In New Jersey, Special Needs Trusts (SNTs) are an essential legal tool designed to support individuals with disabilities by managing resources without compromising their eligibility for governmental assistance programs such as Medicaid or Supplemental Security Income (SSI). These trusts provide a way for family and friends to contribute to a loved one’s quality of life while ensuring that the beneficiary still qualifies for the public benefits they are entitled to. The state follows specific legal guidelines to establish and maintain these trusts, ensuring they effectively serve the intended protective purpose.
Types Of Special Needs Trusts
There are primarily three types of special needs trusts:
1. First-Party Special Needs Trusts
These trusts are funded with the assets of the individual with special needs, often from an inheritance, legal settlement, or personal savings. There is a payback provision that upon the beneficiary’s death, any remaining funds in the trust must be used to reimburse the state for Medicaid benefits received by the beneficiary. The beneficiary must be under 65 years old when the trust is established.
2. Third-Party Special Needs Trusts
These trusts are funded with assets from someone other than the beneficiary. Parents or other family members typically establish these trusts in their estate planning. Unlike first-party trusts, there is no payback provision or obligation to repay the state for Medicaid benefits after the beneficiary’s death. The assets in the trust can be directed to other family members or charities.
3. Pooled Trusts
Nonprofit organizations manage pooled trusts. These are collective trusts managed by nonprofit organizations that pool and invest funds from multiple beneficiaries. Beneficiaries are not age-restricted, making them a viable option for older individuals. Like first-party trusts, remaining funds may be required to reimburse the state or can stay within the trust to benefit other members of the pooled trust.
How Special Needs Trusts Work in New Jersey
Setting up the Trust
It is crucial to involve an attorney experienced in special needs planning to ensure the trust is correctly set up in compliance with state and federal laws. You will want to choose a trustee who can be a family member, a friend, or a professional trustee who will manage the trust assets and distributions. The trust agreement must detail the trust’s purpose, specify the trustee’s powers, and outline the beneficiary’s needs.
Trustees have complete discretion over distributions to ensure they do not conflict with eligibility requirements for public benefits. Distributions are typically made for expenses not covered by public assistance, such as extra caregiving, education, transportation, and recreation. Remember that trustees may need to report to the state regarding the trust’s status and the beneficiary’s circumstances to maintain benefit eligibility.
Financial and Legal Considerations for SNTs.
Special needs trusts may have tax obligations that must be managed annually. It is advisable to consult with a tax professional who understands the complexities of trusts.
Laws governing special needs trusts and public assistance programs can change. You should consult with an attorney who can keep you abreast of any recent changes in the SNT laws.
Practical Considerations for SNTs
- Long-Term Planning: The trust should be part of a broader estate plan that considers the beneficiary’s future needs, including potential health and financial status changes.
- Family Involvement: It is beneficial to educate family members about the trust to ensure that all potential contributions are coordinated and do not endanger the beneficiary’s eligibility for government benefits.
Contact Our Paramus Special Needs Trusts Attorney
Special needs trusts in New Jersey offer a strategic way to provide for a loved one’s future without sacrificing essential benefits. These trusts should be tailored to individual circumstances, professional advice should be given, and careful planning is critical. At Bozanian McGregor, LLC, we understand you are considering a Supplemental Needs Trust because you want the best for someone you care for who cannot independently make these financial and legal decisions. We have experienced family law attorneys who will ensure our office handles your situation professionally and compassionately. Contact us today to learn more about how we may be able to help.