Texas Medicaid Estate Recovery Stops at the Probate Estate

Texas takes the narrowest approach the federal government permits to Medicaid estate recovery, and that single choice does more for Texas families than any planning technique they could buy.

The Texas Medicaid Estate Recovery Program — MERP — asserts a claim against the probate estate of a person who received long-term care benefits at age 55 or older. Property that does not pass through probate is outside the claim. Compare Idaho, which defines the recoverable estate to reach living trusts and survivorship interests, and the gap between the two states becomes the whole ballgame.

Why that matters so much in Texas

Texas gives an owner more ways to move a house at death without probate than almost any state. A transfer on death deed under chapter 114 of the Estates Code passes the property to a named beneficiary automatically. An enhanced life estate deed — the lady bird deed, recognised in Texas and in only a handful of other states — does something similar while leaving the owner free to sell or mortgage without the remainderman’s consent. Survivorship agreements between spouses, and community property with right of survivorship under chapter 112, do the same for a married couple.

Each of those keeps the home out of the probate estate. In a state that recovers only from the probate estate, that means each of them keeps the home out of MERP’s reach as well. A recorded deed, prepared correctly, achieves what families in other states hire irrevocable trusts and five-year planning horizons to attempt.

It is worth saying plainly because the national content does not: this is a Texas advantage, and a Texan who reads a Medicaid planning article written for the country at large will be told to do things they do not need to do.

The protections on top of that

MERP is further limited in ways that resolve a large share of cases before anyone argues about a house.

Recovery is barred while there is a surviving spouse, and while there is a child under 21 or a child of any age who is blind or has a disability. Texas also declines to pursue a claim in several defined circumstances, including where the estate or the recoverable amount falls below stated thresholds and where pursuing recovery would not be cost-effective. An undue hardship waiver is available, and Texas recognises grounds that include an heir who would be left without means and property that is the sole income-producing asset of the family, such as a working farm or ranch.

The claim is also capped at what Medicaid actually paid. It is reimbursement, not forfeiture.

The homestead is protected during life, not after it

Texas homestead protection is famously strong. It is defined by acreage rather than by value — ten acres in a city, considerably more in the country — with no dollar cap, and it shields the home from most creditors during the owner’s lifetime. That protection is constitutional, not merely statutory.

It does not, by itself, answer the recovery question. Homestead protection from creditors during life and MERP’s claim against the probate estate after death are different rules operating at different times. The homestead exemption is also why the home is generally not a countable resource for eligibility purposes, which is a third distinct question again. Conflating the three is the most common error in this area.

The practical takeaway is that the homestead is well protected in Texas at every stage, but the step that protects it after death is the deed, not the exemption.

What still goes wrong

Two things, mainly. The first is a transfer on death deed executed incorrectly — and Texas has particular traps here. It cannot be created by an agent acting under a power of attorney, which defeats a family that waits until a parent has lost capacity. It cannot be revoked by a will, so a later will leaving the house to someone else does not change where it goes. The statutory forms were repealed in 2019, which means a form pulled off the internet may not reflect the current requirements. And the beneficiary must survive the owner, so a deed naming a single beneficiary with no alternate can fail entirely.

The second is a family that panics and transfers the house outright to a child during the parent’s lifetime. In Texas this is usually unnecessary, and it is not free: it triggers a transfer penalty if made inside the lookback, surrenders the step-up in basis, and exposes the property to the child’s creditors and divorce. The deed that solves the problem is the one that takes effect at death, not the one that takes effect now.

The Texas elder law page covers eligibility, the lookback and incapacity documents in more detail.

Eligibility is the harder half

Recovery is the question people ask about, but eligibility is where the money is actually won or lost, and it runs on entirely separate rules. Texas applies an income limit for long-term care Medicaid, and an applicant over it is not simply disqualified — a qualified income trust, still generally called a Miller trust, can bring them within the limit by routing income through it each month. The trust has to exist and be funded before eligibility begins, which makes it one of the few pieces of planning where a few weeks of delay costs a month of benefits.

For a married couple, the spousal impoverishment rules protect a share of the couple’s resources and, where the community spouse’s own income is low, divert some of the applicant’s income to them. The figures move annually and should be checked against current guidance rather than any article, but the structure is stable: the spouse at home is not expected to be impoverished by the spouse in care.

Transfers made within the five-year lookback create a penalty period calculated using a daily divisor, during which Medicaid pays nothing. That is the mechanism that punishes the well-meaning gift — money handed to a grandchild for a wedding, a truck signed over to a son — and it is why the honest answer to “should we move some assets first” is almost always to ask before moving anything.

The documents that let a family act at all

None of this can be done by a family with no authority. A durable power of attorney with express authority over real property, gifts and government benefits lets an agent sign the deed, fund the qualified income trust, and file the application. Texas is one of the states that has adopted the Uniform Power of Attorney Act, which means a third party who refuses a valid power of attorney without good reason can face consequences for the refusal — a meaningful protection when a bank digs in.

Without that document, the alternative is a guardianship: a court proceeding with an application, an attorney ad litem, a physician’s certificate, a hearing and continuing court supervision, all at the family’s expense and on the court’s timetable. The power of attorney costs a fraction of one hour of that.

Frequently Asked Questions

Will Texas take my parents’ house to pay for their nursing home?

Only if the house passes through probate, and only if none of the statutory bars or waivers apply. A house that passes by transfer on death deed, lady bird deed, or survivorship agreement is not part of the probate estate and is therefore outside the claim.

Is a lady bird deed better than a transfer on death deed in Texas?

They do similar work and the choice turns on details. An enhanced life estate deed leaves the owner free to sell or mortgage without anyone’s consent and has a long history in Texas practice; the statutory transfer on death deed is newer, clearly defined by statute, and easy to revoke. Which fits depends on the property, the family, and whether a lender is involved.

Do we need a trust to protect the home from Medicaid in Texas?

Frequently not. Because Texas recovery is limited to the probate estate, a correctly prepared deed usually achieves the objective at a fraction of the cost. Trusts still earn their place for other reasons, including multi-state property and beneficiaries who should not inherit outright.

Talk it through

If a parent is approaching long-term care, or there is a transfer on death deed in the file that nobody has read since it was signed, the Texas contact page has the direct line.