What to Do When on Medicaid and You Receive an Inheritance
If you are a Medicaid recipient and receive an inheritance, you are required to report it to your state Medicaid agency. Generally, this change in circumstance must be reported within 10 calendar days. Although this doesn’t give you a very large window to report it, it is vital that you do so. If you do not and the inheritance would have disqualified you from Medicaid (more details in the next section), you will have to reimburse Medicaid for any benefits received during the time you would have otherwise been ineligible for Medicaid.
As a side note, for married couples in which only one spouse receives Medicaid long term care (i.e., nursing home Medicaid beneficiary or home and community based services via a Medicaid waiver), the community spouse (the non-applicant spouse) can receive an inheritance and it will have no impact on the applicant spouse’s Medicaid eligibility.
How Does Medicaid View an Inheritance / Can I Lose my Medicaid Eligibility?
Medicaid will view the inheritance either as income and / or assets, depending on when the inheritance was received and how long it has been since receipt. This, unfortunately, means that receiving an inheritance could cause you to lose your Medicaid benefits. Remember, Medicaid is a needs based program, and for long term care Medicaid, applicants and beneficiaries are limited in the amount of monthly income and assets they can have. Generally speaking, in 2020, a single applicant is limited to $2,349 / month in income and $2,000 in assets. (Please note that these limits do vary based on the state in which one resides. State specific income and asset limits can be found here.) Therefore, the receipt of an inheritance could cause you to have greater financial means than Medicaid allows for eligibility purposes, and hence, result in Medicaid disqualification.
In the month in which the inheritance is received, Medicaid will view it as unearned income (income that one does not have to work for to receive). This means that it is very likely, unless the inheritance is very modest, that it will push one over the income limit, resulting in Medicaid ineligibility in the month it is received. That said, if the money is spent in its entirety during the month of receipt and without violating Medicaid’s look back rule, one will be eligible for Medicaid again the month after it was received. Medicaid’s look back rule considers a long term care Medicaid applicant’s asset transfers for 60-months immediately preceding application to ensure assets were not given away or sold under fair market value. It also considers a Medicaid beneficiary giving away an inheritance as a violation of this rule, resulting in a penalty period. Please note that California is an exception in that Medicaid beneficiaries can give away “income”, including an inheritance, in the month in which it is received.
If an inheritance is not spent in its entirety during the month of receipt, any remaining inheritance will count as assets the following month. Depending on the amount of the remaining inheritance, this can cause one to be asset ineligible, which means the individual is not eligible for Medicaid until the “excess” assets (the assets over Medicaid’s asset limit) are “spent down”. Again, as mentioned above, it is vital that one does not violate Medicaid’s look back rule. Ways in which one might spend down an inheritance to meet Medicaid’s asset limit include paying off debt, purchasing an irrevocable funeral trust to prepay for funeral / burial costs, buying new household furnishings or appliances, and / or making home modifications. (Further details are provided in the section below, “Ways to Spend Down an Inheritance”). Once one has spent down his / her assets to Medicaid’s asset limit, he / she can reapply for long term care Medicaid.
- Albert resides in a Medicaid-funded nursing home in Pennsylvania, where the income limit is $2,349 / month and the asset limit is $2,000. His monthly income is $1,500, and the receipt of a $10,000 inheritance on June 15th pushes him well above Medicaid’s income limit. This causes him to be ineligible for Medicaid in June, which means he is responsible for paying for his nursing home care for this month. Therefore, he pays the June nursing home bill out of his inheritance and with the remainder of the inheritance prepays for future funeral and burial costs by purchasing an irrevocable funeral trust. Since he spent the inheritance in its entirety in June, he will be eligible for Medicaid again in July.
- Louisa lives at home in Texas and receives in-home personal care assistance several times a week via the state’s home and community based services (HCBS) Medicaid waiver. The income limit for this program is $2,349 / month and the asset limit is $2,000. She receives a $25,000 inheritance on November 2nd, which makes her income ineligible for Medicaid for the month of November. She pays for her care services for November, but makes no effort to spend any of the remaining inheritance. In December, the inheritance that she did not spend no longer counts as income. Instead, it counts as assets and puts her over the $2,000 asset limit. She will remain ineligible for Medicaid until she “spends down” the inheritance to the allowable asset limit.
