The inheritance question comes up in two very different conversations, and the answer depends on which one you are in. Parents about to start long-term care worry that Medicaid will claim against the estate they want to leave their children. Adult children who are themselves on Medicaid worry that an inheritance from a parent will knock them off benefits they cannot afford to lose. Both concerns are real. The planning answers are not the same.
Scenario one — the applicant is receiving the inheritance
Medicaid treats an inheritance as a countable asset the month it becomes legally available, which is generally the date of the decedent's death, not the date the executor cuts the check. The recipient is obligated to report the inheritance to the state Medicaid office within 10 days of learning about it. This rule is not optional. Non-reported inheritances are the single most common trigger of Medicaid fraud referrals against individual recipients.
If the inheritance pushes the recipient above the $2,000 (2026) applicant asset cap, eligibility terminates until the asset is spent down or re-sheltered. For a recipient receiving long-term-care services at roughly $9,800 per month (2026 US median), spend-down is often a matter of months. For a Medicaid recipient on community-based services, spend-down can last years.
The sophisticated move — available in most states — is to shelter the inheritance in a first-party special needs trust (a "self-settled" or "d(4)(A)" trust under 42 USC § 1396p). Assets in a properly-drafted first-party SNT do not count against Medicaid eligibility during life. At the recipient's death, the trust assets typically reimburse the state for Medicaid paid during the recipient's lifetime, with any remainder flowing to contingent beneficiaries. It is not a way to leave the inheritance to heirs, but it is a way to preserve Medicaid benefits while the recipient is alive.
Scenario two — the parent on Medicaid has died
This is the scenario most families mean when they say Medicaid is going to take the inheritance. The parent received Medicaid for long-term-care services during life. The parent dies. The state files a Medicaid Estate Recovery (MERP) claim against the probate estate — typically within a year of death, though statutes of limitation vary. The claim is paid out of estate assets before anything flows to heirs.
What the state can reach depends on the state's recovery posture. Minimum-recovery states (California, Texas) pursue only the federally-required Tax Equity and Fiscal Responsibility Act (TEFRA) floor against long-term-care services and probate assets. Expanded-recovery states (Florida, Illinois, New York, most of the Midwest) pursue all Medicaid services — not just long-term care — and the claim can be substantially larger.
Heirs receive whatever remains after the recovery claim is satisfied. In a modest estate where Medicaid paid $400,000 in long-term-care costs and the estate is worth $450,000, the heirs can receive as little as $50,000. In a large estate, the MERP claim can be a small fraction of the inheritance. The math is state-by-state and claim-by-claim.
Planning before a parent dies
A parent who expects to need Medicaid and wants to leave assets to an heir who is also on Medicaid has a clean drafting answer — the third-party special needs trust. The parent's will or trust leaves the Medicaid-recipient child's share not to the child directly but to a third-party SNT for the child's supplemental benefit, managed by a sibling or corporate trustee. The child never legally owns the money. Medicaid never counts it. At the child's death, any remainder passes per the parent's instructions, not to the state.
This is not a loophole. It is how federal Medicaid law contemplates inherited wealth flowing to disabled or Medicaid-dependent heirs. The drafting needs to happen before the parent's death, not after — once the parent dies, the will governs, and a direct inheritance cannot be retroactively rerouted.
What doesn't work
Disclaiming the inheritance. Medicaid treats a disclaimer as a transfer equivalent to a gift, and the five-year lookback applies. A $50,000 disclaimed inheritance triggers a roughly 5-month penalty period at the US median divisor of $9,800/month (2026).
Accepting the inheritance and "forgetting" to report it. Inheritances appear on tax returns, county probate records, and routine Medicaid redetermination reviews. The state will find it, and the penalty for non-disclosure is harsher than the asset-over-limit consequence of reporting it.
Giving the inheritance to a relative the day it arrives. Same problem — a gift inside the lookback. Penalty applies.