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

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While it is critical to ensure that you have adequate planning in place to preserve your child’s eligibility for government assistance, it is important for individuals to know what government benefits are available to a special needs child and when these benefits are available. Because government programs can be confusing and since they change often, anyone seeking to learn more about receiving government benefits for a special needs child should consult an attorney or review current documentation on eligibility from each individual government program.

There are four relevant government benefit programs available to special needs families.  These are Supplemental Security Income (“SSI”), Medicaid, Medicare and Social Security Disability Insurance (“SSDI”). Both SSDI and Medicare are not means based programs. In other words, there is no investigation into your finances to determine if you qualify for the program based on your income or your resources. Medicare is a form of sponsored health insurance available for the elderly and the disabled and SSDI is available to individuals and minors or special needs children of an individual who has died, retired or become disabled. A special needs child who is under age 22 and who is not working can obtain SSDI benefits based on his or her parents’ prior earnings.

SSI and Medicaid are both means based programs. Eligibility for those programs is based on financial need and strict requirements must be met prior to receiving benefits. Medicaid can provide in-home care, cost of hospitalization and nursing home care as well as some housing benefits to recipients. A special needs child can receive SSI, SSDI, Medicaid and Medicare all at the same time.

The distinction between means and non-means based programs is important to understand. Since these benefits add greatly to a disabled person’s ability to receive care, and given the expensive cost of long-term medical and nursing care, anyone seeking to give a special needs child assets may disqualify him or her from receiving means-based program benefits. However, setting up a supplemental needs trust for your special needs individual can help provide for their care without disqualifying him or her from SSI or Medicaid benefits.

Although the requirements should be reviewed periodically for changes, currently, to qualify for SSI benefits, a disabled adult cannot own more than $2,000 of assets. There is a link between eligibility for Medicaid and eligibility for SSI. Eligibility for SSI makes a disabled person eligible for food stamps and Medicaid, which pays medical expenses, nursing home care and mental health services. Given the very low poverty threshold, setting up a supplemental needs trust can help provide for extra care over and above that which the government may provide.

In addition to applying for the benefits above, special needs individuals with developmental disabilities who reside in New Jersey should apply with the Division of Developmental Disabilities (“DDD”) to preserve availability for various benefits. DDD provides a wide array of benefits including day services such as support for people who are employed, residential services such as individual support that assists an individual living at home or elsewhere in the community, and family support services that assist families caring for loved ones at home.

Parents of special needs children should make sure their child will be protected after they have passed away as they have protected the child during their lifetimes. Given the cost of long-term care for a special needs child, you should consider whether government benefits can be helpful in meeting some of those needs. A typical plan for an individual may include drafting a will and creating a special needs trust. Also important are designations of trustees, a conservator in the event of future incapacity or a standby guardian for a developmentally disabled family member. In addition durable powers of attorney, living will and related documents should be in place. Finally, securing government benefits for a special needs child can enable that person to have the resources necessary for quality long-term care.

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Sometimes family members consider disinheriting a child with special needs to avoid putting the child with special needs at risk of becoming ineligible for government assistance.  Parents may leave assets to a typical child instead of dividing the assets between the child with special needs and the typical child, and they rely on the typical child to care for their child with special needs.  This is not, however, the best way of protecting their children.

A typical child holding assets for the benefit of his or her sibling could voluntarily or involuntarily jeopardize the assets.  The assets could become subject to the claims of the typical child’s creditors such as through a judgment from an automobile accident, a bankruptcy or a divorce.  Additional risks are that the assets can be exhausted by the typical child so that they are no longer available to be used for the child with special needs or the typical child may marry someone who has less of an interest in insuring that the resources remain available for the benefit of their spouse’s sibling.

Instead of disinheriting a special needs child, a better way to protect that child is to allocate assets to a special needs trust for the benefit of that family member.  Transfers to a special needs trust generally will not create any period of ineligibility for that child.  The assets in a special needs trust can be available to provide for the care of the child with special needs to supplement, but not replace, monies available through government assistance.

Use of a special needs trust guarantees that the funds will be held only for the benefit of the child with special needs and not for any other individual or any other purpose, while ensuring that eligibility for government assistance is not comprised.

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There are several circumstances where it is appropriate to terminate a third party Special Needs Trust. A third party trust is a trust that is comprised of assets that were either gifted or bequeathed from someone other than the trust beneficiary. Most commonly, a termination will occur at the beneficiary’s death. In this situation, the Special Needs Trust most likely directs where the remaining assets will be distributed. This could be other siblings or family members or charities.

Another reason why a Special Needs Trust will terminate is because the Trust is out of funds. This might happen if the Special Needs Trust was not adequately funded in the first place, if the beneficiary’s financial needs were greater than anticipated, or if the beneficiary outlived his or her life expectancy. Even if the Special Needs Trust still has some small amount of assets, the Trustee may decide that the costs of administering the Trust exceed the remaining assets and therefore, it does not make financial sense to continue to maintain the Special Needs Trust.

A third reason for terminating a Special Needs Trust is if the beneficiary is either no longer eligible for government benefits and will likely never be eligible for benefits or if a beneficiary no longer needs government benefits. In this type of circumstance, after all taxes and other expenses are paid, a properly drafted Special Needs Trust would direct the Trustee to either continue to hold the funds for the benefit of the beneficiary in a non-Special Needs Trust (that could be used for any reason for the benefit of the beneficiary) or it would direct the Trustee to distribute the assets directly to the beneficiary, outright.

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In preparing a Will, parents of a special needs child must give careful thought as to how to divide up their assets among multiple children. In deciding how to allocate resources, consideration should be given to the financial needs of each child, the ability of each child to support himself or herself both currently and in the future and the message sent to children in the decision of how to divide assets. There is no right or wrong answer but the general default rule of estate planning to leave assets equally to children should not be an assumption which is accepted without careful consideration.

When all children are very young, often assets are divided equally among children since all children are dependent at that time. As children get older, where a special needs child will have a large portion of his or her needs met through government assistance and may not have the expensive lifestyle of other children, some parents cap the amount allocated to that child (after ensuring sufficient assets are available to supplement monies from government assistance to provide the lifestyle the parent wants for such child) with the balance of the assets distributed to the other children.

Alternatively, parents may decide that other children will be able to support themselves in the future so a larger share of the estate should be allocated to a special needs child.

In considering this issue, the value of the assets to be divided up must be considered as well as the anticipated expense of each of the children and potential sources of payment of these expenses (earned income, governmental benefits, potential outside inheritances, to name a few). Further, since all of these variables change over time, the decision on how to allocate assets among children should be revisited every few years.

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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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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.

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