A more thorough explanation:

A payback provision is a rule that can be included in a special needs trust. This provision requires that any remaining funds in the trust be used to repay Medicaid for any benefits the beneficiary received while alive, upon the beneficiary's death.

Special needs trusts are designed to set aside funds that cannot be considered assets or income for the purposes of SSI or Medicaid disbursement calculations. However, the type of funds used to establish the trust may subject it 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. However, California includes payback provisions in litigation special needs trusts, substituted judgment special needs trusts, and special needs trusts with a beneficiary under age 65.

John has a disability and receives Medicaid benefits. His parents want to set up a special needs trust to provide for his future needs. They use their own money to fund the trust, so they include a payback provision in the trust instrument. When John passes away, any remaining funds in the trust will be used to repay Medicaid for the benefits he received during his lifetime.

This example illustrates how a payback provision can be used to ensure that Medicaid is repaid for the benefits provided to the beneficiary. It also shows how the type of funds used to establish the trust can determine whether a payback provision is necessary.