New Jersey Law for Children with Special Needs : New Jersey Special Needs Lawyer & Attorney : Cole Schotz Meisel Forman & Leonard Law Firm : NJ, Mid-Atlantic Special Needs Children Planning & Trusts

Parents of a young child with special needs may be unable to assess whether their child will actually be eligible to receive government benefits in the future because of an inability to determine whether the child will be able to be self-supporting and earn income through employment as an adult. For example, children with Asperger’s Syndrome, mild autism and other issues may become part of the mainstream. Locking assets up in a special needs trust for the child’s benefit where assets are to be used for luxury items only may not be the best way of utilizing the assets towards the child’s care in those circumstances. In this situation, the parent’s estate plan can create the flexibility to reassess the situation in the future. The trust could initially be structured as a lifetime trust for the benefit of the child. The trustee could have the ability to make income and principal distributions to that child for health, education, maintenance and support purposes for the life of the child.

If, in the future, the trustee believes that the child has the financial savvy and wherewithal to handle the investments on his or her own, the trustee would always have the ability to make discretionary distributions of principal to the child or to terminate the trust entirely and distribute the assets to the child.

Alternatively, if the trustee determines in the future that the child cannot be self-supporting and would be eligible to receive government assistance, the trustee could have the flexibility to convert this trust at the time of that assessment to a special needs trust. The conversion would not require court consent and upon conversion, the trustee would have the ability to use trust assets for luxury items (items not otherwise covered by government assistance) such as equipment, vacation costs and therapies and any other expenses to supplement (but not replace) government benefits.

The family should be careful in assessing who is the best individual to serve as trustee of this trust as this person will be responsible for making the determination as to how this trust should be structured going forward. This flexible structure permits the child to achieve his or her potential allowing the trustee to use trust assets to enhance the child’s lifestyle, while ensuring that the trust will not create a impediment to the best care of the child where government assistance is needed in the future.
 

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Gov. Corzine signed new legislation this week, known as “Ronnie’s Law,” that requires fiduciaries (such as executors, testamentary guardians and testamentary trustees) of estates of developmentally disabled individuals to post bonds in Superior Court. The statute is the Legislature's response to the theft of $814,000 by a disbarred Audubon Heights attorney from an estate established for an autistic man, Ronnie Mich, by his father. The bond amount is based on the value of the estate’s assets and the purpose of the bond is to protect the estate’s assets from bad acts by the fiduciaries. The fiduciary will be required to provide the court with an estate accounting every five years.

Certain blood relatives of the disabled individual who are appointed as fiduciaries, such as children, grandchildren, great-grandchildren, parents, grandparents, great-grandparents, brothers/sisters, aunts/uncles and nieces and nephews, as well as certain financial institution and non-profit community trusts, are exempt from having to post the bond. In addition, if the estate is below $25,000, or if the court otherwise orders, no bond is required. This bill takes effect in 60 days.

The definition of “developmental disability” under the statute means a severe, chronic disability of a person which: (1) is attributable to a mental or physical impairment or combination of mental or physical impairments; (2) is manifest before age 22; (3) is likely to continue indefinitely; (4) results in substantial functional limitations in three or more of the following areas of major life activity, that is, self-care, receptive and expressive language, learning, mobility, self-direction and capacity for independent living or economic self-sufficiency; and (5) reflects the need for a combination and sequence of special interdisciplinary or generic care, treatment or other services which are of lifelong or extended duration and are individually planned and coordinated. Developmental disability includes but is not limited to severe disabilities attributable tomental retardation, autism, cerebral palsy, epilepsy, spina bifida and other neurological impairments where the above criteria are met.
 

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There are two types of special needs trusts – one designed to hold assets gifted or bequeathed to a person with special needs from a third party (a “Third-Party Special Needs Trust”), and one designed to hold assets that are already deemed to be owned by that person with special needs (a “First-Party Special Needs Trust”).

A Third-Party Special Needs Trust is created to receive gifts and bequests from third parties, such as parents and other friends and family members. These trusts can be set up at any time to receive gifts or bequests from various friends and family members or can be set up under a parent’s (or other family member’s or friend’s) Will to just receive assets from that person’s estate.

