Medicaid Estate Recovery in NC: What Families Actually Owe

If your parent spent time in a nursing home on Medicaid, you may face a financial shock after they pass away. North Carolina’s Medicaid Estate Recovery Program (MERP) can claim tens of thousands, or even hundreds of thousands of dollars from the estate to repay the state for long-term care services.

The worst part? Most families don’t see it coming.

They inherit a home worth $300,000, celebrate receiving something tangible from their parent’s legacy, and then receive a notice from the North Carolina Department of Human and Health Services claiming $180,000 of that home’s value. Now the home can’t be sold without paying the state first. The protected residence might become unsellable.

This isn’t a tax. It’s not optional. And it’s automated, meaning DHHS initiates recovery claims without waiting for families to request it.

Here’s what you need to know to protect yourself and your family.

What Is Medicaid Estate Recovery (MERP)?

Medicaid Estate Recovery is a federal program that states must implement to recover costs of long-term care services paid by Medicaid. North Carolina’s version is entirely automatic. The state doesn’t ask permission; it simply files claims against estates when the deceased was age 55 or older and received Medicaid-funded long-term care.

The program exists because federal law requires it. States that don’t recover long-term care costs face loss of federal Medicaid funding. So MERP isn’t a choice for North Carolina; it’s a legal mandate.

Here’s the key detail most families miss: MERP applies only to probate assets. If property passes outside probate (through life insurance, retirement accounts with beneficiaries, transfer-on-death deeds, or joint tenancy), it’s protected from recovery. But the primary home, bank accounts in the deceased’s name alone, and investment accounts held solely in the deceased’s name are all vulnerable.

In 2025, average nursing home costs in North Carolina range from $72,000 to $85,000 annually. A three-year stay can generate a recovery claim of $216,000 to $255,000.

The Numbers: Real Recovery Amounts

DHHS recovers approximately $45 to $65 million annually through MERP in North Carolina. That money comes from families like yours. The typical recovery claim ranges from $100,000 to $250,000, depending on how long the deceased received Medicaid-funded care.

Real scenario: Your mother was admitted to a nursing home at age 78. Medicaid approved her care in February 2021. She passed away in September 2024. That’s 43 months of Medicaid coverage at an average cost of $7,800 per month. Total recovery claim: $335,400.

Her home was worth $300,000. Her bank account had $50,000. The recovery claim exceeds the entire estate value, meaning creditors receive nothing.

Who Must Repay? The Age Requirement

MERP only applies if the deceased was age 55 or older when Medicaid paid for services. If a younger family member received Medicaid long-term care, the estate is protected from recovery. But this age threshold applies only once. If an individual receives multiple periods of Medicaid-funded long-term care spanning years, recovery applies to all periods.

Also important: the recovery program is permanent. Once someone is age 55 and receives Medicaid-funded long-term care, they’re subject to recovery claims for the rest of their life and after death.

What Services Trigger Recovery Claims?

Not all Medicaid services trigger recovery. Here’s what’s covered and what’s not.

Services subject to recovery:

• Nursing facility care (skilled nursing and intermediate care)
• Assisted living (when Medicaid paid the cost)
• Home and Community-Based Care (HCBC) waiver services
• Adult day programs funded by Medicaid

Services NOT subject to recovery:

• Hospital inpatient stays
• Physician office visits
• Prescription drugs
• Outpatient therapy
• Diagnostic services

The biggest confusion families encounter involves HCBC waiver programs. Many don’t realize that Medicaid-funded in-home care generates the same estate recovery liability as nursing home care. A parent who received 24 months of HCBC services at $4,500 per month creates a $108,000 recovery claim, even though care occurred at home.

Assets Subject to Recovery vs. Protected Assets

Understanding which assets are vulnerable is critical to protecting your family.

