In 1993, Special Needs Trusts were given a special “exception” status for Medicaid purposes. 42 USC § 1396p(d)(4)(A) –(C). Funds held in these types of trusts are not considered available to the trust beneficiary in determining whether or not the individual qualifies for Medicaid, provided that the Trust meets a few conditions: the Trust must be for the sole benefit of a person with a severe and chronic or persistent disability; the Trust assets can only be used to supplement , and not supplant or replace goods and services available to the Beneficiary through government benefits programs; and if the Trust was established using the Beneficiary’s own assets, any money that remains in the Trust at the Beneficiary’s death is subject to recovery by the state (up to the total amount that was paid by Medicaid on health care for the Beneficiary).
A first-party Supplemental Needs Trust (SNT) is one in which the Beneficiary’s own assets are used to create the Trust. This type of Trust will be appropriate when the Beneficiary has received a settlement, inheritance, or other windfall that would disqualify him or her from need-based government benefits. The funds in a SNT will not affect an individual’s eligibility for government benefits when: 1) the Trust Beneficiary is a person with a severe and chronic or persistent disability and is under the age of 65; 2) the Trust was established by a parent, legal guardian, grandparent, or court of competent jurisdiction; 3) the funds use is limited to goods and services not otherwise available through government benefits; and 4) the state will receive all amounts remaining in the Trust upon the Beneficiary’s death, up to the amount that was paid out by Medicaid on his or her behalf. 42 USC § 1396p(d)(4)(A)
Like a Supplemental Needs Trust, a Pooled Trust is created for a severely and chronically or persistently disabled individual’s sole benefit, but the Trust assets are managed by a non-profit organization and ‘pooled’ with other accounts for administrative and investment purposes. Pooled Trusts have no age limitations but Medicaid applicants and recipients who require a nursing home level of care may incur a period of ineligibility for any assets placed in the Trust after turning age 65. At the death of the disabled individual, any funds remaining in the Trust not used to reimburse the state for Medicaid paid on behalf of the deceased, remain in the pool for the benefit of others with disabilities. 42 USC § 1396p(d)(4)(C)
Under the federal Social Security Act, there is one other type of special needs trust but it is only available in states whose Medicaid program does not provide Medicaid solely on the basis of medical need. These are called Medicaid Qualified Income Trusts, also known as Income Cap or Miller Trusts. In those states which Miller Trusts are permissible, the Trust, composed of a disabled person’s monthly pension, social security, and other income makes it possible for the individual to qualify for nursing home care under Medicaid even though the person’s income exceeds Medicaid eligibility limits. 42 USC § 1396p(d)(4)(B).
The following states have “medically needy” programs and therefore, DO NOT recognize Medicaid Qualified Income Trusts: CA, CT, GA, HA, IL, KY ME, MD, MA, NH,NJ, NY, NC, ND, PA, RI, SC, TN, VT, VA, WA, WV, and WI (also, DC). CT under a waiver allows spend down for institutionalized care and has an income cap for home care.