Medicaid Residents' Dignity Act of 1987 - Amends title XIX (Medicaid) of the Social Security Act to require States to provide each institutionalized Medicaid beneficiary who is not receiving payments under title XVI (Supplemental Security Income) of the Act with a monthly personal needs allowance of at least $35 in 1988, with subsequent annual increases in such allowance reflecting increases in the cost-of-living.

Requires skilled nursing and intermediate care facilities to: (1) safeguard a resident's personal funds upon such resident's authorization; (2) establish a separate account for each resident's personal funds; and (3) notify each Medicaid-eligible resident, when his or her account reaches $1,600, that if the account reaches $1,800 the resident may become ineligible for Medicaid.

Requires that State Medicaid plans specify, and skilled nursing and intermediate care facilities notify residents of, the items and services for which residents may be charged and those for which they may not be charged by such facilities.