Belleville: 618-234-9800 | Edwardsville: 618-656-2244 | ST. LOUIS: 314-421-2325
By: Benjamin T. Davisson
Disabled individuals who are not entirely impoverished but nonetheless wish to receive Medicaid and other government benefits often find themselves in a seemingly impossible situation when they seek to apply for these benefits. Because these benefits are reserved only for the most needy in society, many disabled individuals who nevertheless need these benefits are unable to qualify due to having resources in excess of the maximum allowable threshold amount, despite the fact that they do not have vast amounts of resources at their disposal to spend on costly healthcare. While some individuals sitting just above that maximum threshold might be tempted to give away their assets so as to qualify, the Medicaid rules provide that for a period of 60 months prior to applying for Medicaid, an individual cannot simply give away his assets for the purpose of qualifying for Medicaid. An exception to this rule is the establishment of a self-settled supplemental needs trust for the individual’s benefit. Other disabled individuals already receiving government benefits may suddenly find that they no longer qualify upon receiving an inheritance or otherwise unexpectedly gaining ownership over a large amount of assets. Furthermore, even if a disabled individual was able to qualify by giving away his assets, most would not wish to obtain eligibility by sacrificing their hard-earned assets and, along with it, their standard of living.


A self-settled supplemental needs trust can be wonderful solution for those disabled individuals wishing to secure needed health care and other benefits while still having the economic benefit of the assets and without being regarded as legally owning the assets for the purpose of determining eligibility for Medicaid and other benefits. The way it works is that the disabled individual transfers his assets out of his possession and into the trust, and by doing so, the government benefit provider will regard him as no longer owning the assets and may then find that his total assets fall below the maximum level permitted to qualify for the benefits. Also, this transfer will not disqualify the individual from receiving benefits even if the transfer to the trust is within the 60-month period that would otherwise result in the individual being disqualified from receiving Medicaid.  However, in order for the individual to truly be regarded as no longer owning the assets, the transfer of the assets to the trust must be permanent and final, and the individual cannot have any control over how the trustee chooses to use these assets.


The trustee, on the other hand, has complete discretion over how to use these assets, provided that the trustee uses them for the sole benefit of the individual and that these assets cannot be used to cover medical and other expenses that are already covered by the government benefits. Apart from this requirement, the trustee may make virtually any kind of purchase on the individual’s behalf, including purchases of food, housing, automobiles, vacations, and electronics and other household goods.


While the individual may name beneficiaries entitled to distribution of the trust assets upon his death, these trusts must provide that such assets remaining in the trust at the individual’s death will first be used to pay back the state for any unreimbursed Medicaid expenses paid on behalf of the individual during his lifetime. There are very strict requirements for ensuring that the pay-back language meets the statutory requirements so care must be taken when drafting these trusts.


It is important that disabled individuals receiving government benefits begin thinking early on about the possible need to set up a supplemental needs trust, as these self-settled trusts generally can only be created by the individual before reaching age 65. Also, these trusts are only available to individuals who are in fact “disabled” within the meaning of the Social Security Act, which requires that the individual be unable to engage in gainful activity due to a physical or mental impairment that lasts or is expected to last for more than one (1) year or that is expected to result in death.  It is also important that if the individual wishes to name a friend or relative as trustee, as opposed to a professional trustee, the individual chooses a person whom he trusts and with whom he has a close relationship. Doing so can ensure that the individual can freely communicate his needs and wishes to the trustee and that, while the trustee is not obligated to act in accordance with the individual’s desires, the trustee can do his best to accommodate the individuals requests.


While a self-settled supplemental needs trust certainly may not be right for all clients, it can be an invaluable tool for those disabled individuals losing sleep over the idea of incurring expensive medical bills while also seeking to maintain their standard of living.