Gifts to Disabled Children

Medicaid law allows a parent to gift any amount of assets to a disabled son or daughter and still get Medicaid to cover the parent’s long term care in a nursing home. If the child who receives the gift is not disabled as determined by the Social Security Administration, however, then any such gift, if made within five years preceding the date of the Medicaid application, will cause Medicaid ineligibility for the parent who made such gift.

The Medicaid rules state that both outright gifts to a disabled child, and gifts to a trust for the sole benefit of a disabled child are exempt transfers — that is, transfers that do not cause Medicaid ineligibility for the parent who makes the gift.

In order to ensure that a gift in trust is for the sole benefit of the disabled child (including a disabled adult child), Maryland requires that such trust allow for distributions to or for the benefit of such child, and no other person, during such child’s lifetime, and requires further that the State of Maryland be named as a beneficiary of the trust after the child’s death to repay the State for any Medicaid benefits the State has provided to such child during his or her lifetime.

This sole benefit requirement applies only to gifts in trust. Unfortunately, the Maryland Medical Assistance Program manual, which is the guidebook used by Medicaid caseworkers to evaluate Medicaid applications, is written in such a way as to suggest that the sole benefit requirement also applies to outright gifts. The official Medicaid regulations, on the other hand, do not support this position.

William M. Gatesman was involved recently in a matter in which a parent who had given funds to his disabled adult child was denied Medicaid eligibility for nursing home care. The Medicaid caseworker concluded that such outright gifts could not be exempt transfers because there was no way the child who received the funds could ensure that they would be used only for his benefit. The caseworker insisted that only funds that were held in a trust that provided for payback to the State to cover any Medicaid benefits the child might receive would be allowed. All other gifts to such disabled child, including the cash transfers, were treated as gifts causing Medicaid ineligibility.

All efforts to educate the caseworker were ineffectual, and we filed an appeal. While the appeal was pending, we initiated discussions with the Medicaid policy makers at the State level. Fortunately, on the eve of the hearing date, the policy makers responded by agreeing that outright gifts are not subject to the sole benefit requirement applicable to transfers in trust. Based upon that determination, we got the local Medicaid caseworker to reverse her adverse determination an hour before the appeal hearing was scheduled to start.

Sometimes, when the State misapplies the Medicaid rules, knowing which government official to talk to helps pave the way to a satisfactory resolution of the problem.