This is one of the most common and most emotionally charged questions in long-term care planning. The fear that a spouse will lose the family home to pay for nursing home care is widespread, and in New Mexico, the short answer is reassuring: the at-home spouse generally keeps the house.
The longer answer involves understanding both the lifetime protection and what happens afterward, because the two are quite different.
The primary residence exemption
When one spouse enters a nursing facility and applies for Medicaid, the primary residence is generally exempt from the countable asset calculation as long as the other spouse continues to live there. This is a federal Medicaid rule that New Mexico follows as part of its Centennial Care program.
The exemption means that the home does not count toward the asset limit for Medicaid eligibility purposes. The institutionalized spouse can qualify for Medicaid even if the couple owns a home with significant value, as long as the community spouse remains living there.
This protection extends beyond just the initial qualification. The home remains exempt throughout the period that the community spouse lives there. It does not need to be sold to fund nursing home care.
What happens when the community spouse dies
The home's exempt status during the community spouse's lifetime does not mean the home is permanently protected from Medicaid. After both spouses have died, New Mexico participates in the federal Medicaid estate recovery program, which requires the state to seek reimbursement for long-term care Medicaid benefits paid from the deceased recipient's estate.
The home, if it passes through the probate estate of either spouse, may be subject to a Medicaid estate recovery claim. The state's claim is against the estate, not against the children directly, but the practical effect is that less of the home's value passes to the next generation.
There are protections for certain categories of heirs. A child who is under 21, blind, or disabled may be protected from estate recovery in some circumstances. A sibling who has an equity interest in the home and lived there for at least one year before the institutionalization may also have protection. These exceptions are fact-specific and require review with an attorney.
How estate planning affects estate recovery
The Medicaid estate recovery program applies to the probate estate. Assets that pass outside of probate, through a properly funded revocable living trust, joint tenancy with right of survivorship, beneficiary designations, or other probate avoidance mechanisms, may not be subject to the same recovery claim in the same way as probate assets.
This is one of the most direct intersections between estate planning and Medicaid planning. Families who have used a revocable living trust and properly funded it may be in a different position regarding estate recovery than families whose assets pass through a will and probate. The specific application of New Mexico's estate recovery program to non-probate assets should be confirmed with a Medicaid planning attorney, as state programs vary in whether they pursue expanded estate recovery.
Planning ahead
For couples who want to protect the home from estate recovery as well as from the spend-down, planning that goes beyond the basic primary residence exemption is worth considering. An irrevocable trust funded more than five years before a Medicaid application, certain types of life estates, and other structures may provide additional protection depending on the circumstances. Each of these involves trade-offs that require careful evaluation.
