Will a significant inheritance by the community spouse cause the institutionalized spouse to lose their Medicaid benefits?
No, a significant inheritance by the community spouse will not cause the institutionalized spouse to lose his / her Medicaid benefits. To be clear, this answer is given with the assumption that the institutionalized spouse has already gone through Medicaid’s application process and has been approved for long-term care benefits. The terms Community Spouse and Institutional Spouse are defined below.
A Community Spouse is the non-applicant spouse of an applicant / beneficiary of Medicaid nursing home or long-term care services.
An Institutionalized Spouse is the applicant or beneficiary spouse receiving Medicaid nursing home services. The term, institutionalized, is a bit misleading since persons receiving waiver services are able to reside at home, or in some states, an adult foster care home or an assisted living residence.
To be very clear, if the community spouse receives a significant inheritance, or even a small inheritance, prior to the applicant spouse being approved for long-term care Medicaid benefits, the Medicaid applicant may not be eligible for Medicaid. This is because the inheritance might push the couple’s assets over Medicaid’s allotted limit for the applicant spouse and the non-applicant spouse. However, if a couple has assets over the limit, the applicant spouse can still qualify for Medicaid benefits after “spending down” the excess assets (the assets over the limit).
However, if a community spouse (the non-applicant spouse) is the recipient of a significant inheritance after the applicant spouse has been deemed eligible for Medicaid benefits, the institutionalized spouse (the Medicaid beneficiary) will not become ineligible for Medicaid. In other words, the Medicaid beneficiary will continue to receive his / her Medicaid benefits.
For further clarification, it is beneficial to discuss how Medicaid looks at the income and assets of the applicant and non-applicant spouse during the Medicaid application process.
Income – when one spouse of a married couple is applying for long-term care Medicaid, and the other spouse is not, only the income of the applicant spouse is considered. This means that even if the non-applicant spouse has a significant amount of monthly income, it will not impact the eligibility of the applicant spouse. Not relevant to this conversation, but relevant to how Medicaid considers the income of a married couple with only one applicant is a monthly maintenance needs allowance. Essentially, when a non-applicant spouse has little to no monthly income, the applicant spouse is able to transfer monthly income in his / her name to the other spouse.
Assets – unlike with income, assets are considered jointly owned by the couple. This means all of the couple’s countable assets (assets that are not exempt from Medicaid’s asset limit) are added together to get a total value. As of 2020, an applicant spouse is generally able to retain up to $2,000 in countable assets, and the non-applicant spouse can be allotted up to $128,640 of the assets. The amount the non-applicant spouse is able to keep is called a community spouse resource allowance. (The applicant asset limit and the community spouse resource allowance does vary by state. To see state-by-state specific information, click here.)