New Jersey families that include a person with special needs may wonder how to preserve the person’s assets while maintaining eligibility for government assistance programs that base eligibility on income and net assets. One answer to this question that is becoming increasingly popular is a special needs trust (SNT). A special needs trust provides a method of setting aside assets belonging to the dependent with special needs trusts and thereby preserving eligibility for government programs such as Medicaid and Supplemental Security Income (SSI).
Special needs trusts were authorized by Congress under 42 U.S.C. §1396. This law allows any persons younger than 65 who is disabled within the meaning of Social Security Administration regulations to place assets in an irrevocable trust to establish or maintain Medicaid eligibility. Moving assets into an SNT removes them from the beneficiary’s possession and preserves eligibility for Medicaid, SSI and state programs that have income and asset limitations. A person’s right to transfer assets to an SNT ceases when that person becomes 65.
An SNT must satisfy a number of specific requirements. The beneficiary must have been determined to be disabled under SSA regulations. The SNT must be irrevocable and be established for the sole benefit of the SNT beneficiary. When the SNT beneficiary dies, the remaining trust assets are paid to various creditors. The state of New Jersey becomes the first beneficiary of the remainder of trust assets. The state can withdraw assets equal to the amount of Medicaid benefits provided to the beneficiary prior to death. All disbursements from the SNT must be intended to assist the designated beneficiary pay for living and medical expenses.
Establishing an SNT can be a complicated task. Anyone interested in setting up an SNT may wish to consult an experienced and capable estate planning attorney for advice on the necessary documents and information that are necessary to ensuring that the trust is valid after all of the documents have been signed.