Inheritance and Medicaid

If you are on Medicaid and receive an inheritance, you are required to report it to your state Medicaid agency. In most states, this must be reported within 10 calendar days. If the inheritance would have disqualified you from Medicaid coverage and you did not report it, you will have to reimburse Medicaid for any benefits received during the time you would have otherwise been ineligible for Medicaid. 

 An exception to this is for married couples. If only one spouse receives Medicaid long-term care, the community spouse (the non-applicant spouse) can receive an inheritance, and it will have no impact on the applicant spouse’s Medicaid eligibility.  

Will I Lose my Medicaid Coverage?

Medicaid considers an inheritance either as income or assets, depending on when the inheritance was received. Receiving an inheritance could cause you to lose your Medicaid coverage. Medicaid is a need-based program, and for long-term care, Medicaid applicants and beneficiaries must have limited income and assets. In 2025, a single applicant for Nursing Home Medicaid or Home and Community Based Services (HCBS) via a Medicaid Waiver is limited to around $2,901 / month in income and $2,000 in assets, depending on the State where you reside.  

During the month which the inheritance is received, Medicaid treats it as unearned income (income that is not earned from working). If the inheritance is large enough to push you over the monthly income limit, you will be ineligible to receive Medicaid during the month it is received. If the money is all spent during the month it is received,  and without violating Medicaid’s Look-Back Rule, you would be eligible for Medicaid coverage again the next month. 

Medicaid’s Look-Back Rule considers Nursing Home Medicaid or HCBS Waiver applicant’s asset transfers for 60-months immediately preceding application to ensure assets were not given away or sold for under fair market value. Medicaid also considers beneficiary giving away an inheritance as a violation of this rule, resulting in a Penalty Period.  

If an inheritance is not all spent during the month of receipt, any remaining inheritance will count as assets the following month. If the remaining amount still puts you over the income limit for the month, you will remain unable to receive Medicaid. You would not be eligible for Medicaid until the assets that are over Medicaid’s asset limit are “spent down”. 

There are a few ways that you can “spend down” an inheritance to meet Medicaid’s asset limit without violating Medicaid’s Look-Back Rule. These include paying off debt, purchasing an Irrevocable Funeral Trust or Preneed Insurance Policy to prepay for funeral / burial costs, buying new household furnishings or appliances, and / or making home modifications. Once your assets fall below Medicaid’s asset limit, you can reapply for Medicaid. 

Should I Refuse/Disclaim an Inheritance?

While you do not have to accept an inheritance and can instead “disclaim” (refuse) it, it is not recommended that Medicaid beneficiaries do so. When it comes to Medicaid, disclaiming an inheritance is not allowed under federal law. This is because Medicaid considers the inheritance a means for one to pay for their long-term care. Medicaid considers disclaiming an inheritance the same as if the individual received the money and gifted it to someone else. This violates Medicaid’s Look-Back Rule and results in a period of Medicaid disqualification. 

The best way for a Medicaid beneficiary to handle an inheritance is to accept it and then spend it down or implement planning strategies with the help of a Professional Medicaid Planner. 

Ways to Spend Down an Inheritance

It is vital that one “spend down” an inheritance in a way that does not violate Medicaid’s Look-Back Rule. There are several ways in which one can do this, including paying off debt, paying for long-term care, making home modifications and additions for safety and accessibility, prepaying for funeral and burial expenses via an Irrevocable Funeral Trust, and buying assets that are exempt from Medicaid’s asset limit. 

Another way is to purchase a Medicaid Compliant Annuity. This strategy does violate Medicaid’s Look-Back Rule but may be a good option if a Medicaid recipient’s inheritance is significant and they can afford to pay for long-term care during the Penalty Period. Once the Penalty Period is over, they can reapply for Medicaid benefits

Medicaid Compliant Annuity (MCA)

With this strategy, one gifts approximately half of their “excess” (the amount over Medicaid’s asset limit) assets to a loved one and buys a short-term Medicaid Compliant Annuity with the rest of the assets. An annuity takes a lump sum of cash and converts it into an income stream. The income from the annuity allows one to pay for their long-term care during the penalization period for gifting assets to a loved one.  

A Medicaid Compliant Annuity (MCA) is a single premium immediate annuity with added restrictions to comply with the Deficit Reduction Act of 2005. To be Medicaid compliant, the annuity must meet the following requirements: 

• Irrevocable 

• Non-assignable 

• Actuarially sound 

• Equal monthly payments 

• State Medicaid agency as primary beneficiary. 

MCAs are often used in Medicaid planning to protect assets and accelerate Medicaid eligibility by converting excess countable resources into an income stream with no cash value. 

Medicaid recipients should contact a Medicaid Planner as soon as possible upon knowledge they will be receiving, or have received, an inheritance.