Protecting Your Inheritance from Medicaid: Legal Strategies

5 mins read

Receiving an unexpected inheritance can be a wonderful surprise. However, for those relying on needs-based government benefits like Medicaid, extra assets can jeopardize essential healthcare coverage. With proper planning, you can keep both your inheritance and benefits. Read on to learn key strategies to protect windfalls while maintaining eligibility.

How Medicaid Counts Your Assets

To qualify for Medicaid, your countable assets must fall under strict limits – typically $3,000 for an individual and $6,000 for a couple, plus $200 for each dependent in Minnesota. Any resources above that small cushion can make you ineligible, at least until you “spend down” to meet thresholds again.

Inheritances and other unearned income count toward calculating Medicaid eligibility. Funds are treated as income the month received, then convert to countable assets if retained into the next month.

Laws require reporting inheritances and other asset changes to Medicaid within 10 days to avoid allegations of fraud for continuing to accept benefits when potentially over asset limits. Any failure to report can leave recipients facing repayment obligations for all Medicaid expenses after the change should have been reported.

Consequences of Exceeding Medicaid Asset Limits

Simply refusing an inheritance protects government benefits but surrenders assets permanently. Other workarounds like giving away funds also backfire due to Medicaid divestment penalties for anything gifted below fair market value.

Instead, strategic planning helps beneficiaries keep inheritances while maintaining eligibility through “spending down” techniques within the month proceeds are received. You can also shelter assets in specialized trusts and accounts exempt from Medicaid tallies under certain conditions.

The key is avoiding large lump sums that push you over resource limits abruptly. With professional guidance, inheritances can supplement fixed incomes without displacing reliable medical coverage.

Spending Down Inheritances to Stay Medicaid-Eligible

As long as excess inheritance assets get spent within the month received, Medicaid qualifications remain intact going forward. Savvy beneficiaries deploy funds quickly on Medicaid-exempt assets like:

  • Prepaying nursing home bills
  • Home repairs and modifications
  • Vehicles for personal transportation
  • Irrevocable funeral expense trusts
  • Personal goods or debt payments
  • Short-term Medicaid-compliant annuities

Annuities convert lump sums into protected income streams not counted towards Medicaid resource maximums. Specific instruments only pay out within five years to avoid penalty periods for asset transfers before applying for benefits.

When structured correctly, half an inheritance can get gifted to loved ones through “spousal refusal” while the remaining half flows into an income-generating annuity. This stretches resources to cover care costs while navigating penalty times for gifting above the monthly $213 allowance.

Using Trusts and ABLE Accounts to Protect Assets

Beyond rapidly spending down cash before the next monthly Medicaid eligibility calculation, parking assets in specialized accounts keeps funds exempt. Two options both protect resources and income comprising a potential inheritance:

  • Special Needs Trusts – SNTs shelter assets from Medicaid tallies if set up correctly and only used for expenses benefitting the trust beneficiary.
  • Achieving a Better Life Experience (ABLE) accounts – ABLE accounts don’t count for Medicaid up to $100,000. However, strict disability diagnosis rules apply before age 26.

Consulting a Medicaid planning lawyer ensures trusts and accounts get structured appropriately. Beneficiaries still meet income maximums, but strategic resources remain protected and available for enriched living.

Proactive Medicaid & Estate Planning

Unplanned inheritances disrupt many Medicaid recipients’ benefits. But foresight and expert help lets you inherit safely thanks to instruments like trusts, annuities, and specialized accounts.

Attorneys well-versed in the intricate rules help set up systems ahead of any windfalls. This proactively shields assets rather than scrambling after receiving unexpected funds. They also know how to integrate contingency inheritance planning within comprehensive estate strategies.

Safe Harbor Estate Law helps Minnesota residents balance inheritances with retaining government healthcare aid. Let us help you inherit wisely and remain eligible for vital medical coverage. Call today to protect your assets from Medicaid spend downs.

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