Preparing for the $1 Million Home Equity Cap
For decades, the family home has occupied a sacred space in Medicaid law. Even as a person enters a nursing facility, their primary residence has generally been excluded from asset calculations, ensuring that a spouse or the individual themselves has a place to return. However, a significant shift is coming.
The Budget Reconciliation Act of 2025, signed into law on July 4, 2025, fundamentally alters how home equity is treated. Starting January 1, 2028, a hard national ceiling of $1 million will be placed on home equity exemptions for Medicaid long-term care. Perhaps more critically, this cap is frozen, it will no longer be adjusted for inflation. As property values continue to rise.
The Role of Proactive Estate Planning
Because the new rules do not take effect for nearly two years, homeowners have a critical window to integrate Medicaid eligibility into their broader estate plans. Strategic estate planning is often the only way to avoid the "impossible choice" of selling the home to pay for care or forgoing Medicaid benefits entirely.
1. Irrevocable Asset Protection Trusts
One of the most effective tools is the Medicaid Asset Protection Trust. By transferring the home into an irrevocable trust, the individual no longer "owns" the asset in the eyes of Medicaid.
2. Life Estate Deeds
A life estate allows you to transfer the "remainder interest" of your home to your heirs while keeping the right to live there for the rest of your life.
3. Spousal and Dependent Protections
It is vital to review how your home is titled. Under the new law, the $1 million cap does not apply if a spouse, a minor child, or a blind/disabled child of any age resides in the home. Estate planning should ensure that the home is titled in a way that maximizes these "exempt transfers" to protect the family from displacement.
Immediate Next Steps Before 2028
If your home equity is currently or likely to soon be near $1 million, you should take action:
For decades, the family home has occupied a sacred space in Medicaid law. Even as a person enters a nursing facility, their primary residence has generally been excluded from asset calculations, ensuring that a spouse or the individual themselves has a place to return. However, a significant shift is coming.
The Budget Reconciliation Act of 2025, signed into law on July 4, 2025, fundamentally alters how home equity is treated. Starting January 1, 2028, a hard national ceiling of $1 million will be placed on home equity exemptions for Medicaid long-term care. Perhaps more critically, this cap is frozen, it will no longer be adjusted for inflation. As property values continue to rise.
The Role of Proactive Estate Planning
Because the new rules do not take effect for nearly two years, homeowners have a critical window to integrate Medicaid eligibility into their broader estate plans. Strategic estate planning is often the only way to avoid the "impossible choice" of selling the home to pay for care or forgoing Medicaid benefits entirely.
1. Irrevocable Asset Protection Trusts
One of the most effective tools is the Medicaid Asset Protection Trust. By transferring the home into an irrevocable trust, the individual no longer "owns" the asset in the eyes of Medicaid.
- The Benefit: Once the home has been in the trust for five years (the "lookback period"), its entire value is typically excluded from Medicaid asset limits.
- The Trade-off: The trust is irrevocable, meaning you cannot easily take the house back or sell it without the trustee's consent. However, you can retain the right to live in the home for life.
2. Life Estate Deeds
A life estate allows you to transfer the "remainder interest" of your home to your heirs while keeping the right to live there for the rest of your life.
- The Benefit: For Medicaid purposes, the value of your "life interest" is only a fraction of the total home value. In many states, this can effectively bring your countable equity below the $1 million cap.
- The Trade-off: Like a trust, this involves a transfer that triggers the five-year lookback period.
3. Spousal and Dependent Protections
It is vital to review how your home is titled. Under the new law, the $1 million cap does not apply if a spouse, a minor child, or a blind/disabled child of any age resides in the home. Estate planning should ensure that the home is titled in a way that maximizes these "exempt transfers" to protect the family from displacement.
Immediate Next Steps Before 2028
If your home equity is currently or likely to soon be near $1 million, you should take action:
- Zoning Review: Check if your property is zoned for agricultural use. The new law exempts agricultural property from the $1 million cap entirely; confirming this status could save your eligibility.
- The Five-Year Clock: Because most effective estate planning transfers trigger a five-year lookback, a transfer made in 2026 would clear the penalty period by 2031. Waiting until 2028 to start planning could leave you vulnerable for years.
- Consult Specialists: This is not a "DIY" project. Consult an elder law attorney who specializes in both Medicaid and estate planning to ensure your documents comply with both the new federal law and your specific state’s regulations.
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