Understanding Special Needs Trusts – Medicaid Prohibits Commingling Funds

Last week The Arc received an emergency phone call from a father.  John Dickerson, Executive Director of The Arc of Indiana took the phone call.

The father explained that during his son’s annual Medicaid Recertification, the Medicaid caseworker informed dad that he was not allowed to add his son’s work income to the Special Needs Trust that had been created for him by his grandfather upon the grandfather’s death.

When the son began working a few years ago, his work income began accumulating in his checking account and reached the resource limit allowed by Medicaid.  Resources include funds in checking accounts, savings accounts, CD’s, savings bonds, etc.  If these resources total more than $1,500 the person is not eligible for Medicaid.  The resource limit to maintain Social Security Income is $2,000.

The son’s provider agency told dad that the excess resources could be transferred to the Special Needs Trust created by his grandfather to protect his son’s assets and Medicaid and SSI eligibility.  Special Needs Trusts do not count as a resource.

While the provider agency was correct in advising that a Special Needs Trust does not count as a resource, they did not provide the correct advice to the father regarding what type of Special Needs Trust the funds could be transferred to.  While it is possible for a person with a disability to transfer money from a checking account into a Self-funded Special Needs Trust (a trust created with the funds of the person with a disability), Medicaid does not allow the funds of an individual with a disability to be transferred into a Special Needs Trust funded by a different person.   This is because Medicaid does not allow money earned from work or Social Security to be “commingled” with anyone else’s money.  In this case the son’s money was commingled with money left by the grandfather in the Special Needs Trust.   This same rule applies to checking or savings accounts.   The money of a person who is disabled cannot be commingled or deposited along with anyone else’s money if the person wants to maintain eligibility for Medicaid.

The father that called us has since set up a Trust II account through The Arc of Indiana Master Trust on behalf of his son with the son’s earnings that had been added to the grandfather’s money in the Special Needs Trust.  Trust II was created to allow a person with a disability to fund his or her own trust – a self-funded trust.  The Arc of Indiana Master Trust I allows family members to create a trust for their loved one.

Currently, the son is at risk of losing Medicaid and his Developmental Disability Waiver because of the commingling of funds.  The family is appealing Medicaid’s decision and hopefully the son will be able to continue to receive those benefits.  This case illustrates the importance of understanding the complex rules required by Medicaid and SSI to maintain eligibility.

If you have any questions regarding The Arc Master Trust I or II, or Special Needs Trusts in general, please visit us  or give us a call at 317-977-2375 or 800-382-9100.

Melissa Justice is the Trust Director for The Arc of Indiana Master Trust.