What is the government's position regarding wards of the state receiving inheritances? Under the program that my sibling is in, she cannot have more than a certain amount in her bank account without becoming ineligible for the program. -- BC via email
A: This is a very sad situation. Based on what you say, your sister will lose her inheritance. The only silver lining is that, as a result, she'll remain eligible for government assistance.
Income taxes aren't an issue here; with few exceptions, inherited assets aren't subject to income tax. The problem is that the heir is receiving government assistance, probably from Medicaid.
Medicaid is a needs-based government program that helps people who are poor and/or disabled. Medicaid is a joint federal and state program, and its rules differ from one state to another. But in all cases, you're ineligible for assistance if your income and assets exceed a very small amount that is set by state law.
Your story is a cautionary one for other readers. Parents and grandparents who want to leave money to a disabled child should never leave it to the child directly because that can jeopardize his or her government benefits.
Your sister's share of the inheritance should have been left to a Special Needs Trust for her benefit. This type of trust should be prepared by an attorney who specializes in elder law. It's very carefully designed to pay only for things that government programs don't cover. As a result, the trust beneficiary remains eligible for government assistance.
There's little your family can do at this point. You could petition the court that probates your father's will to change its provisions, says Donald Hecht, an elder law attorney in Garden City, N.Y. But this course isn't worth considering for anything but a very substantial inheritance because it would require costly legal help. And it's a long shot even if you can afford it. "This kind of petition is very very rarely granted," he says. "You'd have to present clear and compelling evidence to the court that the will as written was not Dad's proven intention."
You say that your sister is a 'ward of the state.' That's not a legal term, says Hecht, but it sounds as if she may be a permanent resident of a psychiatric hospital.
Depending on the state, and on the beneficiary's age, Medicaid's rules are sometimes more lenient in other settings. When someone in a nursing home inherits money, for example, the inheritance will disqualify him or her for future assistance until it is spent down, but Medicaid won't always seize the money to recoup its past assistance. By contrast, Hecht says that Medicaid is often extremely aggressive about collecting any money available to its beneficiaries who are in mental health facilities. "But if the state grabs the money in this case," he adds, "at least your sister won't lose her eligibility for the program."
Please send your questions to Lynn@LynnBrennersFamilyFinance.com. I'm sorry I can't respond personally to every email. Questions are only addressed online.(c) Lynn Brenner, All Rights Reserved








