A Primer

on Special Needs Trusts

In New Jersey

What Makes a Trust a Special Needs Trust (SNT)

A Special Concept

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.  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 programs.

To Better Understand a SNT, You Need to Understand
Means Tested Programs

Although New Jersey Special Needs Trusts are premised on a relatively simple concept, the public assistance programs they protect introduce a significant amount of complexity.  This complexity is introduced because there are multiple and various Medicaid programs, and each program has its own set of specific rules that determine eligibility.  While an extensive examination of these programs is beyond the scope of this primer, it is important to realize that this complexity exists, and that it forms the context in which special needs trusts operate.

Eligibility for Means Tested Programs

Level of Care

As a practical matter, the individual must meet the physical test of actually needing the care for which they apply.  In focusing on special needs trusts, this primer assumes that level of care is not an issue and only examines financial eligibility.

Resource Test

In addition to meeting the applicable level of care, 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 more consistent and is generally $2,000.00 for most programs.  Certain assets, such as the individual’s home and automobile, are not counted as available resources when determining eligibility.  Most assets are counted, however, including assets that are considered to be guardianship property.  This even includes guardianship property held in restricted accounts that cannot be accessed without a court order.  Without some planning or directed strategy, the individual will need to consume all available resources and then apply, or reapply, for assistance after becoming impoverished.                    

Penalty Periods

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 as an Available Resource

for Eligibility in New Jersey

As a general rule, assets held in trust will normally be counted as an available resource without regard to the individual’s specific program.  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.

Use of Revocable Trusts in New Jersey

Since the individual retains the legal authority to control the trust assets and/or revoke the trust instrument, a revocable trust is treated no differently than any other available asset.  For example, an individual’s revocable trust would be considered no differently than his or her savings or checking account.

Use of Irrevocable Trusts in New Jersey

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 will be carefully reviewed and evaluated according to two criteria.

First Criteria:  Whether any portion of the trust can be used for the individual’s benefit.

Potential payments

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.

Actual payments  

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.

Payments for any other purpose will be considered a transfer of assets for less than fair market value, and the transfer rules will apply.

Second Criteria: Whether any portion of the trust cannot be used for the individual’s benefit.

When no payment can be made

Any portion of the trust from which no payment can be made, either to the individual or for the benefit of the individual, will be considered a transfer of assets for less than fair market value, and the transfer rules will apply.

Look Back and Penalty Periods in New Jersey

With irrevocable trusts, a look back period of five years applies.

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