New Jersey families with a member who is disabled and cannot work face a troubling conundrum: many government programs, such as Medicaid and Supplemental Security Income, pay significant monetary benefits to disabled persons, but eligibility for these benefits depends upon the income of the disabled person. If the disabled person has significant assets or is given significant monetary gifts by friends and relatives, the person’s eligibility for the government assistance program may cease. To solve this problem, New Jersey (and many other states) have established a legal entity known as a “special needs trust” (SNT).
An overview of an SNT trust
An SNT names the disabled person as the beneficiary, and the assets in the SNT can only be used for the benefit of the beneficiary. Contributors to the trust are limited to parents, grandparents, guardians, and the courts. A trustee must be appointed to administer the affairs of the trust and make payments in accordance with the trust documents. When the beneficiary reaches age 65, all transfers to the trust are thereafter prohibited. If the beneficiary dies leaving payments owing for Medicaid payments, the state of New Jersey is the first beneficiary up to the extent of funds owed for Medicaid reimbursement. If the SNT has been funded from the proceeds of a personal injury settlement or recovery, the Medicaid agency must be repaid for all payments made to the beneficiary before the SNT can be established.
Three types of SNTs
New Jersey recognizes three kinds of SNTs: first party, third party, and pooled. A first party SNT is funded by assets contributed by the beneficiary. Third party SNTs are funded with assets contributed by family members or friends. A pooled SNT is a special trust in which assets from several SNTs are aggregated and invested for the benefit of all members of the pool. The trustee of a pooled trust must keep track of the assets contributed by each member and make disbursements accordingly.
Estate planning assistance
An SNT can provide significant estate planning benefits to the disabled person and the person’s family. Anyone interested in establishing an SNT may wish to contact an experienced estate planning attorney for detailed advice and assistance in drafting the necessary documents.