Special Needs Trusts for Minor and Adult Disabled Persons

At Hanlon Niemann & Wright, We Understand Special Needs Trusts

What Does the Term “Special Needs” Mean?

“Special needs” is a clinical, diagnostic and functional development term used to describe individuals who require assistance for disabilities that may be physical, cognitive or psychological.  Persons with Autism, Downs syndrome, blindness, developmental disability or cystic fibrosis, for example, may be considered to have special needs. Becoming eligibile for a legally recognized Special Needs Trust is not just limited to persons with special needs. A person with a disability can also qualify. A “disability” is defined as a physical, cognitive, behavioral or health impairment that substantially limits one or more activities of daily living. A person with a disability may also experience a combination of (each of) the above-described conditions. 

A person with a disability is not just defined by that person’s medical condition, but by an environment that erects barriers to his or her participation in the social and economic life of their communities.
– quoted by NAELA

Understanding the Two (2) Different Special Needs Trusts  in New Jersey and Why It Matters!

There are two types of special needs trusts.  A special needs trust will either be a “First Party Trust” or a Third Party Trust.  I know that’s a mouth full and confusing.  Let me make it easier to understand.

Understanding What it Means to Be a Third Party Trust vs. First Party Trust

You can initially determine whether a special needs trust is a Third Party Trust or First Party Trust by looking at the source of the money used to fund the trust.  If the money or real estate used to fund the trust are not owned by the disabled person, say for example, a parent or grandparent, then the trust is a Third Party Trust.  In other words, a Third Party Trust is always funded by someone other than the person with the disability.  The person with a disability has no ownership interest in the funds placed into the trust.  As I previously have written, funds coming from a parent, grandparent or sibling into the SNT are not funds owned by the child/disabled adult.  Note:  Once someone with special needs or a disability inherits funds in their name personally, these funds belong to the person with the disability and eligibility for public programs and benefit may/will be lost.

Let’s Discuss a Third Party Special Needs Trust

There are two general requirements for a Third Party special needs trust.  First, these trusts must be established by someone other than the disabled person/beneficiary.  Third Party Trusts are usually established by parents, grandparents, aunts, uncles, siblings, friends, or any other independent party with no legal duty to support the trust beneficiary.  A spouse cannot establish a third-party special needs trust for his or her spouse.  The second key requirement is that these trusts be established with funds that the beneficiary has no present ownership interest in.

Third Party Trusts can be customized to the needs and goals of the person creating the trust and can therefore be part of a more traditional estate plan.  These trusts can be revocable or irrevocable, and most significantly, do not require any payback to New Jersey, or the Federal government (Medicaid) upon the death of the beneficiary for medical and other expenses paid for by the state.  Payback provisions to the state should always be avoided when possible. I’ll explain this point further in the section which follows later on this page.

Understanding What it Means to Be a First-Person Special Needs Trust 

This type of trust is also referred to as a (d)(4)(A) trust and is generally called a “First Party Special Needs Trust”.  To establish a legal First Person Special Needs Trust in New Jersey, the trust must satisfy all of the requirements set forth below:

• The Trust must be created solely for the benefit of an individual who is disabled as defined by law and who is under 65 years of age.
• The trust may be established by the adult disabled person himself or herself or the individual’s parent(s), grandparent(s), legal guardian, Power of Attorney (POA), or by a Court.
• The Trust must be established with the funds and property belonging to the individual with a disability (meaning legally owned by the individual).
• Funds that (may) remain in the Trust at the time of the disabled individual’s death must be turned over to the State of NJ to reimburse the State for the public benefits provided to the person over his/her lifetime.  This requirement to reimburse the State is commonly referred to as a “payback provision”.  This payback requirement is what distinguishes a Special Needs Trust (First Party SNT) from a Supplemental Needs Trust (Third Party SNT).

Please Listen to Me! You Need a Special Needs Trust for a Minor or Adult Child, an Adult Person, Adult Friend, Sibling or Family Member with a Disability in New Jersey.

Why Use a Special Needs Trust for a Person With a Disability?

