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Medicaid Payback Trusts

Medicaid Payback Trusts

Receiving a windfall from an inheritance or lawsuit settlement can interfere with certain needs-based public assistance benefits such as Medicaid or Social Security Income (SSI). If the extra money is countable as a “resource”, the beneficiary could lose his housing, medical provider, structured work program, food stamps and other benefits. Individuals who rely upon those benefits may end up using a large portion of the windfall on their basic needs or squandering it quickly in an effort to get back on their benefits. A Medicaid Payback Trust may allow the individual to enjoy the benefits of the windfall throughout his life time.

To qualify for needs-based assistance, one must have limited assets. For example, to qualify for Medicaid, one must have available resources of $1,500 or less. If one has more than that, he is not eligible for the program. If the money is available to him, he must spend the money to pay for his care. A Medicaid Payback Trust removes the money from the control of the beneficiary and puts it in the hands of a Trustee, who has authority to spend it for the benefit of the beneficiary.

Because need-based programs also have limited income rules, the trustee must be careful how he distributes the money in the trust. Direct cash payments made to the beneficiary will be added to the monthly income and may reduce benefits dollar for dollar. Payments for food, shelter or clothing (or that are exchangeable for food, shelter or clothing) are “in kind” payments that may also reduce benefits.

Special Needs Trust

Suppose John is receiving Medicaid. He is struck by a car and receives a settlement from the driver's insurance company. After his medical bills are paid, John is able to keep $30,000 for his pain and suffering. John may be able to retain his public benefits if the funds are put in a Special Needs Trust. A trust qualifies as a Special Needs Trust if:

• The trust is funded with John's assets
• John is under 65 years old and is disabled as defined in the Administrative Code
• The trust is established by John's parent, grandparent, legal guardian or the court
• The trust provides that any money remaining in the trust at John's death will be paid back to the state up to the amount he received in medical assistance.

John or others may later add money to the trust, but not after John turns 65.


Pooled Trust

Suppose John is over 65 by the time he received his settlement from the accident, or that there is no one to act as his trustee. John may be able to protect his benefits by putting the money in a pooled trust.

Pooled trusts are established and managed by a non-profit corporation. In our area the Community Fund Management Foundation (CFMF) administers the Pooled Trust with Fifth Third Bank of Northeast Ohio acting as trustee. John, his parent, grandparent, legal guardian, or court may establish an account for John's sole benefit so long as he had been disabled before turning 65. The pooled trust funds are managed together, but each participant's money is kept in a special account. Family members may act as advisors to the trustee to help determine how the trust funds can best be used to help John.

The Pooled Trust also has payback provisions, either to the state or the non-profit.


Medicaid Payback Trust

A Medicaid Payback Trust is established to prevent the funds received from an estate or personal injury from disqualifying the disabled person from public benefits such as Social Security Income and Medicaid. The trust money is for “special needs” outside of food, shelter and clothing. The following is a list of things the trust money might be used for.

• Dental Care
• Plastic, cosmetic surgery or non-necessary medical procedures
• Psychological support services
• Recreation and transportation
• Differentials in cost between housing and shelter
• Supplemental nursing care and similar care which public assistance programs may not otherwise provide, including payments to those providing services in the home
• Telephone and television services
• Electric wheelchair and other mobility aids
• Mechanical bed
• Periodic outings and vacations, including costs incurred by caretaker companions
• Hair and nail care
• Stamps and writing supplies
• More sophisticated medical, dental or diagnostic treatment, including experimental treatment, for which there are not funds otherwise available
• Private rehabilitative training
• Payments to bring in family and friends for visitation if the trustee deems that appropriate and reasonable
• Private case management to assist the primary beneficiary, or to aid the trustee in the trustee's duties
• Medication or drugs prescribed by a physician
• Drug and/or alcohol treatment
• Prepay funeral and burial expenses
• Companions for reading, driving and cultural experiences

To protect the money, the disabled person cannot touch it directly. The trustee is not permitted to write the disabled person a check or give cash. For example, to purchase a new television, the disabled person could pick out the model, get a bill from the store and present it to the trustee. The trustee would then write the check directly to the store.

The trustee has the sole discretion to decide if purchases are appropriate. Because these funds are there for a lifetime, they should be for special luxuries that enhance the beneficiary's life. Because all types of trusts are complex, consult your attorney if you feel a Medicaid Payback Trust would be advantageous to you or someone you love.

Prepared By:
Marta J. Williger
Attorney at Law
323-C South Main Street
P.O. Box 368
Munroe Falls, Ohio 44262
(330) 633-7373