Medicaid can take money from your IRA after your death, but only in specific situations. If you named a living beneficiary on the account, the IRA usually passes directly to that person outside probate, and in the roughly half of states that limit Medicaid recovery to probate assets, the state’s claim never reaches it. In the other states, which use an expanded definition of “estate,” the IRA can be pursued even when a beneficiary is named. Whether your account is safe comes down to two things: the beneficiary designation on file and the recovery rules in the state where you lived.
How Estate Recovery Works After Death
Federal law requires every state to run a Medicaid Estate Recovery Program (MERP). When someone who received Medicaid long-term care benefits at age 55 or older dies, the state must try to recover what it paid for that care, including nursing home stays, home and community-based services, and related hospital and prescription costs.1Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
This is not a seizure during your lifetime. The state files a claim against your estate after death and stands in line with other creditors. What “estate” means, though, is where the outcome for an IRA is decided.
When an IRA Is Protected
An IRA with a properly designated living beneficiary passes directly to that person. It never enters the probate estate, and the executor never controls it. Probate is the court-supervised process that identifies a deceased person’s property, pays debts, and distributes what remains, and a beneficiary designation bypasses it entirely.
Every state must, at minimum, recover from probate assets, and many stop there.2U.S. Department of Health and Human Services. Medicaid Estate Recovery In those probate-only states, a properly named IRA beneficiary effectively shields the account from MERP.
The word doing the work here is “properly.” The protection depends on a living person being named and the designation being current. A stale form is one of the most common ways an IRA ends up exposed.
When Medicaid Can Reach the IRA
Three situations pull an IRA back within Medicaid’s reach.
No Living Beneficiary on File
If you never named a beneficiary, or your named beneficiary died before you and no contingent beneficiary was listed, the account typically defaults to your estate under the plan documents. Once the IRA lands in the probate estate, the state can claim against it the same as any other asset the executor administers.
Naming Your Estate as the Beneficiary
Some account holders name their estate as the IRA beneficiary, often because they want the funds distributed under their will. This converts a non-probate asset into a probate asset and hands it directly to MERP. It also strips away favorable distribution options that would otherwise be available to an individual beneficiary.
Living in an Expanded-Recovery State
Federal law lets any state define “estate” more broadly than probate. Under the expanded definition, the state can pursue any real or personal property in which the deceased had a legal interest at death, including assets that pass through joint tenancy, survivorship, life estates, living trusts, or “other arrangement.”1Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets That catch-all is broad enough to cover an IRA passing by beneficiary designation. In an expanded-recovery state, even a perfect beneficiary form may not keep the account out of MERP’s reach.
Which States Take the Broader View
Approximately 27 states have adopted the expanded estate definition. The remaining states hold the line at probate. Which category your state belongs to is the single biggest factor in whether an IRA with a named beneficiary faces a claim.
The federal Office of the Assistant Secretary for Planning and Evaluation has noted that states using the broader definition can recover from assets passed through joint tenancy, rights of survivorship, life estates, living trusts, annuity remainder payments, and life insurance payouts, on top of probate assets.2U.S. Department of Health and Human Services. Medicaid Estate Recovery Rules shift as legislatures amend Medicaid statutes, so confirming the current law in the state where the Medicaid recipient lived is essential.
Survivors Who Block or Delay Recovery
Federal law bars the state from recovering while certain survivors are alive, regardless of what assets are in the estate. The state cannot recover if the deceased Medicaid recipient is survived by any of the following:
- A surviving spouse (recovery is deferred until the spouse also dies)
- A child under age 21
- A child of any age who is blind or permanently disabled
These protections are mandatory, and states cannot override them.3Medicaid.gov. Estate Recovery When a spouse survives, the claim does not disappear. It waits. After the spouse dies, the state can pursue what remains.
Undue Hardship Waivers
Every state must also allow heirs to apply for a waiver when recovery would cause “undue hardship.”1Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets The criteria vary. Common qualifying situations include an estate whose only significant asset is a family farm or business producing limited income, or a case where recovery would push the heirs themselves onto public assistance.
Waivers are not automatic. Heirs must apply proactively with substantial documentation, and most applications are denied. Still, when the estate is built around an income-producing property or a home where a qualifying heir lives, filing is worth the effort.
Steps to Keep an IRA Out of Reach
No single move guarantees an IRA is safe, but a few habits meaningfully reduce the risk.
- Keep beneficiary designations current. Name a living primary beneficiary and at least one contingent. Review the form after any death, divorce, or birth in the family. An outdated designation is the most common way an IRA falls into probate by accident.
- Do not name your estate as beneficiary. Doing so converts a non-probate asset into a probate asset and opens it to any creditor claim, MERP included.
- Find out which category your state falls into. Probate-only recovery and expanded recovery produce very different outcomes for the same beneficiary form.
- Talk to an elder law attorney if the balance is significant. Medicaid recovery sits at the intersection of federal law, state Medicaid policy, and probate law, and the rules in your state may look nothing like a neighboring state’s.
Getting the beneficiary designation right is the easiest and most impactful step. In expanded-recovery states, it may not be enough on its own, and that is where planning ahead earns its keep.