Terms like beneficiary, Medicaid and inheritance can be confusing. If you have a beneficiary on Medicaid (or you are someone else’s beneficiary and you’re on Medicaid) it can impact your inheritance.
Here’s what to know.
On this page
First, what is a beneficiary?
A beneficiary is a person or entity you decide to receive the proceeds of a life insurance policy, investment or property when you die. Naming a beneficiary allows you to decide who receives what and helps get the money, property, etc. to that person quickly. This will help insurance and financial companies to clearly see who receives what. If you don’t name a beneficiary, it may complicate things after you pass away.
If your beneficiary is on Medicaid
First understand the difference because people frequently find the terms Medicare and Medicaid to be confusing.
Medicare is a federally run insurance program based on age and certain life events that people typically enter when they turn 65. There are different options for Medicare.
Medicaid is a needs-based assistance program that serves people who have lower incomes and isn’t age dependent like Medicare. Medicaid is a federal-state program meaning that it is run at the state level following federal guidelines so the program can vary from state-to-state.
Inheritance and Medicaid eligibility cliff
Because Medicaid is a needs-based program your earnings and assets must not exceed a certain limit. This means you won’t be eligible for Medicaid if you receive an inheritance this can cause something called a benefit or eligibility cliff. Your inheritance will push your income over a certain level leaving you unable to qualify for Medicaid.
If a couple is married, and one of the spouses is not receiving Medicaid benefits, they may receive an inheritance without it impacting the other spouse’s eligibility. If you’re on Medicaid, it’s important to report an inheritance within 10 days to your state’s Medicaid office.
If the inheritance is modest, or it has been spent down within the month, Medicaid may only deem you ineligible for a certain period of time. It is important to note that depending on when you report the inheritance you may have to pay back the cost of any Medicaid benefits you received during that time.
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Refusing an inheritance…yes or no?
If you’re a named beneficiary and refuse an inheritance thinking it could solve the benefit/eligibility cliff problem think again. Medicaid views this as you gifting the money to someone else and it’s illegal in many states. This violates Medicaid’s lookback rule and can disqualify you from receiving benefits.
If you think you or your beneficiary may be subject to a benefit or eligibility cliff, seek professional legal or financial advice if possible.
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Colonial Penn Life Insurance Company is not connected with or endorsed by the U.S. government, the federal Medicare program, or Medicaid. Insurers and their representatives are not permitted by law to offer tax or legal advice. The general and educational information here supports the sales, marketing or service of insurance policies. Based upon individuals’ particular circumstances and objectives, they should seek specific advice from their own qualified and duly-licensed independent tax or legal advisors.