Best place to invest an inheritance for someone whose income does not qualify to be taxed by federal govt.
My friend is on SSDI and receives food stamps and Medicaid. She is 64. She pays no income taxes. She will be inheriting about $40,000 from her fiance who passed away. Where can she put this money without paying taxes and withdraw when she needs funds? Is a tax-deferred annuity from Fidelity a good option for her.
Terry Says
This is a tough one. It’s not the “income” that matters so much. It’s the fact that if she has this “asset” she will likely be disqualified from all her Medicaid and food stamp benefits. You need to see an attorney about whether she can “disclaim” this inheritance — and have the money put in a trust over which she has no control. The trustee could dole out cash as needed, or perhaps purchase a home where she could live rent-free. As long as the money is not hers to withdraw, it’s ok.
But even if she owns an annuity, it would be considered an asset and put her status at risk.
Here’s a long explanation from the American Council on Aging:
If you inherit money, you are legally obligated to report it to Medicaid. Depending on the amount of the inheritance and your current level of income and assets, an inheritance can cause you to lose your Medicaid coverage. On the other hand, if you inherit money and do not report it, you will be required to pay Medicaid back for the services and benefits that were provided during any period of ineligibility.
When a Medicaid recipient receives an inheritance, it is counted as income in the month that it is received. This means, more likely than not, a Medicaid recipient will be over the income limit for the month, and he / she will not be Medicaid eligible during that specific month. (In most states, the income limit for an individual for long-term care Medicaid is $2,523 / month in 2022. To see income limits by state and programs, click here).
The following month, any remaining inheritance is counted as an asset. Remember, for eligibility purposes, Medicaid also has an asset limit. Not only must a Medicaid applicant meet this asset limit in order to qualify for benefits, he / she must maintain his / her assets at, or below, this level. (In most states, the asset limit is $2,000 for a single applicant. To see state specific asset limits, click here).
Unfortunately, even a small inheritance can cause a Medicaid recipient to have “excess” assets if not spent in the month in which it is received. Therefore, if at all possible, the inheritance should be “spent down” to the asset limit in the month in which it is received in order to avoid the possibility of being Medicaid ineligible the following month. This can be done by purchasing an irrevocable funeral trust, paying off debt, and making home modifications and / or repairs. What one should avoid doing is giving away money to relatives, as this violates Medicaid’s look-back period, and can result in a period of Medicaid disqualification. Please note, even if the inheritance is spent in its entirety in the month in which it was received, Medicaid should still be notified of the inheritance and how it was spent.
If the inheritance is too large to “spend down” the same month it was received, the individual will lose his / her Medicaid coverage. In this event, the inheritance can be used to pay for his / her care, and once the inheritance has been “spent down” to the asset limit, he / she can reapply for Medicaid.
And here’s a link to that item online — and on that page, you’ll find a link to Medicaid planning attorneys.
