The new New Jersey Uniform Trust Code and Special Needs Trusts

The new uniform trust code which goes into effect in New Jersey on July 17th has a section dedicated to “special needs trusts.”  See NJSA 3B:31-37.  The section concerns both first-party trusts (often called “Special Needs Trusts” or even “d(4)a trusts,” referring to the section of federal Medicaid law which authorizes them) and third party trusts (often called Supplemental Needs Trusts or Supplemental Benefits trusts).

This section is broadly designed to encompass trusts that are intended to provide discretionary benefits to individuals with disabilities or who are aged or blind, to “supplement rather than replace or impair government assistance that the protected person receives or for which he otherwise may be eligible.”  The definition of a special needs trust in this section of the code refers to trusts in which the protected person/ beneficiary cannot compel distributions and the trustee has no duty to use the trust to provide primary support. The section makes it clear that the trustees have “broad power over distributions,” and that creditors of the beneficiary cannot get at the trust funds to pay for a debt, and a creditor cannot compel a trustee to make a distribution in order to pay that creditor’s claim. It also says that for third party trusts, if the trust is terminated prior to the death of the beneficiary, the trust does not have to repay the government for benefits that were provided unless the document says so. These provisions in the new code should help to prevent certain problems that practitioners have encountered, in which government agencies or creditors have attempted to get to the trust assets despite the limiting language in the trust document.

There is another section of the new code — NJSA 3B:31-27 that enables a trust to be amended by consent of the trustee and the qualified beneficiaries. The protected person who is the current beneficiary of the trust would be a qualified person. That section of the new code may afford the flexibility to beef up, clarify or improve a poorly-written trust which was clearly intended to be handled as a discretionary, spendthrift, supplemental needs fund.

As is the case today, a trustee or beneficiary can always petition the court to amend, modify, correct a mistake, interpret the language to match the proven intent of the grantor, or terminate a trust which is too small to justify the costs. Those types of actions are dealt with in  NJSA 3B:31-28, 31-31 and 31-32.

Many of the sections of the law just codify what has long been the “state of the law” in New Jersey based on caselaw decisions by the courts. Having these things codified in statutes should prove to be useful.

Call us to review your existing trusts or to develop a new estate plan involving trusts … 732-382-6070

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