Inheritance Impact on Medicaid Eligibility

Last updated: June 03, 2024
Medicaid Long Term Care | Questions and AnswersCategory: EligibilityInheritance Impact on Medicaid Eligibility
Anonymous asked 2 years ago

Do you have to pay back Medicaid if you inherit money? Will you lose coverage?

1 Answers
medicaidplanner Staff answered 5 years ago

If you inherit money, you are legally obligated to report it to Medicaid (generally within 10 – 30 days). Depending on the amount of the inheritance and your current level of income and assets, an inheritance can cause you to lose your Medicaid coverage. If you inherit money and do not report it, you will be required to pay Medicaid back for the services and benefits that were provided during any period you would have otherwise been ineligible.

When a Medicaid recipient receives an inheritance, it is counted as income in the month that it is received. This means, more likely than not, a Medicaid recipient will be over the income limit for the month, and they will not be Medicaid-eligible for that month. See income limits by state and program.

The following month, any remaining inheritance is counted as an asset. Remember, for eligibility purposes, Medicaid also has an asset limit. Not only must a Medicaid applicant meet this asset limit in order to qualify for benefits, they must maintain their assets at, or below, this level. Generally speaking, the asset limit is $2,000 for a single applicant. See state-specific limits.

Even a small inheritance can cause a Medicaid recipient to have “excess” assets if not spent in the month in which it is received. Therefore, if at all possible, the inheritance should be “spent down” to the asset limit in the month in which it is received in order to avoid the possibility of being Medicaid ineligible the following month. This can be done by purchasing an Irrevocable Funeral Trust, paying off debt, and making home modifications and / or repairs. One should avoid giving away money to relatives, as this violates Medicaid’s Look-Back Period and can result in a period of Medicaid disqualification. Note that even if the inheritance is spent in its entirety in the month in which it was received, Medicaid should still be notified of the inheritance and how it was spent.

If the inheritance is too large to “spend down” the same month it was received, the individual will lose their Medicaid coverage. The inheritance can be used to pay for their care, and once the inheritance has been “spent down” to the asset limit, they can reapply for Medicaid. There are also much more complicated planning techniques, such as the Modern Half a Loaf Strategy, which can protect some of the inheritance for relatives. While this strategy violates Medicaid’s Look-Back Rule, it can be implemented it if a Medicaid recipient still has enough funds to pay for care during the Medicaid ineligibility period. If one is considering this planning technique, it is highly advised one seek the assistance of a Professional Medicaid Planner.

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