Probate assets subject to recovery:

• Real estate in sole name (home, rental property, vacation home)
• Bank accounts in sole name
• Investment accounts (stocks, bonds, mutual funds)
• Vehicles titled in sole name
• Personal property (jewelry, art, collectibles)

Non-probate assets protected from recovery (absolutely protected):

• Life insurance death benefits with designated beneficiaries
• Retirement accounts (IRAs, 401(k)s) with designated beneficiaries
• Transfer-on-death (TOD) securities
• Payable-on-death (POD) bank accounts
• Property held in joint tenancy with right of survivorship

This distinction is crucial. If your parent had a $200,000 life insurance policy with you as beneficiary, that $200,000 is completely protected from the recovery claim. Similarly, a $150,000 IRA with a designated beneficiary and a $100,000 TOD property add up to $450,000 in protected assets, leaving only the home and liquid accounts vulnerable.

The Primary Residence Exemption

North Carolina law provides an important exemption if certain family members occupy the home. If a protected resident lives in the home at the time of death, the entire home is protected from recovery, regardless of value.

Protected residents include:

• Surviving spouse (indefinite protection)
• Unmarried child under 21 (protection continues until age 21)
• Blind child (meeting Social Security definition)
• Permanently and totally disabled child (meeting SSI/SSDI definition)
• Disabled sibling who lived in the home for one year before death

The exemption applies only to the primary residence, not second homes or rental property. And the protection continues only as long as the protected resident occupies the home. If they move away or sell, the exemption terminates.

Example: Your father dies at age 82 after 36 months in a nursing home. Recovery claim: $300,000. Your mother, age 80, lives in the marital home. The home is protected indefinitely because your mother (surviving spouse) is a protected resident. She can remain in the home for life without fear of DHHS forcing a sale to satisfy the recovery claim.

The Hardship Exemption: When Families Can Get Relief

North Carolina allows estates to request a waiver of the recovery claim based on “undue hardship.” This is a high legal standard, meaning courts interpret “undue hardship” narrowly. However, it exists, and some families successfully obtain complete waiver of the recovery obligation.

Examples of sufficient hardship:

• Surviving spouse over 70 with no income living in the home (recovery would cause homelessness)
• Surviving disabled child (SSI recipient) living in the home as only housing option
• Surviving spouse with terminal diagnosis and modest assets

Hardship approval rate: Conservative estimates suggest 15 to 25% of hardship waiver requests are approved. Most successful cases involve surviving spouses age 70+ or surviving disabled beneficiaries.

The Hardship Request Process

To request a hardship waiver:

1. File a written request with the DHHS MERP Unit within one year of death
2. Provide documentation including medical records, income statements, tax returns (2 prior years), Social Security benefit letters, mortgage/rent payment documentation
3. DHHS reviews the request, conducts financial analysis
4. DHHS responds (typically within 60 days) with approval or denial
5. If denied, you can request administrative hearing before an impartial reviewer

The documentation burden is substantial. Prepare medical evidence if health is the basis for hardship. Provide complete financial statements if financial hardship is claimed. Include letters from family members, social workers, or physicians supporting your hardship claim.

Medicaid Lien on Property

Once DHHS files a claim, they typically place a lien on the home to secure the recovery obligation. This lien clouds the title, preventing sale without satisfying the lien amount.

What happens at closing: If the home sells for $350,000 and the MERP lien is $250,000, closing proceeds pay the $250,000 lien first. The remaining $100,000 (less realtor commission and closing costs) goes to the estate and beneficiaries.

Lien discharge: The lien is discharged if the hardship waiver is approved, if the recovery claim is paid, or if the five-year recovery period expires without DHHS filing a claim.

Surviving spouse protection: While a surviving spouse is living in the home as a protected resident, DHHS cannot enforce the lien. The spouse can remain in the home for life even though the lien technically exists.

Calculation and Documentation of Recovery Claims

DHHS provides an itemized statement showing dates of service, monthly cost, total days covered, and total amount paid. This statement becomes the basis for the recovery claim.

Families have the right to challenge the calculation if errors exist. Common discrepancies include duplicate charges, services billed after death, or overlapping coverage with other insurance.

