When a husband or wife develops a disability or requires long-term care, families often ask me whether a special needs trust can help preserve assets while allowing the disabled spouse to qualify for Medicaid.
The answer is yes in the right circumstances, but the type of trust and how it is created are critical. Medicaid does not simply ignore assets because they have been placed in a document labeled a “special needs trust.” Florida reviews who funded the trust, whether it is revocable or irrevocable, who can receive distributions, and whether the trust meets a recognized Medicaid exception.
For Spousal Estate Planning, the Trust Should Be Testamentary
One of the most important distinctions involves a married couple where one spouse is receiving or may eventually receive Medicaid and the healthier spouse wants to provide for that spouse after death.
In this situation, the supplemental needs trust should generally be established as atestamentary trust through the healthier spouse's last will and testament, rather than leaving the inheritance to a special needs provision inside an ordinary revocable living trust.
Why does that distinction matter?
Federal Medicaid guidance defines Medicaid trusts as trusts established with an individual's or spouse's assets that are createdby a means other than by will. It also provides that the principal of a revocable Medicaid trust may be considered an available resource.
Accordingly, when I am planning for a community spouse who wants to leave assets for a Medicaid-recipient spouse, I do not treat a revocable living trust as interchangeable with a testamentary special needs trust. The will-based trust is designed to arise at the community spouse's death and hold the inheritance for the disabled surviving spouse without giving that spouse unrestricted ownership of the assets.
Florida law also expressly recognizes qualifying special needs or supplemental needs trusts for an ill or disabled surviving spouse.
This does not mean that every special needs trust must be testamentary. A first-party special needs trust for a disabled person under age 65 is a separate Medicaid planning tool and is governed by different requirements.
What About a First-Party Special Needs Trust?
Federal law permits certain disabled individuals under age 65 to use a qualified special needs trust containing their own assets. Florida DCF requires these trusts to satisfy specific requirements, including that the trust be irrevocable, established for the disabled beneficiary's sole benefit, and contain the required Medicaid reimbursement provision (this is what a lot of people don't realize).
Florida's guidance is particularly clear that if such a trust is revocable, its corpus is considered a countable asset.
That is a different strategy from a community spouse using a testamentary special needs trust to plan what happens to the community spouse's property after death.
Spousal Medicaid Rules May Offer Other Options
A special needs trust is not always the first step.
Medicaid contains protections intended to prevent the spouse remaining at home from becoming impoverished when the other spouse requires institutional or long-term care. Depending on the couple's circumstances, assets may be allocated or restructured between spouses before Medicaid eligibility is determined.
For some families, effective planning may involve transferring permissible assets to the community spouse, reviewing exempt and countable property, and then creating a testamentary special needs trust in the community spouse's will so that those assets do not later pass outright to the Medicaid spouse.
What If Income Is the Problem?
Sometimes assets are not the primary obstacle. The Medicaid applicant may instead have monthly income exceeding the applicable limit.
In those cases, a Qualified Income Trust, commonly called a Miller Trust, may be appropriate. A Qualified Income Trust addresses excess income and is fundamentally different from a special needs trust.
This distinction is important because Medicaid planning should identify the actual eligibility problem before selecting a trust.
Why Create the Testamentary Trust Before Medicaid Is Needed?
A testamentary special needs trust can be valuable even when the disabled spouse is not currently receiving Medicaid.
Suppose the healthier spouse dies first and leaves everything outright to the disabled spouse. That inheritance may substantially increase the surviving spouse's countable resources and interfere with means-tested benefits.
Instead, the healthier spouse's will can direct the inheritance into a properly drafted testamentary supplemental needs trust. The trustee can then manage the inheritance for the surviving spouse and potentially use trust assets to supplement, rather than replace, available public benefits.
The trust may provide additional resources for quality-of-life expenses, transportation, caregivers, household assistance, technology, recreation, and other needs, subject to the particular benefit rules applicable to the beneficiary.
Careful Drafting Matters
Spousal special needs planning is an area where the distinction between a will and a revocable trust can have significant Medicaid consequences. A revocable trust should not simply be assumed to accomplish the same Medicaid planning result as a testamentary special needs trust.
At Gold Legacy Law, PLLC, I concentrate my practice in estate planning, probate, trust and estate administration, guardianship, and asset protection. My experience administering estates and trusts gives me a practical perspective on how planning decisions operate after death and why the documents must work together.
If your spouse has a disability or may require long-term care, a Miami Lakes Florida trust attorney can help determine whether your plan should include a testamentary special needs trust, first-party special needs trust, spousal Medicaid planning, Qualified Income Trust, or another strategy. If we are unable to help we work with a community of medicaid attorneys that we can connect you with, call us today at 305-556-5209.
Disclaimer: This article is provided for informational purposes only and does not constitute legal advice. Reading this content does not create an attorney-client relationship between you and Gold Legacy Law. For legal advice regarding your personal situation, please contact our office to schedule a consultation.
