Nursing Homes Don't Seize Assets, But Care Costs Can Deplete Them
It's a common misconception that a nursing home can directly seize your assets, including an inheritance. In reality, the facility itself doesn't have the legal authority to do so. However, the cost of long-term care is significant, and if you are paying for it privately, you will be required to use your own funds, including any inherited money, to cover the expenses. The real risk to your inheritance comes from the complex rules governing Medicaid, the program that covers long-term care for low-income individuals.
How an Inheritance Affects Medicaid Eligibility
If you or a loved one is already on Medicaid and receives an inheritance, it's considered income in the month it's received and a countable asset thereafter. This can push you over the program's strict financial limits, causing a temporary loss of eligibility. This means you will become responsible for paying the nursing home costs out-of-pocket until your assets are once again below the state's Medicaid threshold.
Understanding the Spend-Down Process
After receiving an inheritance that puts you over the asset limit, you must "spend down" the money on approved expenses to requalify for Medicaid. You cannot simply give the money away, as this violates Medicaid's five-year look-back period and can result in a penalty period of ineligibility. The spend-down can cover a variety of costs, including paying off debts, prepaying for funeral and burial expenses, making home repairs, or purchasing exempt assets. Funding a Medicaid-compliant annuity is another option to convert assets into an income stream.
Medicaid Estate Recovery and Inherited Property
Another way an inheritance can be affected is through Medicaid estate recovery, a process where states seek reimbursement for long-term care costs after a beneficiary's death. While a nursing home cannot take property directly, Medicaid may place a claim against a deceased recipient's estate to recover costs. This includes inherited property that has been transferred into the recipient's estate. However, federal exceptions exist when the deceased is survived by a spouse, a blind or disabled child, or a child under 21.
Comparison of Inheritance Impact with and without a Trust
| Feature | Inheritance Received Directly (No Trust) | Inheritance Received Via a Third-Party Special Needs Trust (SNT) |
|---|---|---|
| Medicaid Eligibility | Jeopardized, requires spend-down to requalify. | Maintained, as funds are held by the trust and not owned by the beneficiary. |
| Asset Ownership | Considered a personal asset, subject to Medicaid's asset limit. | Owned by the trust, not the beneficiary, and does not count toward the asset limit. |
| Fund Use | Must be spent down on care costs and approved expenses. | Trustee can use funds for supplemental needs not covered by Medicaid, improving quality of life. |
| Medicaid Estate Recovery | The inheritance, once spent down, is not subject to recovery. Any remaining assets in the estate after death, however, are. | For a third-party SNT, remaining funds are not subject to Medicaid estate recovery. |
| Control of Funds | Direct control by the recipient until funds are spent down. | Controlled by a trustee for the beneficiary's benefit. |
The Importance of Proactive Planning
The key to protecting an inheritance is to plan ahead. For those already receiving Medicaid, creating a first-party special needs trust (if under 65) or a pooled special needs trust (for over 65) with an elder law attorney can help preserve the funds. If you plan to leave an inheritance to a potential Medicaid recipient, establishing a third-party special needs trust protects the beneficiary's eligibility and prevents Medicaid from recovering the trust's assets after their death. This trust allows funds to be used to supplement the beneficiary's quality of life without disrupting government benefits.
Conclusion
While a nursing home itself cannot take your inheritance, the high cost of long-term care and complex Medicaid rules can have the same effect. If you or a family member on Medicaid receives an inheritance, the money must be spent down to maintain eligibility. For future planning, strategies like establishing a special needs trust are critical to protecting inherited assets. Consulting an experienced elder law attorney is essential for navigating these rules and creating a plan that safeguards your financial legacy.
This article provides general information and is not a substitute for professional legal or financial advice. Individuals should consult with an experienced elder law attorney to discuss their specific situation and state's regulations.
