In a personal injury settlement situation, it is common to set up a first-party special needs trust to preserve a client’s Medicaid or Supplemental Security Income (SSI). In order for a trust to qualify as a special needs trust, the trust must contain what is called a Medicaid Payback Provision. 

So, what does that mean? Essentially, the Medicaid Payback Provision means that when the beneficiary of the special needs trust (usually the plaintiff in the original case) passes away, then every state that has paid Medicaid benefits on behalf of your client has the right to come in and be reimbursed for expenses incurred from the assets that remain in the trust before those assets are passed on to the beneficiaries listed in the trust.

In other words, Medicaid has the right to come in and be reimbursed for its costs if there is anything left in the trust. But if the trust is completely exhausted and terminated, and the client passes away, then there is nothing for them to come after or recover against.

As you can imagine, it is important for your client to understand that if they are going to set up a special needs trust and they want to pass that money onto their kids, for example, Medicaid has the “first bite of the apple” — so to speak — before those funds can be passed down to your client’s beneficiaries.

So, that is what the Medicaid Payback Provision in a special needs trust entails. It is a requirement that the government has for these types of trusts, and it is why the government allows people to keep their Medicaid and their SSI and also have money in a trust that can benefit their lives.