MEDICAID LIENS AND SUPPLEMENTAL NEEDS TRUSTS

In 1999, the New York State Court of Appeals decided that all of a personal injury recovery by way of settlement or jury award must be used to repay Medicaid prior to allowing a disabled person the right to create and fund a supplemental needs trust.

By way of background, federal legislation adopted in 1993 allows disabled people under age 65 to place their assets and income (in an unlimited amount) into a supplemental needs trust and still be eligible for Medicaid. The assets and the income would not be "budgeted" for Medicaid eligibility purposes-meaning that the trust assets and income would not be counted so as to deny a person the ability to obtain Medicaid. This was a very important hard fought for right to be enjoyed by disabled people who qualified. On the other hand, Medicaid has a statutory right to lien a personal injury award so that the award could be used to repay Medicaid. The issue presented was whether the lien needed to be satisfied before the trust could be created. In 1997, the Court Appeals said "yes" but left open the question of whether all of the award needed to be used to satisfy the lien or only that portion allocated to past medical expenses.

The Court has again spoken. It decided that all of the personal injury recovery, whether or not allocated to past medical expenses, must be used to satisfy the lien as a condition of creating the trust with any settlement funds left over.