Can I Transfer Cryptocurrency to a Special Needs Trust?
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Question:
I’m on Medicaid. I purchased cryptocurrency that could result in a sizable capital gain when I sell. Can I get a first-party special needs trust set up and transfer the proceeds of my cryptocurrency sale to it without Medicaid recognizing the income? To be clear, I would like to control the timing of the sale and use a crypto currency exchange to transfer dollars to the trust.
Response:
Yes, if you are under age 65 and disabled you can transfer the cryptocurrency to a first-party special needs trust (also called a (d)(4)(A) trust in reference to the enabling statute), assuming that the cryptocurrency exchange permits trusts to have accounts. However, that should not be necessary. Capital gain, while taxable, should not be considered to be income for purposes of Medicaid eligibility. The cryptocurrency already has the new value and in selling it you are only changing the value from one form — cryptocurrency — to another — dollars. You are not receiving anything, so it’s not income.
By way of comparison, let’s say you want to sell your house. You already own the house. When you sell it you are not receiving anything new, you’re just exchanging the house for cash. You still may realize capital gain that would be taxable, but it’s not as if someone gave you something new.
While your state appears to be one that does not have an asset test for Medicaid eligibility for beneficiaries under the age of 65, many states do, limiting eligibility to those with countable assets under $2,000. If you lived in one of those states, you would need to transfer your holdings to a (d)(4)(A) trust, (d)(4)(C) trust or ABLE account whether or not you were planning to sell the cryptocurrency.
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