Advanced Underwriting Consultants

Question of the Day – October 28

Ask the Experts!

Here’s the question of the day.

Question: My client is the beneficiary of a decedent’s IRA, and is worried that the account will make her ineligible for needs-based government benefits.  What can she do?

Answer: An inheritance might make a client ineligible for needs-based benefits, such as Medicaid, as the inheritance would be considered to be one of the client’s assets.  We strongly recommend that people who are doing estate planning make special provisions for heirs who are receiving such benefits.  With advanced planning, special needs trusts can help protect an heir against losing benefits.

The law allows a person to decline inherited property through the use of a qualified disclaimer.  If a person makes a qualified disclaimer, for Federal tax purposes, the disclaimed interest in property is treated as if it had never been transferred to the person making the qualified disclaimer. Instead, it is considered as passing directly from the transferor of the property to the person who is next in line—either a contingent beneficiary, or the deceased’s estate.

A disclaimer is effective for tax purposes.  However, it’s not so clear if it’s effective for preserving needs-based benefits.  In some states, a disclaimer is treated like a gift of the underlying asset, and may make the heir ineligible for government benefits for a period of time—up to five years for Medicaid purposes.

Not every state has decided how to treat disclaimers, so it’s best to check with a local elder care lawyer for more information if your client is in a situation like this.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.