In New Jersey, What Makes a Trust a Special Needs Trust (SNT)
There are different types of special needs trusts. But one thing is the same; they each share the common trait of maintaining eligibility for means tested government benefit programs such as Medicaid, Division of Developmental Disabilities (DDD) Services and Support, and Supplemental Security Income (SSI). A “means tested” public benefit simply means there are limits imposed upon a person’s income and resources. In addition, a special needs trust can also be used to enhance the quality of the life of a person with a disability by providing care services not provided by means tested government programs. The goal of a special needs trust 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 a New Jersey Special Needs Trust is based on a relatively simple concept, namely qualifying for government benefit programs, you’re introduced to a significant amount of complexity if your trust is defective. This is because there are multiple government 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 under which a special needs trust operates.
Understanding a Special Needs Trust
Eligibility for Means Tested Benefit Programs
As a practical matter, an applicant must first meet the physical and/or cognitive health requirements of the program. Simply put, they must physically or psychologically “need” the public benefits for which they apply. This is known as the medical eligibility test. In our discussion, I am assuming that medical “need” for benefits is not an issue and therefore, I will only examine financial eligibility. If you need more information about medical eligibility, feel free to reach out to me at the address given at the end of this page.
Income and Resource Test ($$$)
In addition to meeting a “Medical Eligibility test”, all New Jersey “means tested” government assisted programs have income and resource limits which place caps on a person’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 for him or her.
Penalty Periods Can Deprive a Person of Benefits
If an individual transfers his or her savings, assets, etc. for less than full fair market value, a penalty period will be imposed by New Jersey during which time the individual will be ineligible to participate in that government benefit program. In most cases, this penalty period will be applied retroactively for a period of five years from the date the 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 financial circumstances. If an individual fails to notify the agency that administers his or her program of material change in his or her finances, the agency can seek reimbursement of those benefits during any periods of prior eligibility. In some cases, the agency may have a cause of action for civil or criminal fraud against the individual.
Traditional Trusts Are Treated as an Available Resource for Determining Benefit Eligibility in New Jersey
As a general rule, assets held in most traditional revocable trust and some irrevocable trusts are counted as an available resource by the government. Counting the funds in a trust as an available resource makes things very difficult for individuals and their families who want to attempt any sort of planning for future needs. While many typical trusts will result in disqualification for program benefit eligibility, it doesn’t have to be this way.
Beware: Use of Revocable Trusts in New Jersey Equals Disqualification For Many Public Benefits
Because the individual who creates the trust or the 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 if public benefits are contemplated soon or in the reasonable future.
Beware: The Incorrect Use of Irrevocable Trusts in New Jersey Also Equals Disqualification
Since a person with an irrevocable trust 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. However, 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 trust income or principal be used for the benefit of a disabled person?
If payments from a trust can be made, either to the individual or for the benefit of that individual, those funds paid will be considered an available resource by the government. That means either a reduction of benefits or a total loss of benefits. You need this mistake corrected ASAP.
Payments actually made to an individual from a trust other than a special needs trust will be considered income to the individual, and the income rules of means tested public programs will apply. This can also mean… 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