Special Needs Trust

Our attorneys help people plan their affairs so that their assets will be received by the intended recipients with the minimum tax bite possible.  One of the more complex areas to plan for are providing for the needs and care of a disabled person after their parents or other caregivers die.  Our attorneys have significant experience in this area of estate planning.  One of the main tools which we utilize is the “special needs trust.”

A special needs trust (also known as a supplemental needs trust) is established so that a person living in New Jersey can appoint a trustee to hold assets for the benefit of a disabled person.   

Typically, special needs trusts are established for the benefit of a child or grandchild, and funded when a parent or a grandparent.  Often, a special needs trust is established in a person’s Last will and testament of the person contributing the funds to the trust, or in the last will and testament pours the funds into a pre-established trust.  The trust should be designed so that it is available to provide for the needs of the disabled person but it does not disqualify her from receiving governmental benefits such as Medicaid and/or Social Security. 

In order to qualify for Social Security Supplemental Security Income Benefits, (“SSI”), a person with a disability cannot have assets in excess of $2,000, excluding a car and a home. The government benefits received by the person must be spent on food, clothing and housing.  If a disabled person is eligible for SSI, then he or she is also eligible for food stamps and Medicaid, which pays medical expenses, nursing home care and mental health services. The money in the special needs trust can be used for non-necessities to enrich the disabled person’s life such as vacations,  travel and transportation to visit with family, and entertainment, etc.  Special needs trust money can also be spent for final funeral and burial expenses.

A New Jersey special needs trust provides funds to enhance the person’s quality of life while she continues to receive governmental benefits.  Sometimes, however, people believe that it is simpler and less expensive to leave assets intended to help a disabled child or grandchild to another relative with the understanding that the money will be used for the benefit of the disabled person.  However, things do not always go according to plan.  Assets left to another relative may become unavailable to the disabled person through bankruptcy, divorce settlements or judgments against the relative.  Moreover, that relative cannot legally be compelled to utilize the funds for the benefit of the disabled person.  

Often people don’t consider an additional issue with bequesting or gifting funds to another relative: when that relative dies, the funds may be bequeathed to or inherited by someone other than the disabled person and the person who inherits the funds may have no interest in providing financial support to the disabled person.  

Creating a special needs trust will avoid these problems without creating tension within the family.  Chose the trustee carefully; good choices include a trusted relative or friend with a close relationship to the disabled person; or a bank or other financial institution.  It should be noted that a professional trustee will be paid from the funds in the trust.

As discussed above,  a special needs trust can be funded through bequests in a will, but if the special needs trust is created separately, it can also be funded by gifts made during life directly to the trust.  It is also possible to fund the special needs trust through life insurance policies on the life of the parents of the disabled person.

As you can see, it is in the best interest of the person with disabilities to consult with a New Jersey attorney who can determine the best course of action to take.

Call us at (973) 890-0004 or fill out the attached contact form to speak with one of our estate planning attorneys regarding creation of a special needs trust, or any of your other estate planning issues.  We can help.