What Happens to Medicaid or SSI If a Person With a Disability Receives an Inheritance?

An inheritance can affect your eligibility for Medicaid or Supplemental Security Income (SSI) because both programs come with strict financial eligibility rules. If a person with a disability inherits cash, investments, or other countable property, that inheritance could push their resources above the program’s limit.

However, losing benefits is not always inevitable. The type of benefit, value, and form of the inheritance, and steps you take after receiving it can all affect the outcome. Below, our attorneys explain what happens to Medicaid or SSI if a person with disability receives an inheritance, and what you can do about it.

Why Can an Inheritance Affect SSI Benefits?

SSI bases eligibility partly on a person’s income and financial resources, so an inheritance can directly affect their benefits. An inheritance may count as income when received and, if the recipient keeps it, as a resource in later months.

These benefits are intended for people with limited income and resources, so even a moderate inheritance could push someone over that threshold.

Not every inherited asset receives identical treatment, since some types of property may qualify as an excluded resource under SSI rules. When in doubt, it’s vital that you ask an attorney about what kind of assets qualify.

Can an Inheritance Cause a Person to Lose Medicaid?

An inheritance can threaten Medicaid eligibility when the recipient receives benefits through a Medicaid category with an asset limit. Whether Medicaid changes or ends depends on the person’s particular eligibility category and how the inherited property is counted.

Medicaid doesn’t use one financial test for each beneficiary, so a family shouldn’t assume that an inheritance will automatically terminate Medicaid. However, it’s also not safe to assume Medicaid will remain unaffected.

Loss of Medicaid benefits can create consequences that go far beyond losing help with routine medical bills. A person with significant disabilities may depend on Medicaid for home- and community-based services, personal care, therapies, medical equipment, or other support. This means an inheritance that appears helpful in the short term can therefore create a much larger financial problem if it has an impact on your eligibility for government benefits.

Can a Special Needs Trust Protect an Inheritance?

A special needs trust can sometimes hold inherited assets without those assets counting against the beneficiary for means-tested benefits. However, the right trust structure depends on where the money came from and when you plan it.

A third-party special needs trust can provide an effective option when a parent, grandparent, or another person plans to leave assets to a beneficiary with a disability. Instead of leaving the inheritance directly to the beneficiary, the estate plan directs the assets into a trust established for that beneficiary. The trustee then manages the property according to the trust terms.

The situation becomes more complicated after the beneficiary receives the inheritance directly. At that point, the assets belong to the beneficiary. A first-party special needs trust may provide an option in some circumstances, but federal and state requirements can be stricter in those situations.

What Should a Person Do After Receiving an Inheritance?

A person receiving SSI or Medicaid should address the inheritance promptly rather than spending or transferring the assets without a plan. When you act decisively, you have the potential to address any means test issues before they derail your eligibility for benefits.

First, identify exactly what you inherited. Cash, real estate, investments, retirement assets, and other property can raise different eligibility questions, so it’s important to have a clear picture of the entire inheritance right away.

The recipient should then review every public benefit currently received. This is because SSI, SSDI, Medicaid, Medicare, housing assistance, and other programs don’t necessarily follow the same financial rules, so some programs might not be affected.

Simply giving the inheritance away can create additional problems. Medicaid has transfer rules that can penalize your inheritance depending on how those transfers take place. Spending money quickly without understanding the rules can also waste resources that could have improved the beneficiary’s quality of life.

Can Families Plan Ahead to Prevent an Inheritance From Disrupting Benefits?

Families can often structure an estate plan so that an inheritance benefits a person with a disability without passing directly into that person’s name. A properly drafted third-party special needs trust is one of the most common ways to accomplish this goal.

A parent or grandparent may have good intentions when naming a person with a disability as a direct beneficiary under a will or trust, but this kind of direct inheritance can create eligibility problems if the beneficiary receives SSI or means-tested Medicaid.

Frequently Asked Questions

Does an inheritance affect SSDI?

An inheritance generally doesn’t affect SSDI since it isn’t means-tested like SSI.

Does a person have to spend an inheritance before receiving SSI again?

A person whose countable resources exceed SSI limits may need to reduce those resources or use an approved planning option before regaining financial eligibility.

Can a person give an inheritance to a family member to keep Medicaid?

Giving away an inheritance can create serious eligibility problems under some Medicaid rules. A recipient should obtain legal advice before transferring inherited assets to another person.

Should a family create a special needs trust before an inheritance occurs?

Planning before the inheritance occurs generally provides more options. A third-party special needs trust can allow family members to direct future gifts or inheritances to a trust rather than leaving them outright to a beneficiary in a way that could cost them their access to benefits.

How Can Our Team Help?

An inheritance should be a positive development that improves your financial security, not unexpectedly put the benefits you rely on in jeopardy. With the help of our legal team, you can better understand how to approach a potential inheritance with your Medicaid benefits intact.

An attorney can also help families plan before an inheritance occurs. That may include establishing an appropriate special needs trust, reviewing beneficiary designations, and coordinating an estate plan that accounts for all of these important factors.

Reach Out to Disability Planning Partners To Discuss Your Inheritance

The attorneys at Disability Planning Partners understand how complicated these situations can be, and we’re ready to put our experience to work ensuring you don’t lose your benefits. Contact a Connecticut special needs trust attorney as soon as possible to explore your options.