Inheritance Factors
Can Inheriting Money or Property Put Your Medicaid Benefits at Risk?
Receiving an inheritance while on Medicaid can change your eligibility instantly. You must report the inheritance to your state Medicaid agency — typically within 10 days — or risk being forced to repay benefits received during a period you were actually ineligible. How Medicaid treats the inheritance depends on the amount, timing, and how quickly you act.
Does an Inheritance Affect My Spouse’s Medicaid Eligibility?
If only one spouse is on long-term care Medicaid, the community spouse (non-applicant) can inherit money or property without affecting the applicant spouse’s eligibility. This is because the community spouse’s income is not counted, although their assets may be subject to certain limits.
How Does Medicaid Classify an Inheritance?
Income in the Month Received
In the month you receive it, Medicaid treats an inheritance as unearned income. If it pushes you over your state’s monthly income limit (often $2,901 for long-term care Medicaid in 2025), you can lose eligibility for that month. Spending it down entirely within that same month — in an allowable way — can restore eligibility the next month.
Assets After the Month Ends
Any unspent inheritance becomes a countable asset in the following month. If the balance exceeds your state’s asset limit (often $2,000 for an individual), you remain ineligible until you “spend down” to the allowable limit.
Why the Medicaid Look-Back Rule Matters
Medicaid reviews all asset transfers made in the 60 months before application (or during eligibility) to ensure nothing was given away or sold for less than fair market value. Giving away part or all of an inheritance usually violates this rule, creating a Penalty Period of ineligibility. California is an exception — in Medi-Cal, you can gift income (including inheritance) in the month received, and there is no asset limit.
Examples of How Inheritances Affect Medicaid
- Example 1 (Spend Down Success): Albert in Pennsylvania receives $10,000 while in a Medicaid-funded nursing home. He uses it to pay that month’s bill and purchase an Irrevocable Funeral Trust. Because he spends it all in the month received, his eligibility resumes the next month.
- Example 2 (Remaining Asset Problem): Louisa in Texas receives $25,000 while on HCBS Medicaid. She spends only part of it, leaving a balance that counts as assets the next month — keeping her over the $2,000 asset limit until she spends down further.
Do All States Treat Inheritance the Same?
No. Most states follow the general income/asset rules, but timeframes for reporting may vary. California is unique — Medi-Cal has no asset limit, and inheritance can be gifted the month it’s received without penalty.
Can I Refuse (Disclaim) an Inheritance to Keep Medicaid?
No. Under federal law, disclaiming is treated the same as receiving the inheritance and then gifting it — a violation of the Look-Back Rule. This results in a penalty period.
Example: Fred in Florida refuses a $50,000 inheritance. Medicaid counts it as a gift, leading to a penalty of about five months of ineligibility.
How Can I Spend Down an Inheritance Without Violating Medicaid Rules?
Acceptable Uses
- Paying off debt
- Prepaying funeral/burial costs via an Irrevocable Funeral Trust
- Upgrading household furnishings or appliances
- Making home safety or accessibility modifications
- Purchasing exempt assets (e.g., vehicle, clothing)
- Paying for long-term care directly
Advanced Medicaid Planning Tools
- Medicaid Asset Protection Trust (MAPT): Transfers assets to an irrevocable trust, removing them from countable assets and protecting them from Medicaid Estate Recovery.
- Modern Half-a-Loaf Strategy: Gifts part of the excess assets to family and uses the remainder to buy a short-term Medicaid Compliant Annuity (or Promissory Note) to cover care costs during the penalty period.
