Will Paying Off House Affect Medicaid or Medicare?

His gift likely won’t affect your Medicare, but it could definitely put your Medicaid at risk depending on how the transaction is handled.

Medicare is an “entitlement” program based on your work history or disability status, not your financial need.

• Having your mortgage paid off generally has no impact on your Medicare eligibility.
• Medicare does not have asset limits. Whether you live in a $100,000 home or a $1,000,000 home, your Medicare stays the same.

Medicaid, however, is a “means-tested” program, meaning it is strictly for people with limited income and resources.

• In most states, to keep Medicaid, you cannot have more than $2,000 in countable assets (the limit varies slightly by state).
• Your primary residence is usually an “exempt” asset, meaning its value doesn’t count toward that $2,000 limit.
• However, if your brother gives you the $123,000 directly to your bank account, Medicaid will see that as a massive spike in your income and assets. Even if you spend it 10 minutes later to pay off the house, that brief moment of possession could disqualify you for months or years.

How to Protect Your Benefits

To keep your Medicaid while accepting this gift, you may consider the following common strategies:

• Direct payment to the lender. If your brother pays the bank directly, the money never touches your hands. While this is safer than a cash gift, some state Medicaid offices may still view the “debt relief” as a form of unearned income. You must check your specific state’s rules on “in-kind support and maintenance.”

• Special needs trust (SNT). Your brother places the money into a third-party SNT, and the trust pays off the mortgage. Because the money is held by the trust and not you, Medicaid typically ignores it.

• ABLE account. If your disability began before age 46, you can use an ABLE Account. However, these have annual contribution limits (usually around $19,000), so it wouldn’t be enough to cover a $123,000 mortgage payoff in one go.

An Important Note Regarding SSI

If your disability payment comes from Supplemental Security Income (SSI) rather than Social Security Disability Insurance (SSDI), the rules are even stricter. A mortgage payoff can be considered in-kind support and maintenance and could reduce your monthly check.

Be sure to consult with a professional near you who is familiar with the laws specific to your state.