Most inheritance is tax-exempt and thus should have no bearing on marketplace assistance or the obligation to repay tax credits, although any taxable inheritance might affect modified adjusted gross income (MAGI) Medi-Cal eligibility.
Medicaid has strict income and asset limits, and inheritances could make you ineligible for benefits. Therefore, it’s wise to consult an estate planning attorney prior to receiving an inheritance.
Medicare
Most states set limits on how much a Medicaid recipient can have while still qualifying for benefits, including an inheritance that they can accept and keep without losing eligibility.
When Medicaid beneficiaries inherit assets, their state considers them income for that month and must report any change that results from this inheritance. If it pushes them over their state asset limit and causes eligibility to drop for that month – however if the beneficiary can spend down their inheritance before reporting their inheritance change then eligibility could return the following month.
As part of your estate’s spending down process, the key to spending down an inheritance should be using funds for projects that do not violate Medicaid rules in your state. These may include paying off debts and making modifications and additions that improve accessibility and safety; prepaying funeral expenses; purchasing clothing or electronics like televisions or computers; or going on vacation.
Medicaid
Medicaid recipients receiving an inheritance must report it within 10 calendar days to their state Medicaid agency. Most states treat inheritances as income in the month that they’re received and, if that inheritance places them above their state’s asset limit threshold, could make them ineligible for Medicaid at least temporarily for at least that month.
People may assume they can avoid this by disclaiming their inheritance; however, this may not always be beneficial. Medicaid considers disclaiming an inheritance to be divestment and any such action are likely to violate their Look Back Rule. As soon as a violation occurs, there is a penalty period during which any benefits received while being ineligible must be returned back to Medicaid. There are various strategies one can employ when inheriting money in order to meet state Medicaid programs, including paying down debt, purchasing items for their home such as furniture and appliances, making improvements on their vehicle or house, prepaying funeral costs with an Irrevocable Funeral Trust and paying for long-term care services.
Social Security
People living with disabilities often wonder how an inheritance might impact their Social Security disability benefits. An inheritance can consist of money, life insurance proceeds or any other item from the deceased that the beneficiary inherits after death. When combined with Supplemental Security Income (SSI), an inheritance could pose problems because SSA treats it as a potential resource and could penalize beneficiaries who transfer assets by cancelling up to three years’ worth of SSI benefits temporarily.
Private-account supporters contend that shifting part of Social Security to individual accounts would allow heirs to reap greater inheritance benefits; however, these additional inheritance benefits would likely be paid for through deeper reductions to Social Security benefits and larger increases in taxes.
Supplemental Security Income
Social Security Administration (SSA) offers Supplemental Security Income to individuals with a disability or blindness who meet certain income and resource limits. An inheritance generally counts as countable resources starting in its month of value and usage.
Social Security benefits, on the other hand, are determined by work history; to qualify for Supplemental Security Income benefits (SSI), however, individuals must adhere to strict income and asset rules; any inheritance which exceeds these restrictions could cause them to lose out on receiving their SSI benefits altogether.
Beneficiaries receiving Supplemental Security Income must report any new money they receive to the Social Security Administration (SSA). Failure to do so could violate federal law and result in penalties from SSA; however, there are ways around this. An experienced attorney in special needs planning can assist. One such mechanism would be using a first-party special needs trust or an ABLE account as alternatives.
