Does an inheritance affect Medicaid eligibility?

1 answer | Last updated: Oct 28, 2016
Lambchops23 asked...

How do I leave money in my will to an adult disabled child and adult disabled sibling without jeopardizing their Medicaid eligibility? They can only have around 2K in the bank.


Expert Answers

Medicaid has very strict eligibility rules regarding the amount of assets someone may have -- usually only $2,000 for an individual, not counting the house he or she lives in, a car, and some personal and household goods. But it is possible to give substantial assets to someone who is disabled and still allow that person to qualify for Medicaid coverage of medical care and long-term nursing home care. The way this is done is to set up what's called a Special Needs Trust (also sometimes called a Supplemental Needs Trust or a Medicaid Trust). In your situation, two separate trusts would be set up: one for your child, another one for your sibling. With a Special Needs Trust, the money put into the trust can only be spent for the care of the trust beneficiary -- your child and your sibling. If the trust is properly structured, the money in the trust is not counted as an asset by Medicaid or Supplemental Security Income (SSI) when determining the beneficiary's eligibility.

The trust is administered by someone you name, called the trustee, to oversee the spending of the money. In order for the trust to qualify under Medicaid eligibility rules, decisions about how trust funds are spent have to be made by the trustee, not by the beneficiary. The trustee should be someone you have confidence in, both in terms of their competence and their honesty. It should also be someone who is willing and able to perform the trustee's duties. Finally, the trustee should be someone who is likely to be able to perform the job for a long while.

A Special Needs Trust can be set up as part of your will or as part of a living trust. Or, the trust can be set up to go into effect while you are alive. There may be tax and probate reasons for doing so one way or the other. This decision, and the proper creation of the trust, requires the assistance of a lawyer who is experienced with Special Needs Trusts and Medicaid law. Special Needs Trusts are usually set up by lawyers who handle probate matters -- wills and trusts. But not all probate lawyers are experienced with Special Needs Trusts. You have to make sure that the lawyer you use to establish these trusts has experience with them, and can advise you on the tax and other consequences of doing so.