Payback Trust

A Payback Trust is sometimes referred to as a “stand alone trust” since each trust is individually drafted and will be received and reviewed separately by the government.  If, for whatever reason, an individual is already ineligible, the delay caused by the necessary preparation and approval times can be quite costly.  Each Payback trust will need a trustee which could be a family member, a for-profit corporate fiduciary, or a non-profit corporate fiduciary.  Each trust bears its own operating costs.

Requirements for a Payback Trust
  1. It is for the benefit of an individual with disabilities under 65 years of age.
  2. The beneficiary is disabled as defined in 42 USC 1382 c(a)(3).
  3. The trust is established by a parent, grandparent, legal guardian or court.
  4. At the beneficiary’s death, any residual funds are first used to pay back the State or Commonwealth for any Medical Assistance benefits received by the Beneficiary.
Other Notes about a Payback Trust:
  • This trust can be self-funded and now also self-created. The beneficiary of a Payback Trust can now serve as a settlor.
  • It can be self-funded since funds that the individual has received can be placed in the trust and they no longer render the individual ineligible.
  • It cannot be self-created since the individual is not authorized by statute to establish a trust. If the individual has no guardian, parents, or grandparents, a court would be needed to establish the trust.
  • There is a possibility, usually remote, that after the beneficiary’s death, the Commonwealth or State can be repaid and funds will remain to be disbursed.  Obviously, the longer the beneficiary lives and the greater the Medical Assistance benefits paid in the beneficiary’s behalf, the possibility of any funds remaining for disbursement are proportionally reduced.