Short Answer

In North Carolina, Medicaid reviews transfers made during the 5-year look-back to see if you gave away assets, including home equity, for less than fair market value. Your primary residence can be excluded if you meet program rules and stay under the federal home-equity cap, which changes periodically. You may reduce countable resources by paying legitimate debts and necessary home costs at fair market value, but gifting or moving the home into certain trusts during the look-back can trigger a penalty period. After death, the State can pursue estate recovery; the personal representative must follow strict notice and claim-priority rules.

Understanding the Problem

In North Carolina, how do I, as a Medicaid applicant or recipient, calculate my home equity and pay it down without causing a transfer penalty during the 5-year look-back? One key fact here: you recently received a trust distribution and regained title to your home, so you need to address eligibility now while protecting the home for your children.

Apply the Law

North Carolina applies the federal Medicaid look-back rule to long-term care programs: DSS examines asset transfers in the 60 months before you apply (and sometimes while receiving benefits) to determine if you gave away assets below fair market value. A primary residence can be excluded if you intend to return home and stay under the federal home-equity limit (which changes over time). Transfers of the home for less than fair market value can create a penalty unless a narrow exception applies (for example, certain transfers to a spouse, a caregiver child who lived in the home and kept you out of a facility for at least two years, or a sibling with an equity interest who lived there). After death, North Carolina may seek reimbursement from the estate; the personal representative must give notice to creditors, including the Department of Health and Human Services (DHHS), and pay allowed claims by statutory priority through the Clerk of Superior Court.

Key Requirements

• Know your equity: Determine fair market value minus mortgages/liens; compare to the current home-equity cap for Medicaid eligibility.
• Spend down correctly: Pay legitimate debts (mortgage principal, property taxes, insurance, utilities, medically necessary home repairs, and legal fees) at fair market value; keep receipts.
• Avoid gifts: No below-market transfers or deeds to family (including to a trust you control) during the look-back unless a specific exception applies.
• Use narrow exceptions carefully: Spouse, disabled child, caregiver child, or sibling-with-equity exceptions have strict proof and timing requirements.
• Report promptly: Tell your county DSS caseworker about the trust distribution, title changes, and any spend-down steps; provide documentation.
• Estate recovery on death: The personal representative must notify DHHS, publish notice to creditors, and pay claims in statutory order through the Clerk of Superior Court.

What the Statutes Say

• North Carolina Gen. Stat. § 108A-70.5 (Medicaid estate recovery) – State may recover certain Medicaid costs from a recipient’s estate.
• North Carolina Gen. Stat. § 28A-14-1 (Notice to creditors) – Personal representative must publish notice and mail to known creditors, including DHHS when applicable.
• North Carolina Gen. Stat. § 28A-19-3 (Claims; time limits) – Sets deadlines for presenting claims against the estate.
• North Carolina Gen. Stat. § 28A-19-6 (Order of payment of claims) – Establishes claim priority, including Medicaid recovery.

Analysis

Apply the Rule to the Facts: Your trust distribution increases countable resources for Medicaid, so create a documented spend-down plan that pays legitimate debts and home-related costs at fair market value. Because you just regained the home, legal fees and necessary title/repair expenses are typically permissible spend-downs. Living with an adult child may help if the caregiver-child exception applies, but it requires proof of two years of care that delayed facility placement. Placing the home in a revocable trust remains countable; transfers to an irrevocable trust inside the look-back can trigger a penalty.

Process & Timing

1. Who files: You (the Medicaid applicant/recipient). Where: Your county Department of Social Services (DSS) in North Carolina. What: Report the trust distribution, updated home ownership, mortgage/liens, and a spend-down plan; provide invoices/receipts, valuation (tax card or appraisal), and proof of payments. When: Report changes promptly; timing can affect eligibility for the month.
2. Implement the spend-down: Pay allowable debts and necessary home expenses at fair market value; avoid any gifts or below-market transfers. Keep a paper trail of quotes, invoices, and proof of payment. DSS may request additional documentation before redetermination.
3. If death occurs, the personal representative opens the estate with the Clerk of Superior Court, publishes notice to creditors, and mails notice to DHHS as a known creditor. After the creditor period closes, the personal representative pays claims by statutory priority and obtains the Clerk’s approval to close the estate.

Exceptions & Pitfalls

• Caregiver child and sibling-with-equity exceptions are narrow and documentation-heavy; do not deed the home without confirming eligibility impacts.
• Revocable living trusts are countable for Medicaid and subject to estate recovery; irrevocable trusts trigger a transfer penalty if funded within the look-back.
• Pay only fair market value for goods/services; undocumented or inflated payments can be treated as gifts.
• Personal representative pitfalls: failure to publish notice and mail DHHS can expose the estate (and sometimes the PR) to liability; follow Clerk of Superior Court procedures and claim-priority rules.
• If you suspect prior interference with your planning, use written powers of attorney, clear records, and, if necessary, court oversight to prevent undue influence.

Talk to a Estate Planning Attorney

If you’re dealing with Medicaid look-back rules, home equity limits, and how to structure a compliant spend-down, our firm has experienced attorneys who can help you understand your options 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.