Trouble afoot for Special Needs Trusts in New Jersey

A trend is developing in the State of New Jersey when it comes to the State’s review of the payments made by Trustees of Special Needs Trusts. Trustees are reporting that the State is raising objections to numerous types of disbursements made by the trustees. New Jersey rules require the trustee to file an annual accounting with the Division of Medical Assistance and Health Services, as well as a notification when a trust disbursement exceeds $5,000. Long after the fact, Trustees are receiving letters objecting to disbursements, threatening to disqualify a beneficiary from benefits if payments aren’t reimbursed by the trustee or by the third party vendor who received the payment.

The fundamental problem here is that the very purpose of a Special Needs Trust under federal and state law is to hold funds owned by and deposited by the disabled person before his/her 65th birthday, to be used for “sole benefit of” the disabled person “to supplement but not supplant” (replace) the services and benefits that are available from the governmental programs. Trustees are already diligent to make sure that the trust beneficiary has applied for all available services and supports. This is the express requirement of the New Jersey instructions. Yet now the State is saying that the trustees can’t spend trust funds to provide services that go beyond what the State programs authorize!

Consider for example the MLTSS [Medicaid] Home-and-Community-Based Program.  The State only allocates enough dollars to cover part-time care in a home setting. Even a person who would otherwise be in a nursing home will only receive enough of an allocation to cover part-time care. The criteria for clinical eligibility for MLTSS-nursing home care and MLTSS-home care are identical. But due to its budgetary choices, New Jersey will not pay for 24/7 services even for an individual who is bed-bound, or wheel-chair bound, who cannot feed themselves or bathe themselves or move their wheelchair on their own. A person like this may require a specially-equipped vehicle, which may cost a lot more than a conventional vehicle. The person may be receiving a modest income of $1500/month or less, of which 70% is consumed on the cost of shelter alone. There may be a person who will provide the necessary extra hours of service for a fee. But the State is now warning trustees that it cannot use SNT funds to pay for any hours in excess of what the Managed Care Organization authorizes — which is obviously not 24/7 care. This would result in the need to confine such persons to a nursing home – the most restrictive alternative, probably a violation of the Americans with Disabilities Act and the US Supreme Court’s Olmstead decision.

Trustees are encountering other problems as well, such as State objections to legal advice, or refusal to approve the trustee’s payment for preparation of income taxes which are a legal obligation of the beneficiary. The State is suggesting that if the Trustee pays a third party vendor a fair market fee for services, the trust isn’t for “sole benefit” of the disabled beneficiary and instead is “benefitting” the vendor. The result of all this is that the State is threatening to count disbursements are either income or a resource for the beneficiary, which will wreak havoc with his/her benefits, cause overpayments of benefits and disrupt contractual arrangements and payments that were already made.

If you are encountering objections by DMAHS (or SSI) to SNT expenditures, I encourage you to get in touch with the New Jersey Chapter of the National Academy of Elder Law Attorneys (NJ-NAELA) to report the issues. Contact the current President Lauren Marinaro at

Call us for advice about special needs trusts … 732-382-6070

Share This

One thought on “Trouble afoot for Special Needs Trusts in New Jersey

  1. Thank you for this very informative article. You report that the State of New Jersey is raising problems for special needs trusts “owned by and deposited by the disabled person before his/her 65th birthday”, on the grounds that payments by the trust should be solely for the benefit of the beneficiary, and not to pay for services like preparation of income taxes, where payment benefits the tax preparer.

    Have these problems been arising with third party Special Needs Trusts, where the trust is established by a third party for a disabled beneficiary for whom the Surrogate has issued a letter of guardianship ? Or are they confined to first party trusts, where the beneficiary is the source of the trust funds ?

    I will greatly appreciate information on this point.

Leave a Reply

Your email address will not be published. Required fields are marked *