Whether a Third-Party Special Needs Trust is set up during someone’s lifetime or under someone’s Will, the basic terms of the trust are the same. Third-Party Trusts provide that during the lifetime of the person with special needs, the trustee can use trust assets to provide for his or her well being after first considering the benefits which are provided through governmental assistance. The trustee is directed to use the assets for such child’s special needs, i.e. to obtain goods and services to maintain or improve his or her comfort, welfare and care, including luxuries beyond basic needs. The trustee can use assets to supplement basic health care services, to pay the expenses of his or her vacations, and to make improvements to real estate that would provide suitable housing for him or her. The trust is set up to preserve a child’s eligibility for whatever governmental benefits may be available under New Jersey law or the law of the state where the person with special needs resides.

At the death of the person with special needs, 100% of the remaining trust assets can pass to anyone that the grantor (creator) of the trust decides at the time of the creation of the trust. These beneficiaries are often siblings or other family members of the person with special needs.

A First-Party Special Needs Trust is a trust created to own the assets currently owned in the name of a person with special needs. These assets may be gifts or bequests from well meaning family or friends that were given to person with special needs either outright or in a trust that does not qualify as a special needs trust. These assets may also be assets received by a person with special needs in a lawsuit.

A First-Party Special Needs Trust can only be set up by a parent, grandparent, guardian or a court.  A First-Party Trust can only be set up for someone who is deemed disabled under the Social Security Administration definition. For a minor, a person would be considered disabled if he or she “has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.” An individual age 18 and older is “disabled” if he or she has a medically determinable physical or mental impairment, which results in the inability to do any substantial gainful activity; and can be expected to result in death; or has lasted or can be expected to last for a continuous period of not less than 12 months.

Under a First-Party Special Needs Trust (as with the Third-Party Special Needs Trust), the trustee can use trust assets to supplement (but not replace) any benefits or governmental assistance such person is or may become entitled to receive.

One major difference between a Third-Party and First-Party trust is that in a First-Party Trust, at the beneficiary’s death, the remaining trust assets will reimburse Medicaid for any monies expended while the Trust was in existence for medical care, home health care or nursing home care of the person with special needs. Thereafter, any other public assistance programs which have a valid right of reimbursement under state or federal law will be repaid.

Any remaining trust assets will pass to those persons appointed by the person with special needs in his or her Will to receive the assets. If a person with special needs is under the age of 18 and/or is incompetent, then the assets will pass to those persons entitled to receive the assets under the intestacy laws of New Jersey.

There are also many reporting requirements for a First-Party Special Needs Trust that are not required for a Third-Party Special Needs Trust. Any new appointment of trusteeship must be disclosed to the Division of Medical Assistance and Health Services. In addition, as is required under Medicaid regulations (10:71-4.11 of the New Jersey Regulations), the trustee must file annually an informal accounting of the administration of the trust’s assets, income and expenses with the agency charged with the beneficiary’s Medicaid eligibility re-determination. Additionally (as is required by state law), the State of New Jersey must be given 45 days advance written notice of any expenditure by the trust in excess of $5,000, or of any amount which would substantially deplete the principal of the trust. Finally, subsequent additions to the Trust must be reported to the appropriate determination agency (any agencies from which such beneficiary is receiving benefits, such as Medicaid).

Although the First-Party Trust may preserve some of the assets of a person with special needs during his or her lifetime, at that person’s death, the money is subject to the claims of Medicaid and other agencies. Therefore, it is important that assets are never titled in the name of a person with special needs in order to prevent the need for a First-Party Trust. However, if assets are already in his or her name, it is important to create a First-Party Trust to at least preserve the assets during his or her lifetime.
 

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While having a properly constructed estate plan from a legal perspective is critical in protecting a child with special needs, it is equally important for the parents of a child with special needs to make every effort for a seamless transition following a parent’s death for the caregivers of a child.

