Dec212025
Estate Planning Q&A Series

What happens if we transfer the house but need Medicaid before the lookback period ends? – North Carolina

Short Answer

In North Carolina, transferring a house for less than fair market value and then applying for long-term care Medicaid before the lookback period ends can trigger a penalty period. During the penalty period, Medicaid will not pay for certain long-term care services even if the applicant is otherwise eligible. There are limited exceptions and an “undue hardship” waiver process, but both are fact-specific and time-sensitive.

Understanding the Problem

In North Carolina estate planning, the key question is what happens if a family member’s home is transferred to protect it and then Medicaid is needed for long-term care before the Medicaid lookback window runs. The decision point is whether the transfer is treated as a gift (or other transfer for less than fair market value) that can delay Medicaid coverage for nursing facility care or certain home- and community-based services. This issue often comes up when an agent under a power of attorney considers a simpler deed-based transfer or an irrevocable trust while the family member’s health is uncertain.

Apply the Law

North Carolina follows federal Medicaid “transfer of assets” rules through state law. If an applicant (or the applicant’s spouse, or someone acting for the applicant such as a legal representative) transfers an asset for less than fair market value on or after the lookback date, the applicant can become temporarily ineligible for Medicaid payment of certain long-term care services. The county department of social services (DSS) is the main office that takes applications and makes eligibility and penalty determinations, applying state law consistent with federal standards.

Key Requirements

  • A transfer for less than fair market value occurred: Deeding a house away or moving it into an irrevocable trust without receiving fair value back can be treated as an uncompensated transfer.
  • The transfer happened within the lookback window: DSS reviews transfers made on or after the “lookback date” used under federal Medicaid law.
  • The applicant seeks Medicaid for covered long-term care services: If the applicant needs Medicaid to pay for nursing facility care or certain waiver/home- and community-based services, DSS may impose a penalty period during which Medicaid does not pay for those services.

What the Statutes Say

Analysis

Apply the Rule to the Facts: The facts describe an agent under a power of attorney weighing an irrevocable trust versus a deed transfer that keeps a retained interest. Under North Carolina law, DSS can treat either approach as a transfer for less than fair market value if the arrangement removes value from the family member’s ownership without receiving fair value back, and that can trigger a penalty if Medicaid is needed within the lookback window. The result is not usually “denial forever,” but a period of ineligibility for Medicaid payment for certain long-term care services, which can create a care funding gap at the worst time.

Process & Timing

  1. Who files: The Medicaid applicant (or authorized representative such as an agent under a power of attorney). Where: The county department of social services (DSS) in the county of residence in North Carolina. What: A Medicaid application plus DSS-requested verification of finances and transfers (deeds, closing statements, trust documents, bank records). When: As soon as long-term care Medicaid is needed; DSS will still review transfers back to the lookback date and can impose a penalty.
  2. Penalty decision and notice: If DSS identifies an uncompensated transfer, DSS issues a notice describing the penalty period and (when required) the right to request an undue hardship waiver. The waiver process can run alongside the application or after notice, depending on whether the person is applying or already receiving Medicaid and is moving into institutional care.
  3. Hardship waiver request (if applicable): For an ongoing Medicaid recipient who is facing a transfer penalty related to institutional care, the statute sets short response windows (including a 12-calendar-day deadline to request a waiver after the notice, plus short deadlines to provide documentation). If the waiver is granted, DSS can waive the penalty; if denied, DSS sends a denial notice with appeal rights.

Exceptions & Pitfalls

  • Assuming “keeping a life estate” always avoids a penalty: A retained interest can change what was transferred, but it does not automatically eliminate transfer-of-asset scrutiny. DSS may apply federal transfer policies to life estates and related real property arrangements.
  • Thinking an irrevocable trust is automatically “safe”: An irrevocable trust can still create a transfer issue if it is funded within the lookback window or if trust terms allow value to be used for the applicant in ways that affect eligibility.
  • Overlooking undue hardship requirements: A hardship waiver is not granted just because paying for care is difficult. The statute focuses on serious deprivation (medical care or basic necessities) and requires proof of a good-faith effort to recover the transferred asset or its value.
  • Not planning for the funding gap: If Medicaid is needed before the lookback ends, the penalty period can leave a period where care must be paid from other sources (family funds, a contract to return assets, or other lawful planning), and last-minute fixes can create new transfer problems.
  • Missing estate recovery implications: Even when a home is not counted for eligibility, North Carolina’s estate recovery rules can reach certain interests at death, including some life estate and trust-related interests, depending on how title and interests are structured.

Conclusion

In North Carolina, transferring a house for less than fair market value and then needing long-term care Medicaid before the lookback period ends can trigger a penalty period during which Medicaid will not pay for certain long-term care services. Limited exceptions and an undue hardship waiver may apply, but both require careful proof and fast action. The most important next step is to file the Medicaid application with the county DSS and, if a penalty notice is issued, submit any hardship waiver request by the deadline stated in the notice.

Talk to a Estate Planning Attorney

If a family is considering transferring a home and there is a real chance Medicaid may be needed soon, a plan should address both the lookback risk and the possibility of a penalty period and waiver deadlines. Our firm has experienced attorneys who can help evaluate options like an irrevocable trust versus a deed with a retained interest and explain 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.