There are many reasons for creating a Special Needs Trust.  It will be my pleasure to explain them to you face to face.  Here are some of the benefits I explain to clients when recommending a Special Needs Trust.  I have created bullet points for you and then I go on to explaining each point in much greater detail on the pages that follow;

• The person with the disability will keep his/her income (SSI or SSD) and health care benefits, including Medicaid and Medicare.
• Money placed into the trust can be used to pay for personal items and services not covered by public benefits
• Money in the trust can be used to pay for doctors, dentists, therapists and other professionals who do not accept Medicaid, or for the services, co-pays and deductibles not covered by Medicare A & B & Medicaid
• Parents and grandparents can control how, when and where trust assets go after the person with the disability passes. The only alternatives to the Special Needs Trust are (1) leaving nothing to the child; or (2) leaving the money to a pooled trust; or (3) leaving money in a trust that is not an SNT causing the loss of public benefits.

Watch my video on Families with Minor Children Who Have Special Needs and Disabilities

Child Support Can Be Placed in a Special Needs Trust to Preserve SSI and Other Government Benefits

Child support can and often should be directed to a first-party special needs trust if one exists.  Child support cannot go into a third-party special needs trust or directly to the child.  Child support is considered to be an income/asset of the person with the disability after they turn 18.  It will be counted as income for the purposes of calculating SSI.  That is problematic because a person with disabilities must maintain Medicaid eligibility in order to access many adult services at state expense.

An Important Message for Divorced or Divorcing Parents of Special Needs Children Video

Estate Planning With a Special Needs Trust

If you leave money ($ $ $) to a person with a disability outright, he or she may lose his/her public benefits. Then after the assets are spent down to under $2,000, the child can go back on public benefits. All the money you give to the disabled child/person will be lost. It is so easy to avoid this mistake with a Special Needs Trust.

Consult With a New Jersey Special Needs Trust Attorney Today

As a father himself, Mr. Niemann is a sensitive and caring attorney willing to help you achieve the best possible future for your child or family member.

What About Pooled Trusts in New Jersey?

Some people have heard about Pooled Trusts, but most people have not.  What are they?  Well, these trusts are referred to as (d)(4)(C) trusts. They are trusts managed and invested by non-profit organizations under IRS Code 501(c). Individuals and families use a “Pooled Trust” when there is no one suitable or willing to serve as a trustee or the dollar value of the funds to be protected is not high enough to justify the expense of creating a trust or ABLE account.  These organizations serve the disabled community. With a pooled trust the funds of the disabled person are invested with hundreds/thousands of other disabled persons in a common trust fund.  Each beneficiary has their own “account” and funds are used for the economic benefit and welfare of each disabled person. Each participant has their own separate sub-trust, a large master trust and each participant has their own tax ID number.  To establish a valid Pooled Trust, it must satisfy specific legal requirements.

• The Trust must be established and managed by a non-profit association.
• The Trust must maintain separate accounts for each Beneficiary, but the funds are pooled for purposes of investment and management.
• Each separate Trust account must be established solely for the benefit of an individual who is disabled as defined by law.  There are no age restrictions or requirements.
• The individual’s account must be established with assets belonging to that individual.
• Any funds that remain in the individual’s account at death may be kept by the non-profit trustee for their charitable purpose(s).  Any funds not retained by the Trust must be used to reimburse the State.  This may be referred to as a modified payback requirement.
• New Jersey allows Pooled Trusts for individuals age 65 and younger.  It does not allow Pooled Trusts to be created by individuals past the age of 65.

CALL OUR OFFICE TODAY AND ASK FOR MR. NIEMANN TO PERSONALLY DISCUSS WHETHER A POOLED TRUST OR A SPECIAL NEEDS TRUST IS RIGHT FOR YOU.  CALL HIM TOLL-FREE AT (855) 376-5291 OR YOU CAN EMAIL HIM AT fniemann@hnlawfirm.com.

Special Needs Trust attorney serving these New Jersey Counties:

Monmouth County, Ocean County, Essex County, Cape May County, Camden County, Mercer County, Middlesex County,
Bergen County, Morris County, Burlington County, Union County, Somerset County, Hudson County, Passaic County