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Impact of Inheritance on Needs-Based Assistance

Inheritance Dilemma: Unraveling the Challenges for Individuals on Needs-Based Assistance Programs

As beneficiaries receive an inheritance, the windfall can be a double-edged sword, particularly for those on needs-based assistance programs such as Medicaid. While the inheritance might represent a degree of financial security, it can also inadvertently threaten the recipient’s eligibility for aid. This tension creates a complex and often stressful situation for beneficiaries. Given the potential complexities and high stakes involved, it is essential to consider the potential impact on beneficiaries who may be recipients of needs-based assistance programs when creating your estate plan.

The Impact of Inheritance on Medicaid Recipients

Medicaid is a joint federal and state program established to provide medical coverage and assistance to individuals and families with low income. The eligibility criteria for Medicaid are largely determined by an individual’s financial situation, taking into account their income and assets.

When an individual becomes the beneficiary of an inheritance, whether that be in the form of money, property, or other assets, this can have a significant impact on their eligibility for Medicaid. This is due to the fact that Medicaid, along with other needs-based assistance programs, sets specific financial thresholds that individuals must fall under in order to qualify for aid.

Upon receiving an inheritance, Medicaid categorizes it as income for the month it is received. This is a critical point to understand because the size of an inheritance could potentially push an individual’s financial resources over the limit set by Medicaid, causing them to no longer meet the eligibility criteria. It’s not just the cash inheritances that are considered. The value of inherited property and other assets are also taken into account when determining an individual’s financial status.

The Consequence of Losing Medicaid Coverage

If a recipient’s financial resources exceed the program’s limits due to an inheritance, they could lose their eligibility for Medicaid, leading to an abrupt end to crucial support for medical expenses and long-term care. The consequences of losing this assistance could be particularly devastating for individuals who rely on Medicaid for essential healthcare and services. The fallout from losing Medicaid coverage can be devastating. For many beneficiaries, Medicaid is not just a supplementary aid but a lifeline. It may cover costs that are otherwise unaffordable, such as prescription medications, mental health services, or long-term care for those with chronic illnesses or disabilities. Without Medicaid, beneficiaries may find themselves financially vulnerable, potentially unable to afford necessary care or medications.

Using Special Needs Trusts (SNTs) to Preserve Access to Needs-Based Assistance

Special needs trusts are a critical tool in the estate planning arsenal, especially when it comes to ensuring that beneficiaries don’t lose their eligibility for needs-based assistance programs, like Medicaid. These legal instruments are designed in a way that allows individuals to receive and benefit from an inheritance without affecting their financial eligibility for such programs.

A special needs trust is a particular type of trust created for a person with disabilities. It’s structured in such a way that the assets held in the trust do not directly belong to the beneficiary, but are rather managed by a trustee. The trustee can use the trust’s assets to pay for the beneficiary’s needs that are not covered by public benefits. This may include expenses related to education, recreation, personal care attendants, out-of-pocket medical and dental expenses, and other special needs.

The critical aspect of a special needs trust is that the assets it holds are not considered ‘countable assets’ when determining eligibility for needs-based assistance programs. In other words, the value of the assets held in the trust does not count towards the financial thresholds set by programs like Medicaid. This means that a person can be the beneficiary of a substantial special needs trust and still maintain their Medicaid eligibility.


Attorney Danielle PierceAn inheritance, while a financial boon, can inadvertently compromise the Medicaid eligibility of the recipient, particularly those who heavily rely on this aid for their essential healthcare needs. Special Needs Trusts offer a viable solution to this predicament, allowing beneficiaries to retain their eligibility for needs-based assistance programs such as Medicaid while still benefiting from their inheritance. At Pierce Legal, we are well-versed in the complexities of estate planning, including creating Special Needs Trusts. We are committed to helping you navigate this complex terrain and ensuring that your estate plan is thoughtfully crafted to protect the interests of all your beneficiaries. Contact Pierce Legal today to create a comprehensive estate plan that takes into account all the complexities of your and your beneficiaries’ situations.


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