Receiving an Inheritance and Medicaid Preservation
Medicaid recipients must constantly maintain assets below $2,000. If their assets exceed $2,000 at the end of any calendar month, they will no longer be Medicaid eligible. So when someone receives a lump sum inheritance from a recently deceased family member, that influx of money can be most unwelcome. This article explains what happens when a Medicaid recipient receives an inheritance and what steps the person can take to preserve their Florida Medicaid benefits. The time to speak with an experienced Medicaid planning attorney is now, and ideally well before the inheritance is actually received. Acting early allows your attorney to provide a well-thought-out plan that can be put in place before the money arrives, ensuring that everyone involved understands what needs to happen and that there is no loss of benefits.
What Happens When a Medicaid Recipient Receives an Inheritance
Within 10 days of receiving an inheritance, each Medicaid recipient must report the change in circumstance to the Social Security Administration and the Department of Children and Families and explain what happened to the inherited funds or assets.
If the Inheritance Is Large and Medicaid Is No Longer Needed
If the inheritance is rather large and the Medicaid recipient will be comfortable without Medicaid assistance, then the process ends here. After you inform the Medicaid program of the change in circumstances, Medicaid benefits will cease and the former Medicaid recipient will privately pay for their nursing home costs and other care. There is nothing wrong with removing oneself from the Medicaid program when a large inheritance makes it unnecessary. Even if you are comfortable giving up Medicaid, you still want to report the change promptly. Medicaid will ask you to pay back the amount of money they paid out during any months you were no longer eligible. For example, if you receive inheritance assets in January but do not inform Medicaid and they continue to pay benefits for January, February, and March, when they eventually realize you are no longer eligible, you could receive a bill requiring you to reimburse Medicaid for those three months of benefits. You avoid this by reporting the influx of assets and your intent to leave the program in the same month the new assets were received.
If the Inheritance Is Small and You Still Want Medicaid
If the Medicaid beneficiary is receiving a small inheritance, the beneficiary is free to spend down the inheritance in the same calendar month in which they receive the excess resources and inform Medicaid how the money was spent. As long as the inheritance was spent on items and services for the benefit of the Medicaid recipient only and not given away, Medicaid will be preserved. For example, if a Medicaid beneficiary inherits $5,000, they should think carefully about how to spend that money in the same month it is received. Acceptable uses include paying off credit card debt, prepaying for funeral expenses, purchasing a new television or laptop, repairing a car, buying new clothes, covering travel expenses, or going out to a nice dinner. The Medicaid recipient must still report the change in circumstances but will simply explain how the money was spent to bring total assets back below $2,000. It is important to note that you cannot simply disclaim or refuse an inheritance. If you have access to assets, Medicaid expects you to use them for your care before they spend a dime. Declining an inheritance is treated the same as giving assets away, which subjects the Medicaid beneficiary to a disqualification penalty period under the five-year look-back rules. This is one of the most important reasons to meet with a Florida elder law attorney before taking any action.
How to Preserve Medicaid Benefits After Receiving an Inheritance
A Medicaid beneficiary must retain $2,000 or less by the end of any calendar month. If this is achieved, benefits will be maintained for the following calendar month. The calendar month timing is critical. It determines how much pressure you are under to return to Medicaid compliance. For example, if an inheritance of $100,000 is received on January 1, the Medicaid recipient has the entire month of January to either spend the money or work with an elder law attorney to protect the inheritance and maintain Medicaid coverage. If instead the beneficiary receives the same inheritance on January 28, they have only a few days to act. If total assets exceed $2,000 as of February 1, Medicaid eligibility is at risk. For small inheritances, spending down is often straightforward. For larger inheritances, spending all of it on goods would be wasteful and impractical. That is where Medicaid planning techniques become essential. For a broader overview of legal strategies available, see our guide on how to avoid a Medicaid spend down in Florida.
Medicaid Spend Down Strategies
Regardless of the amount involved, your portion of the cost of care still needs to be paid. Whether you pay at the Medicaid rate or the private pay rate depends on your situation, but make sure that bill is current. If you are a Medicaid recipient living at home or planning to return home, an inheritance can be a good time to address home improvements or repairs you have been putting off. Spending on other items and services as described above is also permitted. Medicaid recipients are allowed to spend their money. Think of what would genuinely improve the beneficiary's daily life and quality of care.
Purchasing Exempt Assets
Certain items are specifically designated as Medicaid exempt. This means they cannot be counted against a Medicaid recipient when determining eligibility. Understanding the difference between countable and exempt assets for Florida Medicaid is essential before making any spend-down decisions. Examples of exempt assets include a vehicle of any value, a homestead with equity up to $752,000 as of 2026, and income-producing property. At some point, buying more goods will stop making sense. That is when it becomes time to consider how to convert excess assets into non-countable resources. The two most commonly used techniques are a personal services contract and a special needs trust.
