If you have a child with a disability, providing for them into the future will likely stand among your top priorities. However, if you also wish to apply for Medicaid to cover your own long-term care expenses, first consider establishing a special needs trust (SNT) for your child. This will allow you to transfer assets to support them while remaining eligible for Medicaid yourself.
The rules for participating in Medicaid, a federally funded program managed by the individual states, are stringent and 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” (generally, anything beyond their home, one automobile, and personal belongings) will not qualify. At the same time, applicants can’t just give their money away and expect immediate support from the program.
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 — in most states, “recently” means the past 60 months — will be ineligible for funding for a certain period of time. The duration of these penalty periods is determined 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
The 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
- a trust for the sole benefit of anyone under age 65 who is permanently disabled
In other words, there is a way to set money aside for someone with permanent disabilities and still qualify for Medicaid for your own long-term care. This is possible through an SNT, which is specifically geared to support the 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 person with disabilities. 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 also can 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). That is, if you were to transfer your assets directly to the person with disabilities and their resulting “countable assets” then exceeded a program’s threshold (which is $2,000 for SSI), you may inadvertently have made 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 in your home state so that you can provide for your own care, and that of your loved one with disabilities, in the best possible way. For more information, check in with your special needs planner.