Payback provisions are required for a qualified special needs trust

Self-settled special needs trusts must have a payback provision to be considered an exempt trust  under the federal and state Medicaid program. A Medicaid applicant under 65 can transfer his or her excess resources (assets) into a “special needs trust” and avoid the usual transfer penalties, but only if the trust meets all of the requirements of the federal and state law. Also, if the trust meets all of the requirements it will not be treated as a countable resource that might otherwise disqualify the person. New Jersey’s regulations are quite detailed on this subject. One of these requirements is that the State of New Jersey must be named as the first beneficiary upon the death of the trust beneficiary/Medicaid recipient, up to the amount the State has expended for the individual. The case of D.W. v.Division of Medical Assistance and Health Services,

2015 WL 7738711 (App. Div. 2015), illustrates the problem.

D.W. received a settlement from a personal injury action, and a first party trust was established for D.W.’s benefit by the Court to receive the assets. However, the Trust lacked the required payback provision. D.W. lost his benefits/ was turned down for benefits because the amount in the trust was deemed to be a countable resource and put D.W. over the resource limit for the Medicaid program. On appeal, the Appellate Division affirmed, in an unpublished and nonprecedential opinion.

This was an unfortunate situation.  D.W. may be able to initiate an action in court to reform (amend) the Trust moving forwards, but that will not guarantee that the amendment will be made retroactive.

For legal advice and representation on Special Needs Trusts and Medicaid application, call us at … 732-382-6070

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