Towards that end, a letter of intent is critical in providing assistance to future caregivers. As a parent, you know all of those special things about your child which likely no one else in the world does. You know what sets your child off and what calms your child down. You know what routines and schedules are important to your child and what items they need in bed with them in order to sleep soundly through the night. You know what therapies have worked with your children, what medications have worked and those that have failed to enhance the quality of your child’s life.

At your death, this critical information is lost unless recorded in some fashion that is easily accessible to the people who assume responsibility for your child going forward. This could mean future guardians, trustees of a trust for your children or simply family members who step into the void left upon your death. A letter of intent contains all of that information.

The letter of intent should be updated annually so that it always contains current information. If you would like a copy of a sample letter of intent, please let us know and we will provide you with one. Please note that this letter of intent should be updated annually as the needs of your child change over time. A copy of the letter of intent can be kept with your attorney or simply in a file clearly marked in your home. It is not a legal document and legal counsel is not required in order to prepare this document.
 

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The following are some examples of expenses and distributions that can and cannot be made from a Special Needs Trust. This list is not exhaustive, but is meant to provide some guidelines as to the proper administration of a Special Needs Trust.

Permissible Distributions

1. Purchase of home or condo, as long as rent is paid by the special needs person at its fair rental value from income he or she receives from SSI or other sources (other than payments from the Trust);

2. Home improvements and repairs by a third party;

3. School tuition, books and supplies;

4. Vacation travel;

5. Entertainment, such as books and magazines, movies, plays, electronic equipment, games, etc.;

6. Insurance premiums;

7. Transportation (such as purchase of a handicap van, car or train tickets);

8. Telephone and cable television expenses;

9. Dental care and other medical costs not covered by any benefit program;

10. Medical equipment and medical expenses for care not covered by any benefit program.

Distributions Which May Reduce or Eliminate Government Benefits

1. Shelter expenses, such as mortgage payments, real property taxes, utilities, etc., if rent is not paid by occupants. If the Trust owns a home that the special needs person lives in and he or she does not pay rent, SSI and other benefits may be reduced and Medicaid may have the right to take the home after the special needs person’s death;

2. Food;

3. Clothing;

4. Cash paid directly to the special needs person.

You should contact legal counsel if you have any questions about distributions from a Special Needs Trust.

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If you have an existing special needs trust, moving to another state could require a change to the trust in order to comply with the rules of the new state. This applies to both first-party trusts (trusts funded with the assets previously owned by an individual with special needs) and third-party trusts (trusts funded with assets gifted or bequeathed from third parties for the benefit of an individual with special needs).

Each state has different rules related to special needs trusts. For example, for third-party trusts, some states will recognize a basic discretionary trust as a special needs trust, while other states require more specific “supplemental needs trust” language to qualify as a special needs trust.

Each state may have different rules related to first party trusts, as well. Although many of the rules related to these trusts are imposed by federal law, many states require additional language or information in the trusts in order to ensure that the beneficiary of the trust who has special needs will qualify to receive governmental assistance. In addition, each state may have different reporting requirements. For example, some states require you to send a copy of the trust to each agency from which you are receiving benefits. Some states also require additional notice when certain dollar amounts are distributed from the trust. For example, in New Jersey, if an expense of $5,000 or more is to be paid from a first party trust, prior written notice must be provided to the New Jersey Division of Medical Assistance and Health Services.

Although special needs trusts are typically irrevocable, a well drafted trust should include a provision allowing the trustee (or the grantor in the case of a first-party trust) the right to modify the trust to conform with state or federal law. If your trust does not contain this language, and the state law of your new state does not allow a modification of the trust, you may need to apply to a court for a modification.
 

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Careful attention should be given in deciding who to name as the trustees of your special needs trust. These can be family members, friends, professional advisors or others. Trustees should be people who you trust implicitly and who have some financial savvy. This does not mean that you must name a financial advisor to be trustee of the trust, but the person named should be someone financially responsible who will use appropriate professional advisors. Another important criteria is to name a trustee who has your values so the decisions made in the care of your child with special needs are consistent with the decisions you would have made for your child.

One or more people can be named as trustees of a special needs trust. If more than one individual is selected, it is important to consider if unanimity should be required by the trustees or if majority vote rules should apply. If two or four individuals are named as trustees, consideration should be given to naming a tie-breaker who can resolve any disputes between trustees. This will quickly and efficiently resolve any deadlock without the need for court involvement.

