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Medicaid planning and inheritances

On Behalf of | Oct 23, 2018 | Medicaid Planning

Timing is everything. This is especially true as a Colorado resident considering Medicaid planning. The timing involved in transferring assets, inheriting assets and making purchases can be important factors in estate planning and determining Medicaid eligibility.

Medicaid eligibility requires that the individual have no more than $2,000 in assets. If it becomes necessary for the individual to enter an assisted living or nursing home facility, the cost of this care can quickly drain the individual’s and family’s assets. Therefore, it is often necessary to plan for the possibility and look ahead to which benefits Medicaid and Medicare can provide.

Questions often arise regarding inheritances received by individuals already qualified for long-term care Medicaid benefits . For example, an individual residing in a nursing home paid for by Medicaid receives an inheritance from a parent.  In that a Medicaid recipient cannot have more than $2,000 in countable assets, receipt of the inheritance can result in suspention or termination of benefits until such time as the assets are once again depleted below the $2,000 threshold. Additionally, if the individual refuses the inheritance, this may be viewed as a transfer of assets (gift), resulting in a period of ineligibility for Medicaid, with the number of months of ineligibility determined by dividing the value of the gift by the statewide average monthly cost of care in a nursing home. 

The best practice is for anyone intending to leave an inheritance to a Medicaid recipient to leave it to that person in a “special needs trust”.  If properly drafted, the funds in the trust can be used for the benefit of the Medicaid recipient to supplement their needs, while not being counted against the maximum $2,000 asset cap. 

If they do not leave the inheritance in a special needs trust, options are limited and typically involve spending down the inheritance (preferably on exempt assets such as an automobile, personal property, pre-paid funeral, etc.) to get below $2,000.  If tehe Medicaid recipient is under the age of 65, there is yet another trust (known as a disability trust) which can be created by the Medicaid recipient to shelter the inheritance, but any assets remaining in that type of trust must be paid to the State Medicaid agency at the Medicaid recipient’s death to the extent of Medicaid benefits paid on his or her behalf. 

In these situations, counsel from experienced elder law attorneys can be invaluable.