How to Avoid Medicaid Estate Recovery in Texas

Updated September 11, 2026

Understanding how to avoid Medicaid estate recovery in Texas starts with one critical fact: the state only pursues assets that pass through formal probate. Most families do not realize how much protection Texas law already offers compared to other states, or that the wrong transfer at the wrong time can trigger a penalty that delays Medicaid coverage entirely. The five-year look-back period means timing is not a mere formality; it dictates whether a legal strategy holds up or collapses during a claim review. As of September 2026, Texas Medicaid estate recovery operations transferred from HMS to Stellarware Corporation, meaning families filing hardship waiver requests must use the updated submission contacts. In this guide, attorney Kyle Robbins at Robbins Estate Law explains the rules surrounding state recovery claims and what planning steps actually shield your family home without triggering Medicaid penalties.

Key Takeaways

• Texas requires MERP to target only probate assets. Assets that bypass probate through transfer-on-death deeds or irrevocable trusts generally remain outside the state's reach.
• The five-year look-back period applies to asset transfers. Moving property into an irrevocable trust too close to a Medicaid application can cause a penalty period of ineligibility.
• A Lady Bird deed and a TODD have different rules. Each tool carries specific execution requirements, recording rules, and risk profiles under Texas property law.
• Stellarware Corporation now administers the recovery program. As of September 1, 2026, the former HMS contractor role transitioned to Stellarware, making old submission URLs invalid.
• Families have 60 days to respond to a notice. Missing this window means the estate loses its primary chance to assert a hardship waiver.

What Texas MERP Can and Cannot Recover

The Texas Medicaid Estate Recovery Program operates under the Texas Health and Human Services Commission. Federal law requires every state to run some version of estate recovery, but Texas chose a narrower approach. MERP here targets only the probate estate of a deceased Medicaid recipient who was 55 or older and received long-term care services, such as nursing home care or Home and Community-Based Services waiver programs. Under 1 Texas Administrative Code Section 373.105(b), the recoverable estate is strictly defined by the probate estate parameters in Texas Estates Code Section 22.012.

What this means practically is that retirement accounts with named beneficiaries, life insurance proceeds, jointly owned property with a right of survivorship, and any asset transferred before death through a valid non-probate mechanism generally avoid a MERP claim. Texas does not pursue expanded estate recovery against non-probate assets, offering a level of protection that states like California do not provide.

Recovery also pauses automatically during the lifetime of a surviving spouse, a child under 21, or a child of any age who is blind or permanently disabled. These protections are statutory and completely bar recovery while the protected individual lives.

How MERP Claims Rank in Texas Probate

When an estate goes through probate, creditors submit claims to be paid from the estate's assets. Texas Estates Code Chapter 355 categorizes these debts into eight distinct classes, dictating the order of payment. A MERP claim operates as a Class 7 claim. This classification means the state gets paid only after higher-priority obligations are settled.

Higher-priority claims include funeral expenses, administration costs, attorney fees, and certain family allowances. If the estate funds are exhausted paying Class 1 through Class 6 claims, MERP receives nothing, and the state cannot pursue the heirs personally for the remaining balance. However, if the home is the only asset and it enters probate, the state can force the sale of the property to satisfy its Class 7 claim.

The Notice of Intent and Cost-Effectiveness

When a Medicaid recipient dies, Stellarware Corporation sends a Notice of Intent to File a Claim to the estate's personal representative. That notice triggers a strict 60-day clock. The estate must return a completed questionnaire and any hardship waiver request within that precise window. Missing the deadline eliminates the family's best administrative opportunity to contest the claim.

Under rule changes effective August 27, 2026, Texas Medicaid also updated its cost-effectiveness thresholds under 1 Texas Administrative Code Section 373.215. The state will no longer pursue a MERP claim if the value of the recoverable estate is $15,000 or less, or if the total Medicaid costs are $5,000 or less. The same updates increased the state's timeline to file its recovery claim in court to 120 calendar days after receiving actual notice of the recipient's death.

Strategies for How to Avoid Medicaid Estate Recovery in Texas

The Texas Transfer-on-Death Deed

A Texas transfer-on-death deed, authorized under Texas Estates Code Chapter 114, lets a property owner name beneficiaries to receive real estate at death without probate. The owner retains full control during their lifetime, including the right to sell, mortgage, or revoke the document. No beneficiary consent is necessary. Because the property transfers by operation of law rather than through the probate system, it sits outside MERP's reach.

Execution is critical for this strategy to work. A TODD must be signed, notarized, and recorded in the county deed records before death to take effect. An unrecorded deed fails completely, leaving the property in the probate estate where MERP can reach it.

"A transfer-on-death deed that was signed but never recorded is legally worthless. The property will go through probate, and a MERP claim can follow. Recording is not an administrative detail; it is what makes the deed real." — Kyle Robbins, Estate Planning Attorney

The Lady Bird Deed

A Lady Bird deed achieves a similar result through a different legal mechanism. The owner conveys the property to a beneficiary while reserving an enhanced life estate. This preserves the right to sell or encumber the property without the beneficiary's consent during the owner's lifetime. At death, the home passes automatically outside probate, carrying a full step-up in tax basis for the heirs.

Unlike a TODD, a Lady Bird deed relies on common law principles rather than a specific Texas Estates Code chapter. Both tools work effectively to bypass probate, but they carry different implications for title insurance and lender financing. Consulting a professional for estate planning helps clarify which deed fits your circumstances.

