Florida Homestead and Medicaid

Florida’s homestead exemption protects a primary residence from virtually all judgment creditors without any dollar limit. Medicaid, however, applies its own federal rules to the homestead, and those rules impose conditions and caps that do not exist under the Florida Constitution. Homeowners who assume their home is fully protected from Medicaid because it is protected from other creditors are often surprised to discover a more complicated reality.

Homestead as an Exempt Asset for Medicaid Eligibility

Medicaid long-term care eligibility requires that an applicant own no more than approximately $2,000 in countable assets. The applicant’s primary residence is generally treated as an exempt (non-countable) asset, meaning Medicaid does not include its value when calculating whether the applicant meets the asset threshold. This exemption allows a person to qualify for Medicaid nursing home benefits without selling their home.

The exemption is automatic if the applicant’s spouse, a child under age 21, or a blind or permanently disabled child of any age lives in the home. In those circumstances, there is no limit on the home’s value for Medicaid eligibility purposes.

If none of those qualifying relatives live in the home, the exemption is still available but subject to a home equity interest limit. The Deficit Reduction Act of 2005 imposed this cap, which is adjusted annually. The limit applies to the applicant’s equity interest in the property, calculated as the home’s current market value minus any outstanding mortgage or other debt. If the applicant’s equity exceeds the limit, the home becomes a countable asset and the applicant may be ineligible for Medicaid long-term care benefits.

This is the critical distinction between the constitutional homestead exemption and Medicaid’s treatment of homestead property. Under the Florida Constitution, homestead creditor protection has no dollar cap. Under Medicaid rules, the exemption is capped for applicants without a qualifying occupant in the home.

Intent to Return

When a Medicaid applicant moves from the home to a nursing facility, the home can remain exempt only if the applicant declares an intent to return. This declaration is made on the Medicaid application or in a separate written statement. The intent to return does not need to be realistic in a medical sense. Even if the applicant’s condition makes a return unlikely, stating the intent is sufficient to preserve the exemption during the applicant’s lifetime.

This requirement intersects directly with homestead protection from creditors. Under the creditor-protection analysis, moving to a nursing home may constitute abandonment of the homestead if the move is permanent and the homeowner no longer intends to return. For Medicaid purposes, however, the standard is more permissive: a stated intent to return is generally accepted even when the medical prognosis suggests otherwise. Nevertheless, families should document the intent to return carefully, including maintaining the property, keeping personal belongings in the home, and continuing to receive mail at the address.

Medicaid Estate Recovery

Although the homestead is exempt during the applicant’s lifetime for eligibility purposes, the state may seek reimbursement of Medicaid benefits after the applicant’s death through the Medicaid Estate Recovery Program (MERP). Under federal law, states are required to seek recovery of Medicaid long-term care costs from the estates of deceased recipients. The question for Florida homeowners is whether the homestead is subject to this recovery.

Florida’s constitutional homestead exemption provides strong protection here. Under Article X, Section 4 of the Florida Constitution, the homestead exemption inures to the surviving spouse or heirs of the owner. This means the homestead passes directly to the decedent’s constitutional heirs free of creditor claims, including Medicaid’s claim for estate recovery. The state cannot assert a MERP lien against homestead property that passes to the decedent’s heirs at law.

There is no dollar limit on this protection. While Medicaid eligibility caps the homestead exemption at the home equity interest limit, the estate recovery protection follows the constitutional exemption, which is unlimited in value.

However, there are important conditions. The homestead must still qualify as homestead at the time of the applicant’s death. If the property was sold, rented, or otherwise lost its homestead character before death, the proceeds or the property itself may be subject to Medicaid’s recovery claim. Additionally, if the decedent’s will directs that the home be sold rather than pass directly to heirs, the sale proceeds may enter the probate estate and become vulnerable to MERP. Proper estate planning requires that the homestead pass by operation of law or by devise directly to heirs, not through a general direction to liquidate assets.

Spousal Protections

When one spouse needs Medicaid nursing home care and the other spouse remains living in the community, the home is treated as an exempt asset regardless of its value. There is no home equity cap when a spouse resides in the property. This rule reflects federal spousal impoverishment protections designed to prevent the community spouse from being forced out of the home.

The community spouse also receives a Community Spouse Resource Allowance (CSRA), which permits the non-applicant spouse to retain a specified amount of countable assets beyond the home. The community spouse’s continued occupancy of the home is the strongest protection available, as it eliminates both the equity cap and the intent-to-return requirement.

If the community spouse later dies or moves out of the home, the property’s exempt status may need to be reevaluated. Families in this situation should consult with counsel to determine whether the homestead exemption continues and whether additional planning steps are needed.

The Five-Year Look-Back Period

Medicaid imposes a sixty-month (five-year) look-back period on asset transfers. If the applicant transferred assets for less than fair market value within five years of applying for Medicaid, the transfer triggers a penalty period during which Medicaid will not pay for nursing home care.

This rule applies to transfers of homestead property. A homeowner who deeds the home to children and then applies for Medicaid within five years will face a transfer penalty. The penalty period is calculated by dividing the value of the transferred asset by the average monthly cost of nursing home care in Florida, and Medicaid benefits are delayed for that number of months.

The look-back rule creates a direct tension with asset protection planning. Transferring a homestead to family members while the property is still exempt from creditors is not a fraudulent conveyance because creditors had no right to the property. But the same transfer may trigger a Medicaid penalty if the transferor applies for Medicaid within five years. Families considering a homestead transfer must evaluate both the asset protection consequences and the Medicaid consequences before acting.

Lady Bird Deeds and Medicaid

One tool that can bridge the gap between asset protection and Medicaid planning is the enhanced life estate deed, commonly known as a lady bird deed. A lady bird deed allows the homeowner to retain full ownership and control of the property during life, including the right to sell, mortgage, or lease the property without the consent of the remainder beneficiaries. At the homeowner’s death, the property passes automatically to the named remaindermen outside of probate.

Because the homeowner retains full control during life, the creation of a lady bird deed is generally not treated as a transfer for Medicaid look-back purposes. The property remains in the homeowner’s name, qualifies as homestead for both creditor protection and Medicaid eligibility, and passes at death to heirs who take the property free of Medicaid estate recovery claims. The lady bird deed is widely used in Florida Medicaid planning precisely because it preserves homestead status while avoiding both the look-back penalty and the MERP exposure.

Renting the Home

Families of nursing home residents sometimes consider renting the homestead to generate income for maintenance costs, taxes, and insurance. Renting the home creates a significant risk: if the property is rented to a third party, it may lose its homestead character. A property that is no longer the applicant’s homestead may become subject to Medicaid estate recovery at the applicant’s death.

Renting the home does not automatically disqualify it as an exempt asset for Medicaid eligibility purposes, because rental property is treated as a separate Medicaid exemption. But the loss of homestead status exposes the property to MERP and eliminates the constitutional creditor protection. Families should understand that the Medicaid eligibility exemption and the constitutional homestead exemption are separate protections with different rules, and preserving one does not guarantee the other.