The Special Needs trust is funded …. now what?

Funding a first party Special Needs Trust with alimony, an inheritance, or a personal injury settlement can preserve those assets for benefit of a person who is receiving or applying for means-tested government benefits such as SSI, DDD or Medicaid/MLTSS. There is quite a process to establish the trust and then fund it with these assets. But that’s just the beginning — not the end.

The person who receives these benefits has an affirmative obligation to notify the Agency when there is a change in assets or income. This duty still applies even though the assets that are held in a qualified Special Needs Trust are not counted as the person’s assets or income. This duty still applies even though the transfer of the person’s assets into the trust may be an exempt transfer. And this duty still applies even though a Court may have reviewed the trust and entered an order allowing the assets to be transferred to the trust.

If the person receiving the benefits has a Representative payee appointed for him/her by the Social Security Administration, the duty to report rests with the Rep. payee. If the Trust document meets all of the relevant criteria, benefits should continue or be approved, as the case may be. However if it turns out that the transaction or trust are defective, there may be wrongfully paid benefits and the representative payee and disabled person could be facing a demand for repayment years later.

What should be done? A copy of the fully executed trust and its EIN# paperwork should be promptly submitted to the agency for its review, along with the relevant court order and written verifications of the transfer and funding of the Trust, such as deposit slips and bank/brokerage statements for the trust. The Trustee should then maintain the account records on an ongoing basis as well as the receipts and copies of cancelled checks so that these verifications can be produced to the agency upon demand. If no response is received from the agency within a reasonable time of when the trust was submitted, the agency should be contacted.

The burden of proving and maintaining eligibility for public benefits rests with the recipient and the representative payee. Attending to these crucial steps can prevent problems down the road.

Call for advice on preparation, funding and administration of Special needs trusts … 732-382-6070.


Caution! Assets in a guardianship account impact Medicaid and DDD eligibility

When a minor who has disabilities reaches age 18 and is incapacitated, their parent or custodian will typically file for Guardianship. In some cases, the minor has assets under Court control that are held in a guardianship court account through the county Surrogate. These might be assets that were received through a prior personal injury lawsuit award or settlement, or assets that the  minor had inherited. Upon reaching age 18, the court has to release those funds and they become available to the individual. The problem is that if the young adult requires Supplemental Security Income (SSI) Medicaid benefits or benefits from the DIvision of Developmental Disabilities (DDD) for health and residential services, s/he can’t have more than $2,000 in “available assets,” and these court account assets are “available” if the Guardian has direct and unfettered control and access for the disabled person’s benefit. That means that the individual who receives benefits while having all those assets is “wrongfully receiving benefits.” This can create a tremendous problem once the overpayment is discovered. Also, if the beneficiary dies,   Medicaid is required to pursue estate recovery when there are assets in an estate.

A 2015 decision by the Appellate Division examined the nature of such funds and why they are considered “available.” The case is called    IN THE MATTER OF THE  ESTATE OF TRACY SOLIVAN, DOCKET NO. A-4828-3T1 .Medicaid lien app div case Estate ofTracy Solivan  What happened here is that the funds in the court’s trust account were released to the Guardians when Tracey turned 18. She went on to receive about $5 million of services from Medicaid and DDD. At the time of her death, her Estate had $600,000 or so, and these agencies asserted a lien for reimbursement, thus wiping out the estate. The Court upheld the liens.

This was a preventable situation. Special Needs Trusts are designed to enable disabled people under 65 to transfer their “available assets” into a trust for their sole benefit and preserve eligibility for both Medicaid and DDD. The Trust has to be created by a parent, a grandparent or a court, or a Guardian with court permission. The Trust is restricted so that the funds can only be used to supplement but not replace what Medicaid, DDD and other means-tested programs will provide. While it is true that  the State has to be named as the first beneficiary of the special needs trust so it can be repaid after the death of the Medicaid recipient, in some cases the extent of benefits provided is less than the amount remaining in the fund at the death of the beneficiary.

In a case like this, the petition for Guardianship at age 18 would ask  the Court to establish the Trust so that the Guardian can fund it. And should it ever happen that assets arise later on, from a settlement, inheritance or what have you, the Guardian can always go back to Court to file this kinds of petition.

Timing is everything. Careful planning can prevent a crisis.

Call us for representation with special needs trusts, Medicaid eligibility and estate planning …. 732-382-6070



Pooled Special Needs Trusts can work well for small trusts

There are times that an individual with disabilities who is under 65 receives a lump sum of money at a time when s/he is receiving benefits through Supplemental Security Income (SSI), Medicaid or the Division of Developmental Disabilities (DDD). The problem of course is that those are all means-tested benefits and the participant is at risk of losing eligibility if they retain the assets. Suppose there is no trustworthy or reliable family member who has the capability to handle all the record-keeping and reporting needed to properly manage a first-party “d(4)(A)” Special Needs Trust. And suppose that along with that problem, the amount received through an inheritance or a lawsuit settlement just isn’t enough to place it under the control of a corporate trustee such as a bank or trust company. They typically require at least $250,000 in trust assets.

