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    Home » Wills and Trusts » Key Facts About the Medicaid Special Needs Trust

    Key Facts About the Medicaid Special Needs Trust

    July 6, 2017Wills and Trusts

    If you need Medicaid for nursing care, but have too many assets to qualify, you might assume that you need to spend all your wealth to become eligible. Consider a Medicaid special needs trust instead.Long-term care is something that large numbers of us will eventually need at some point in the future. Unfortunately, nursing home costs have been rising for many years now, and current forecasts for future costs suggest that there’s likely to be little relief for those retire in the next few decades. And with most Americans having less than $10,000 in retirement savings, it’s fair to assume that many of us will struggle to come up with viable ways to pay for our long-term care needs when they arise.

    Medicaid planning can help you prepare for those costs, but what happens if you wait too long and end up with too many resources to qualify for those benefits? What if you’ve left yourself with no viable plan in place and need to rely on emergency planning measures to comply with those strict Medicaid eligibility limits? If that happens to you, you may be able to benefit from a Medicaid special needs trust. Here are some key facts that you need to know about these trusts, to ensure that you receive the full benefit from using them.

    What is a Medicaid Special Needs Trust?

    A Medicaid special needs trust is a type of trust that is specifically created to hold property on behalf of anyone who is receiving or trying to qualify for Medicaid benefits for long-term care. The idea is to separate those assets from the applicant’s estate so that he or she can meet the program’s eligibility guidelines and receive the benefits needed to pay for essential care. As you might imagine, the same type of trust can also help applicants who are trying to secure Supplemental Security Income, or SSI.  These trusts come in a variety of forms.

    How Can a Medicaid Special Needs Trust Benefit You?

    The most obvious benefit of these trusts is found in their ability to help applicants become eligible for benefits that they desperately need. If, for example, you were applying for Medicaid and had a total of $10,000 in countable assets, you would typically have only a few select options to make yourself eligible for benefits. You could spend down the excess $8,000 in assets, using that money to upgrade your home, buy your spouse a new car, or do essential home upgrades. You could also purchase an annuity to convert the assets into a vehicle for income generation. Alternatively, you can use these trusts.

    When these trusts are created and funded in accordance with the law, they can be an effective way to remove assets from your estate without incurring the transfer penalties that might otherwise attach. This is important to remember, since the Medicaid program’s five-year look-back provision can often result in lengthy periods of ineligibility when improper transfers are made. When done correctly, you can protect those excess assets and have them available to benefit you for the supplemental needs that Medicaid and other government programs typically fail to cover.

    Your Options

    There are several different ways to use these trusts, and each has its own advantages for given circumstances. It’s important to consult with an attorney so that he or she can help to ensure that the trust you use is the one you really need.

    First Party Special Needs Trust

    First-party trusts are those that that are funded with the beneficiary’s own property – and are sometimes known as self-settled trusts. These are commonly used when Medicaid recipients suddenly receive an infusion of wealth – either from a court judgment, inheritance, or other source. They can only be used for those who are younger than 65 and suffering from a disability, and must be created by a court, or the person’s parents or grandparents. This type of trust also needs to list the state responsible for Medicaid payments as the trust beneficiary, so that the state recovers that money when the benefit recipient passes away.

    Third-Party Special Needs Trust

    The third-party special needs trust is funded with money from friends or relatives of the beneficiary, and is like those used for disabled children and others who cannot receive a direct inheritance without putting their benefit eligibility at risk. This trust’s operation and distribution of assets is managed at the discretion of the trustee, which means that beneficiaries have no right to demand money from the trust. That lack of direct assets enables the funds to remain outside of the process used to determine benefit eligibility.

    Pooled Trust

    Pooled trusts enable Medicaid beneficiaries to pool their resources in trusts used by other Medicaid beneficiaries, to divest themselves of resources that would otherwise make them ineligible for benefits. These assets are transferred to a trust and held in separate sub-accounts for each of the participating Medicaid beneficiaries. When a benefit recipient dies, the state can recoup its benefit payment from the beneficiary’s portion of the trust. Assets in excess of those recovered monies are distributed to beneficiaries named by the Medicaid recipient.

    Miller Trust

    Another special kind of trust is used to deal with excess income. By creating a Miller Trust – or Qualified Income Trust – a Medicaid applicant can divert excess monthly income into a special trust that then used those funds to pay a portion of the applicant’s nursing home costs. That lowers the applicant’s monthly income so that he can qualify for Medicaid benefits that pick up the rest of those care costs.

    The important thing to remember is that there are options available to you to help you ensure that you qualify for Medicaid benefits when you need them. And while it is always preferable to plan for long-term care needs well in advance of actual need, there are ways to deal with eligibility challenges if you fail to do so. Of course, these are serious issues and you should always have the assistance of an experienced trusts attorney to guide you through the creation of any Medicaid special needs trust. At the Augulis Law Firm, our attorneys can help to ensure that you have the trusts you need to secure those vital benefits. To learn more about how we can assist you today, contact us at our website or give us a call at (908) 222-8803.

    • Author
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    Alan Augulis, Estate Planning Attorney
    Mr. Augulis founded his Warren, New Jersey law firm so that he could focus his practice in the areas of advanced estate planning and tax law. Mr. Augulis has invested considerable time and energy helping to educate others on the topic of estate planning and has become a sought-after speaker in the tax and estate planning arena because of his informative and entertaining seminars.
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    About Alan Augulis, Estate Planning Attorney

    Mr. Augulis founded his Warren, New Jersey law firm so that he could focus his practice in the areas of advanced estate planning and tax law. Mr. Augulis has invested considerable time and energy helping to educate others on the topic of estate planning and has become a sought-after speaker in the tax and estate planning arena because of his informative and entertaining seminars.

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