In New Jersey, What Makes a Trust a Special Needs Trust (SNT)
While there are different types of special needs trusts, they all share the common trait of maintaining eligibility for means tested government assistance programs such as Medicaid and Supplemental Security Income (SSI). “Means tested” simply means there are limits imposed upon a person’s income and resources in order to be eligible for government benefits. In addition, special needs trusts also share the common trait of creating a fund that can be used to supplement the care and/or services that are not provided by means tested government programs. The goal is to enhance the quality of life economically for the disabled person.
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 public assistance programs they protect introduce a significant amount of complexity. This complexity 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 impairment test of needing the public benefits for which they apply. This is known as the medical eligibility test. In our discussion, I am assuming that the level of care and need for benefits is not an issue and therefore only examines financial eligibility.
Income and Resource Test ($$$)
In addition to meeting the 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 asset cap is generally $2,000.00 for most programs. 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 some planning, the individual with too much income or resources will need to consume all available resources and then apply, or reapply, for assistance after becoming impoverished. 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 for government assistance. 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 receives public assistance 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 later 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. 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. These types of trusts will result in disqualification for program eligibility, but 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 make available the trust assets and/or revoke the trust instrument for a disabled person, 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.
Beware: The Incorrect Use of Irrevocable Trusts in New Jersey Equals Disqualification
Since the individual does not retain legal control to revoke the trust, irrevocable trusts are 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 address defects in the trust and remain eligible for benefits.
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 as an available resource. That means ineligibility. You need this corrected.
Payments made to the individual, or made for the individual’s benefit, 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 email@example.com. I’m here to help you!
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Special Needs Trust Attorney