payback provision

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A phrase that refers to a provision sometimes contained in a special needs trust which requires the trust, upon the death of the beneficiary, to use remaining trust funds to repay Medicaid for any benefits the beneficiary received while alive. Since the purpose of a special needs trust is to set aside funds that cannot be considered assets or income for the purposes of SSI or Medicaid disbursement calculations, the type of funds used may subject the trust to additional restrictions. For example, if the funds used to establish the special needs trust were the beneficiary’s own, then a payback provision must be included in the trust instrument. If the funding was provided by a third party instead, then no payback provision is necessary. 

In California, a payback provision is not required unless the trust is revocable by the beneficiary. 22 Cal Code Reg § 50489.9(b)(1). Also, California includes payback provisions in litigation special needs trusts, substituted judgment special needs trusts, and special needs trusts with a beneficiary under age 65. 

[Last updated in August of 2020 by the Wex Definitions Team]