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Receiving an Inheritance and Medicaid Preservation

Receiving an Inheritance and Medicaid Preservation
Medicaid Planning
Jason Neufeld
August 30, 2019

Medicaid recipients must constantly maintain assets below $2,000. If their assets or monthly income exceeds $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, the lump sum of money can be most unwelcome. 

This article will explain what happens when a Medicaid recipient receives an inheritance and what the person about to receive an inheritance can do to preserve their Florida Medicaid benefits.

First, the time to speak with an experienced Medicaid lawyer is now (or rather, well before the inheritance is actually received). This allows your Medicaid planning attorney to provide you with a well-thought-out plan that can be put in place before the inheritance is received to ensure that all players understand what they need to do and provide for a smooth transition and 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 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 programs of the change in circumstances (i.e., the large inheritance), Medicaid benefits will cease, and the former Medicaid recipient will privately pay for their nursing home costs and other care. If the Medicaid recipient receives a large inheritance, there is nothing wrong with removing oneself from the Medicaid program.

Even if you are comfortable giving up Medicaid, you still want to inform them of the change in circumstances because Medicaid will ask you to pay back the amount of money Medicaid laid out while you were no longer eligible. 

For example, if you receive inheritance assets in January but don’t inform Medicaid and they continue to pay benefits for January, February, and March, when they eventually realize that you are no longer eligible, you could receive an unwelcome bill and have to reimburse Medicaid for the value of the benefits they paid for those months. You would avoid this by reporting the influx of assets in Medicaid and that you no longer wish to receive Medicaid benefits 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, then the beneficiary is free to spend down his/her inheritance in the same calendar month in which they inherit 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. 

So, for example, if a Medicaid beneficiary inherits $5,000, think of how they may want to spend that money in the same month it is received. Examples include using inherited money to: pay off credit card debt, pre-pay for funeral expenses, purchase a new big-screen television or laptop, fix a car, buy new clothes, go out to a nice dinner, travel expenses, etc.    

The Medicaid recipient must still report the change in circumstances but will simply explain how the money was spent to bring their total assets below $2,000.

It's important to note that you cannot simply disclaim or refuse your inheritance. If you have access to assets, Medicaid wants you to use them for your care before they spend a dime. 

Declining an inheritance to Medicaid is tantamount to giving assets away (which subjects the Medicaid beneficiary to a disqualification penalty period). So, it's important to meet with a local Florida Elder Law attorney to discuss what to do with the sudden influx of assets from an inheritance to maintain Medicaid eligibility.

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 happens, benefits will be maintained for the following calendar month. 

I want to emphasize how important the calendar month is, because the timing of when you are entitled to the inheritance will dictate how much pressure you will be under to remain in Medicaid compliance. 

For example, if an inheritance of $100,000 is received on January 1, the Medicaid recipient has the rest of January to either spend the money or engage an elder law attorney to protect the inheritance and maintain Medicaid coverage. If, on the other hand, the Medicaid beneficiary is entitled to their inheritance on January 28, now they only have a few days (January 28, 29, 30, and 31) to get back into compliance. If the Medicaid beneficiary retains over $2,000 in total assets as of February 1 (in this example), they risk losing Medicaid.

As explained above, Medicaid recipients need only spend down their recent inheritance to re-qualify for Medicaid. For small inheritances, that might be easy to do. Spending all of it on “stuff” would likely be too wasteful for larger inheritances. 

Luckily, we have some Medicaid planning techniques available.

Medicaid Spend Down in Florida 

Regardless, you will be paying your portion of the cost of care. Whether that is at the Medicaid or private pay rate depends on your situation, but make sure that bill is paid. If you are a Medicaid recipient living at home or expecting to go home, it might be a good time to look into some home improvements or repairs you have been putting off. 

Otherwise, spending on other items and services, such as those described above, is fine. Remember, Medicaid recipients are allowed to spend their money, so think of what would make the beneficiary’s life nicer and get it. 

Remember, ultimately, an elder care lawyer’s job is, first and foremost, to enhance the quality of the client’s life.

Purchase exempt assets: Certain items are specifically designated as Medicaid-exempt. This means they cannot be counted against a Medicaid recipient (or applicant) when determining eligibility. Examples are a vehicle of any value, a homestead (up to $585,000 as of 2019), and income-producing property.

At some point, buying more “stuff” won't make sense or will just be wasteful. Now it's time to consider other ways to convert assets into non-countable resources. The two most commonly used techniques used by elder law attorneys are a personal services contract and a special needs trust.

Personal Services Contract | Family Caregiver Agreement

The personal services contract—also called a family caregiver agreement—is explained in more detail (click the link to read a more in-depth article explaining what is a personal service contract?). 

But, essentially, you can transfer money to a caregiver after this services contract is properly signed. If done properly, Medicaid will not deem the asset a gift but rather a payment for the fair market value of services to be received. 

The primary drawbacks to personal service contracts are loss of control of the money (it literally becomes the assigned caregiver’s money, subject to creditors, divorce, gambling habits, etc.). 

In addition, there is likely an income-tax consequence to the caregiver (who, again, is receiving money for services to be rendered). We don’t give tax advice, so this is an issue that you will need to discuss with your accountant or tax adviser. However, the income tax burden to the caregiver can, if needed, be deferred using an annuity.

Special Needs Trust

If under the age of 65, the Medicaid beneficiary 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 Medicaid special needs trust”).

Essentially, the government allows special needs trusts to preserve Medicaid benefits. They are commonly used after 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 money to pay for services and products not currently provided by Medicaid. These are often some of the items described in the spend-down section above, such as entertainment, travel, home improvements, paying off debt, and other approved expenses.  (Learn more about what a special needs trust can pay for).

Contact an Experienced Medicaid Planning Attorney

Receiving an inheritance while also receiving Medicaid can be complicated, but with the help of an experienced elder law attorney, you can navigate the process and ensure that your benefits are preserved. An attorney can help you create a plan that minimizes the impact of the inheritance on your Medicaid eligibility, ensuring that you receive the care you need.

Don't hesitate to contact the team at Elder Needs Law for assistance with questions or concerns about inheritance and Medicaid preservation.

Jason Neufeld

Jason Neufeld is the Founder and Managing Partner of Elder Needs Law, a Florida estate planning and elder law firm he created in 2017. With more than 15 years of experience practicing law, he represents clients in a wide range of legal matters, including Medicaid planning, estate planning, elder law, probate, Medicare, and life insurance.

Jason received his Juris Doctor from the University of Miami — School of Law and is a member of the Florida Bar and the Broward County Bar Association. He has received numerous accolades for his work, including being named a Rising Star and Super Lawyer by Super Lawyers and among the Florida Legal Elite by Florida Trend in 2024.

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