Medicaid Estate Recovery: How to Protect Your Family's Inheritance

Medicaid Estate Recovery Program (MERP) is a federally-required program that must recover some Medicaid benefits from the estate of a deceased Medicaid recipient. MERP was established under the Omnibus Budget Reconciliation Act of 1993 (OBRA-93) and was meant to allow states to attempt to recover Medicaid funds from long-term care services for those age 55 and older who receive Medicaid services in a long-term care facility, or for persons of any age who have been permanently placed in a long-term care facility. The reimbursement includes nursing facility services, home and community based services (HCBS) through Medicaid waivers, and hospital and prescription drug services. Importantly, there are significant exceptions: federal law won't allow states to be paid back if the person who passed away left a surviving spouse, a child age 21 or under, or a child who is blind or disabled. States also must offer undue hardship waivers when a surviving family member would suffer hardship from having to recover. The states have varying degrees of implementation: some are very aggressive with the recovery, others have estate minimums (Texas at $10,000 and Georgia at $25,000) where they do not pursue recovery. Many families find out about MERP only after a Medicaid beneficiary's passing, when a letter comes in the mail from the state Medicaid agency asking for reimbursement from the estate.

This guide outlines Medicaid exemptions, rules, the Medicaid lien process, and state differences for 2026. Medicaid.gov, CMS and ASPE provide the information. 

What is Medicaid Estate Recovery?

Medicaid Estate Recovery (also known as MERP, or Medicaid Estate Recovery Program) is the procedure that states employ to recover Medicaid benefits paid in lieu of the deceased Medicaid beneficiaries. The federal requirement is found in the Omnibus Budget Reconciliation Act of 1993 (OBRA-93) that requires each state to have an estate recovery program.

The money raised via MERP goes back into the state's Medicaid program to fund services for other Medicaid recipients. The goal is to help recoup taxpayer dollars that are spent on Medicaid by encouraging greater utilization of private dollars to help manage the cost of long-term care.

There is only one other major federal program, Medicaid, that has mandatory estate recovery. Medicare doesn't have estate recovery for its beneficiaries. Estate recovery is not included in ACA Marketplace plans. This means that Medicaid is very different from other federally-funded health programs.

States are required to recover at least the cost of nursing facility services and HCBS waiver services for Medicaid beneficiaries that received these services when age 55 or older. States have the option to recover for additional Medicaid services (like regular outpatient care and other Medicaid benefits) provided to these beneficiaries.

It's a recovery that happens after a Medicaid beneficiary's death. States will typically notify the deceased's estate executor or family members within 30-90 days of the notification of a death. The State agency then files a claim against the estate for the services of long term care paid for.

See our Medicaid planning guide for more information on Medicaid planning. 

Federal MERP exemptions

OBRA-93 created important federal exemptions that protect surviving family members from estate recovery.

States cannot recover from an estate when the deceased Medicaid beneficiary is survived by a spouse. This protection is permanent for as long as the surviving spouse is alive. Some states still pursue recovery after the surviving spouse's death, though many waive recovery entirely in this situation.

Recovery is prohibited when there is a surviving child under age 21. This protection lasts only until the child turns 21.

Recovery is prohibited when there is a surviving child of any age who is blind or disabled (typically defined as receiving SSI or SSDI benefits, or meeting state-specific disability definitions). This protection is permanent.

States must establish procedures for waiving estate recovery when recovery would cause "undue hardship" for the deceased's heirs. Undue hardship definitions vary by state but commonly include:

• The asset is the heir's primary or sole income-producing resource (such as a farm or business)

• Loss of the asset would cause significant financial hardship for the family

• The asset is the heir's primary residence

A lien cannot be placed on a Medicaid recipient's home if a sibling who has equity interest in the home has lived there for at least 1 year immediately preceding the Medicaid recipient's nursing home admission.

The home is also protected from lien if an adult child who lived in the home for at least 2 years before the parent entered the nursing home provided care that delayed nursing home placement. This is called the "caregiver child" exemption.

State variations in MERP

The federal mandate sets guidelines, but implementation varies widely among states.

Texas is not interested in MERP if the estate is worth less than $10,000. Georgia's threshold is $25,000. Other states have comparable minimums, and many states do follow MERP even though they are not as big an estate.

Some states aggressively pursue MERP, and recover from any estate where recovery is legally allowed. Other states have policies that either restrict the use of MERP to certain circumstances or only attempt to recover through MERP if collection costs are considered reasonable in comparison to potential recovery.

Some states have the "expanded definition of estate," which means they can take property from the outside the probate estate. This includes joint accounts, life insurance proceeds, retirement accounts with beneficiaries, and other assets that do not pass through probate. States that have broadened their definitions can implement a more aggressive recovery, even from assets that you may have believed were immune.

California, Connecticut, Indiana, Iowa and New York are also states that have a specific federal authority to exclude certain assets from estate recovery in exchange for coverage for long-term care insurance (originally limited by OBRA-93).

Some states use pre-death liens (Tax Equity and Fiscal Responsibility Act of 1982 authority) to place liens on Medicaid recipients' homes while they're still alive. The lien is a mechanism that prevents the transfer of the home prior to the death of the recipient and will only be settled after the recipient's death.

See our California Medicaid guide for details about California Medi-Cal. 

The lien process

The lien process is usually as follows in states that use liens for estate recovery.

Pre-death liens (TEFRA liens): For Medicaid recipients who are "permanently institutionalized" (long-term care facility and not anticipated to return home), some states put a lien on the home while the recipient is alive. This will keep the recipient from selling or giving away the home too early in the recipient's life to prevent estate recovery.

Post-death liens: States can put liens on real property after the death of the Medicaid recipient. The lien will stay on the property until Medicaid is paid.

Removal of a lien: When the home is sold and Medicaid is repaid, when the lien is paid by the estate or family, or when the Medicaid recipient suddenly returns home from the institution. Some states will cancel the lien if the surviving spouse who lived in the home dies.

A lien on a home doesn't automatically imply that it is going to be sold right away. The state can only collect on the lien at a later time (when property is sold, when a surviving family member dies, or legal protection period expires). The lien spells a debt that has to be paid.

See our Medicaid planning attorney guide for Medicaid planning attorney help. 

How to avoid or minimize estate recovery

Several strategies can help avoid or minimize Medicaid estate recovery.

Long-term care insurance: Maintaining adequate long-term care insurance can prevent Medicaid eligibility entirely, eliminating any MERP exposure.

Long-Term Care Partnership programs: Partnership programs in CA, CT, IN, IA, NY (and several other states with newer programs) provide asset protection in exchange for partnership-approved long-term care insurance.

Asset transfers: Strategic transfers of assets to family members outside the 5-year look-back period can protect those assets from both Medicaid eligibility evaluation and MERP. However, transfers within the look-back period create penalty periods.

Irrevocable trusts: Properly structured irrevocable Medicaid trusts can protect assets from MERP. Trusts must be properly drafted and funded with sufficient time before Medicaid application to avoid look-back issues.

Caregiver child exemption: Adult children who provide significant care to a parent for at least 2 years before nursing home placement may avoid both the look-back rule and MERP for the parent's home.

Sibling exemption: A sibling with equity interest in the home who lived there for at least 1 year before nursing home placement may protect the home from MERP.

Spending down on exempt assets: Converting countable assets into exempt assets (home improvements, prepaid funeral plans, certain annuities) before Medicaid application reduces the estate subject to recovery.

Long-term care planning should occur well in advance of need, ideally 5+ years before potential Medicaid application. Working with a Certified Elder Law Attorney is essential for comprehensive MERP planning.