§ 2.5 Medicaid & Elder Law

Medicaid Estate Recovery

Federal law requires every state to seek repayment from the estates of certain deceased Medicaid recipients. Texas implements this through the Medicaid Estate Recovery Program, and it is the source of the fear that "the state takes your house" — a belief that is partly true, substantially overstated, and frequently acted on in ways that make matters worse.

The statutory basis is federal: states must recover for long-term care services provided to recipients aged fifty-five and over. The implementing provision sits at 42 U.S.C. § 1396p, and Texas operates within the discretion it allows.

What is recoverable, and when

Recovery is sought after the recipient's death, for long-term care services received at or after age fifty-five — nursing facility care, home and community based waiver services, and related hospital and prescription costs. It is not sought for ordinary medical care received earlier in life.

Recovery cannot be pursued at all while a surviving spouse is living, while a child under twenty-one survives, or while a child of any age who is blind or disabled survives. These are absolute federal bars, not discretionary considerations, and they defer recovery for as long as the condition lasts.

Texas has also chosen not to pursue claims below a minimum estate value or where the recoverable amount is below a threshold, and it does not pursue recovery where the cost of doing so would exceed the amount recovered. The current thresholds are published by Texas Health and Human Services rather than fixed in statute, and should be checked at the time.

The critical limitation: the probate estate

Texas has elected the narrower of the two options federal law permits. It recovers from the probate estate only — the property that passes under the deceased's will or by intestacy — and not from the broader "expanded estate" that some states pursue, which reaches property passing outside probate by survivorship, beneficiary designation or life estate.

This single choice is the most important fact on this page, because it means property that does not pass through probate is generally beyond the programme's reach in Texas. That is why the lady bird deed (enhanced life estate deed) and the transfer on death deed under Chapter 114 of the Estates Code have been so widely used here. Both allow a homestead to pass automatically at death, outside probate, while the owner retains complete control and the right to sell or revoke during life — and, being incomplete gifts, neither creates a transfer penalty. They are not identical and they do not suit every situation, but they accomplish what an outright transfer to the children attempts, without the four consequences described on the common mistakes page.

State policy on non-probate transfers can change, and a family relying on this structure should confirm the current position rather than assume it has held.

Undue hardship waivers

Federal law requires states to waive recovery where it would work an undue hardship, and Texas provides for waiver applications. Recognised grounds include, among others: the estate property being the sole income-producing asset of the beneficiaries, such as a family farm or business; the property being of modest value; recovery causing beneficiaries to become eligible for public assistance themselves; and the presence of a beneficiary who had been residing in the home and providing care that delayed institutionalisation.

Waiver requests are subject to a deadline running from the notice of claim, so the first thing an executor should do on receiving one is note the date. Deadlines in this area are not generous and are not routinely extended.

What an executor should do

The programme is notified of deaths and files claims in the probate proceeding. A claim is a Class 7 claim under the Texas Estates Code — it ranks after funeral and last illness expenses, after secured claims to the extent of their security, and after certain family allowances, which in a modest estate can leave little or nothing for it.

An executor receiving a notice should verify that the amount claimed corresponds to services actually provided at or after age fifty-five, check whether any of the absolute bars applies, calendar the hardship waiver deadline, and confirm the priority of other claims. It is worth engaging counsel: these claims are not always correct, and they are frequently paid in full by families who did not know they could be reduced, deferred or waived.

Keeping this in proportion

Estate recovery is a real programme with real consequences, and it is also routinely used as a selling point for planning that costs more than the claim would. Recovery is deferred entirely while a spouse or a disabled child survives. It reaches only the probate estate. It is subject to minimum thresholds and to hardship waiver. And the ordinary Texas instruments for passing a homestead outside probate are inexpensive.

The response that most often causes harm is the panicked outright gift of the house, which creates a penalty period, forfeits the step-up in basis, exposes the property to the recipients' creditors, and gives away an exemption the family already had. Understanding the programme properly is what prevents that.