down to $2,000 and the penalty for transferring assets to the trust has ended.
- Estate recovery: If she keeps the house until she passes, many states can only claim the home through estate recovery if it goes through probate. If she sells it now, the cash is immediately available, and Medicaid will expect it to be used for her care.
What Can She Do?
Because she is 92 and already on Medicaid, the best action depends on her health and current care needs. Here are the common strategies:
- The spend-down strategy. She can sell the home and use the proceeds to pay for things that Medicaid allows. This doesn’t get the money to her kids, but it can improve her quality of life. Allowed spend-downs include:
- Paying off existing debt
- Prepaying for her funeral and burial expenses
- Buying “exempt” items like a new television, specialized medical bed, or clothing
- Making home repairs (if she were moving to a different, smaller home)
- The caregiver child exception. If one of her children has lived in the home for at least two years immediately before she went into a nursing home (or started receiving home care) and provided care that allowed her to stay out of a facility, she might be able to transfer the house directly to that child without penalty. This is a very specific legal exception.
- Medicaid Compliant Annuity. In some cases, an elder law attorney can convert the cash proceeds into a Medicaid Compliant Annuity. This turns the lump sum into a monthly income stream. This may help her stay eligible, but the income must then go toward her “share of cost” for Medicaid.
Consult an Elder Law Attorney
Do not sell the house or move money until you speak with an elder law attorney in your state. Medicaid rules vary wildly by state (for example, California has much more lenient asset rules than Florida or New York). An attorney can look at her specific state’s estate recovery laws. In some states, if she keeps the house and uses a Lady Bird deed or transfer-on-death deed, the home might pass to the kids automatically and avoid Medicaid recovery entirely—but this only works if she doesn’t sell it first and the state does not recover against nonprobate assets conveyed at death.
Selling the home now to put cash in a trust is the riskiest move for her benefits. Professional legal guidance is required to avoid a massive bill from the state.
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