Differences by State
The rules surrounding the receipt of an inheritance by a Medicaid recipient may vary by state, but unfortunately, state specific rules are not readily available. As mentioned previously, a Medicaid beneficiary generally has 10 calendar days to report the receipt of an inheritance. However, based on the state in which one resides, the timeframe could be shorter or it could be longer. Also, as mentioned above, California allows Medicaid recipients to gift inheritance, which is considered “income”, the month in which it is received without violating Medicaid’s look back period. For state specific rules, one should contact their state Medicaid agency or a Medicaid professional that can research the individual’s specific situation.
Do I Have to Accept the Inheritance?
While you do not have to accept an inheritance and can instead “disclaim” (refuse) it, is not recommended that Medicaid beneficiaries do so. This is because when it comes to Medicaid, disclaiming an inheritance is not allowed under federal law. This is because Medicaid considers the inheritance a means for one to pay for his / her long term care. Medicaid considers disclaiming an inheritance the same as if the individual received the money and gifted it to someone else, which violates Medicaid’s look back rule and results in a period of Medicaid disqualification.
Fred lives at home in Florida and receives home and community based services via the state’s Medicaid managed long term care program. His cousin recently passed away and Fred receives word that he has been left $50,000 as an inheritance. He refuses it, never physically having the funds in hand. Because it is considered a violation of Medicaid’s look back rule, he is penalized with a penalty period of approximately 3.5 months. Learn about how Medicaid calculates the penalty period.
The best way for a Medicaid beneficiary to handle an inheritance is to accept it and then spend it down or implement planning strategies with the help of a professional Medicaid planner.
Ways to Spend Down an Inheritance
Remember, it is vital that one “spend down” an inheritance in a way that does not violate Medicaid’s look back rule. There are several ways in which one can do this, including paying off debt, paying for long term care, making home modifications and additions for safety and accessibility purposes, prepaying for funeral and burial expenses via an irrevocable funeral trust, and buying assets that are exempt from Medicaid’s asset limit (i.e., furniture and appliances for one’s home, clothing, and even upgrading one’s vehicle).
There are also two Medicaid planning strategies that violate Medicaid’s look back rule, but can be implemented if a Medicaid recipient’s inheritance is significant and he / she can afford to pay for long term care during the penalty period. Once the penalty period is over, he / she can reapply for Medicaid benefits.
Medicaid Asset Protection Trust (MAPT)
Assets put in an irrevocable (it cannot be changed or cancelled) MAPT do not count towards Medicaid’s asset limit, as the assets are no longer considered to be owned by the individual who created the trust (the grantor). The grantor names a trustee, who manages the trust, and a beneficiary (or beneficiaries) who inherits the assets contained in the trust following the grantor’s death. (MAPTs also protect assets from Medicaid’s estate recovery program (MERP). With MERP, following the death of a long term care Medicaid beneficiary, the state Medicaid agency attempts reimbursement from one’s remaining estate in the amount for which it paid for the individual’s care.)
Modern Half a Loaf Strategy
With this strategy, one gifts approximately half of his / her “excess” (the amount over Medicaid’s asset limit) assets to a loved one and buys a short term Medicaid compliant annuity with the rest of the assets. Essentially, an annuity takes a lump sum of cash and converts it into an income stream. The income from the annuity allows one to pay for his / her long term care during the penalization period for gifting assets to a loved one. Please note that in New York, short term annuities are prohibited. However, this planning strategy can still work by utilizing a short term Medicaid compliant promissory note (essentially a loan agreement) instead.
Getting Help to Avoid Disqualification
Medicaid recipients should contact a Medicaid planner as soon as possible upon knowledge they will be receiving, or have received, an inheritance. In fact, it is highly encouraged one do so prior to reporting the inheritance to the Medicaid agency. Professional Medicaid planners can assist Medicaid beneficiaries in many ways. They are knowledgeable on how inheritance should be handled in each specific state, can help implement planning strategies to restructure the inheritance to maximize the amount the Medicaid recipient and his / her family can retain, and can work quickly to resolve the situation without the Medicaid recipient losing Medicaid coverage or the ability to cover their long term care costs if there is a period of Medicaid disqualification. Find a professional Medicaid planner.