Does Inheritance Count as Income for Medicaid? What to Know

New Jersey Medicaid Long Term Services and Supports (MLTSS) is a needs-based program that provides health services to low-income individuals. Those who benefit from this program include people over 65 and those with disabilities. The eligibility depends on the income and assets (“resources”).

If you have a loved one who is a Medicaid dependent, medical bills can be substantial, especially for aging individuals or those living with disability. Medicaid provides different healthcare services, including nursing home and hospital long-term care services. Eligible individuals are given services that many could not afford without assistance.

Understanding Medicaid and Inheritance

Unlike Medicare, which is not means-tested, Medicaid eligibility requires that you must meet strict income and asset limits to qualify. Generally, you cannot remain qualified if you acquire additional resources. Even small changes in your finances can trigger reassessment of your eligibility.

This is where the inheritance issue becomes crucial. Receiving inheritance can seem like a blessing, and in many ways it is. For those on Medicaid, however, an inheritance can present unexpected challenges. Our main question is: Is inheritance counted as income against Medicaid?

Understanding how Medicaid treats inheritance is the first step in making a well-informed decision. This guide helps you plan the necessary action and preserve your eligibility.

How Inheritance Affects Medicaid Eligibility

Inheritance can impact Medicaid eligibility:

As a Resource (Asset)

After the month of receipt, any remaining inheritance funds are counted as resources. If these resources exceed the state’s allowable limit, the individual may lose Medicaid eligibility until they “spend down” the excess resources. Generally, the resource limit for a Medicaid recipient is $2,000.

Receipt of inheritance via a lump sum, however, is not counted as “income” in the month of receipt.

Medicaid has a five-year look-back period. This is the time when asset transfers are examined to see if transfer penalties should be imposed when people have transferred assets away in order to qualify for Medicaid.

Strategies to Protect Medicaid Eligibility

If you’re on Medicaid and anticipate receiving an inheritance, you can employ legal strategies to protect your eligibility:

1. Special Needs Trust (SNT)

A Special Needs Trust allows a beneficiary to receive an inheritance or other assets without affecting Medicaid eligibility. The assets held in the trust are excluded from the beneficiary’s countable resources, provided the trust is properly established according to Medicaid rules. Funds in the trust must be used for the beneficiary’s supplemental needs—expenses beyond those covered by Medicaid. The beneficiary can transfer the inheritance into the SNT without penalty, and distributions from the trust generally do not count as income or resources for Medicaid eligibility purposes.

2. Pooled Trust

Similar to an SNT, a Pooled Trust is managed by a non-profit organization and combines the resources of many beneficiaries. This is an option for individuals under age 65, and can help maintain Medicaid qualifications.

3. Spend Down

Using the inheritance to pay for the individual’s personal needs or debts. This includes home improvements, medical expenses, or paying off a mortgage, which can reduce countable assets and help maintain eligibility.

4. Transferring Assets to a Trust for Family Members

Transferring an inheritance to an irrevocable trust for the benefit of loved ones can protect assets from being counted towards Medicaid eligibility. However, to avoid penalties, it must be established at least five years before applying for Medicaid. If the individual is already on Medicaid, they would lose eligibility and would have to have a way to pay for their care at that time.

Legal Implications and Considerations

Unreported inheritance will result in denial due to excess resources as well as overpayment of benefits. This can be a big problem. So it is important to act quickly when an inheritance is received and consult with an experienced elder law attorney to evaluate Medicaid rules.

Medicaid Estate Recovery Program

Medicaid can later seek reimbursement from the estates of deceased beneficiaries for services they received. You need to plan carefully if you want to minimize potential estate recovery.

Summary

The idea of being on Medicaid and then receiving an inheritance often feels like a conundrum. It may offer financial relief and help carry out a loved one’s final wishes. However, it can also jeopardize your eligibility for benefits, potentially leaving you without the healthcare coverage you rely on.

Understanding how Medicaid treats inheritance is the first step. That’s why proactive strategies to reduce the countable resources, like establishing a Special Needs Trust, using a Pooled Trust, transferring assets to an irrevocable trust for others, or making compliant spend-downs, are key options to consider.

Need Guidance?

Contact Fink Rosner Ershow-Levenberg Marinaro, LLC today for personalized Medicaid and estate planning support that protects your benefits and secures your financial future.

Visit our website here for more information.

Does Inheritance Count as Income Towards Medicaid? What You Need to Know