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If you have a child with special needs, you might wonder what you can do to help make their lives easier and ensure their financial needs are met. Special needs trusts (SNTs) ensure long-term financial security and quality of life for individuals with disabilities. They allow assets to be held on behalf of a person with disabilities without affecting their eligibility for essential government benefits like Medicaid and Supplemental Security Income (SSI). In New Jersey, as in other states, setting up and managing an SNT requires careful planning as to which type of SNT might be most beneficial and understanding state and federal laws.
Types of Special Needs Trusts in New Jersey
- First-Party Special Needs Trusts: This type of trust is funded with the assets of the person with disabilities (for example, from an inheritance or a legal settlement). It is managed by a trustee other than the beneficiary. Upon the beneficiary’s death, any remaining assets must be used to reimburse the state for Medicaid benefits received.
- Third-Party Special Needs Trusts: These types of trusts are funded by someone other than the beneficiary, typically parents or other family members. They can be set up by a will or as a standalone trust. They offer more flexibility, as there is no requirement to reimburse the state for Medicaid upon the beneficiary’s death.
- Pooled Trusts: These types of trusts are managed by nonprofit organizations. They combine the assets from multiple beneficiaries for investment purposes while maintaining separate accounts for each beneficiary’s needs.
These types of trusts are helpful for smaller trusts or when a suitable individual trustee is unavailable.
Steps for Setting Up A Special Needs Trust in New Jersey
- Choosing the Right Trust: The first step is to decide whether a first-party, third-party, or pooled trust suits your situation based on the source of the funds and your specific goals. You will then want to select a Trustee who is a trustworthy person or professional entity to manage the trust. This choice is critical, as the trustee will be responsible for managing the assets and making distributions in the beneficiary’s best interest.
- Drafting the Trust Document: You should engage an experienced attorney to ensure that the trust complies with state and federal regulations to maintain the beneficiary’s eligibility for public benefits.
- Funding the Trust: The final step is to transfer assets into the trust, including cash, investments, property, or other valuable assets.
- Ongoing Management: The trustee must manage the trust’s assets, make distributions for the beneficiary’s needs, and handle reporting and compliance requirements.
Benefits Of A Special Needs Trust
Setting up an SNT has many benefits. If the Trust is properly structured, it will protect your child’s eligibility for public benefits and not count toward asset limits for government aid. It also ensures funds are available for the beneficiary’s supplementary needs without financial hardship. Lastly, it provides peace of mind for the parents and caregivers by assuring the economic well-being and quality of life of their loved ones.
Contact Our Special Needs Planning Attorney
This overview should provide a solid foundation for understanding and beginning the process of establishing a special needs trust in New Jersey. Parents looking to set up an SNT should start by consulting with an attorney who is experienced in special needs planning. You might also want to utilize a financial planner who can discuss the best methods for you to fund your Trust. Bozanian McGregor LLC can assist you with all of your Special Need Trust concerns and help you draft the Trust so that your child is protected financially and can still benefit from Federal assistance.