So, you are on Medicaid and might receive an inheritance; what do you do next? You may need to report the inheritance to the Indiana agency that handles Medicaid.
Inheritance As Income
If you receive an inheritance in scheduled payments, Medicaid will treat each monthly payment as unearned income for that month, meaning income not earned from working. Unfortunately, this inheritance could push you over Indiana’s Medicaid income eligibility limits, making you ineligible for Medicaid during the month you inherited. And if you aren’t eligible, you will be liable for the medical costs that Medicaid would generally cover during your period of ineligibility.
Inheritance As An Asset
According to Indiana Medicaid, if you fail to spend your inheritance during the month you received it, it may be considered an asset. Because of Medicaid’s asset limits, you may be ineligible for Medicaid benefits depending on the amount of the inheritance.
How To Properly Spend Down Your Inherited Assets
There are several ways someone can spend down their inheritance in a way that does not violate Medicaid’s look-back rule, which includes paying off debt, paying for long-term care, making home modifications and additions for safety and accessibility purposes, prepaying for funeral and burial expenses through an irrevocable funeral trust, and otherwise buying assets that are exempt from Medicaid’s asset limit.
The following assets are exempt and do not need to be applied towards Medicaid benefits, nor will they disqualify the recipient from Medicaid eligibility. Exempt assets include (but aren’t limited to):
- $2,000 or less in cash or non-exempt assets ($3,000 per spouse if both spouses apply)
- Personal effects and household goods.
- One home with a maximum of $636,000 equity in value if:
- you plan to return to the home,
- it is under your spouse’s name, or
- a child under 21 or a disabled person resides in it.
- One motor vehicle worth less than $5,000 under current market value, unless the vehicle is used for the applicant’s medical treatment, employment, modified to accommodate a disability, or is the primary vehicle of the applicant’s spouse, then it is exempt regardless of value.
- Dividends from life insurance not exceeding $1,500 (interest on dividends from life insurance is not exempt)
- Burial spaces and irrevocable burial trusts.
- Savings bonds interest.
Medicaid Planning Strategies Relating To An Inheritance
Medicaid Asset Protection Trust (Inheritance Received 5 Years Before Applying)
Generally, assets in the Medicaid Asset Protection Trust (MAPT) do not count towards the Medicaid recipient’s asset limit because the assets are no longer owned by the individual who created the MAPT. However, because of the look-back period, the assets must be placed in this trust five years before applying for benefits to be exempt.
Half-A-Loaf Strategy (Inheritance Received While On Medicaid)
Under this Medicaid planning strategy, the Medicaid recipient will give away approximately one-half of their excess assets and buy a short-term Medicaid complaint annuity with the rest of the assets. The annuity takes a lump sum of cash and converts it into an income stream; the income from the annuity pays for long-term care during the penalization period. The Medicaid recipient in this scenario could effectively give away a portion of assets that they would otherwise have to spend on nursing home care out of pocket during the penalty period.
Both of the above strategies are complex and are not applicable in some situations. Speak with a Medicaid planning attorney to determine if those or other strategies could work for your situation.
Medicaid Attorney In Indiana
Have you received an inheritance and wondered how this affects your current or future Medicaid benefits? An experienced Medicaid planning attorney will help you navigate these situations. Contact the experienced Medicaid planning attorneys at Hawkins Elder Law by calling (812) 268-8777 or contacting us online for a free consultation.
About The Authors
Jeff R. Hawkins and Jennifer J. Hawkins co-author this blog with Thomas E. Hynes, a lawyer admitted to practice in Pennsylvania, New Jersey and Florida who has a background in estate planning and elder law. Jeff and Jennifer are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers. They are also active members of the Indiana State Bar Association and the Indiana Chapter of the National Academy of Elder Law Attorneys (NAELA). Jeff is also a member of the Illinois NAELA Chapter.
Jeff is a Fellow of the American College of Trust and Estate Counsel and the Indiana Bar Foundation. He is also a member of the Illinois State Bar Association and he served as the 2014-15 President of the Indiana State Bar Association.
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