MW 'I survived a head-on car wreck': I'm on Medicaid, but inheriting $290K. How do I protect it from the 5-year look-back rule?

By Quentin Fottrell

'I was put on 100% disability. I have not worked since'

Dear Quentin,

About 30 years ago, I survived a head-on car wreck. It was not my fault. I was put on 100% disability and I have not worked since. Now, at age 68, I got a job offer to work three days a week delivering automobile supplies, and I want to take it.

In addition, I found out I have about $290,000 coming to me in an inheritance from a friend who has no family. I have no debt, and I own my house free and clear. But a wise financial friend of mine told me to be careful.

Medicaid has a five-year look-back rule and could put a lien on my house, he says, to pay for all the medical bills over the last 30 years. I would like to leave my assets to my three kids when I die. I sure appreciated Medicare and Medicaid when I needed it.

But what steps do you recommend I take now to make sure Medicaid cannot touch my assets?

Part-Time Worker

Related: 'My mother-in-law has done some shady stuff': She wants to sell air rights to her home and cheated her grandchildren out of their inheritance

Dear Worker,

You've been through a lot, and I'm sorry that the good news that you are to receive $290,000 from a dear friend is fraught with complications. Not everyone would leave their estate to someone who is not a member of their immediate family, so you must have been a good friend to this person. As for your specific question: You don't say whether you are still on Medicaid, so I will assume you are primarily concerned about the last five years of benefits.

Yes, there is a five-year Medicaid look-back period for the program to review whether an individual divested themselves of assets in order to qualify for benefits. Medicaid is a needs-based program: To be eligible, a person must have no more than $2,000 in countable assets, which includes bank accounts and investments, and no more than $2,829 a month in income, so you'll need to be careful to stay under that limit if you take this new job.

If you are a Medicaid recipient and receive an inheritance, you must report it to your state Medicaid agency. "Medicaid will view the inheritance either as income and/or assets, depending on when the inheritance was received and how long it has been since receipt," according to the American Council on Aging.

"This, unfortunately, means that receiving an inheritance could cause you to lose your Medicaid benefits," it adds. "In the month during which the inheritance is received, Medicaid will view it as unearned income (income that is not earned from working). Unless the inheritance is very modest, it will likely push one over the income limit, resulting in Medicaid ineligibility."

If you are a Medicaid recipient and receive an inheritance, you must report it to your state Medicaid agency.

Some ways to spend down your inheritance without leaving yourself vulnerable to Medicaid's look-back rule include paying off debt, purchasing an irrevocable funeral trust to prepay for funeral or burial costs, buying household furnishings or appliances and or making home modifications to improve accessibility, the ACA notes.

It also very much depends on where you live. "While a Medicaid beneficiary generally has 10 calendar days to report the receipt of an inheritance, this timeframe could be shorter or longer, depending on the state," the ACA says. In California, Medicaid (Medi-Cal) recipients can gift an inheritance, which is considered income, to a third party in the month in which it is received.

Some states, including Florida, New York and California, have rules that exempt a primary residence from assets calculated by Medicaid under certain circumstances. In other states, such as Colorado, you need to live in the home or have plans to return to it, if it's unoccupied, if you wish the property to remain exempt.

And while a person's home is generally not counted toward Medicaid's asset limit, it is not always exempt from Medicaid's Estate Recovery Program, the ACA says. If a long-term-care Medicaid beneficiary dies, the state Medicaid agency may attempt reimbursement of care costs through the remainder of the estate, and that includes the home.

It's possible for someone to set up an irrevocable trust before the five-year look-back rule to remove assets from their legal ownership. A Medicaid Asset Protection Trust can protect the assets of a person who wishes to apply for Medicaid, as long as this is done before the look-back period. Such a trust can be legally and financially complicated, however, and Medicaid can challenge it.

Such trusts can include stocks and bonds, bank accounts and CDs, and secondary properties such as vacation homes and rental homes. But with a MAPT, the person gives up control of those assets.

You should seek the help of an attorney, preferably one who is a member of the National Academy of Elder Law Attorneys Home or National Elder Law Foundation.

Godspeed for the next chapter of your life. I hope it's a financially comfortable one for you, and you get to enjoy the years ahead.

April is National Financial Literacy Month. To mark the occasion, MarketWatch will publish a series of "Financial Fitness" articles to help readers improve their fiscal health, and offer advice on how to save, invest and spend their money wisely. Read more here.

Related: I bought a home with my elderly parents. They reneged on their promise to sell their house and repay me. What now?

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.

The Moneyist regrets he cannot reply to questions individually.

Previous columns by Quentin Fottrell:

'He was recently taken to the hospital': My elderly neighbor gave me power of attorney. Can his estranged daughter object?

'Punishing myself would not help': My credit card was stolen - the thief revealed lots of nasty surprises about my finances

'We've had our ups and downs': My late in-laws left their estate to me, my husband and our son. Do we need to hire an attorney?

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-Quentin Fottrell

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April 23, 2025 05:15 ET (09:15 GMT)

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