When Medicaid is Part of the Equation for Assisted Living

When Medicaid is part of the equation to pay for Assisted Living Care, the decision to sell, keep, or clear your parent’s home becomes much more complex. The biggest factors are:

1.   the 5‑year lookback,

2.   whether the home is “exempt,”

3.   and what happens if you sell it.


Medicaid rules can create penalties, delays, or even loss of eligibility if handled incorrectly. It is really important to have legal guidance.


DISCLAIMER & CITATIONS: Everything below is gathered by AI from the sources: Medicaid Planning Assistance, Elder Law Attorney guidance, Clever Real Estate’s Medicaid rules summary, ElderLawAnswers, and Medicaid Long‑Term Care guidelines. 

This page is not intended to be legal advice, it is intended to be helpful information for potential real estate clients. 

Please consult with an Estate or Elder Law attorney for any legal questions. 

 


🧭 The Most Important Medicaid Rules You Need to Know


🏠 1. A Primary Home Is Usually Exempt  While Your Parent Lives in It

    Medicaid typically does not count the home as an asset if:

  • The parent lives in it, or
  • They are in care but state they intend to return home.
  • Intent To Return: If you file a statement with the state, saying you plan to go back to your home, it's usually exempt, even if you're in long-term care.



This means:
 You do NOT have to sell the home to qualify for Medicaid — contrary to what many families assume.

 


💵 2. If You Sell the Home, the Cash Becomes a Countable Asset


This is the biggest trap.

  • The moment the home is sold, the proceeds become countable assets and can disqualify your parent from Medicaid.


  • Most states give a short window (often ~90 days) to “spend down” the proceeds appropriately before losing eligibility. 

This is why elder‑law attorneys often advise not selling the home until you have a Medicaid plan in place.


You can see why it is essential to work with an Elder law attorney!

 


⏳ 3. The 5‑Year Lookback Rule

Medicaid reviews all financial transactions for the previous 5 years.


Penalties apply if:

  • The home is sold below fair market value (e.g., to a family member at a discount)
  • The home is gifted or transferred without proper planning
  • Assets are moved in a way that appears to “qualify” someone artificially

A penalty means Medicaid will delay paying for care for a calculated number of months.

 


🧓 4. Selling the Home to Pay for Care Can Be Risky


Many families assume selling the home is the responsible choice.
But elder‑law attorneys warn that selling too early can cause unintended Medicaid consequences.


Why?

  • The home is exempt while owned — but not exempt once sold.
  • The cash may disqualify your parent until it is spent down.
  • You may lose the ability to protect the home from Medicaid Estate Recovery later.

 


🏛️ 5. Medicaid Estate Recovery (MERP)


After your parent passes, Medicaid can attempt to recover costs from their estate — including the home.


However, there are legal strategies to protect the home, such as:

  • Medicaid Asset Protection Trusts (MAPTs)
  • Caregiver Child Exemption
  • Sibling Exemption
  • Proper timing of transfers

These strategies must be done before the lookback period or with attorney guidance.

 


🧩 What Each Option Means If Medicaid Is a Factor


Option 1 — Sell the Home


Risky unless guided by an elder‑law attorney.

  • Proceeds become countable assets and may disqualify your parent
  • Must be sold at fair market value to avoid penalties
  • May trigger a Medicaid penalty period
  • Could lose ability to protect the home from MERP

Best only when:
You need funds immediately and Medicaid planning is done first.

 


Option 2 — Keep the Home


Often the safest option for Medicaid planning.

  • Home remains exempt while parent is alive
  • Avoids immediate disqualification
  • Allows time to use legal exemptions or trusts
  • Preserves options for future planning

Downside:
You must cover taxes, insurance, and upkeep.

 


Option 3 — Clear the Estate but Keep the Home Vacant


A common middle-ground.

  • Keeps the home exempt
  • Allows time to plan with an elder‑law attorney
  • Avoids triggering penalties
  • Prepares the home for eventual sale or transfer

Downside:
Carrying costs remain, and vacant-home insurance may be required.

 


🧭 Quick Decision Guide (Medicaid Edition)

   Situation   Best Option

    Parent may need Medicaid soon        - Keep the home

   You want to avoid lookback penalties - Do NOT sell without attorney guidance

   You need time to plan                            -  Clear the estate, keep home vacant

   You need funds immediately                -  Sell only after Medicaid planning

   You want to protect the home from MERP -   Explore trusts/exemptions before selling

   


🧠 What Elder‑Law Attorneys Recommend Most Often


Based on the sources:

1. Do NOT sell the home until you’ve spoken with an elder‑law attorney
 2. Keep the home exempt while planning
 3. Use legal tools to protect the home if possible
 4. Time any sale carefully to avoid penalties