Yes, the grandparents could put the house in trust for their grandchild with special needs. There’s an exception to the usual Medicaid transfer penalty for transfers into trusts for the sole benefit of a disabled individual under the age of 65.
However, we recommend that you consult with a local elder law attorney or special needs planning attorney because there are other considerations here, such as the tax implications of such a transfer, issues of paying for the property’s maintenance, and proper drafting of the trust.
Also, since this can be done at any time, there’s no reason to do the transfer prior to needing Medicaid benefits. There may be better plans to put in place if it’s not clear that the grandparents will need to apply for Medicaid.
Harry S. Margolis practices elder law, estate, and special needs planning in Boston and Wellesley, Massachusetts. He is the founder of ElderLawAnswers.com and answers consumer questions about estate planning issues here and at AskHarry.info.