Today is a good-news day for people with disabilities who want to set up a Special Needs Trust to preserve their eligibility for critical benefits: the President has signed the Special Needs Fairness Act — S349 — into law. . Since 1993, an applicant or recipient of Supplemental Security Income (SSI) or Medicaid (now MLTSS in New Jersey) has been able to shelter their excess resources by transferring them into an irrevocable, first party Special Needs Trust for their own sole benefit, sometimes called a D4A trust (for the section of federal law that allows this). The thing is, the Trust itself could only be established by the person’s parent or grandparent, legal guardian [with Court permission], or by a Court. This created a problem for individuals who had no parent, grandparent or guardian. Such an individual could not just hire an attorney to prepare the Trust and provide advice on how to fund it. S/he would have to hire an attorney to petition the Court to establish the trust, and it would have to be on notice of interested parties such as next of kin and the State of New Jersey. This was a time-consuming process and would sometimes create problematic delays that would pose a risk for filing an application or maintaining ongoing eligibility.
The new law corrects this gap in the statute. Now, an individual who has disabilities but is otherwise managing his own affairs can establish the trust without going to Court. This certainly recognizes the capability of individuals with disabilities by allowing them to do their planning privately with their attorney rather than publically in court. Each state has its own requirements for the exact terms of these trusts, within the framework of the federal Medicaid and SSI statutes and regulations, so the Trust needs to be written carefully to comply with the State’s requirements. And it still has to be established and funded before age 65.
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Laws change. Sometimes, federal law stays the same and state laws implementing it change. State statutes may remain the same but the state regulations change. State regulations may stay the same, but the executive branch agency issues advisory memoranda which change the procedures. That’s what occurred back in 2001 when the State of New Jersey Division of Medical Assistance and health Services (DMAHS) (“Medicaid”) adopted a set of specific administrative, procedural, technical requirements for first party special needs trusts which are occasionally called “(d)4(A) trusts” by reference to a section of the federal Social Security Act. 42 USC 1917(d)4(A). The State’s regulation is found at N.J.A.C. there be a payback clause so that and 4.11(g) in particular.
The federal statute which undergirds this regulation was enacted long before 2001, and has not changed. So you may find that the Trust that adequately protected your loved one’s SSI or state Medicaid benefits — including eligibility for services through the NJ Division of Developmental Disabilities or DDD — is rejected, because it doesn’t have the technical provisions that were adopted years after the trust was written. The technical provisions include things such as a requirement to notify the State if an expenditure of greater than $5,000 is made, or a requirement that certain information about the Beneficiary be stated in the trust document. There is no change in the historic requirement that the trust be solely funded with assets of the disabled individual, or that there be a payback clause so that the State be the first remainder beneficiary. So rejection of an old non-conforming trust can result in a termination from benefits, or a denial of an application. In cases of termination from benefits, there is the risk of being assessed for “wrongfully paid benefits.”
There is a remedy. Some trusts contain provisions that allow the trustee to amend the trust in whatever way is necessary to conform it to requirements that would still preserve the eligibility of the disabled beneficiary and would not reduce the beneficiary’s interest. Other trusts require that amendments be made by court order. The message is that if you are a trustee of a special needs trust that was written in the 1990’s, this would be a good time for a legal review to see whether any modification is required in order to protect your beneficiary.
Call us for advice on creation and amendment of Special Needs Trusts, and for Medicaid applications and appeals … 732-382-6070