Receiving an Inheritance

An inheritance is usually welcome news. For someone on Long-Term Care Medicaid, or about to apply, it can also cause a sudden loss of eligibility. Medicaid counts inherited money and property, and how an inheritance is received, handled or refused can make a large difference. This guide explains how Medicaid treats an inheritance, what to do when one arrives, and how families can plan their own estates so a loved one on Medicaid is not harmed.

Figures change periodically. Double-check current amounts before relying on them.

How Medicaid counts an inheritance

Under the SSI-based rules most states use:

In the month received, an inheritance of cash or other property is generally counted as income.
From the next month on, whatever is left counts as an asset (a resource).

So a $20,000 inheritance received in March is income for March, and any part still held on April 1 is a countable asset. For a person on nursing home Medicaid with a $2,000 limit, that typically means they are over the limit until the money is spent down.

Property other than cash, such as a share of a house, land, stocks or a car, is also counted, usually at its current market value, unless an exemption applies.

When it is “received”

Inheritances often take months to arrive while an estate is settled. Generally, the inheritance counts when the person receives it or has the right to receive it and can use it. A pending estate that has not yet been distributed may not be available, but the state may ask about it. Report the expected inheritance as the state requires, and report the actual receipt promptly.

Reporting requirements

People on Medicaid must report changes in income and assets, usually within a short deadline (often 10 days to a month). An inheritance must be reported. Not reporting can lead to an overpayment that the state will seek to recover, and in serious cases, a fraud referral.

Options when an inheritance arrives

Spend down on allowed items

The most common approach: use the inheritance for things that benefit the person and are bought at fair market value, such as:

an irrevocable prepaid funeral;
needed medical items (hearing aids, dentures, glasses, a wheelchair);
clothing, furniture and personal items;
repairs to an exempt home;
private payment for care during the months the person is over the limit.

See Allowed and not-allowed purchases.

Pay for care privately, then requalify

If the inheritance is large, the person may pay privately for some months and then requalify once assets are back under the limit. A new application or a report of the change may be needed.

Use exempt transfers

Some transfers are not penalized, such as to a spouse, to a blind or disabled child, or to a trust for a disabled person under 65. See Exempt transfers.

A pooled or individual special needs trust

A person who is disabled and under 65 can place assets in a first-party special needs trust (a “d4A” trust). People of any age who are disabled can use a pooled trust run by a nonprofit in many states, though some states penalize transfers into a pooled trust by people 65 or older. These trusts must pay back Medicaid at death. Rules are technical.

Refusing an inheritance (disclaimers)

Some people think about disclaiming (refusing) an inheritance so it passes to someone else, often their children. For Medicaid, a disclaimer is generally treated as a transfer of assets: the person had the right to the money and gave it up. Refusing an inheritance within the look-back can therefore cause a penalty, and for someone already on Medicaid it can cause a period of ineligibility. Most states treat disclaimers this way. Ask before disclaiming.

The same applies to failing to claim an available inheritance or a spouse’s elective share: some states treat it as a transfer.

Planning your own estate when an heir is on Medicaid

If you are leaving money to someone who is on Medicaid or may need it, you can plan so the inheritance helps rather than harms:

Leave it in a third-party supplemental needs trust. A trust funded with your money (not the beneficiary’s) for the benefit of a person on Medicaid, with a trustee who has discretion and with terms that prevent the beneficiary from demanding distributions, generally does not count as the beneficiary’s asset. No payback to Medicaid is required for a third-party trust.
For a spouse in care, use a testamentary trust. Federal law applies the Medicaid trust rules to trusts created “other than by will,” so a trust created in a spouse’s will is treated differently from one created during life. This lets a healthy spouse leave assets for a spouse in a nursing home in a way that may not disqualify them.
Leave it to another family member. A parent can leave the share to a different child, with an understanding (not a legal obligation) to help. This carries risks, because the money then belongs to that child.
Review beneficiary designations on life insurance, retirement accounts and payable-on-death accounts. These pass outside the will and can disqualify an heir just as easily.

These choices involve state law and careful drafting. A Certified Medicaid Planner (CMP) and an estate planning attorney can work together.

A worked example

Ellen, 82, is in a nursing home on Medicaid. Her sister dies and leaves her $40,000. Her state’s asset limit is $2,000.

Month 1: Ellen receives the check. It counts as income that month, and her family reports it within the state’s deadline.
Month 2: The remaining money is an asset. Ellen is over the limit. Her family uses part of it for an irrevocable funeral contract ($9,000), new hearing aids ($4,000) and clothes and a recliner ($1,500), and pays the nursing home privately for the rest.
About Month 4: Ellen’s assets are back under $2,000, and her coverage resumes.

Had Ellen’s sister left the money in a third-party supplemental needs trust for Ellen, it could have paid for extras, such as a private aide for outings, without affecting her Medicaid.

Inherited property

If the inheritance is a share of real estate:

It counts at the value of the person’s share, unless an exemption applies.
If the property cannot be sold without the agreement of co-owners who refuse, some states may treat it as unavailable for a time. The state will want proof of efforts to sell.
A home inherited by a spouse who lives in it is generally exempt for that spouse.

See Jointly owned homes.

Inherited retirement accounts

An inherited IRA counts as an asset of the heir. Required withdrawals count as income. Some states treat retirement accounts differently; see Retirement accounts.

Common questions

What if I’m only applying for Medicaid, not yet on it? An inheritance received before applying is simply part of your assets. Spend down or plan accordingly.

Can I give my inheritance to my children? That is a transfer and will likely cause a penalty if made within five years of applying.

What if the inheritance is small? Even small amounts can push someone over a $2,000 limit. Spend them on allowed items in the month received or soon after.

Does an inheritance affect my spouse at home? If the spouse at home inherits after the applicant is approved, many states do not count the spouse’s new assets for the applicant. Check state rules. If the applicant inherits, it affects the applicant.

What about life insurance proceeds? They are treated much like an inheritance: income in the month received, asset afterward.

Key terms

Term	Meaning
Disclaimer	A legal refusal of an inheritance
Third-party supplemental needs trust	A trust funded by someone else for a person on benefits
First-party (d4A) trust	A trust funded with a disabled person’s own assets, with Medicaid payback
Pooled trust	A nonprofit-managed trust with separate accounts for disabled people
Elective share	A surviving spouse’s right to claim part of an estate

A checklist when an inheritance is coming

Find out the expected amount and timing from the executor.
Report it to the state as required.
Make a spend-down plan before the money arrives.
Keep the inheritance in a separate account so it is easy to track.
Keep receipts for every purchase.
Check whether any beneficiary designations or trusts affect how it is paid.

The bottom line

An inheritance does not have to end Medicaid permanently. Report it, plan how to use it on the person’s real needs, and talk to a CMP before refusing it or giving it away.

Last updated for 2026. General information only, not legal or financial advice. Medicaid Answers is a free educational resource published by Medicaid Answers Foundation.