Jan72026
Estate Planning Q&A Series

How can we protect my spouse’s inheritance if my spouse is on Medicaid and not in a long-term care facility? – North Carolina

Short Answer

In North Carolina, an inheritance received outright by a person on Medicaid can become a countable resource and may cause loss of eligibility unless it is handled quickly and correctly. Common planning tools include (1) a properly drafted and funded special needs trust or Medicaid pooled trust, or (2) a timely, properly filed disclaimer so the inheritance passes to the next beneficiary instead of to the Medicaid recipient. Which option works depends on how the inheritance is titled, when it will be paid, and what Medicaid program category applies.

Understanding the Problem

In North Carolina estate planning, the key question is: when a spouse is already receiving Medicaid (but is not in a nursing home or other long-term care facility), can an expected inheritance be received without disrupting Medicaid eligibility? The decision point usually turns on whether the inheritance will be treated as an available financial resource once it is paid, and whether there is a lawful way to redirect or shelter the inheritance before it becomes available to the Medicaid recipient.

Apply the Law

North Carolina Medicaid eligibility is based on financial rules that can treat certain money and property as “available” to the beneficiary. An inheritance paid directly to a Medicaid beneficiary is commonly treated as available money once received, which can trigger an eligibility review and possible termination until the beneficiary is back under the applicable limits. Planning often focuses on preventing the inheritance from ever becoming an available resource by using a valid disclaimer or by directing the funds into a trust designed to preserve means-tested benefits.

Key Requirements

  • Do not let the inheritance land in the beneficiary’s name: Once funds are paid to the Medicaid recipient (or into an account the recipient controls), it is much harder to protect eligibility without a disruption.
  • Use a legally recognized “receiver” for the funds: Common options include a Medicaid pooled trust subaccount (when appropriate) or another special needs trust structure that meets Medicaid rules.
  • Follow timing and paperwork rules exactly: Disclaimers and trust funding both have strict execution steps. Mistakes can cause the inheritance to be treated as available or treated as an improper transfer.

What the Statutes Say

Analysis

Apply the Rule to the Facts: Here, the spouse on Medicaid is expected to receive an inheritance from a deceased parent’s account, possibly through a beneficiary designation or other non-probate transfer. If the funds are paid directly to the Medicaid recipient, the county Department of Social Services may treat the money as available and require a redetermination, which can cause loss of coverage until the funds are handled in a way that fits the program rules. The safest planning typically happens before any distribution is made, because once the money is deposited into an account the Medicaid recipient controls, the options narrow and mistakes become harder to fix.

Process & Timing

  1. Who acts: The Medicaid recipient (or a properly authorized agent/guardian if the recipient cannot act). Where: Often with the financial institution holding the deceased parent’s account, and sometimes with the Clerk of Superior Court (estate/renunciation filing) depending on the tool used. What: Either (a) a written disclaimer/renunciation that meets Chapter 31B requirements, or (b) trust enrollment and funding instructions for a Medicaid pooled trust or other qualifying special needs trust arrangement. When: Ideally before the account is distributed to the Medicaid recipient.
  2. If using a disclaimer: Confirm the beneficiary chain (who receives the inheritance if it is disclaimed), prepare the renunciation instrument, and file it in the correct place under North Carolina law. A disclaimer that is late or improperly filed can fail, leaving the inheritance treated as received.
  3. If using a trust approach: Set up the correct trust structure first, then direct the distribution into the trust (or move funds into the trust immediately after receipt if allowed and feasible under the applicable rules). The trust must be administered so distributions are for the beneficiary’s benefit and do not accidentally create countable income/resources.

Exceptions & Pitfalls

  • Wrong Medicaid category: “Medicaid” can mean different programs (for example, coverage tied to disability, Medicare savings programs, or long-term care services). The same inheritance can affect each program differently, so the first step is confirming the exact coverage category.
  • Accidental receipt/control: If the inheritance is deposited into the spouse’s personal account (or a joint account), Medicaid may treat it as available. Even a short delay in moving funds can create an eligibility problem.
  • Improper transfer risk: Giving the inheritance away after receipt can create penalties for certain services under North Carolina’s transfer rules. Planning should avoid “quick gifts” without reviewing how N.C. Gen. Stat. § 108A-58.1 and related federal rules apply.
  • Disclaimer mistakes: A disclaimer can be a clean solution in the right case, but it must be done correctly and it permanently gives up the inheritance. It also must match the way the asset passes (beneficiary designation vs. estate vs. trust) and the filing rules in Chapter 31B.
  • Trust administration errors: Even when a pooled trust or special needs trust is appropriate, certain distributions (like direct cash to the beneficiary) can create eligibility issues. The trustee’s payment method matters.

Conclusion

In North Carolina, an inheritance received outright by a Medicaid beneficiary can become an available resource and trigger a loss of eligibility, even when the beneficiary is not in a long-term care facility. The most common ways to protect benefits are to prevent the inheritance from ever being received (a properly executed disclaimer under Chapter 31B) or to route the inheritance into an approved trust structure (often a Medicaid pooled trust under Chapter 36D). The next step is to confirm the spouse’s Medicaid category and complete the chosen plan before the inheritance is distributed.

Talk to a Estate Planning Attorney

If you’re dealing with an expected inheritance while a spouse is on Medicaid, our firm has experienced attorneys who can help explain the options, paperwork, and timing to reduce the risk of losing coverage. Call us today at (919) 341-7055.

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.

Category: Estate Planning Q&A Series

Author: Pierce Law

Pierce Law Group is a North Carolina law firm focused on probate administration, real estate partition matters, and surplus funds claims across North Carolina. We know these situations often come with stress, family dynamics, and time-sensitive decisions—so we prioritize clear communication, steady guidance, and a practical plan from day one. Our goal is to make a complicated process feel manageable, while protecting what matters most to you.