Can A Medi-Cal Recipient Establish a Special Needs Trust for his Benefit in Order to Spend Down Assets? [2010-11-15]

A trust created with the assets of a Medi-Cal recipient is generally ineffective for Medi-Cal planning purposes, since under current rules, the assets of such a trust will be deemed available to the Medi-Cal recipient. Payments from the trust or for the benefit of the individual will be considered income. Any other payments from the trust will be considered a transfer of assets by the individual for the look back period. Because of this, neither the Medi-Cal recipient nor the spouse should be the settlor of an INTERVIVOS SPECIAL NEEDS TRUST.

Alternatives To Special Needs Trusts

Here are two alternatives to establishing a Special Needs Trust if a MediCal recipient is looking to spend down assets to qualify for Medi-Cal or SSI when one has more than $2,000 in cash:

First, make a gift to children or other family members with the understanding that these funds are to be used for the Medi-Cal recipient’s benefit if needed. An outright gift with no strings attached is another option.

Second, spend down on exempt assets like a burial plot, small burial plans or small life insurance policies. Such items are often part of estate plans and therefore inevitably purchased anyway. Use cash for these items to spend down the allowable amount of liquid assets.

Exceptions to the Rule

A trust may be established with assets of a recipient, who is individual under age 65, and disabled if it is established for the benefit of the individual by parent, grandparent, legal guardian of the individual or court, as long as the trust provides that the state will receive all amounts remaining in the trust upon the death of the individual up to an amount equal to the total Medi-Cal benefits paid on behalf of the individual. See 42 USC 1614 (a)(3) and 42 U.S.C. 1396p (d)(4)(A)

If you are considering a special needs trust for a disabled individual we can help.  Contact or office and we will be glad to assist you.