Can Medicaid take money from a special needs trust?

No, as long as the trust beneficiary is alive, Medicaid cannot take money from a special needs trust that is properly drafted and managed. However, after the beneficiary dies, the assets in any first-party special needs trust are used to repay Medicaid.

Do assets in special needs trusts disqualify you from Medicaid?

The assets in a special needs trust will not disqualify you from receiving Medicaid benefits.

To qualify for Medicaid, you cannot have more than $2,000 in countable assets. This generally includes any assets in trust if the trust assets are available to you. As long as you can access the assets, they are counted as a resource. And that means the assets can disqualify you from receiving benefits.

However, the rules are different for special needs trusts. If a special needs trust has been properly drafted and is properly administered, then the assets in the trust are not considered as an available resource to the beneficiary. This means that the assets in a special needs trust cannot disqualify the beneficiary from receiving Medicaid benefits.

This is part of the reason that you should be careful when selecting an attorney to draft a special needs trust. The trust needs to be drafted correctly in order for it to successfully qualify the beneficiary for government benefits. But if the attorney is unfamiliar with the rules in place for special needs trusts (and there are a lot of rules, both at the federal and state levels), then the attorney may create an ineffective trust that fails to qualify the beneficiary. You need a lawyer that understands special needs trusts and is familiar with the relevant law.

Can Medicaid take assets out of a special needs trust?

Third-party special needs trusts (called “supplemental needs trusts”) protect assets from Medicaid both during the beneficiary’s life and after death. First-party special needs trusts, on the other hand, only protect assets from Medicaid during life. After the beneficiary dies, the assets in a first-party special needs are used to repay Medicaid.

As long as your special needs trust is correctly set up, Medicaid cannot access the assets during your life. In fact, the protections of the trust are so strong that Medicaid cannot get to the assets even if there has been an overpayment of benefits to the beneficiary. [1] Thus, the assets in the trust are protected as long as the beneficiary is alive.

However, at death, the assets in any first-party special needs trust are used to repay Medicaid. Thus, once the beneficiary passes away, Medicaid can and does take money from a special needs trust funded with the beneficiary’s own assets. This is not true of a supplemental needs trust though, which has no repayment requirement (unless the trust states otherwise, which should not happen if the drafting attorney was competent).

[1] POMS SI 01120.201.