If you’re the parent of a child with a disability, providing for their future is one of your top priorities. You may also be planning to apply for Medicaid to cover your own long-term expense – so how can you do both? Establishing a special needs trust (SNT) may be a good option for those who want to transfer assets to their child while remaining eligible for Medicaid themselves. 

What you need to know about Medicaid

The rules for participating in Medicaid, a federally funded program managed by the individual states, are complex. Applicants must demonstrate that their income and assets are below the limits set by their state before Medicaid will fund their long-term care. Anyone with more than $2,000 (in most states) in “countable assets” (typically more liquid assets like cash, savings, and investments like stocks, bonds, etc.) will not qualify. 

People looking to qualify for Medicaid also can’t just give their money away and expect to be immediately eligible. Congress does not want people to move into a nursing home on Monday, give all their money to their beneficiaries on Tuesday, and be eligible for Medicaid on Wednesday. To avoid this situation, any Medicaid applicant who has transferred their assets recently (usually in the past 60 months) will be ineligible for funding for a certain period of time. The duration of these ineligibility periods is calculated by dividing the amount transferred by what Medicaid determines to be the average private-pay cost of a nursing home in that state.

Special Needs Trusts to the Rescue

Now for some good news – certain asset transfers are exempt from such penalties. Even after entering a nursing home, Medicaid applicants may transfer any asset to the following individuals without having to wait out a period of Medicaid ineligibility:

• their spouse;
• a trust for the sole benefit of a child (of any age) who is blind or permanently disabled as defined by the IRS; or
• a trust for the sole benefit of anyone under age 65 who is permanently disabled.

This means that there is an approved way to set money aside for someone with permanent disabilities and still qualify for Medicaid for your own long-term care – by establishing an SNT. 

An SNT is specifically geared to support a beneficiary with disabilities, under the management of a trustee, throughout their lifetime. (In this case, the SNT would be a “third-party SNT” because the funds come from someone other than the SNT beneficiary. Note that the gift can be made to a third-party or first-party SNT, depending on the state in which you live.)

An SNT can also help ensure that the individual with disabilities continues to receive any public benefits already available to them through government programs such as Medicaid and Supplemental Security Income (SSI). If you were to transfer your assets directly to the person with disabilities, you risk inadvertently making them ineligible for those government programs. 

Because each state is different when it comes to Medicaid, and because laws and cost projections are constantly changing, be sure to work closely with a special needs planner and Elder Law attorney in your home state so that you can provide for your own care while planning ahead for the care of your loved one.

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