Medicare eligibility is based on age, illness and/or disability status rather than income. Inheriting money or receiving any other windfall, such as a lottery payout, does not bar you in any way from receiving Medicare benefits.
If you received a gift or inheritance, do not include it in your income. However, if the gift or inheritance later produces income, you will need to pay tax on that income. Example: You inherit and deposit cash that earns interest income. Include only the interest earned in your gross income, not the inherited cash.
Even if you think your inheritance won't affect your eligibility or you don't plan to accept it, it's important to report any extra income you receive to benefits agencies as soon as possible. If you don't report your inheritance, you could lose your benefits and possibly face financial penalties.
Medicaid has strict income and resource limits, so an inheritance can cause a Medicaid recipient to be ineligible for benefits. At the present time a single individual is limited to $2000.00 in countable assets and all income is payable to the nursing home.
If your total savings (including the inheritance) exceed certain thresholds, you may lose eligibility for means-tested benefits.
Other states, such as California and Texas, prohibit Estate Recovery after the surviving spouse dies. The only exception is if the surviving spouse was also a Medicaid recipient.
However, receiving an inheritance won't affect Social Security and SSDI benefits. SSI is a federal program that pays benefits to U.S. citizens who are over age 65, blind or disabled and who have limited income and resources.
Most life insurance policies have a default order of payment if you do not name a beneficiary. For many individual policies, the death benefit will be paid to the owner of the policy if they are different than the insured person and still alive, otherwise it will be paid to the owner's estate.
In general, any inheritance you receive does not need to be reported to the IRS. You typically don't need to report inheritance money to the IRS because inheritances aren't considered taxable income by the federal government. That said, earnings made off of the inheritance may need to be reported.
Immediately after receiving an inheritance, you should notify your local Social Security office.
Many people worry about the estate tax affecting the inheritance they pass along to their children, but it's not a reality most people will face. In 2025, the first $13,990,000 of an estate is exempt from federal estate taxes, up from $13,610,000 in 2024. Estate taxes are based on the size of the estate.
Getting an inheritance, such as a life insurance payment, will not affect your Medicare benefits or coverage, but it can affect your Medicare premiums.
By setting up an irrevocable trust and transferring into it any assets in excess of the Medicaid financial limits, you can effectively shield those assets from the program's fines and other penalties. One issue here is that assets cannot be transferred back out of the trust, so you have lost control of them forever.
In the month in which the inheritance is received, Medicaid will view it as unearned income. This is income that is not earned from working. Unless the inheritance is very modest, it will likely push one over the income limit, resulting in Medicaid ineligibility in the month it is received.
You may be confusing Medicare with Medicaid (or in California it is called MediCal). Medicare is insurance and there is no recovery from the enrollee's estate. MediCal will in some instances have a lien for care it paid for.
For example, if a person receives an inheritance that puts their property/asset amount to more than $2,000, they would be required to spend that amount down to $2,000 before Medi-Cal would pay for any further care.
Social Security might count a gift as income - depending on what the gift is. If you receive cash, that's typically counted as income.
Federal tax laws do not consider most inherited assets to be taxable income.
The nursing home must have a system that ensures full accounting for your funds and can't combine your funds with the nursing home's funds. The nursing home must protect your funds from any loss by providing an acceptable protection, such as buying a surety bond.