Impact of Medicaid Payback Provision Language on Countable vs. Exempt Assets

When planning for Medicaid eligibility, elder law attorneys often use tools such as special needs trusts/ sole benefit trusts, pooled trusts, Qualified Income/Miller Trusts, and Medicaid compliant annuities to help obtain eligibility for their clients.  For these tools to be deemed compliant with Medicaid regulations, states require specific language be included to name the state as the primary beneficiary of remaining funds at the time of the applicant’s passing, up to the amount the state paid out on behalf of the Medicaid recipient during their lifetime.  This language is often referred to as a Medicaid payback provision.  

Each state has different requirements on this Medicaid payback language, with some requiring very specific wording and others allowing for certain exceptions.  For example, it is often allowable to name a spouse as the primary beneficiary ahead of the state and still have the asset be deemed exempt and Medicaid compliant.  

Getting this payback language correct is exceedingly important.  Ambiguity or incorrect wording can result in an exempt asset being deemed countable by Medicaid, or worse, the transfer of the asset being deemed as a penalizable improper transfer – or resulting in a denial of benefits altogether.  

A similar issue recently arose in a U.S. District Court of California case.  On September 23, 2025, in the matter of Christopher W.G. v. Bisignano, the Court affirmed the Social Security Administration’s denial of Supplemental Security Income (SSI) benefits due to the language of the Medicaid payback provision in a Special Needs Trust.  In this case, the Trust beneficiary language specified that, 

“…after payment or provision has been made for expenses of administration and other obligations payable by the Trust, the remaining Trust estate shall be payable to any state or agency of a state, which has provided medical assistance…” 

The Court took issue with the words, “and other obligations payable by the Trust” ahead of the state being named as beneficiary.  It was decided this phrase was too ambiguous and could allow for distributions outside of what is allowable before including the Medicaid payback provision.  This case dealt with the approval of SSI benefits but serves as a good example of what can happen when state regulated language is not included word for word.  

At AshBer we work with elder law attorneys across all 50 states.  Before you add a Medicaid payback provision to your next trust or Medicaid compliant annuity, don’t hesitate to contact us for your state’s specific language requirements.