Charles N. Doberneck

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Protecting Medicaid Eligibility For A Disabled Relative By Creating A Special Needs Trust

Posted on April 19, 2014 at 4:20 PM

Spouses or parents typically create estate plans that leave property to the surviving spouse or a surviving child with no strings attached.  That is reasonable and works fine in most cases.  However, doing so when a spouse or child is disabled or in a nursing home, or when it is probable that a spouse or child will require nursing home care, could render the spouse or child ineligible for Medicaid assistance to cover the substantial cost of nursing home care.  In such a situation, a solution is to create a will that contains a “special needs trust” (sometimes also called a "supplemental needs trust") for the spouse or other relative in need of nursing home care, rather than the usual plan of leaving property outright to that spouse or other relative.  The special needs trust, if done properly, would be a “discretionary” trust which authorizes the trustee (which could be a family member) to pay or apply trust funds to care for the person needing nursing home care, but if such person is eligible for Medicaid assistance, to do so in a way that may only supplement, not replace, Medicaid assistance.  Under current Medicaid rules, a special needs trust for a spouse may not be contained in a living trust, but must be contained in a will.  By creating a special needs trust in the situation described above, property in the special needs trust can provide funds to supplement the very small monthly cash allowance that Medicaid permits to nursing home residents, but such property will not be counted as a resource that would make the surviving spouse or other relative ineligible for Medicaid assistance, as it probably would if it were given outright to the surviving spouse or other relative under a will or trust.

Categories: Medicaid, Estate Planning, Trusts