Dec102025
Estate Planning Q&A Series

Can we transfer the house into a trust now, and what happens if we need care within the five‑year lookback? – North Carolina

Short Answer

In North Carolina, a home can be transferred into a properly designed trust, but if that transfer happens within Medicaid’s five-year lookback window and the trust is not fully Medicaid-compliant, it is usually treated as a gift that can trigger a transfer penalty. That penalty can delay or reduce Medicaid coverage for nursing-home or certain in‑home care. The exact impact depends on the type of trust, when the transfer occurs, the remaining equity and mortgage, and whether any exception or hardship waiver applies.

Understanding the Problem

The narrow question is whether, under North Carolina estate planning and Medicaid rules, a couple can deed a mortgaged primary residence into a trust now to benefit one child, and what happens if either spouse needs nursing-home or other long-term care within the five-year Medicaid lookback period. The couple also wants standard planning (wills, powers of attorney) and may use a trust to coordinate who receives the house and IRA. The concern is how a future Medicaid application will treat a trust transfer of the home and whether it will jeopardize eligibility or cause a penalty period.

Apply the Law

Under North Carolina law, Medicaid follows federal transfer-of-asset rules. A transfer of the home into most irrevocable trusts for children during life is usually treated as transferring an asset for less than fair market value if no full payment is received, which can create a penalty period for long-term care coverage if that transfer occurred within the lookback window. The county department of social services applies these rules when deciding eligibility for nursing facility or certain in-home services.

Key Requirements

  • Transfer of an asset: Moving ownership of the house (or a legal interest in it) into a trust for a child is treated as a transfer of an asset if the owner does not receive fair market value in return.
  • Timing within the lookback: If the transfer occurs on or after the lookback date (currently a five-year period tied to federal law) and before a Medicaid application for long-term care, it is examined for possible penalty.
  • Penalty period for long-term care: If the transfer is for less than fair market value and no exception applies, Medicaid imposes a penalty period during which it will not pay for nursing-home or certain home- and community‑based services, calculated based on the uncompensated value of the transfer.

What the Statutes Say

Analysis

Apply the Rule to the Facts: Deeding the North Carolina home into a trust for the child, without receiving full value in return, is a transfer of an asset. If the trust is drafted so that the house is no longer counted as an available resource for Medicaid and the transfer occurs within five years before an application for nursing-home or similar long-term care coverage, county social services will typically treat it as a below‑market transfer and calculate a penalty period. If no care is needed until more than five years after the transfer, that transfer is generally outside the lookback window, though estate-recovery and trust-design issues can still matter.

Process & Timing

  1. Who files: The property owners sign and record a deed transferring the home into the chosen trust, and sign the trust agreement. Where: Deed is recorded with the appropriate North Carolina county Register of Deeds. What: A carefully drafted trust (often irrevocable for Medicaid-planning purposes) plus a deed that correctly references the trust and existing mortgage. When: Ideally, at least **five years** before any anticipated Medicaid long-term care application, to avoid the standard lookback period.
  2. When long-term care becomes necessary, the Medicaid applicant (or agent under a financial power of attorney) files a Medicaid application with the county department of social services, disclosing all transfers, including deeds to trusts, within the lookback period. The county reviews the transfer date, value, and trust terms to decide whether a penalty applies.
  3. If a penalty is imposed, the county issues notice stating the length and start date. If the penalty would cause undue hardship and the statutory standards are met, the applicant or facility can request a hardship waiver through the county department of social services, which follows specific notice and response timelines and then issues a written decision.

Exceptions & Pitfalls

  • Some transfers are exempt, such as certain transfers of the home to a spouse or to a disabled child; these have narrow requirements and must be evaluated carefully.
  • Using a revocable living trust for probate avoidance does not shield the home for Medicaid purposes, because the home generally remains a countable resource and still subject to estate recovery.
  • Funding an irrevocable trust without fully addressing the existing mortgage can violate lender terms or cause due‑on‑sale issues; lender consent or careful drafting can be necessary.
  • Failure to disclose the deeded transfer on the Medicaid application can result in denial, overpayment claims, or allegations of misrepresentation.
  • Relying only on the five-year rule without coordinating other pieces (powers of attorney, IRA beneficiary designations, and estate recovery rules) can undermine the overall plan.

Conclusion

Under North Carolina law, a couple can deed a mortgaged home into a trust, but if the trust is designed to move the house out of their names and they apply for Medicaid long-term care within five years of that transfer, Medicaid will usually treat it as a below‑market transfer and impose a penalty period. The key threshold is whether the transfer occurred within the five-year lookback and whether any exception applies. The most important next step is to meet with a North Carolina estate planning and Medicaid-planning attorney to design any trust and deed before signing or recording anything.

Talk to a Estate Planning Attorney

If a North Carolina couple is weighing whether to deed a home into a trust while planning for possible long-term care and the five-year Medicaid lookback, our firm has experienced attorneys who can help explain the options, risks, and timelines. 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.