The office I work at has a prominent Special Needs Planning department, and when meeting with one of the planners on a separate case he to me a horrible about parents making financial decisions without fully understanding the ramifications to their child with special needs.  The situation is probably more common than you would expect a Child with Special Needs who is on SSI & Medicaid with loving parents and grandparents.  Well, Grandpa transferred a Uniform to Minors Account (UTMA) into the name of the Child (who is of majority age) and then Mom and Dad spent some of the money as legal guardian for the benefit of the child.

This seemingly  innocent move caused the Child to be kicked off of Medicaid and a large bill was then sent to Mom and dad.  Why?  Medicaid is a means based program that is provided to people with very little assets.  The transfer to child put assets into his name, and when Medicaid found out they basically said, “If you have assets you have to use them first and pay us back for money we already spent.” When looked at it that way, I think it is pretty fair.

How to Avoid Getting Kicked of Medicaid with a Special Needs Child?

I don’t know about their particular situation nor do I know your particular situation, so nothing I am going to is legal or financial advice.  Notwithstanding standard the CYA language there are a two moves that could have been looked into to prevent the horrible result.

Create a First Party Special Needs Trust

A First Party Special Needs Trust, also known as a D-4a Trust (named after the particular Federal Statute) is a trust funded with the assets of the Child with special needs.  The assets are then used to “supplement not supplant” the child-beneficiary.  Upon the death of the child the assets are used to pay back the Medicaid lien.  If there are no assets to pay back the government, then so be it…however if there are assets after paying back the government the ultimate beneficiaries receive the remainder.

Create a Third Party Special Needs Trust

If a “first party” SNT is a trust created with the Child’s own assets then a 3rd Party SNT is funded with anyone else’s assets besides the child. The benefit? From Wikipedia

Generally, a properly drafted third-party, discretionary trust is not countable as an asset available to the beneficiary receiving Supplemental Security Income (SSI) and/or Medicaid benefits. Such a trust must be created by a party other than the SSI/Medicaid beneficiary, must not receive any assets belonging to the beneficiary, and must be restricted (not accessible or available) to the beneficiary.

Again, assets are not there to supplant government benefits, but just to supplement them.  It may seem trivial but it is a big deal because if the assets are deemed to be “available” to the child then the assets will count.  When is an asset available? When the Child can direct payment to himself or his creditors.

Are these the only two options? No, but these are just two simple solutions that would have avoided the result of losing Medicaid.