The primary guidelines for Medicaid are set by the federal Centers for Medicare and Medicaid Services (CMS). However, each state manages how its Medicaid program is run. As a consequence, Medicaid rules vary among the states. With regard to Medicaid laws for asset transfers that benefit a disabled child, the CMS recognizes such transfers as lawful even when the child receives Medicaid. However, the transfer must comply with a state's particular restrictions in order not to jeopardize the child's continued Medicaid eligibility.
CMS Transfer Rules
The Medicaid transfer rules established by CMS generally require that assets transferred on behalf of a Medicaid beneficiary be considered available to the beneficiary when determining Medicaid eligibility. Typically, the assets are transferred into a trust for the benefit of the person applying for Medicaid. However, certain trusts are exempted from the general rule, such as a trust established for the benefit of a disabled child. Therefore, federal law allows a trust to be set-up for a Medicaid eligible child.
Supplemental Needs Trust
One type of transfer of assets permitted by federal Medicaid rules is a transfer to a supplement needs trust established for a disabled child. The basic requirements for a supplemental needs trust are that the disabled child be under age 65 and the trust is established by the child’s parent, grandparent or by court order. The trust must be drafted in a way that prohibits the trust assets from being considered the property of the disabled child. The trust cannot provide for the child’s basic support, such as food and shelter. These trusts will instead pay for items not paid for by Medicaid, such as education and recreation. This type of trust is generally permitted in states that follow a non-income cap approach to Medicaid eligibility; that is, Medicaid eligibility is determined by medical necessity.
Miller Trusts
Another type of trust, called a Miller Trust, is available in states that are known as income cap states; that is, Medicaid eligibility is available for a person with income that does not exceed a cap that is less than three times the Social Security benefits for one person. A disabled child residing in an income cap state can have excess assets placed in a Miller Trust which can be paid for the child’s benefit. If there are assets remaining in the trust after the child’s death, these assets must be used to reimburse Medicaid for any benefits paid during the child’s lifetime.
Miller Trusts and supplemental needs trust are complex and must strictly comply with the state laws in which the disabled child resides. Such trusts should only be established with the assistance of a qualified attorney.
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