What Makes a Trust a Special Needs Trust (SNT)
The goal of a special needs trust is to enhance the quality of life of the person with a disability. There are several types of special needs trusts. Each form of special needs trust serves a different purpose and objective. But one thing remains the same: each type of special needs trust preserves the beneficiary’s financial eligibility for government programs such as Medicaid, DDD Services, Supplemental Security Income (SSI), and other public benefits.
A “means-tested” public benefit means there are financial eligibility conditions imposed upon a person’s income and resources above which government benefits will be lost.
A well-written special needs trust can enhance a person with a disability’s quality of life by paying for care services and the purchase of products and services not provided by means-tested government programs.
To Better Understand a SNT, You Need to Understand “Means Tested” Programs
As I mentioned earlier, the goal of a Special Needs Trust is to help a person qualify for government benefit programs. There are multiple government benefit programs, each with its own rules and eligibility criteria. While an extensive examination of these programs and the accompanying regulations and standards is beyond the scope of this page (but is available to you if you read further on this website), it is essential to understand that this complexity forms the guidelines under which a special needs trust must operate.
Understanding a Special Needs Trust
Eligibility for Means-Tested Benefit Programs
Medical Eligibility
In practice, an applicant must first meet the program’s physical and/or cognitive health requirements. Simply put, they must meet the physical or psychological qualifications for the public benefits for which they apply. This is known as the medical eligibility test. In our discussion, I assume that the medical “need” for benefits is not an issue; therefore, I will examine and discuss financial eligibility hereafter. 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 the “Medical Eligibility test”, most New Jersey “means-tested” government assistance programs have income and resource limits that cap a person’s assets and income. While the income cap varies by program, the resource cap is generally $2,000.00. Certain assets, such as the individual’s home and automobile, are usually not counted as available resources when determining eligibility. Most other assets are counted, including those that can be spent down to pay for medical care and services. This includes property held in restricted accounts that cannot be accessed without a court order. Without an SNT and careful planning, the individual with excess income or resources will need to spend down all available resources and then apply for or reapply to government benefit programs. We can avoid this forced spend-down by creating the right SNT for them.
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 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 a material change in his or her finances, the agency can seek reimbursement for those benefits for any prior periods of 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 a traditional revocable trust (and in some irrevocable trusts) are counted as available resources by the government. Counting funds in a trust as an available resource makes it very difficult for individuals and their families who want to plan for future needs. While many typical trusts result in disqualification from program benefits, it doesn’t have to be this way.
Beware: Use of a Revocable Trust in New Jersey Equals Disqualification for Many Public Benefits
The problem with a revocable trust is that the individual who creates the trust, or the trustee, retains the legal authority to pay income or trust corpus directly to the disabled person, or to alter the terms of the trust and/or revoke the trust instrument. In such a case, the 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 a Special Needs Trust Attorney typically does not recommend funding a revocable living trust for a person with a disability if public benefits are contemplated now or in the foreseeable future.
Beware: The Incorrect Use of Irrevocable Trusts in New Jersey Also Equals Disqualification
Because a person with an irrevocable trust does not retain the legal authority to revoke it, an irrevocable trust is often treated differently from a revocable trust. The specific language in the trust must be carefully reviewed and evaluated against two criteria: how trust funds can be spent to avoid 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 with an irrevocable trust.
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 revocable trust or a defective irrevocable trust can be made to the disabled person for the benefit of that individual, those funds will be considered available resources by the government. That means either a reduction of benefits or a total loss of benefits. You need this mistake corrected ASAP if you are a trustee or beneficiary of a defective trust.
Actual Payments Made to a Disabled Person
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,
Fredrick P. Niemann Esq.
CALL OUR OFFICE TODAY. I know I just covered a lot of information with you. It’s confusing and probably overwhelming. Let me explain it further. Call me personally to discuss your New Jersey Special Needs Trust at (732) 863-9900 or e-mail me at fniemann@hnlawfirm.com. I’m here to help you!
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Special Needs Trust Attorney