Jan12026
Estate Planning Q&A Series

What options do I have to protect my primary home and a rental property from Medicaid estate recovery? – North Carolina

Short Answer

In North Carolina, Medicaid can seek repayment after death from a recipient’s “estate,” and the definition can reach certain assets that pass outside probate, including interests held through survivorship deeds and some trust arrangements. Common planning options include structuring ownership and beneficiary designations carefully, using the right kind of trust (when appropriate), and considering qualified long-term care partnership insurance that can reduce estate recovery. Any plan must also account for North Carolina’s transfer-for-less-than-value rules and the federal lookback period, because some transfers can trigger a Medicaid penalty.

Understanding the Problem

Under North Carolina estate planning, the decision point is: can a North Carolina resident arrange ownership and transfers of a primary residence and a rental property so that, if Medicaid later pays for certain long-term care services, the Department of Health and Human Services has less ability to recover those costs from the estate after death? The focus is on what counts as an “estate” for recovery purposes, what planning steps change what is reachable at death, and how timing matters when property is transferred before applying for Medicaid.

Apply the Law

North Carolina runs a Medicaid Estate Recovery Plan administered by the Department of Health and Human Services. When Medicaid pays for certain services (commonly long-term care-related services), the State may file a claim after the recipient’s death against assets that qualify as the recipient’s “estate.” North Carolina’s recovery definition can extend beyond the typical probate estate in some situations, which means that simply avoiding probate does not always avoid recovery. Separately, North Carolina applies transfer-penalty rules when an applicant (or spouse) gives away assets or transfers them for less than fair market value within the federal lookback window; that can delay eligibility for certain Medicaid services.

Key Requirements

  • Medicaid paid for recoverable services: Estate recovery generally ties to Medicaid payments for certain medical assistance categories, often involving long-term care services and related coverage for people age 55 or older.
  • Asset is part of the recoverable “estate” at death: North Carolina can treat certain property interests as part of the estate for recovery, including some interests that pass by survivorship or through certain trust and life estate arrangements.
  • No rule or waiver blocks recovery: North Carolina law allows for hardship and cost-effectiveness waivers in some cases, and the State’s claim is paid in the statutory order of claims against the estate.

What the Statutes Say

Analysis

Apply the Rule to the Facts: The facts describe a North Carolina resident with a paid-off primary residence and a mortgaged rental property, limited liquid savings, and concern about Medicaid clawback after death while still wanting to leave assets to grandchildren. Under North Carolina’s estate recovery rules, the key risk is that at death the home and/or rental interest could be treated as part of the recoverable “estate,” including in some non-probate transfers. Any plan that transfers real estate (or changes title) must also account for the transfer-for-less-than-value rules and the federal lookback window, because an ill-timed gift can create a penalty period that delays coverage for certain services.

Option set that commonly matters for a primary home and a rental property: (1) keep property in a form that fits the overall Medicaid plan while avoiding accidental “expanded estate” exposure; (2) use a trust strategy only if it is designed for Medicaid planning (not just probate avoidance) and the timing works; (3) consider a qualified long-term care partnership policy to create a statutory “resource disregard” that can reduce estate recovery; and (4) coordinate beneficiary designations and inheritance controls for grandchildren through a separate inheritance trust plan, while keeping Medicaid rules in mind.

Process & Timing

  1. Who plans: The property owner (and spouse, if any), often with an estate planning attorney. Where: Deeds are recorded with the Register of Deeds in the county where the real estate sits; Medicaid eligibility and estate recovery are handled through North Carolina DHHS and the estate administration process in the Clerk of Superior Court. What: Common documents include updated deeds (if changing title), a trust agreement (if using a trust), updated beneficiary designations, and a will that coordinates with the plan. When: Planning works best before a health crisis; transfers close to a Medicaid application can trigger penalties under the federal lookback framework referenced in North Carolina law.
  2. Eligibility phase (if Medicaid is needed): If long-term care Medicaid is later requested, the application and verification process typically reviews assets, transfers, and property interests. Transfers for less than fair market value within the lookback window can create a penalty period that delays coverage for certain services.
  3. After death (estate recovery phase): If Medicaid paid for recoverable services, DHHS may assert a claim as an estate creditor. The personal representative (or collector) handles creditor claims through estate administration, and the order of claims can affect what gets paid and what remains for heirs.

Exceptions & Pitfalls

  • “Avoiding probate” is not the same as “avoiding estate recovery” in North Carolina: North Carolina’s definition of “estate” for recovery can reach certain assets that pass by survivorship, life estate, or trust arrangements. A plan that only targets probate can still leave property exposed.
  • Gifting the home or rental can backfire: A deed to children or grandchildren for little or no value can trigger a transfer penalty under North Carolina’s transfer rules, even if the transfer happened before Medicaid was needed.
  • Life estates and income-producing property require careful handling: North Carolina law allows DHHS to apply federal transfer policies to life estates and to certain “income producing” real property arrangements. A life estate deed or “make it income producing” strategy can create unexpected eligibility or recovery issues if not structured correctly.
  • Mortgaged rental property adds practical constraints: A lender may restrict transfers into certain trusts or changes in title. Planning often requires reviewing loan documents before recording a deed.
  • Hardship waivers exist but are not automatic: North Carolina law authorizes DHHS to waive recovery in limited situations (such as undue hardship or when recovery is not cost-effective). These waivers usually require a specific request and supporting proof.
  • Grandchildren inheritances need separate controls: Protecting an inheritance from being spent too early usually requires a trust-based inheritance plan. That plan must be coordinated with Medicaid planning so it does not create a transfer penalty or expanded-estate exposure.

Conclusion

In North Carolina, Medicaid estate recovery can reach a deceased recipient’s “estate,” and in some situations that definition can extend beyond the probate estate to certain survivorship and trust-type transfers. Planning options often include carefully structuring title and transfer timing for the primary home and rental property, avoiding below-market transfers within the federal lookback window, and considering a qualified long-term care partnership policy that can reduce later recovery. A practical next step is to review deeds, loan terms, and past transfers and then implement the chosen plan before any Medicaid application is filed.

Talk to a Estate Planning Attorney

If you’re dealing with Medicaid estate recovery concerns for a primary home and a rental property, our firm has experienced attorneys who can help explain options, risks, and timelines under North Carolina law. Call us today at (919) 341-7055.

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.

Category: Estate Planning Q&A Series

Author: jpierce

Attorney Jared Pierce is the founder of Pierce Law Group in Raleigh, North Carolina, a firm he established with a dedicated focus on probate administration and estate planning across North Carolina. Born and raised in the Republic of South Africa, Jared moved to Durham with his family in 2001, bringing with him a rich cultural background and a distinctive accent that often serves as a conversation starter.