Medi Cal Recovery And Special Needs Trusts – A Special Needs Trusts [“SNT”] allows the trust’s Special Needs Beneficiary to remain eligible for needs based Medi-Cal benefits while receiving supplemental distributions from the SNT; these cover goods and services not paid for by Medi-Cal benefits.  Medi-Cal estate recovery for reimbursement for what Medi-Cal paid while the beneficiary was alive may or may not be recoverable from SNT at death:  Recovery depends on the type of SNT involved; who is the death beneficiary of the SNT; and whether Medi-Cal benefits were received while the beneficiary was under 55 years of age. [Note:  Medi-Cal services received by a person prior to 55 years of age are not reimbursable from such person’s estate at death, except when related to inpatient care at skilled nursing facility.]


If the SNT is a First Party SNT — one established with assets belonging to the special needs beneficiary, including proceeds from a personal injury lawsuit or an inheritance — then the SNT assets are subject to estate recovery when the Special Needs Beneficiary dies.  An important exception to recovery is when the person(s) who inherits upon the death of the special needs beneficiary is a blind, disabled, or minor dependent child or is the surviving spouse of the Special Needs Beneficiary.  First Party SNT’s are required to contain a so-called “payback” provision, which means that when the SNT beneficiary dies the trustee must pay Medi-Cal’s recovery reimbursement demand.


The foregoing is true even if the Medi-Cal recovery claim is for medical assistance received while the Special Needs Beneficiary was under 55 years of age.  That what the Sixth District Court of Appeals recently decided in Herting v. State Department of Health Services (2015), 235 CA4th 607.  In Herting, a SNT was established by court order to receive the Special Needs Beneficiary’s personal injury settlement proceeds.  As required with such first party SNT’s, the Court ordered that the SNT include a payback provision. The Court held, therefore, that when the SNT beneficiary died the trustee was required to pay the Medi-Cal reimbursement claim even though Medi-Cal’s assistance had been provided while the beneficiary was under 55 years of age.


Had the remainder beneficiary in the Herting case been the beneficiary’s surviving spouse, disabled or dependent minor child under age 21 then the Medi-Cal recovery claim against the SNT trust would have been denied.  Although in the case of a Surviving Spouse, Medi-Cal’s reimbursement claim is delayed until the death of the Surviving Spouse, at which time the claim can be asserted against any assets in the Surviving Spouse’s estate that he or she had received from the original deceased spouse’s estate.


Next, a Third Party SNT — one established with assets not belonging to the Special Needs Beneficiary — is not required (and so should not contain) a Medi-Cal “payback” provision.   Third Party SNT’s are typically established by parents (or other relatives) within their living trust.  As the Special Needs Beneficiary does not receive his or her inheritance outright these assets are never part of his or her estate:  Not only do these assets not count against the Special Needs Beneficiary for Medi-Cal eligibility purposes but they also are not subject to Medical estate recovery reimbursement claims.


In summary, Medi-Cal Estate Recovery claims against a SNT can only be avoided in the following situations:  (1) the SNT’s Death Beneficiary is the Special Needs Beneficiary’s own Surviving Spouse (which delays recovery); (2) the Death Beneficiary is the Special Needs Beneficiary’s Blind, Disabled or Dependent Minor Child (which voids recovery permanently); or (3) the SNT is a Third Party SNT with no payback provision.



“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”