Updated August 3, 2026. Quick answer: one question decides everything — whose money funded it? If the disabled person’s own money went in, the state gets repaid on their death. If someone else’s money went in, it does not. That is the entire distinction, and it is worth six figures.
First-party: the beneficiary’s own money
42 U.S.C. 1396p(d)(4)(A). Funded with the disabled person’s own assets — a personal-injury settlement, an inheritance that arrived without planning, back-pay.
Age: the individual must be under age 65 when the trust is established and funded.
Who may establish it: the individual, a parent, grandparent, legal guardian of the individual, or a court – the individual themselves was added by the 21st Century Cures Act in 2016, before which a person with capacity could not settle their own.
The payback, in the statute’s own words: “the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this subchapter”
Read what that reaches: the total medical assistance paid on behalf of the individual — a lifetime of it, not just what was spent after the trust was set up. What your state recovers.
Third-party: someone else’s money
a trust funded with assets belonging to someone other than the beneficiary – a parent’s or grandparent’s own money, not the disabled person’s settlement or inheritance
No Medicaid payback is required, because the funds were never the beneficiary’s own asset. The remainder can pass to family, charity or anyone the grantor named.
And the reason is structural, not a loophole: Third-party trusts are NOT defined, named or otherwise addressed anywhere in 42 U.S.C. 1396p(d). Subsection (d) only reaches trusts established with the individual’s own assets. Their favourable treatment rests on general resource-counting principles, not on a (d)(4) carve-out.
This is why the single most valuable thing a parent or grandparent can do is never leave money to a disabled person directly. The same money, left to a properly drafted third-party trust instead, carries no payback at all. Left outright it becomes their asset — and then sheltering it requires a first-party trust, which does.
A well-meaning bequest in a will is how a third-party gift turns into a first-party problem.
Pooled trusts
42 U.S.C. 1396p(d)(4)(C). established and managed by a nonprofit association which keeps a separate account for each beneficiary but may pool the accounts for investment and management.
What happens to the remainder: “for amounts not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary” — so the nonprofit may retain the unspent balance for its other beneficiaries instead of paying it to the estate, and whatever is not retained still owes the same payback.
The age-65 wrinkle, which is easy to get wrong
(d)(4)(C) states no age ceiling in its own text – but that does not make a transfer into one at 65 or over penalty-free.
The transfer-of-assets penalty exception at 42 U.S.C. 1396p(c)(2)(B)(iv) is written narrowly: assets ‘were transferred to a trust (including a trust described in subsection (d)(4)) established solely for the benefit of an individual under 65 years of age who is disabled’. Because that exception requires the individual be under 65, a transfer into a pooled trust by or for someone 65 or over can be treated as an uncompensated transfer subject to the penalty rules in (c)(1), even though the pooled trust may lawfully hold funds for beneficiaries over 65.
The statute is silent on reconciling the gap. This is a real and consequential wrinkle, and it is a question for an elder-law attorney in the person’s own state, not something to resolve from a general page.
Side by side
| Whose money | Age limit | Medicaid payback | |
|---|---|---|---|
| First-party (d)(4)(A) | the beneficiary’s own | under 65 at funding | Yes — lifetime medical assistance |
| Pooled (d)(4)(C) | usually the beneficiary’s own | none in its own text — but see the transfer-penalty wrinkle | Yes, on whatever the nonprofit does not retain |
| Third-party | someone else’s | none | No — not a 1396p(d) trust at all |
Whose money funded the trust decides whether Medicaid is repaid. The payback is the statutory price of letting someone shelter their OWN money.
This is a page to take to a lawyer, not to act on
Drafting these is specialist work and the consequences of getting one wrong are permanent — a defective first-party trust can disqualify someone from the benefits it was meant to protect. What this page is for is walking into that conversation knowing which of the three you are talking about, because that is the question the answer turns on.
Related: how an ABLE account compares · what an ordinary living trust does not do here.
General information drawn from IRS, Medicare, HUD and state statute and regulation, not legal, tax or financial advice. Continuing-care law is state law and differs materially between states; every figure here is year-labelled and every source named. Powers of attorney, guardianship and trusts are governed by STATE law and differ materially between states; nothing here is a substitute for reading your own documents or taking advice on your own facts.
Why the under-65 condition and the Medicaid payback matter so much in practice — the inheritance crisis these trusts exist to solve.