To dispute a claim:

1. Request detailed billing records and documentation from DHHS
2. Review for errors (duplicates, post-death services, overlapping insurance coverage)
3. File written objection with DHHS within 30 days if errors identified
4. DHHS reviews; may reduce claim if error found
5. If DHHS denies dispute, request administrative hearing

Negotiation and Settlement Opportunities

Many families don’t realize the recovery claim can be negotiated. If the estate has insufficient assets to pay the full claim, DHHS may accept a settlement for less.

Settlement rationale: DHHS prefers immediate payment (even at reduced amount) to prolonged collection efforts. An estate with $80,000 available against a $100,000 claim might negotiate payment of $80,000 as final settlement, satisfying the obligation.

Attorney negotiation: An elder law attorney experienced in Medicaid recovery often negotiates 15 to 30% reduction in the claimed amount. The cost ($1,500 to $3,000 in attorney fees) typically saves far more in reduced recovery claims.

Strategies to Avoid or Reduce Recovery

If you anticipate Medicaid long-term care eligibility, planning before Medicaid application is critical.

Pre-Medicaid planning (5+ years before anticipated need):

• Irrevocable Medicaid Trust: Assets transferred to an irrevocable trust created 5+ years before Medicaid application are protected from both Medicaid eligibility restrictions AND estate recovery
• Home Transfer to Irrevocable Trust: If transferred 5+ years pre-Medicaid, home is protected
• Gifting Strategy: Assets gifted 5+ years before Medicaid application are removed from countable income and protected from recovery
• Joint Tenancy: Property converted to joint tenancy with family member (not spouse) 5+ years pre-Medicaid passes to joint owner outside probate

Post-Medicaid planning (limited effectiveness): Irrevocable trusts created after Medicaid eligibility don’t protect assets from recovery. However, establishing joint tenancy or designating beneficiaries after Medicaid eligibility can protect some assets from probate.

Critical distinction: The 5-year Medicaid lookback (which affects eligibility) is separate from the 5-year MERP recovery period (time to file claim post-death). Confusion between these creates costly mistakes.

Common Misconceptions About MERP

Misconception 1: “My parent’s Medicaid bill was paid off while they were alive, so the estate is safe.”

Reality: MERP is separate from patient billing. Even if the patient received bill forgiveness, DHHS still pursues recovery against the estate.

Misconception 2: “We sold the home after death and kept the proceeds; DHHS can’t recover now.”

Reality: If you distributed estate proceeds to beneficiaries before paying the recovery claim, DHHS can still pursue recovery from those beneficiaries or from executor personally if proper notice wasn’t provided.

Misconception 3: “The nursing home promised we wouldn’t owe anything.”

Reality: Nursing homes have no authority over Medicaid recovery. DHHS is the only entity that can waive or forgive recovery claims.

Misconception 4: “We paid everything; they can’t claim more.”

Reality: DHHS calculates claims based on all Medicaid-funded services from the date Medicaid started paying, not just the final months of care.

Afterpath Guidance: Handling Medicaid Recovery

When Medicaid is involved, Angelo (Afterpath’s AI guide) flags the recovery risk immediately. We help you:

• Calculate the likely recovery claim based on nursing home admission date and discharge
• Identify protected non-probate assets (life insurance, retirement accounts with beneficiaries)
• Determine if the primary residence exemption applies
• Assess whether a hardship waiver is realistic for your situation
• Connect you with elder law attorneys experienced in MERP recovery and negotiation
• Document everything required for hardship requests if applicable
• Track DHHS deadlines for claim filing and waiver requests

Most families discover MERP too late to prevent recovery. But with accurate information and strategic planning, you can minimize the impact on your family’s inheritance.

Your Next Step

If your family faced Medicaid long-term care costs, don’t assume the estate is fully yours after probate closes. Request MERP claim information from DHHS within the first year of death. If a recovery claim exists, consult with an elder law attorney regarding negotiation or hardship waiver options.

Your home and your family’s legacy deserve protection. Understanding MERP is the first step.

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Afterpath is an estate settlement platform for North Carolina families managing probate and long-term care costs. We provide guidance on Medicaid recovery, coordinate with elder law attorneys, and ensure you understand your obligations before they become costly problems.