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Transfer to a disabled child
BLOG FOR JANUARY 6, 2015
The Story. John will soon be entering a nursing home. In order to qualify for Medicaid benefits, John needs to convert non exempt assets into exempt assets. Part of his plan is to put money into a trust for the sole benefit of his disabled son.
Question: Will there be a transfer penalty for John taking money from his checking account and putting into a trust for the sole benefit of his disabled son?
Answer: No. There is no penalty for a transfer to a disabled child or to a trust for the “sole benefit” of a disabled child. To be disabled the child must meet SSI disability criteria, although the child need not be receiving SSI. See 42 U.S.C. Section 1396p(c)(2)(B)(iii); 405 IAC 2-3-1.1(k)(4).
However, it appears that there would be a transfer penalty if John gave money to a stepchild or to a trust for the sole benefit of the stepchild.