Leaving an inheritance to someone receiving SSI or Medicaid can pose some challenges, depending on how you do this. But the good news is that there are several estate planning strategies you can use to safely leave an inheritance to someone receiving Medicaid or SSI without risking their eligibility.
In today’s post, we will discuss whether someone can get an inheritance while receiving Medicaid or SSI benefits. So, keep reading to find out when this is possible and how you should do it.
How an Inheritance Can Affect SSI or Medicaid Eligibility
Giving an inheritance to a beneficiary receiving government benefits, while possible, can create some issues for the recipient. The reason for this is that government benefits, such as SSI or Medicaid, have specific eligibility requirements. These requirements usually limit the monthly income and assets of the individual.
So, by giving an inheritance directly to a beneficiary receiving SSI or Medicaid, you could put their eligibility at risk.
For instance, SSI treats inheritances as unearned income, which can put the recipient above the eligibility limit. Also, Medicaid recipients can become ineligible after receiving an inheritance until they have spent down these funds.
In addition to these risks, a beneficiary can’t simply refuse or disclaim the inheritance as a way of protecting their SSI or Medicaid benefits. Doing this could result in Washington labeling the inheritance as an illegal transfer of assets, leading to a potential benefit penalty or cancellation of benefits for up to three years.
How to Leave an Inheritance Without Causing SSI or Medicaid Issues
So, as you can see, leaving an inheritance to someone receiving SSI or Medicaid can create a variety of problems by interfering with eligibility. However, that doesn’t mean that you can’t leave money to someone on SSI or Medicaid. You just need to be very strategic about how you do this so that you are adhering to Washington law while protecting government benefit eligibility at the same time.
Here are some of the main ways you can leave an inheritance without creating eligibility problems for the recipient.
Special Needs Trust
The best possible option you have, especially when it comes to estate planning for children with disabilities in Washington, is to establish a special needs trust. A special needs trust will hold assets for an individual, but these assets aren’t counted towards the resource limits for most government benefits. The recipient can then use the resources in the trust to pay for things that Medicaid or SSI benefits don’t.
There are two types of special needs trusts commonly used in Washington: first-party trusts and third-party trusts. A first-party trust must be established by a legal guardian, the court, a grandparent, or a parent, but you can fund it with your own money, including an inheritance. Whereas a third-party trust is funded by someone else’s money, such as a parent’s estate.
ABLE Accounts
Parents or grandparents going through the process of estate planning for a disabled beneficiary may want to consider an ABLE account. An ABLE account, otherwise known as an Achieving a Better Life Experience account, is a savings account specifically designed for people with disabilities. The main benefit of this account is that it allows you to protect up to $100,000 from the SSI resource limit.
Keep in mind that it has some strict requirements, such as:
- The individual’s disability must have begun before the age of 46.
- There is an annual contribution limit of $20,000 from all sources combined.
- The money can only be used for qualified disability expenses.
- It can only protect inheritances up to $20,000.
Spend-Down
Depending on the circumstances and the size of your inheritance, you may be able to spend down within the month that you receive the inheritance. By doing this, you can bring your countable resources back down to the resource limit before your inheritance is counted against you.
However, there are requirements for spend-down purchases, so you can only use this strategy for things like:
- New vehicles
- Vehicle repairs
- Paying off debt
- Pre-paying rent, utilities, or insurance
- Home modifications for accessibility
- Medical equipment
- Prescriptions or healthcare costs
- Clothing, furniture, or household necessities
Before attempting to spend down an inheritance, you should consult with an estate planning attorney in Spokane to ensure you don’t accidentally violate any government benefit rules.
What If the Beneficiary Has Already Received the Inheritance?
If you have already received the inheritance, you must report this to the Social Security Administration within 10 days after the end of the month that you received the money. From there, you should consult with a Spokane estate planning lawyer to determine what your next steps should be.
Every situation is different, so you may have different options to try to maintain your SSI or Medicaid eligibility even after you have already received an inheritance.
FAQ Section
Can someone on SSI receive an inheritance?
They can, but receiving an inheritance can put their SSI eligibility at risk by exceeding the countable resources limit.
Does an inheritance automatically cause someone to lose Medicaid?
No. The applicable Medicaid eligibility rules are dependent on the particular program and the circumstances for each recipient. However, without the proper planning, it is likely that an inheritance could interfere with Medicaid eligibility.
Can I leave money to a special needs trust instead of directly to my loved one?
Yes. Leaving money by way of a third-party special needs trust is a common strategy loved ones can use as a way of gifting an inheritance to a disabled loved one without risking their government benefits.
Should I name the person receiving benefits as my life insurance beneficiary?
Not usually. Doing this could result in the beneficiary becoming disqualified from their government benefits due to the asset limit. Instead, you should consider establishing a special needs trust.
Start Preparing For the Future With the Help of a Spokane Estate Planning Attorney
Leaving an inheritance to a disabled beneficiary could put their SSI or Medicaid benefits at risk if you don’t do this in the right way. To learn more about how this process works, reach out to Kristina Mattson Law today by calling 509-998-6629 to speak with an experienced and knowledgeable Spokane estate planning lawyer.
