Receiving an Inheritance? Beware of Medicaid Income Limits

For most people, receiving an inheritance is something to celebrate. However, for a nursing home resident on Medicaid, an inheritance may not be such welcome news.

What Is Medicaid?

Medicaid is a public assistance health insurance program for people who have limited means. Seniors, people with disabilities, pregnant women, and other populations who are living on low income may qualify. For many older adults, Medicaid often helps cover the ever-rising costs of long-term care. Today, more than 77 million people across the country are Medicaid enrollees.

Medicaid eligibility requirements come with extremely strict income and resource limits. Generally, an individual may not have more than $2,000 in their name to qualify for the program.

Note that this limit can vary by state, as can other aspects of the program. This is because Medicaid is a joint federal-state program. States therefore have the flexibility to shape some of their own guidelines within limits set by the federal government, such as what services Medicaid coverage will include.

Given the strict income and resource limits of Medicaid programs nationwide, an inheritance can easily end up putting a Medicaid recipient at risk of losing the benefits that pay for their care. Careful planning is necessary to make sure that an inheritance will not have this kind of negative impact on someone who depends on Medicaid benefits.

Medicaid and Long-Term Care Coverage

The costs of residing in a long-term care facility have been rising steadily over the past few decades. As of late 2023, a semi-private room in a nursing home will cost you more than $8,600 a month on average; that's more than $104,000 a year. Even in-home care typically comes with a median monthly price tag exceeding $5,000.

Statistics suggest that you will likely need this kind of care in your later years. In fact, about 70 percent of people aged 65 or older will require long-term care support at some point. Most middle-class families cannot afford to pay for long-term care services out of pocket.

As mentioned earlier, millions of older adults decide to apply for Medicaid to help them cover the high costs of this care. Often, they have no choice but to pay for such services until they have reduced most of their assets. At this point, they are able to apply for the Medicaid program, which takes over the financial burden.

Medicaid’s coverage of nursing home care has no real equal. For example, Medicare covers only limited services in this realm. The Medicaid program has, then, more or less come to serve as the default form of long-term care insurance for millions of aging adults across the United States.

Reporting Inheritance Money as Income

An inheritance counts as income in the month you receive it. You or whoever is representing you will have to inform the state Medicaid agency about the inheritance. If you receive an inheritance and the amount puts you over the income limits for your state, you will not be eligible for Medicaid benefits for that month. This means your coverage will end until you have spent down assets to the countable limit again, which is $2,000 in most states.

If you can properly spend down the money from an inheritance in the same month that you receive it, you will be eligible for Medicaid again the following month. So, if you are receiving nursing home care through Medicaid, the first thing you should do is pay the nursing home facility for the current month (at the Medicaid rate).

Minimizing the Amount of Your Inheritance

If you have money left after paying the nursing home, an elder law attorney can advise you on the proper way to spend down the remainder. You may be able to give it to a spouse, your child who is living with a disability, or the child's special needs trust.

You may also pre-pay an irrevocable funeral contract or buy burial items for a close relative. (Read more about what you should know regarding prepaid funeral plans.) In addition, you could spend it numerous other expenses. These may include travel, dining out, clothes, television, DVD player, and paying off any debts you may have.

In most cases, you cannot make gifts to your loved ones using the inheritance money. However, there are some exceptions to this rule, and in some states, good planning techniques may permit some gifting. To be sure, you will need to consult with a qualified elder law attorney in your area.

If the inheritance is too large to spend in one month, an attorney may have other solutions in mind. They may be able to look at using other Medicaid planning techniques to protect a portion of it for you and your loved ones.

Work With an Elder Law Attorney

The Medicaid program is, in and of itself, quite complicated. With every state setting out different rules, this can make the task of navigating Medicaid even more daunting. Not to mention that requirements may often change from year to year.

Again, consider working closely with an elder law attorney when planning or applying for Medicaid. Attorneys in this area of law will have in-depth knowledge regarding the Medicaid regulations specific to where you live. They also can assist you in identifying other public assistance programs for which you may be eligible. Find a qualified elder law attorney near you for guidance on Medicaid.

For more information on Medicaid and other public benefits programs, be sure to check out the following articles:

• Understanding Medicaid's Long-Term Care Spousal Impoverishment Rules
• Medicaid Spend Down: Pay for More Than Just Medical Bills
• An Introduction to Supplemental Security Income (SSI)
• Receiving Home and Community-Based Services: Bill Advocates for Seniors Seeking at-Home Medical Care
• Can the State Take My Social Security to Repay Medicaid Coverage for My Husband's Care?