Disabled Child Transfer Last Updated January 28, 2018
Table of Contents:
- How Does It Work?
- Who Is It For?
- How do I transfer assets to my disabled child?
When considering your Medicaid application, your Medicaid caseworker will look at your "countable assets," broadly defined as anything that could potentially be used to pay for medical care (for example, money in your savings account). If the total amount of your countable assets exceeds a certain threshold, you will not be eligible for Medicaid. In theory, this means you would have to spend your "excess assets" (the amount over the maximum allowed) before becoming eligible.
However, you may still become eligible before spending your assets by using strategies designed to reduce your countable assets while retaining their value. One strategy for parents of disabled children is a "sole benefit" trust for a blind or disabled child.
A "sole benefit" trust for a blind or disabled child is a way for a parent of a disabled child to become eligible for his or her own Medicaid sooner, by transferring countable assets to the child in the form of a trust.
The word "child" here means any offspring or adopted person of the Medicaid applicant. Age is not a factor, so sole benefit trusts can benefit disabled minors or adult children of any age. The term "disabled" means a person who meets current disability standards under Social Security rules.
Note that similar trusts can be created for the "sole benefit" of other disabled family members, such as a sibling or grandchild. A Medicaid expert can advise.
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How does it work?
Let's say you are the parent of a disabled child and want to apply for Medicaid funds to help pay for your own care. Let's also say you have $100,000 in countable assets, including bank account balances, certificates of deposits, stocks and bonds, etc. If you apply for Medicaid now, you would be denied coverage, because Medicaid rules require you to spend nearly all your countable assets before becoming eligible.
So to reduce those countable assets and make you eligible for Medicaid, you decide to transfer the $100,000 directly to your child. While most asset transfers that occur within the "lookback period" (the 5 years preceding Medicaid application) result in a "penalty period" that delays your Medicaid eligibility, transfers to a disabled child are exempt from this penalty, so you assume all is well.
However, you've unintentionally created a new problem. Since you increased your disabled child's assets by $100,000, your child may now be ineligible for government benefits, including the benefits he or she already receives.
A trust for the sole benefit of a blind or disabled child would have prevented this problem. Rather than transferring the money directly to your child, you transfer it to a trust that pays the money back to your child in small amounts over time. This kind of trust is not counted as an asset for benefit eligibility. Therefore, you have transferred the money to your child without harming his or her benefits, and you have met the Medicaid asset qualifications for yourself without incurring a penalty period. Assuming you otherwise qualify, you could begin collecting Medicaid benefits immediately.
Who is it for?
A "trust for the sole benefit of a blind or disabled child" can be useful for any parent of a disabled child who is seeking Medicaid funds for his or her own care, but currently holds too many assets to qualify.
In order for the trust to work, your child must be considered "disabled" according to Social Security rules.
How do I transfer assets to my disabled child in the form of a trust?
A "sole beneficiary" trust can be an effective way of attaining Medicaid eligibility while ensuring your disabled child benefits from your assets. Deciding whether it works in your situation, and designing the right kind of trust for you and your child, can be complicated. For example, in addition to being for the "sole benefit" of your disabled child (paying out to no one else), the trust must usually be either "actuarially sound" (designed not to continue payments beyond your child's life expectancy) or must stipulate that the state will be reimbursed for Medicaid funds it provided if the beneficiary dies with funds remaining in the trust.
Professional advice from a Medicaid expert with knowledge of these trusts will ensure that the trust is properly designed and suits your particular circumstances.