Introduction
If a Medicaid beneficiary receives an inheritance that pushes them beyond their financial eligibility requirements, they will likely lose their coverage. They are not legally allowed to refuse the inheritance, but they can spend it and reapply for Medicaid as soon as they are under their eligibility limits. Seniors in this situation can spend the money in many ways, including paying out-of-pocket for their long-term care, but they also need to follow Medicaid rules while they spend. Even then they could wind up on a waitlist after reapplying for their Medicaid coverage.

How Inheritance Affects Medicaid Long-Term Care Eligibility

Seniors must meet an asset limit and an income limit to be eligible for Medicaid long-term care. An inheritance is first counted as income and then considered an asset, so it could push a Medicaid beneficiary over either limit, or both. If it does, it will make them ineligible for Medicaid and they will lose their benefits.

In the month the inheritance is received, it’s considered income by Medicaid. In most states in 2025, the individual income limit for Medicaid long-term care is $2,901/month. If the inheritance puts the Medicaid beneficiary over their income limit, they will not be covered by Medicaid for that month. They will have to cover their long-term care and healthcare expenses in a different way. For most, this involves spending the new inheritance on their care needs by paying out-of-pocket.

Whatever is left of the inheritance after the initial month will be considered an asset by Medicaid. In most states in 2025, the individual asset limit for Medicaid long-term care is $2,000. If the remainder of the inheritance pushes the individual over their asset limit, they will not be covered by Medicaid until they get below the limit. Spending on care is the most common way for inheritors to regain Medicaid eligibility, but it’s not the only way, as we discuss below. Before getting there, however, there are two things a Medicaid beneficiary must do if they receive an inheritance.

Responsibilities for a Medicaid Beneficiary Receiving an Inheritance

When a Medicaid beneficiary receives an inheritance, there are two things they are required to do.

1) They must accept the inheritance. Most people are allowed to refuse inheritances in the U.S., but Medicaid recipients are required by federal law to accept them so the money can be used to help pay for their care.

2) They must report the inheritance to the state Medicaid agency. This usually needs to happen within 10 days, but the time frame can vary by state. If the inheritance is not reported and it would have made the inheritor ineligible for Medicaid, they will have to reimburse the state for the care they received during the time they would have been ineligible.

Spending an Inheritance to Regain Medicaid Eligibility

As mentioned above, Medicaid beneficiaries who have been pushed over their financial limits for eligibility by an inheritance can, eventually, regain their eligibility. There are several ways they can do this, which are detailed next, but it’s important to know they cannot simply give the money away or spend it on anyone other than themselves or their spouse (if married). Spending on anyone else would be considered a violation of the Look-Back Period. This can include things like paying for a grandchild’s education or just giving the money away to family members or friends.

The Look-Back Period prevents individuals from simply giving away their assets so they can qualify for Medicaid. In most states, the Look-Back Period is 60 months (five years), which means the state will “look back” into the applicant’s history for the 60 months prior to their application to make sure they have not given away any assets or sold them at less than fair market value. If they have, their application will be denied and they will face a penalty period of ineligibility.

The Look-Back Period is relevant here because Medicaid beneficiaries who are pushed over the financial eligibility limits by an inheritance will have to reapply once they have regained their eligibility.

Spend Down

The simplest way to regain Medicaid eligibility after receiving an inheritance is by spending the new-found money, without violating the Look-Back Period, until one is back below the asset limit. Once this happens, the individual can reapply for Medicaid. This process is known as “spending down.”

People in this situation can spend their money on almost anything, as long as it is for themselves or their spouse. The first expenses that usually need covering are long-term care and healthcare, and after that it’s common for people to pay off debt or make home modifications for safety and accessibility if they are aging at home. They can also pre-pay for care using a Personal Care Agreement if they are at home or in assisted living. And they can spend on financial tools like a Medicaid Compliant Annuity or Irrevocable Funeral Trust that won’t count toward the asset limit or violate the Look-Back Period.

After regaining eligibility by spending down, seniors can reapply for their Medicaid long-term care program. Seniors reapplying for Home and Community Based Services (HCBS) Waivers might end up on a waitlist before regaining their coverage, if the HCBS Waiver program is full. That’s because HCBS Waivers, which cover care in the beneficiary’s home, the home of loved ones, assisted living and other places in the community, have a limited number of enrollment spots. Once those spots are full, additional applicants are placed on a waitlist. Seniors reapplying for Medicaid’s nursing home coverage won’t face this issue because Nursing Home Medicaid is an entitlement, which means eligible applicants are guaranteed coverage without wait.

Violating the Look-Back Period

If the inheritance is large enough for the inheritor to pay for their own care for a significant amount of time, they can use Medicaid Planning methods that knowingly violate the Look-Back Period. In the right circumstances, these strategies can maximize resources and prevent any lapses in coverage. The most common of these methods involve purchasing a Medicaid Asset Protection Trust (MAPT), or using what is known as the “Half-a-Loaf” strategy.

Any asset placed in a MAPT is protected from both the asset limit and Medicaid Estate Recovery, but they are expensive to create and doing so can significantly violate the Look-Back Period, leading to an extended penalty period of ineligibility. With the Half-a-Loaf strategy, the inheritor immediately gives some of the money to their family or friends while saving enough to pay out-of-pocket for care during the penalty period of ineligibility that giving the money away caused. If the strategy is used correctly, the inheritor’s penalty period and excess money will run out at the same time and they can reapply for Medicaid. Remember, seniors reapplying for HCBS Waivers can end up on a waitlist before receiving benefits if their HCBS Waiver program is full.

Consult with a professional like a Certified Medicaid Planner or an Elder Law Attorney before attempting to use either of these strategies, or any others that involve violating the Look-Back Period.

California

California Medicaid (known as Medi-Cal) gives its beneficiaries more options when it comes to inheritance. Medi-Cal has no asset limit, so beneficiaries can have unlimited assets and still be eligible for long-term care benefits. This means they could accept being income-ineligible in the first month if they have enough to pay out-of-pocket for their care in that month, and then simply keep whatever is left and reapply for Medi-Cal.

Getting Professional Help

Most of the Medicaid Planning strategies mentioned above are complicated. Using them incorrectly can lead to a Medicaid application being denied and a penalty period of ineligibility. This could be devastating to someone who just spent a new inheritance thinking it would help them regain their Medicaid coverage. To avoid this situation, consult with a professional like a Certified Medicaid Planner or an Elder Law Attorney. They can explain exactly how the inheritance will impact Medicaid eligibility in your state, outline the various planning options for regaining eligibility, and help implement those plans so the client can maximize their resources and receive the care they need without violating any Medicaid rules.