By Fredrick P. Niemann, Esq. of Hanlon Niemann, a Freehold, NJ Special Needs Trust Attorney

Can New Jersey require that the first named beneficiary of a special needs trust (SNT) be the state of NJ when the disabled child dies for whatever NJ paid in public benefits for that disabled person before any funds may be distributed to any remainder beneficiaries? As you know, a SNT is significantly different than a revocable and/or irrevocable trust. www.njtrustattorney.com.

Special needs trusts are sometimes referred to as a (d)(4)(A) or payback trust because the federal authority for them is found at 42 U.S.C.A. Section 1369p(d)(4)(A) and contains a payback condition. The federal statute requires that although funded with the disabled person’s assets, the trust must be established by the disabled person’s parent, grandparents, or legal guardian, or by a court; the disabled individual may not be the grantor. Additionally, in order for the trust assets to be disregarded in determining public benefits eligibility: 1) the beneficiary must be under age 65 when the trust is established and funded; 2) the beneficiary must be disabled; and 3) the trust must provide that upon the death of the beneficiary any state agency that has provided Medicaid benefits (and in many jurisdictions, like New Jersey, other state-provided means-tested benefits) must be reimbursed out of the trust up to the amount of benefits provided during the existence of the trust. If any funds remain after the Medicaid lien is enforced, they can be distributed to the named remainder beneficiaries.

New Jersey statutes facilitate the establishment of special needs trusts to supplement the government assistance provided to disabled individuals. New Jersey regulations governing special needs trusts are found at N.J.A.C. 10:714.11(g), and in addition to the requirements set forth at 42 U.S.C.A. Section 1369p(d)(4)(A), mandate, inter alia, that the trust agreement state that:

  • It is for the sole benefit of the disabled person. For expenditures made from the trust that provide incidental benefits to other persons, those other persons must contribute a pro rata share to the trust for such expenses associated with their benefit;
  • The purpose of the trust is to supplement, not supplant, impair or diminish, any benefits or assistance of any federal, state or other governmental entity. If the trust provides for food or shelter, those expenditures are considered in-kind support and maintenance for SSI and Medicaid purposes;
  • The trustee will fully comply with all state laws, including the Prudent Investor Act;
  • An annual formal or informal accounting of all expenditures made by the trust will be submitted to the appropriate public benefits agency;
  • The state must be given advance notice of any expenditure in excess of $5,000, and of any amount that would substantially deplete the principal of the trust;
  • Additions to trust corpus must be reported to the appropriate public benefits agency;
  • If the disabled beneficiary is a minor, a court must approve the trust, and the trustee must execute a bond unless waived by the court. In the case of a minor or incapacitated disabled beneficiary, the trust assets must pass by intestacy. This does not violate the doctrine of worthier title. Not further trusts may be created within the special needs trust.

To discuss your NJ Special Needs Trust, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com. Please ask us about our video conferencing consultations if you are unable to come to our office.