Personal Services Contract and Family Caregiver Agreement
The personal services contract, also called a family caregiver agreement, is explained in more detail at the link on what is a personal services contract. Essentially, you can transfer money to a caregiver after this services contract is properly signed. When done correctly, Medicaid will not treat the transfer as a gift but rather as a payment for the fair market value of services to be received. There are drawbacks worth understanding. Once the money is transferred, it belongs to the assigned caregiver and is subject to their creditors, divorce proceedings, or other financial risks. There is also likely an income tax consequence to the caregiver since they are receiving money for services to be rendered. This is an issue to discuss with your accountant or tax adviser. In some cases the income tax burden to the caregiver can be deferred using an annuity.
Special Needs Trust
If the Medicaid beneficiary is under the age of 65, they can utilize a self-settled special needs trust, also referred to as a d4A special needs trust. If over 65, the Medicaid recipient can only access a pooled special needs trust, also called a d4C trust. A full overview of how these work can be found in our guide on special needs trusts in Florida. The government allows special needs trusts to preserve Medicaid benefits. They are commonly used when a Medicaid beneficiary receives a sudden influx of money such as from an inheritance. A trustee, either a family member in a d4A special needs trust or a professional trustee in a d4C special needs trust, manages the money and can only distribute funds to pay for services and products not currently provided by Medicaid. These often include entertainment, travel, home improvements, paying off debt, and other approved expenses. For a full breakdown of what a special needs trust can and cannot pay for, see our article on pooled special needs trust allowable disbursements.
Why Acting Quickly Matters
The single most important thing to understand about receiving an inheritance while on Medicaid is that time pressure is real. The calendar month deadline is not flexible. Once the month ends with assets over $2,000, Medicaid eligibility is broken for that month. Restoring it requires re-applying and re-establishing eligibility, which can cause a gap in benefits that is difficult and costly to unwind. Families sometimes assume there is time to think through the situation before doing anything. There is not. The first call should be to an elder law attorney, made as soon as it becomes known that an inheritance is forthcoming, even before the money or assets are actually received. If the inheritance involves real estate rather than cash, the timing and strategy considerations are different but equally urgent. If you are also receiving Social Security Disability Income or SSI benefits, an inheritance can have separate consequences for those programs in addition to Medicaid. The issues often overlap but are governed by different rules. Our related article on what happens when you inherit money while on Social Security Disability covers that scenario in detail.
Contact an Experienced Medicaid Planning Attorney
Receiving an inheritance while on Medicaid can be complicated, but with the help of an experienced elder law attorney you can navigate the process and preserve your benefits. An attorney can help you create a plan that minimizes the impact of the inheritance on your Medicaid eligibility and ensures that you continue receiving the care you need. Contact the team at Elder Needs Law for assistance with questions or concerns about inheritance and Medicaid preservation.
Frequently Asked Questions About Inheriting Money While on Medicaid
Q. What happens if a Medicaid recipient receives an inheritance?
A. The Medicaid recipient must report the inheritance to the Social Security Administration and the Department of Children and Families within 10 days of receiving it. If the inheritance causes total assets to exceed $2,000, the recipient must either spend it down in the same calendar month it was received, use a legal planning tool such as a special needs trust or personal services contract, or accept that Medicaid benefits will be interrupted until assets are back below the limit.
Q. Can you lose Medicaid if you receive an inheritance?
A. Yes. If total countable assets exceed $2,000 at the end of any calendar month, Medicaid eligibility is broken for that month. The key is to act before the end of the calendar month in which the inheritance is received. Doing nothing, waiting to see what happens, or refusing the inheritance without legal guidance can all result in penalties, benefit interruptions, or disqualification periods.
Q. Can you refuse an inheritance to keep Medicaid?
A. No. Refusing or disclaiming an inheritance is treated by Florida Medicaid as a transfer of assets. This subjects the Medicaid beneficiary to a penalty period under the five-year look-back rules, during which Medicaid benefits are suspended. You must accept the inheritance and then take legal steps to bring assets back into compliance.
Q. What can a Medicaid recipient spend an inheritance on?
A. A Medicaid recipient can spend an inheritance on any goods or services for their own benefit. Common examples include paying off debt, prepaying funeral expenses, purchasing a vehicle, home repairs or improvements, new furniture or appliances, clothing, travel, and entertainment. The key is that the money must be spent on the recipient themselves, not given to family members or used to benefit others, and it must be spent in the same calendar month the inheritance is received.
Q. What is a special needs trust and how does it help with an inheritance?
A. A special needs trust is a legal tool that allows a Medicaid beneficiary to hold inherited money without it counting as a countable asset for Medicaid purposes. A trustee manages the funds and distributes them for expenses not covered by Medicaid. Beneficiaries under 65 can use a self-settled d4A trust. Beneficiaries 65 and older must use a pooled d4C trust managed by a nonprofit organization. Both types preserve Medicaid eligibility while giving the beneficiary access to the inherited funds for quality-of-life expenses.
Q. How much time does a Medicaid recipient have to spend down an inheritance?
A. The deadline is the end of the same calendar month in which the inheritance is received. If total assets exceed $2,000 at the start of the following month, Medicaid eligibility is at risk. The timing of when the inheritance is received within the month matters significantly. An inheritance received on the first of the month gives the full month to act. One received on the 28th leaves only a few days. Contacting an elder law attorney immediately is essential.
