Practical Issues and Considerations in the Use Of a NJ Special Needs Trust

New Jersey's State Lien

As a condition to receiving Federal money for its Medicaid programs, New Jersey filed a State plan to the Federal government for approval.  As part of New Jersey's plan, each State must have some method or procedure for attempting to seek repayment for medical benefits paid to Medicaid recipients.  In New Jersey, the State plan includes the two specific recovery methods that are described below.

Third Party Lien

New Jersey law creates a recovery lien which most often becomes applicable in personal injury actions.  Under this law, which states that Medicaid should be the payor of last resort for medically necessary goods and services furnished to Medicaid recipients, the recipient must reimburse the State for all Medicaid benefits provided as a direct result of the incident that gave rise to the cause of action.  Reimbursement must come from the settlement award, and the use of a special needs trust will not defeat the State’s third-party lien.  In other words, the third party lien should be satisfied before funding the special needs trust.

Estate Recovery

New Jersey created the Medicaid Estate Recovery Act.  Under this Act, the State has a claim against the Medicaid recipient’s probate and non-probate estate for all Medicaid benefits provided from age 55 forward.  A special needs trust will not escape the application of the Estate Recovery Act.  The requirement that all special needs trusts contain a payback provision ensures that the trustee has an affirmative duty to satisfy the State’s lien at the beneficiary’s death.

Minimum Amount Necessary to Establish a Special Needs Trust

There is no technical or legal requirement that sets any minimum necessary amount to establish a special needs trust.  However, if the individual receives any amount over the typical asset cap of $2,000.00, the receipt of these assets will have a negative effect on program eligibility.  Whether the individual should create a special needs trust, or spend down the assets on goods or services, is a decision that the individual must make after consultation with competent counsel.  Without regard to the individual’s ultimate decision, a plan of action should be implemented immediately so that program eligibility is not jeopardized in the month the assets are received.

Duty to Notify New Jersey

All recipients of government assistance have an affirmative duty to notify the agency that is responsible for administering their program whenever there is any material change in circumstances.  Becoming the beneficiary of a trust is a material change in circumstances, and the individual must provide the agency with a copy of the trust document.  Local legal counsel for the agency will review the trust to see if it meets all of the technical and legal requirements for being treated as a special needs trust and therefore not counted as an available resource.