I have a client on Medicaid, who inherited money through a special needs trust.
Normally when a trust makes a distribution, it deducts the taxable part of the payment and the beneficiary is taxed on it. But in this case the beneficiary is worried about losing Medicaid if that money shows up on his tax return.
Can the trust pay the taxes and not the beneficiary? I would think the answer is yes, but I'd appreciate hearing your thoughts.
Thanks!!!
The Special Needs Alliance (
I discovered some time ago that this area requires a very knowledgeable person who deals with SNTs and SSI and Medicaid eligibility. Here in CA, if you qualify for SSI, you automatically qualify for Medi-Cal (CA's Medicaid program). The SNT was created by a settlement from an automobile accident that disabled the taxpayer. The trust threw off interest, dividends and capital gains that were distributed to avoid having the trust pay taxes. As long as the money was not spent on food, shelter and clothing, it did not count as income for SSI and Medi-Cal eligibility. It did not matter whether the income was taxable or nontaxable to the trust beneficiary.
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