You must meet income and asset limit requirements to qualify for Medicaid, but what happens if you inherit money?
You may find yourself no longer eligible for Medicaid and even have to pay back Medicaid for health care services rendered.
It’s important to understand how Medicaid works and your responsibilities as a Medicaid recipient. If you are a beneficiary or heir expecting to receive money or assets soon, it’s best to plan ahead and consult with an attorney on your best strategies.
- You may no longer be eligible for Medicaid if you inherit money, and you will have to pay back Medicaid for any health care services received.
- Medicaid eligibility is based on your monthly income and your family’s size.
- If you inherit money you will have to report to the Social Security Administration and state’s Department of Children and Family Services.
What is Medicaid?
Medicaid is a federal/state program that provides health insurance to nearly 67 million Americans. Recipients include eligible low-income adults, children, pregnant women, elderly adults and people with disabilities. States administer Medicaid and eligibility and benefits vary by state.
“Medicaid is the largest source of funding for medical and health-related services for people with low income in the United States,” says Chris Orestis, president of Life Care Xchange and RetirementGenius.com and a nationally recognized healthcare expert. “Each state currently has broad leeway to determine who is eligible for Medicaid. All recipients, however, must be U.S. citizens or qualified non-citizens, and may include low-income adults, their children, and people with certain disabilities.”
Medicaid eligibility is based on your monthly income and your family’s size.
“Folks who earn below their state-determined income for their determined household size qualify to receive Medicaid benefits. These benefits can include doctor visits, inpatient care, lab tests, x-rays and prescriptions,” notes Ty Stewart, CEO/founder of Simple Life Insure.
Tracy Craig, partner at the law firm Mirick O’Connell and chair of the firm’s Trusts & Estate’s group, says Medicaid is particularly helpful for seniors because it’s the only government program that pays for long-term skilled nursing home care.
Do you have to tell Medicaid when you inherit money?
You must report the money you inherit through a will or life insurance payout to both the Social Security Administration and your state’s Department of Children and Family Services, according to Stewart.
Failure to do so can result in steep penalties. Your state may also choose to sue you or put a lien on your property to reclaim Medicaid dollars spent that you were not eligible for because of the windfall you received.
Can you lose Medicaid because of an inheritance?
You could lose Medicaid coverage if you’re on Medicaid and inherit money or property.
Craig said Medicaid has asset and income qualifications. An inheritance could lead to you exceeding those limits.
“This is important to understand for people who want to leave assets to their parents, for example, or for those who want to leave assets to someone who has special needs but might be on Medicaid,” Craig says.
Craig added that many Medicaid recipients are also on Supplemental Security Income (SSI) — part of the Social Security program. SSI also has income and asset limitations that an inheritance can exceed.
Can Medicaid take away an inheritance?
Technically, Medicaid can’t take away any cash or assets you inherit.
“But because of Medicaid’s disqualification rules, you may lose your Medicaid benefits,” says Neel Shah, an estate planning attorney and financial advisor/owner at Beacon Wealth Solutions.
Additionally, “you can be billed for service values and costs between the time you receive the inheritance and the time it was discovered by Medicaid administrators,” cautions Stewart.
Imagine, for example, you inherited $25,000 in September. But for various reasons, the Social Security Administration doesn’t recognize until December that your income and asset level has increased.
“In this scenario, you are now liable to compensate the Medicaid program for those three months when you were technically ineligible and should not have been receiving Medicaid,” Stewart explains.
What is Medicaid estate recovery?
A state’s Medicaid program may attempt to recover some Medicaid benefits after a person dies.
Say your last surviving older parent passes away after a long stay in a nursing home facility. Medicaid covered the care and treatment. The state may choose to look for payment by going after your deceased parent’s estate unless the deceased Medicaid recipient is survived by a spouse, child younger than age 21 or a disabled or blind child of any age.
“The Omnibus Budget Reconciliation Act of 1993 gives states the authority and the obligation to sue families via probate court to claw back Medicaid dollars spent on a recipient’s care,” Orestis notes.
He adds that the state can attempt to recover all property and assets that pass from a deceased person to his or her heirs under state probate law. Such property includes assets that pass directly to a survivor, heir or assignee through joint tenancy, rights of survivorship, life estates, living trusts, annuity remainder payments or life insurance payouts.
Medicaid estate recovery can get complicated. Check out more about Medicaid estate recovery rules and details.
Can Medicaid put a lien on your property?
One way Medicaid can attempt to recover funds is to put a lien on property you own or are due to inherit.
“Once a Medicaid recipient goes into a nursing home but still owns a home, Medicaid will typically put a lien on the house at that point. If the house gets sold while the Medicaid recipient is in the nursing home, Medicaid will get repaid,” says Craig.
Often, families try to sidestep a lien by selling or transferring the property.
“But Medicaid actually has a look-back period of five years in which they can analyze all income and assets disposed of by the individual before applying for Medicaid,” cautions Orestis. “Any asset transfers for less than fair market value of all kinds made within five years of application to Medicaid would be subject to review by the state for the purpose of applying asset transfer penalties and Medicaid disqualification.”
What to do if you have Medicaid and inherit money
You have limited choices if you receive Medicaid benefits and inherit money or assets.
“If it’s a lot of money you are expected to inherit, you may decide that you don’t want to be on government assistance anymore, in which case you will pay for your health care out-of-pocket or through another health insurance plan,” Craig says.
But if you want to preserve your Medicaid eligibility, you need to take extra steps to ensure that any inheritance isn’t received outright.
“The idea is to have the beneficiary receive the inheritance in a protected vehicle where it would be accessible with safeguards but not deemed an available resource or asset for the Medicaid recipient,” Shah suggests.
That’s why the experts often recommend creating an irrevocable life insurance trust, pooled income trust, supplemental needs trust or a special needs trust outside of the estate to shield any inheritance assets. The rules and qualifications for each of these trusts and strategies can vary and be complex; hence, consulting with an experienced attorney in estate planning is highly recommended.
“It’s best to plan in advance. Only an attorney who specializes in this area and has your best interests at heart will be able to guide you through this process to achieve the best results for you and your family,” advises Craig.