What Are Special Need Trusts?

Purchase and Sales Agreements

Special Needs Trusts are authorized under federal law 42 U.S.C. § 1396p(d)(4)(A). They are a type of trust that preserves the Special Needs Trust beneficiary’s eligibility for needs-based government benefits such as Medicaid and Supplemental Security Income (SSI). These trusts may also be called a supplemental needs trusts, or ”d4A”. The New Jersey regulations for Special Needs Trusts can be found at N.J.A.C. 10:71-4.11(g)1.

The goal of a Special Needs Trust is to enhance the quality of life of the person with a disability. There are several types of Special Needs Trusts. Each form of special needs trust serves a different purpose and objective. They all preserves the financial eligibility of the beneficiary for government programs such as Medicaid, DDD Services, SSI, and additional public benefits services and programs. A “means tested” public benefit simply means there are financial eligibility conditions imposed upon a person’s income and resource. Above that threshold, government benefits can be lost. A well-written Special Needs Trust can be used to enhance the quality of life for a person with a disability by paying for care services and the purchase of products and services not provided by government programs.

The advantages of a d4A trust are only available to individuals with disabilities. An individual is generally considered to be disabled if he or she “is unable to engage in any substantial gainful activity” by reason of a medically determinable physical or mental impairment that is expected to result in death or has lasted or can be expected to last for a continuous period of at least twelve months. Children under the age of 18 are considered to be disabled if they suffer from a physical or mental impairment of comparable duration and severity. If your client is not disabled or is not expected to need significant additional medical care, then he or she may not benefit from a d4A trust. Additionally, in the case of a personal injury lawsuit recovery funding a Special Needs Trust, the Medicaid agency must first be repaid for the Medicaid payments related to the tort before the Special Needs Trust can be established.

Any individual under 65, who is disabled under the Social Security Administration standard, may place assets in a Special Needs Trust to establish or maintain Medicaid eligibility. As a rule, because the Special Needs Trust beneficiary does not own the assets in the trust, he or she can remain eligible for benefit programs that have an asset limit. Additionally, the federal law exempts transfers of assets into an Special Needs Trust from Medicaid penalty. However, in order to use the Special Needs Trust to obtain or retain Medicaid benefits, both the trust document and annual Special Needs Trust accountings must be disclosed and reviewed.

The Social Security Administration’s (SSA’s) Program Operations Manual System (POMS) contains an action chart to determine whether a trust is compliant with section 1396p(d)(4)(A). If the trust fails any of the criteria, the trust assets will be considered countable resources to the individual with disabilities, and his or her eligibility for means-tested government assistance may be jeopardized. Some of the criteria considered by the SSA are as follows:

  • Was the trust established for an individual with disabilities under age 65?
  • Was the trust established with the assets of an individual with disabilities?
  • Is the individual with disabilities the beneficiary of the trust?
  • Did the individual with disabilities, a parent, grandparent, legal guardian, or court establish the trust?
  • Does the trust provide that, upon the death of an individual with disabilities, any states that have provided medical assistance be reimbursed?
  • Does the trust meet the Special Needs Trust exception to the extent that the assets of the individual with disabilities were transferred to the trust prior to the individual with disabilities attaining age 65? (Any assets transferred into the trust after the individual with disabilities’ 65th birthday are not protected.)
  • Is the trust irrevocable?
  • Annual accountings are required to be sent to the eligibility determination agency, and to the DMAHS Beneficiary Administrative Action Unit (BAAU) at the address highlighted in boldface below.

The following items can be mailed to the BAAU at the address highlighted in boldface below:

  • Annual and final Special Needs Trust accountings.
  • Notification of expenditures in an annual period for one item or purpose that exceed $5,000, or any amount which would
  • substantially deplete the principle of the trust.
  • Changes in trustee or trustee contact information.
  • Notification of the death of the Special Needs Trust beneficiary.
  • A request from the trustee for the amount owed to DMAHS.
  • Questions for the BAAU.

To better understand a Special Needs Trust, you need to understand “means tested” programs. As previously mentioned, the goal of a Special Needs Trust is to help qualify a person for government benefit programs. There are multiple government benefit programs, and each program has its own set of rules and standards that determine eligibility. It is important to understand that it is this complexity that forms the guidelines under which a Special Needs Trust must operate.

Eligibility for Means Tested Benefit Programs


Medical Eligibility

An applicant must first meet the physical and/or cognitive health requirements of the program. They must physically or psychologically qualify for the public benefits for which they apply. This is known as the medical eligibility test.

Income and Resource Test

In addition to meeting the “Medical Eligibility test”, most New Jersey “means tested” government assistance programs have income and resource limits which place caps on a person’s assets and income. While the income cap varies from program to program, the resource cap is generally $2,000.00. Certain assets, such as the individual’s home and automobile, are generally not counted as available resources when determining eligibility. Most other assets are counted, including assets that are capable of being spent down and used to pay for medical care and services. This includes property held in restricted accounts that cannot be accessed without a court order. Without a Special Needs Trust and careful planning, the individual with too much income or resources will need to spend down all available resources and then apply or reapply for government benefit programs.

The experienced lawyers at Uniglicht, Bloom, Frackt & Kleinman are here to help you understand your options.

Please give us a call at 732-490-1777.

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