In New Jersey, What Makes a Trust a Special Needs Trust (SNT)
There are different types of special needs trusts. They all share the common trait of maintaining eligibility for means tested government benefit programs such as Medicaid, Division of Developmental Disabilities (DDD), and Supplemental Security Income (SSI). “Means tested” simply means there are limits imposed upon a person’s income and resources. In addition, special needs trusts also share the common trait of creating a fund that can be used to supplement the life of the person with the disability by providing either care and/or services that are not provided by means tested government programs. The goal is to enhance the quality of life of the person with the disability.
To Better Understand a SNT, You Need to Understand “Means Tested” Programs
Although New Jersey Special Needs Trusts are based on a relatively simple concept, the government benefit program your loved one might receive service from introduces a significant amount of complexity. This is because there are multiple Medicaid and other public benefit programs, and each program has its own set of rules that determine eligibility. While an extensive examination of these programs is beyond the scope of this page, it is important to understand that it is this complexity that forms the rules and guidelines in which special needs trusts operate.
Understanding a Special Needs Trust
Eligibility for Means Tested Programs
Level of Care / Medical Eligibility
As a practical matter, the individual must first meet the physical and/or mental criteria established by the program. Simply put, they must “need” the public benefits for which they apply. This is known as the medical eligibility test. In our discussion, I am assuming that “need” for benefits is not an issue and therefore only examine financial eligibility.
Income and Resource Test ($$$)
In addition to meeting a “Medical” Eligibility test, all New Jersey “means tested” government assisted programs have resource limits which place caps on the individual’s assets and income. While the income cap varies from program to program, the resource cap is generally $2,000.00. Certain assets, such as the individual’s home and automobile, are generally not counted as available resources when determining eligibility. Most other assets are counted, however, including assets that are capable of being spent down and used to pay for medical care and services. This includes property held in restricted accounts that cannot be accessed without a court order. Without a SNT and careful planning, the individual with too much income or resources will need to consume (or spend down) all available resources and then apply, or reapply, for government benefit programs. We can avoid this forced spend down by creating the right SNT.
If the individual transfers his or her assets for less than full fair market value, a penalty period will be imposed in New Jersey during which the individual will be ineligible to participate in government benefit programs. In most cases, this rule will apply retroactively for a period of five years from the date an application for benefits is submitted. In addition to penalty periods, everyone who accepts and enrolls in government benefit programs has an affirmative duty to disclose any material change in his or her circumstances. If an individual fails to notify the agency that administers his or her program of a material change, the agency can seek reimbursement for the benefits provided during any periods of ineligibility. In some cases, the agency may have a cause of action for fraud against the individual.
Traditional Trusts Are Treated as an Available Resource for Determining Benefit Eligibility in New Jersey
As a rule, assets held in most traditional revocable and irrevocable trusts will be counted as an available resource by the government. Counting trusts as an available resource makes things very difficult for individuals and their families who want to attempt any sort of planning for future needs. A typical trust will result in disqualification for program eligibility. It doesn’t have to be this way.
Beware: Use of Revocable Trusts in New Jersey Equals Disqualification For Many Public Benefits
Since the individual or trustee retains the legal authority to alter the terms of the trust and/or revoke a trust instrument, a revocable trust is treated no differently than any other available asset or cash in the bank. For example, an individual’s revocable trust will be treated no differently than his or her savings or checking account. This is why Fredrick P. Niemann, Esq. typically does not recommend funding revocable living trusts for the benefit of a person with a disability while the settlors are alive.
Beware: The Incorrect Use of Irrevocable Trusts in New Jersey Also Equals Disqualification
Since the individual does not retain legal control to revoke the trust, irrevocable trusts may be treated differently than revocable trusts. The specific language in the trust must be carefully reviewed and evaluated according to two criteria. Tight restrictions on how trust funds can be spent must be included in these trusts to avoid the loss of benefit eligibility. But with the right approach we can preserve eligibility for government benefit programs and improve the life of the person with the disability.
Here’s a Question: Can any portion of the trust be used for the individual’s benefit?
If any payment could be made, either to the individual or for the benefit of the individual, the portion that could be paid will be considered an available resource by the government. That means ineligibility. You need this corrected.
Payments made to the individual will be considered income to the individual, and the income rules will apply. This also means… ineligibility.
SOUNDS SCARY!! DOESN’T IT? IF SO,
CALL OUR OFFICE TODAY. I know I just covered a lot of information with you. It’s confusing and probably overwhelming. Understand we can make it work but you need to call me personally to discuss your New Jersey Special Needs Trust situation toll-free at (855) 376-5291 or e-mail me at firstname.lastname@example.org. I’m here to help you!
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Special Needs Trust Attorney