Case Study: Medicaid Planning for Family with Special Needs Child

Margaret and Sam have always taken care of their daughter, Elizabeth. She is 45, has never worked, and has never left home. She is “developmentally disabled” and receives SSI (Supplemental Security Income). They have always worried about who would take care of her after they die. Some years ago, Sam was diagnosed with dementia. His health has deteriorated to the point that Margaret can no longer take care of him. Now she has placed Sam in a nursing home and is paying $10,000 per month out of savings. Margaret is even more worried that there will not be any money left for Elizabeth’s care.

Margaret is satisfied with the nursing home Sam is in and the facility has a Medicaid bed available that Sam could have if he were eligible. Medicaid coverage for Sam would allow him to pay only his monthly income to the nursing home and Medicaid would pay the rest of his nursing home bill. However, according to the information she got from the social worker, Sam is $88,000 away from Medicaid eligibility. Margaret wishes there was a way to save the $88,000 for Elizabeth after she and Sam were gone. There is a way.

Margaret can consult an Elder Law attorney to set up a “special needs trust” for Elizabeth’s benefit. Since Elizabeth has a disability determination, which is a prerequisite for receiving SSI, any transfer of assets from Sam to Elizabeth is an exempt transfer that does not trigger any penalty for Medicaid coverage. By transferring the $88,000 to Elizabeth and then having Elizabeth place the money into her special needs trust, Sam will become eligible for Medicaid, assuming he is compliant with Medicaid’s income cap. Under this arrangement, Sam can preserve his life savings for his daughter’s benefit and Elizabeth won’t lose her SSI benefits thereby assuring her security.

Of course, all trusts must be reviewed for compliance with Medicaid rules. Also, failure to report assets is fraud, and when discovered, will cause loss of eligibility and repayment of benefits. For these reasons, it is important to consult with an Elder Law attorney to ensure that Medicaid’s rules are being followed and coverage is properly obtained.