(This article is for informational purposes only. Seek counsel from an attorney for legal advice)
In Medicaid planning we often discuss the family’s estate planning documents as well as our client, specifically whether our client may be inheriting anything of value. Unexpected inheritance can have a significant impact on Medicaid planning, particularly if someone is receiving Medicaid benefits for long-term care or other services. Medicaid is a needs-based program, meaning eligibility is determined by the applicant’s income and assets. An inheritance can affect both of these factors and may jeopardize Medicaid eligibility if the inheritance is not properly managed.
Here are some key considerations regarding unexpected inheritance in the context of Medicaid planning:
1. Asset Limitations for Medicaid
- Medicaid has strict asset limits. If someone inherits money, property, or other assets, it can push them over the asset limit for Medicaid eligibility.
- In many states, the asset limit for a single individual is as low as $2,000, although it may be higher in certain states or for married couples.
- An inheritance could cause a person to lose Medicaid eligibility if the inheritance is not properly spent down or protected.
2. Spending Down the Inheritance
- If an individual receives an inheritance while on Medicaid, they may be required to "spend down" the excess assets to qualify for continued Medicaid benefits.
- The inheritance could be used for certain approved expenses, like paying off debts, making home improvements, or purchasing exempt assets (e.g., a primary residence).
- However, spending down the inheritance must be done carefully, as improper spending could result in a penalty period (a period during which the person would not qualify for Medicaid).
3. Medicaid Estate Recovery
- Medicaid has an estate recovery program that seeks to recover the costs of long-term care services provided to a Medicaid beneficiary, especially after their death. This typically applies to assets that are left behind after the beneficiary passes away.
- If an individual receives an inheritance and is on Medicaid, their estate may be subject to recovery by the state if Medicaid benefits were paid for long-term care.
- If the individual decides to give away or "gift" the inheritance to others, such as family members, there may be penalties imposed. Medicaid has a "look-back period," typically five years, during which any gifts or transfers of assets for less than fair market value may result in a penalty period.
- During the penalty period, the individual would be ineligible for Medicaid, even if they have a medical need for care.
5. Establishing Trusts or Other Planning Strategies
- To protect an inheritance from affecting Medicaid eligibility, some individuals set up irrevocable trusts or other estate planning vehicles before receiving an inheritance.
- A trust can protect assets from being counted toward Medicaid eligibility, but the trust must be properly structured and comply with Medicaid rules.
6. Consulting an Elder Care Professional
- Given the complexity of Medicaid rules and the potential for an inheritance to disrupt Medicaid eligibility, it's crucial to consult with an experienced Medicaid professional.
- They can provide guidance on how to handle an inheritance, including whether a trust or other strategies may be employed to preserve Medicaid eligibility.
In summary, while an unexpected inheritance or windfall can provide financial relief, it can also disrupt Medicaid planning if not carefully managed. It’s important to understand the rules and consult professionals to ensure that receiving an inheritance does not cause a loss of Medicaid benefits.
