What Happens when my Mom on Medicaid and in Subsidized Housing Receives Life Insurance Proceeds?

 In Long-Term Care Planning

Question:

My mom is on Medicaid in Pennsylvania Her daughter died and mom has become the beneficiary of a life insurance policy for a substantial amount of money. Will Medicaid take her money. She also lives in senior citizen apartments under the Philadelphia Housing Authority.

Response:

I’m sorry to hear about your sister.  Under the Medicaid program, your mother is probably limited to $2,000 in assets. Depending on how much money there is, your mother could receive it and spend it down on things for her own benefit as quickly as possible. This can include prepaying for her funeral with a reputable funeral home. If she does so during the month of receipt, the funds are never considered an asset, just income. This may make her ineligible for Medicaid during that month and she would have to let the agency know and reimburse for any medical expenses Medicaid paid for during the month.

If there’s more money than can reasonably be spent down in a month, your mother may have to go off of Medicaid for a period of time until the money runs out. In some states, it’s possible to transfer the funds to a “(d)(4)(C)”or “pooled disability” trust. (Click here for an explanation of these trusts.) Some states, however, limit these to people under age 65. You can check with a Pennsylvania pooled disability trust to find out if this is an option. You can find a list of these trusts here.

Turning to your mother’s housing, usually when people are in subsidized housing they must report a change in circumstances. The result may be a small increase in your mother’s monthly rent, but only a fraction of the money she receives. This may not be necessary if your mother spends down the money quickly. But if she’s going to keep any of it, she must report it. Otherwise she may be penalized with a large back-rent bill.

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