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

I recently read a case that discussed the relationship between New Jersey’s Medicaid program and New Jersey’s Courts. The case involved a special needs trust created by the child’s parents which provided distributions from the trust to the trust’s beneficiary, an adult child who was a beneficiary of Medicaid benefits.

New Jersey trust aw permits a trustee to ask a court for guidance when he or she is unsure of the appropriateness of making certain distributions under the terms of the trust. For example, if a trustee is unsure whether what he wants to do is “legal”, the trustee can go to court and receive the court’s opinion as to the proposed action.

Because a trustee is a fiduciary, he/she owes his/her beneficiary an obligation to do what’s best for him or her. In the case of a trust, a trustee owes this duty of care to the trust’s beneficiary. If a trustee makes a distribution from the trust that is inappropriate, the trustee can be liable to the beneficiary.

In this case, the trust’s beneficiary was also a Medicaid beneficiary. If the trustee wrongfully makes a distribution from the special needs trust to the trust’s beneficiary, the trust beneficiary can be disqualified from Medicaid. That would be a big problem.

Many Medicaid recipients often have high medical bills, which the Medicaid program pays for. If a Medicaid beneficiary loses his/her Medicaid benefits because he/she receives a distribution from the trust, then the Medicaid beneficiary can be denied care by a health care provider because they have lost their Medicaid benefits.

In the recent New Jersey case, the trustee of a special needs trust asked the court’s advice as to certain proposed distributions from the trust for the trust/Medicaid beneficiary. The court said that the distributions were appropriate and that the distributions would not impact the trust beneficiary’s eligibility for Medicaid.

Once the trustee received this opinion, arguably he or she is free to make the distribution to the Medicaid beneficiary and cannot later be found liable for having made an imprudent distribution from the trust.

Where the court may have exceeded its authority is when the court tried to bind the Medicaid office with its decision. The court held that Medicaid could not invalidate the distributions or render the trust/Medicaid beneficiary ineligible for Medicaid benefits.

There is a running debate among elder law attorneys about whether a state trial court can bind the Medicaid office, even if the Medicaid office is put on notice of the action. I think it does, but several very qualified colleagues disagree.

They argue that at the state-level, only the Medicaid office has the authority to make decisions regarding Medicaid eligibility and if you are dissatisfied with that decision, then there is an appeals process that exists. But that appeals process does not involve a state trial court.

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