California stands apart from the other states. In CA, Medicaid (Medi-Cal) recipients can gift inheritance, which is considered “income”, the month in which it is received. Furthermore, Medi-Cal recipients have no asset limit, and therefore, can have unlimited assets and still be eligible for long-term care benefits.
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.
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.
Inheritances can affect Child Tax Credit and Working Tax Credit as these are based on household income. So should your inheritance result in increased incomes, for example from interest, dividends or rent then your entitlement to these credits may diminish.
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.
Set Up a Trust
One of the most effective ways to protect your benefits is to have your inheritance placed in a discretionary trust. This structure ensures that the assets are not directly accessible to you, which can help shield the inheritance from means-testing.
Special needs trusts help you to manage inheritance money so it won't count toward income-based benefits like Medicaid and Supplemental Security Income (SSI). The money in special needs trusts must pay for expenses your government benefits don't cover.
Medicaid and Social Security are need-based programs - based on income and assets. If an inheritance puts a person over the limit, it can disqualify the person from Medicaid and/or social security benefits. May be ineligible based on asset limit rules if a person inherits a share in an asset like a home.
We use the most recent federal tax return the IRS provides to us. If you must pay higher premiums, we use a sliding scale to calculate the adjustments. This is based on your "modified adjusted gross income" (MAGI). Your MAGI is your total adjusted gross income and tax-exempt interest income.
Therefore, inheritances do not impact eligibility, and no reporting requirements exist for inheritances or assets received. Before assuming an inheritance will forfeit your benefits, check which program you receive—SSI or SSDI.
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.
Disadvantages of Inheritance
Inherited functions work slower than normal function as there is indirection. Improper use of inheritance may lead to wrong solutions. Often, data members in the base class are left unused which may lead to memory wastage.
A Medicaid agency cannot collect more from one's estate than the amount in which it paid. For example, if the state paid $153,000, but one's estate is worth $300,000, Medicaid can only take $153,000. With MERP, all states are required to seek recovery from the deceased Medicaid recipient's “probate estate”.
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.
Receiving an inheritance could impact your eligibility for supplemental security income if it makes you exceed income or resource limits. Even a modest inheritance could reduce or eliminate your SSI benefits, at least temporarily.
Although an inheritance won't affect your Medicare benefits, it could raise your premiums in the short-term. Medicare is a federal health insurance program for people aged 65 or older, some younger people with disabilities, or people with end-stage renal disease (ESRD).
Should You Report Your Inheritance To The SSA? For SSI recipients, you need to report any inheritance to the SSA within 10 days of receiving it. If you don't, you'll have to pay back any overpayments and other penalties. If you receive SSDI payments, you don't need to report anything.
If the inheritance is too large to “spend down” the same month it was received, the individual will lose their Medicaid coverage. The inheritance can be used to pay for their care, and once the inheritance has been “spent down” to the asset limit, they can reapply for Medicaid.
Once you've been approved for Medicaid coverage, you take on some of the responsibility of maintaining your eligibility and reporting anything that impacts it. Medicaid agencies make annual checks to account balances to ensure the Medicaid recipient still meets the right requirements.
Federal tax laws do not consider most inherited assets to be taxable income.
Your beneficiaries (the people who inherit your estate) do not normally pay tax on things they inherit. They may have related taxes to pay, for example if they get rental income from a house left to them in a will.
That means that no matter how much money is included in an inheritance or how much the property you are set to inherit is worth, you will be able to continue receiving your normal SSDI benefits. There will be no interruptions or decreases in payments.
Recent court case clarifies how an inheritance affects mean tested benefits. In previous blogs we explained that receiving an inheritance can compromise the recipient's means-tested benefits which, in the case of a person with disabilities, could put their future financial security at risk.