Medicaid Asset Protection Trusts

A Medicaid Asset Protection Trust is an irrevocable trust designed to hold assets outside your taxable estate and beyond MERP's reach. Once property transfers into this trust, you generally cannot reclaim it or change the terms. You must name a third-party trustee, often a trusted adult child, to manage the assets. This loss of control provides the legal barrier needed for protection, preventing the state from counting the assets as available resources.

The trust terms can allow you to receive income generated by the trust assets, such as rental income or dividends, but you cannot access the principal. Upon your death, the remaining principal passes directly to your named beneficiaries without passing through probate.

The main constraint is the five-year look-back period under 42 U.S.C. Section 1396p(c)(1). Medicaid heavily scrutinizes asset transfers made within 60 months before an application. Moving assets into an irrevocable trust during that window triggers a penalty period of ineligibility. The length of this penalty depends on the total value transferred divided by the average monthly cost of nursing care in Texas. Families who wait until a health crisis strikes often find this option completely unavailable, highlighting the need for proactive planning.

Common Mistakes When Planning How to Avoid Medicaid Estate Recovery in Texas

Navigating Medicaid rules without legal counsel represents one of the most costly mistakes a family can make. A deed filed with an incorrect legal description, a trust funded after the look-back window opens, or an ignored MERP notice can undo months of careful preparation. Proper planning requires strict adherence to Texas property laws and federal Medicaid regulations.

• Improperly executed deeds: A document that fails state recording requirements does not transfer property at death. The home enters probate, and the MERP claim follows directly.
• Transfers that trigger penalties: Gifts to children or funding a trust within five years of a Medicaid application produce a penalty period that delays critical coverage.
• Revocable trusts misidentified as protection: A revocable living trust provides no protection from MERP. Because the grantor retains control and can dissolve the trust, Medicaid counts those assets as fully available.
• Missing the waiver window: The 60-day response period after a Notice of Intent is rigid. Failing to act forfeits the opportunity for an administrative hardship waiver.
• Ignoring the MERP questionnaire: Families often receive a detailed questionnaire from Stellarware alongside the Notice of Intent. Failing to complete and return this form correctly can jeopardize statutory exemptions and delay the final settlement of the estate.

"The most common misconception I see is families assuming a revocable living trust protects them from MERP. It does not. MERP looks at what you control, not just what you technically own. An irrevocable structure is the only trust that creates a real barrier." — Kyle Robbins, Estate Planning Attorney

Medicaid rules also interact with Texas homestead protections. While Article XVI, Section 50 of the Texas Constitution protects a homestead from most creditors during the owner's lifetime, it does not automatically exempt the property from a MERP claim after death if the home passes through probate. Families must implement non-probate tools to secure long-term protection.

Understanding Hardship Waivers and Survivor Protections

The state has discretion to reduce or waive a MERP claim based on hardship. Common qualifying circumstances include situations where the estate is the primary income source for heirs, or where the property operates as a family farm. Hardship waiver requests go directly to Stellarware Corporation. Families using outdated HMS submission contacts risk missing the 60-day window completely.

Statutory protections that delay or eliminate recovery include:

• A surviving spouse alive at the time of the claim.
• A child under 21 surviving the Medicaid recipient.
• A surviving child of any age who is blind or permanently disabled.
• An unmarried adult child who resided continuously in the decedent's homestead as an unmarried individual for at least 12 consecutive months immediately prior to the recipient's death (an automatic exemption under 1 TAC § 373.207(a)(4)).
• A sibling or lineal heir inheriting the homestead whose gross family income is below 300% of the federal poverty level, provided the homestead's tax-appraisal value is under $150,000 (a hardship waiver under 1 TAC § 373.209(d), which was increased from $100,000 effective August 27, 2026).

These exemptions and hardship waivers are governed by Texas HHSC's estate recovery rules under 1 Texas Administrative Code Sections 373.207 and 373.209. (Note that pre-death caregiver-child or sibling-equity exceptions only allow penalty-free transfers during your lifetime; they do not automatically exempt the property from MERP after death if it remains in the probate estate.) Meeting the criteria does not happen automatically; the estate must assert the exemption or waiver within the 60-day response window.

Related Articles

• How to Fund a Living Trust in Texas (and Why an Unfunded Trust Fails) — Learn more about estate planning.
• Living Trust vs. Will in Texas: Cost, Probate, and Which One You Need — Learn more about estate planning.
• How Much Do Lawyers Charge to Set up a Trust in Texas? — Learn more about estate planning.

Why Choose Robbins Estate Law for Medicaid Estate Planning

Medicaid planning in Texas requires an attorney who understands state-specific MERP rules alongside the property law tools needed to bypass recovery. Robbins Estate Law directly handles this intersection, helping families navigate the look-back period, contest MERP claims, and structure irrevocable trusts that meet Medicaid's asset rules without sacrificing flexibility.

Kyle Robbins, as shown on his Super Lawyers profile, works directly with clients across Central Texas. You can explore the firm's legal approach through his Reel Lawyers videos, or read client feedback on the FindLaw directory listing.

Robbins Estate Law serves families across Texas with a commitment to clarity and protection:

• Flat-Fee Pricing: You know the cost upfront. No hourly billing surprises.
• Lifetime Support — We provide free updates about changes in the law that may affect your plan. Amendments to your documents after signing are a separate paid service.
• 7 Texas Offices — Austin, Cedar Park, Round Rock, River Place, West Lake Hills, Houston, and Dallas.
• 1,000+ Estate Plans Created: Kyle Robbins has guided thousands of Texas families through estate planning and probate.
• 5-Star Google Reviews: Our clients trust us with their most important decisions.

If you need help with Medicaid planning or estate recovery issues, schedule a free consultation with Kyle Robbins today. Call (512) 270-2557 or visit our website to get started, with no obligation or pressure.