Often people on SSI or Medicaid, two means tested programs, receive an inheritance. A means tested program is one that requires the applicant to have very limited assets or income. Both SSI (Supplemental Security Income) and Medicaid, health insurance for the poor (and payer for more than half of long term care nursing home beds in the United States) are both means tested programs. If someone on Medicaid or SSI receives an inheritance, should they simply refuse it?
One of the easiest rules to remember is the resource allowance: a single SSI beneficiary may own only $2,000 of countable resources. So when an SSI beneficiary finds out that he is going to receive an inheritance, his first reaction may be to refuse to accept it. But this refusal, also known as a disclaimer, might make things even worse for the beneficiary.
The Social Security Administration (SSA) considers an inheritance, even if it is never actually distributed to the beneficiary, as a resource for SSI purposes. So if a beneficiary disclaims her inheritance, the SSA calls the disclaimer a transfer of resources because the beneficiary is giving up control of the resource, even if she never had the money in her bank account. The SSA will penalize the beneficiary for making the transfer by canceling her SSI benefit for a period of up to three years, depending on the size of the disclaimed inheritance.
When confronted with this situation, a common reaction, especially from family members of the beneficiary who might stand to gain from the disclaimer, is to say that the SSA will never find out about the disclaimer because the money isn’t passing through the beneficiary’s bank account. Unfortunately, this attitude is not only wrong, but it violates a host of federal regulations. An SSI beneficiary has a legal duty to inform the SSA whenever she becomes entitled to an inheritance. and to let the agency know if she disclaims it. Failure to inform the SSA of these changes can create additional penalties for the beneficiary and might, in certain circumstances, result in prosecution of the beneficiary or family members who are managing her affairs.
Luckily, an SSI beneficiary doesn’t have to lose the benefit of her unexpected inheritance. Instead of disclaiming an inheritance, the beneficiary should accept it and then transfer the funds, perfectly legally, to a first-party special needs trust (if there is a parent or a court involved to establish it) or a pooled special needs trust. Once the assets are in the trust, the beneficiary will be able to continue to receive SSI benefits, but the trust funds can be used for her benefit. On the other hand, if the beneficiary had disclaimed the inheritance, she would not only lose her SSI benefits but she wouldn’t gain from her inheritance either.
The situation can be the same or slightly different if someone is receiving Medicaid as someone receiving Medicaid may or may not be receiving SSI and the disclaimer could make the Medicaid recipient ineligible for a longer period of time.
If your loved one on Medicaid or SSI is going to receive an inheritance, do not give it away. Contact your elder law/special needs attorney immediately.
About the Author
by Main Line Today
Robert M. Slutsky has practiced Elder Law since 1992 and was one of the area’s first elder law attorney. Mr. Slutsky advises clients on Medicaid and Asset Protection Planning, Guardianships, Wills, Trusts, Powers of Attorney, Estate Administration, Special Needs Planning and General Estate Planning. He has represented for profit and non-profit elder care providers and the Pennsylvania Department of Aging. Mr. Slutsky has been the solicitor for the Montgomery County Office of Aging and Adult Services, the Area Agency on Aging for Montgomery County, for over 15 years.