Special Needs Trusts
NJ Estate Attorneys Experienced with Special Needs Trusts
A special needs trust (sometimes referred to as a "supplemental needs trust") is a uniquely designed trust, wherein an individual living in New Jersey can appoint a trustee to hold property for the benefit of a disabled individual. Often, these trusts are established upon the death of a parent or a grandparent for the benefit of a child or grandchild. Frequently, the terms of these trusts are set forth in an individual’s Last Will and Testament.
These trusts are generally designed to provide for the needs of a disabled person without disqualifying him or her from benefits received from government programs such as Social Security and Medicaid. There are also certain programs available to residents of New Jersey that an individual would not be eligible for if the assets held in a special needs trust were owned by that individual free of trust.
Government Benefit Requirements
In order to qualify for the Social Security Administration's Supplemental Security Income Benefits, ("SSI"), a disabled adult cannot hold more than $2,000 in assets, excluding a car and a home. SSI benefits, which average about $400 per month, must be spent on food, clothing and shelter expenses.
Eligibility for SSI makes a disabled person eligible for food stamps and Medicaid, which pays medical expenses, nursing home care and mental health services. Medicaid eligibility also makes a disabled person eligible for many local community services, such as those offered in New Jersey, as well.
A special needs trust in New Jersey can enhance the beneficiary’s life and make it easier for the beneficiary to care for himself. The special needs trust is intended to prevent disqualification of the beneficiary who will receive these benefits.
Bequeathing To Other Family Members
Often, clients who are residents of New Jersey think that it is much easier to simply bequeath or leave a set amount of money to a disabled child's sibling or other close relative, with the understanding that the money will be spent on the disabled child. Unfortunately, this plan does not always work out as desired. The funds may fall prey to judgments or divorce settlements against the relative, or can be lost in bankruptcy. In New Jersey, the relative cannot legally be forced to use the money to benefit the disabled person. It is possible that the relative to whom the money is left may be taxed at a higher rate than the disabled child or the trust.
Another often overlooked problem is: What happens when the relative holding the money dies before the disabled child? This money, which is intended to be used for the benefit of the disabled beneficiary, may be bequeathed to another individual who may not use the money for the disabled individual.
Special Needs Trusts Provide a Better Solution
A special needs trust avoids these potential problems without putting an emotional strain on family relations. In New Jersey, the beneficiary’s monthly SSI benefits can be spent on food, clothing and shelter. This would then permit the special needs trust money to be used for other non-necessities that may make the disabled child's life more rewarding, such as summer camp, airline tickets for travel, transportation costs for family to come visit the beneficiary, theater or movie tickets, trips to the Jersey Shore, etc.
Special needs trust money can also be spent for final funeral and burial expenses.
The trustee for a special needs trust for your disabled child could be:
- a trusted family member who is close to the child,
- a bank or other financial institution, or
- a family friend such as special needs teacher close to the child, etc.
Funding a Special Needs Trust
A special needs trust can be funded through a will or by lifetime gifts from relatives and friends made directly to the trust instead of making gifts to the disabled child. Many special needs trusts in New Jersey are funded through "survivorship" or "second-to-die" life insurance policies that cover both parents and pay out on the death of the second parent.
When a disabled child is expected to receive an inheritance or money from a lawsuit, it is prudent to establish a special needs trust ahead of time in what's called a "self-settled trust," to avoid losing Medicaid eligibility.Given the complexities of Special Needs Trusts in New Jersey, we advise you to contact one of our experienced estate planning or tax attorneys at 973-627-7300 at Einhorn Harris today. We handle taxation, estate and trusts issues throughout New Jersey.