Parent’s Income Deposited Into Special Needs Trust for Her Disabled Adult Child Was Properly Considered In Determining Parent’s Medicaid Eligibility

In Matter of Jennings v. Commissioner, N.Y.S. Dept. of Social Services, a New York appellate court case, the petitioner, Mattie Lou Hammond established a third-party Special Needs Trust for the benefit of her disabled adult son.  She deposited all of her income into the Special Needs Trust. Mrs. Hammond’s income consisted of social security and pension benefits. She then applied for Medicaid benefits for herself through Nassau County Department of Social Services (hereinafter NCDSS).  NCDSS found Hammond eligible for Medicaid, but determined that, although the funds she deposited into the Special Needs Trust could be excluded from her income for the purpose of determining Medicaid eligibility, those same funds were considered available for the purpose of calculating the required contribution for her post-eligibility cost of care.

Ms. Hammond appealed, and the trial court annulled the state’s decision, finding it arbitrary and capricious. The State of New York appealed.

On appeal, the New York Supreme Court, Appellate Division, reversed. The Appellate Division held that income payable to Hammond, even if deposited by her into a Special Needs Trust for her adult disabled son, must be included in determining her eligibility for Medicaid during her lifetime and in calculating her estate’s obligation to reimburse a portion of those benefits after her death.

However, one judge dissented, arguing that the majority’s decision is irrational because it permits Ms. Hammond to create a Special Needs Trust but then prohibits her from funding it without incurring a penalty.