Moving To Another State May Affect Your Special Needs Trust

Posted on May 19, 2009 by Mary W. Browning

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.
 

Tags: , , , , , , , ,

Your Special Needs Trust May Need Revising as a Result of Recent Policy Changes

Posted on March 3, 2009 by Lori I. Wolf

Now is one of those times when it is important to revisit your planning. In the past few years, shifts in thinking by the Department of Health and Senior Services have resulted in positions being taken that would eliminate the effectiveness of many special needs trusts. In the past, under New Jersey law, it has been acceptable to create purely discretionary trusts where the trustees have the ability to use income and principal for the discretion of the special needs beneficiary, with no standard as to when the money should be used and in what manner. This created the greatest degree of flexibility in planning and was utilized much of the time. The alternative, the creation of a luxury trust that more specifically delineated how monies could be used, was less appealing as an alternative.

Due to constraints on government funds and an increase in the number of people becoming eligible for benefits in New Jersey, the government has taken a harder look at where benefits can be denied. Special needs children who have purely discretionary trusts have recently been denied eligibility for government assistance as a result of the trusts’ existence. There have been no changes in statutes or regulations that justify this change, however, as a result, it is critical that all special needs trusts be restructured as luxury trusts to best ensure that government benefits will be available to a child with special needs in the future.

Tags: , , , , ,