In addition to selecting initial trustees, you should consider who you want to name as successor trustees if the initial trustee dies, resigns, becomes incapacitated or is otherwise unable to serve. If the creators of a special needs trust are married, and the trust is created during lifetime (and not at death through a Will), one spouse can be trustee of the trust and one spouse can be the grantor (the creator of the trust and person responsible for making gifts to the trust). The trustee can (if desired) be given the power to remove and replace successor trustees and to name new successor trustees.

In all cases, the last named trustee should be given the power to name successor trustees to hopefully avoid a situation where nobody is available to serve as trustee and a court appointed trustee is required.

Where there is no one individual or group of individuals who a family feels can adequately serve as trustees of a special needs trust, an institution can be named as trustee. This can be a financial institution (such as a bank or trust company) or an entity such as Plan/NJ which is specially designed to handle these situations.
 

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Just as it is important to go to the doctor, the dentist and the eye doctor and to review the status of your finances on a regular basis, it is as important to reevaluate your estate planning on a regular basis.

Over the course of any period of years, there can be multiple issues which arise – there can be changes to tax laws which affect planning decisions; there can be changes in a family’s financial situation (both increases and decreases in wealth) which affect the decisions that are appropriate; there can be changes in relationships with the people appointed to serve in various capacities (as executors, trustees, guardians); and there can be changes in situations with children which necessitate the need to revisit planning.

Where a child with special needs is involved, the need to revisit planning on a regular basis becomes even more paramount.  First, it is critical to ensure that there is adequate funding for a plan on a long term basis. Since in many situations, these children will not be able to support themselves, this issue take on heightened importance.  Further, changes in the law or in positions taken by state agencies may change what is appropriate for a special needs trust.  Evaluating your plan at least every 1 or 2 years is crucial to ensure that you have the best plan in place for you and your loved ones.

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Estate planning is an important aspect of an overall financial plan for any individual, but it takes on even greater significance for the parents of children with special needs. Parents of children with special needs face a number of unique estate planning decisions that should be carefully considered with professional assistance. These considerations include:

Naming guardians. If parents pass away, who will provide day-to-day care for the special needs child? This is a critical and difficult decision and must be provided for in the parents’ Wills.

Creating a special needs trust.  A special needs trust is a trust that permits (but does not require) distributions to a child with special needs for a variety of reasons. Often, distributions are permitted only to supplement but not supplant monetary support that the individual is receiving from governmental benefit programs such as Social Security Disability Income (“SSDI”), Supplemental Security Income (“SSI”) and Medicaid. Failure to create a proper special needs trust can inadvertently disqualify the special needs child for these programs. The trust structure is also important to ensure that assets are not placed in a child’s hands before the child is responsible enough to invest and use the assets prudently (if ever).

The choice of trustee for a special needs trust is another critical decision. A trustee should have financial savvy, should have the parents’ complete trust, and should be or become knowledgeable regarding the child’s needs.

Powers of attorney.  A power of attorney allows an individual to appoint people to manage his or her assets and make investment decisions on his or her behalf. Having this document avoids the necessity of having to go to court to get someone appointed as a guardian if an individual cannot manage his or her own affairs. A power of attorney is important for all individuals, but in a special needs situation, it is important for both the parents and the special needs child.

Parents of an adult child with special needs should also consider whether a power of attorney is adequate or if parents should be named as guardians of the adult child to better protect the child’s interests. If there is a concern that the child cannot adequately manage his or her own affairs at all or could be taken advantage of, a guardianship (full or limited) may be more appropriate.

Life insurance. Life insurance is typically used to ensure that sufficient assets are available to provide adequate income to the surviving spouse and to provide for the care of children until they finish schooling and are able to earn a living. In a special needs situation, life insurance can be used to fund a special needs trust to ensure there will be assets available for the rest of the child’s lifetime. This may be especially important if parents can no longer provide the care the child needs.

While estate planning is essential for any individual, for a parent with a special needs child it takes on additional significance.
 

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