A nice solution for this person would be the pooled trust, also called a “d(4)(C) trust.” The transfer to the Trust is exempt. The organization has a large trust account but maintains a designated subaccount for each beneficiary’s funds. As with (d)(4)(A)’s, they must be established by a parent, grandparent, guardian or court. The pooled trust is managed by a local nonprofit agency such as PLAN-NJ. They serve as trustees and can provide other benefits such as care planning and case management. While the State of New Jersey is the first remainder beneficiary of any funds left over in a d(4)(A) trust (to the extent of benefits actually provided) (this is called the “Medicaid lien” or “special needs trust payback requirement”), the funds left over in the pooled trust go to the charitable organization and can be used to take care of other people with disabilities. The federal statute that allows pooled trusts is at 42 U.S.C. 1396p(d)(4)(A) and the rules for them are in the Social Security POMS at 01120.203

The SSI POMS say that these are the requirements:

  • The pooled trust is established and maintained by a nonprofit association;
  • Separate accounts are maintained for each beneficiary, but assets are pooled for investing and management purposes;
  • Accounts are established solely for the benefit of the disabled individuals;
  • The account in the trust is established through the actions of the individual, a parent, grandparent, legal guardian, or a court; and
  • The trust provides that to the extent any amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust will pay to the State(s) the amount remaining up to an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under State Medicaid plan(s).


As with a (d)(4)(A) trust, it must be funded before age 65. Although the federal statute doesn’t explicitly provide such a restriction, the POMS says there “may be” a penalty for deposits made after 65, and NJ has chosen to penalize such transfers.

Procedure is also critical. Ideally, the funds should be transferred into the Pooled Trust from the payor (estate, insurance co., etc) so that the individual doesn’t lose benefits by receiving the asset.

For legal advice  on pooled trusts and special needs trusts, call us at 732-382-6070.

The 1.7% COLA increase in Social Security will be disregarded by SSI

Some people who are disabled receive a modest amount of Social Security Disability benefits and also receive Supplemental Security income (SSI). To be eligible for SSI, the total countable income in a given month must not exceed certain amounts that are set annually. If one receives at least a dollar of SSI, s/he can receive Medicaid for health insurance.

Effective January 1, 2015, the Social Security Administration gave a 1.7% increase in monthly benefit as a COLA (cost of living adjustment) . This increased income could put a person “over the top” and cause them to have income in excess of the limits for SSI. That could mean they’d lose their Medicaid benefit as well.

The State of New Jersey issued  MedCom No. 15-01 (Medicaid Communication memo) on January 13th, 2015 which clarifies that such individuals will NOT lose their eligibility and the excess income due to a COLA increase is to be disregarded when determining continuing as well as initial eligibility. 15-01_SSI_Ineligibles_COLA_2015

This class of individuals is sometimes referred  to as “Pickle People” because the original federal law protecting them from the unintended loss of SSI by a COLA increase in Social Security was an amendment sponsored by U.S. COngressman J.J. Pickle (D-Texas).

This issue is of particular importance to people with special needs disabilities who participate in DDD programs and receive Social Security Disability benefits based on the earnings record of their retired or deceased parent along with their own SSI. Loss of SSI would otherwise result in loss of Medicaid and loss of eligibility for DDD services.

Turned down for SSI or Social Security Disability? Call us to discuss an appeal …


Family estate planning to protect children with disabilities

When it comes to designing an estate plan there is no “one size fits all” because each family is unique. You may have a young adult child with profound disabilities who will never be self sufficient and will require extensive support. Or you may have a child who is developing a certain degree of independence with work activity or ability to live outside your home despite their physical or intellectual challenges, and you want to make sure that those capabilities are encouraged and supported.

In either of these situations, maintaining eligibility for means-tested governmental programs like SSI, DDD, Section 8 and Medicaid may be vital. Each of these programs has income limits and resource limits. You may want to include a Supplemental Needs Trust in your Will and direct the child’s share of life insurance, IRAs or other inheritances into that trust. Although a general discretionary trust or a support trust may be appropriate for your other children, it could be disastrous for a child with disabilities by causing ineligibility.

Are your parents thinking of excluding the disabled child from their estate plan for fear of disrupting benefits or because they think s/he “won’t need anything other than governmental benefits?” The availability of housing for intellectually disabled NJ residents has dried up. There may be long waiting lists for other services. Nursing or health care services may be limited. A carefully crafted trust can supplement these absent benefits. One option is for your parents to include a supplemental needs trust in their own Wills.

Another option is that you could establish a supplemental needs trust now as an inter vivos  “stand by” supplemental needs trust which can be funded from time to time. You would get an IRS EIN# for the trust and seed it with a minimal amount such as a $100 bank account, You can be trustee for your child, and you can select the successor trustees. Your child’s grandparents can then periodically place gift money into that trust. They could name it as a beneficiary of some percentage of their life insurance policy. They could include a bequest to that trust in their own Will. In this way grandparents can provide funds for the disabled grandchild without creating a trust under their own Will.

See prior post on 9/24/14 and our website for more about SNTs.

Call for appointment concerning estate planning and trusts for special needs … 732-382-6070