Recent Legal Developments in Special Needs Planning for Disabled Beneficiaries

On December 3rd, I presented at the 72nd Semi-Annual Tax and Estate Planning Forum sponsored by the NJ Institute for Continuing Legal Education. My presentation focused on recent developments in planning for disabled beneficiaries, including my recent victory in the New Jersey Supreme Court in the Thomas Saccone v. Board of Trustees of the Police and Firemen’s Retirement System case. My PowerPoint presentation and written materials distributed to attendees follow:

72nd Semi-Annual Tax and Estate Planning Forum
New Jersey Institute for Continuing Legal Education
December 3, 2014

By: Donald D. Vanarelli, Esq.

More than in any other time that I recall in recent history, in the past year or so we have witnessed developments in New Jersey case law and legislation that have impacted the practice of special needs planning.

Although a thorough review of these changes could be the subject of an extensive presentation, a brief summary of those developments follows.


In the past year and a half, the New Jersey Supreme Court has granted petitions for certification in two cases involving special needs trusts. The Appellate Division also issued a significant case. The decisions in the Supreme Court cases have provided a much needed addition to the body of case law for special needs practitioners, confirming the legitimacy of these devices for long-term care planning purposes; the Appellate Division case has unfortunately given Medicaid fuel for continuing its refusal to address special needs planning techniques, while retaining the right to penalize applicants for those planning techniques later.

1. J.B. v. W.B. (Bond v. Bond), 215 N.J. 305 (Aug. 20, 2013)

The parties are the divorced parents of a son with special needs. When the son was fourteen years old, the parties divorced and negotiated a Property Settlement Agreement (“PSA”) in which the father agreed to pay $50,000 per year in child support to the mother/custodial parent. The parties agreed child support would continue until the disabled child was emancipated, but acknowledged that he would likely never be emancipated. The parties deferred certain financial issues, such as the future support of their disabled son and post-high school education, and agreed that either party could apply to the court for relief regarding these deferred issues.

In 2009, the disabled son was age 21 and expected to attend an out-of-state post-secondary school. The father filed an application seeking (1) to establish a special needs trust, (2) to direct that his child support payments be paid to the Trust so that his child could become eligible for needs-based governmental benefits, and (3) to appoint a guardian ad litem on behalf of the child. The mother opposed the application, objecting to the proposed termination of direct child support payments to her as the custodial parent unless the child first became eligible for governmental benefits.

The trial court denied the father’s application, finding that he had failed to demonstrate any change in circumstances warranting relief from the PSA. The court found it significant that the parties acknowledged that the child would have special needs in the future and would never be emancipated. On appeal, the Appellate Division affirmed, agreeing that the changed circumstances standard applied to the application, and that the father failed to show that changed circumstances existed. The court further found that the father did not establish with certainty that the child would be eligible for governmental benefits if the child support were paid into a special needs trust. It also rejected the father’s argument that the trial court should have appointed a guardian ad litem for the disabled child.

On petition for certification, the Supreme Court created a new legal standard for courts to apply when considering applications to establish special needs trusts for the disabled children of divorcing parents. The Supreme Court found, first, that creation of special needs trusts may be an effective tool in planning for the financial support of a disabled child. Second, it noted that, although in the usual case a party wishing to modify a negotiated PSA must meet the threshold showing of changed circumstances, when, as here, the parties to a PSA defer the resolution of certain issues until a future date, the guiding principal which courts should use in judging motions seeking to modify a PSA is the “best interest of the child” rather than the “changed circumstances” standard.

However, the Supreme Court found that the father’s application failed to present a plan to the court and failed to show how the special needs trust would benefit the child. It also found that the decision regarding appointment of a guardian ad litem was within the discretion of the trial court.

2. Saccone v. Board of Trustees of the Police & Firemen’s Retirement System, 219 N.J. 369 (Sept. 11, 2104)

In a case that traveled from the Division of Pensions and Benefits (“PFRS”) to the Supreme Court and back again over the span of six years, the Supreme Court has reversed contrary decisions by lower courts and administrative agencies and ruled that the disabled child of a retired firefighter may have his survivors’ benefits paid into a self-settled special needs trust, rather than directly to the child, thereby allowing the child to maintain eligibility for Medicaid and other public benefits based on financial need.

Thomas Saccone is a retired Newark, New Jersey firefighter with a severely disabled adult child named Anthony. Anthony lives with his parents, is unable to work, has been found to be totally disabled by the Social Security Administration, and for many years has received Supplemental Security Income (SSI) and Medicaid.

After he retired, Tom was approved for benefits from the Police and Firemen’s Retirement System (“PFRS”). In order to structure his estate plan to provide for Anthony after his death without jeopardizing Anthony’s eligibility for needs-based public benefits, Tom executed a Last Will and Testament containing a testamentary special needs trust (“SNT”).

Tom asked the PFRS to pay the survivor benefits to which Anthony would be entitled upon Tom’s death to the testamentary SNT, in order to protect Anthony’s eligibility for public benefits. Those death benefits included the payment of pension benefits to the retired member’s widow/er and children (the “pension death benefit”).

The PFRS denied the request, based on a pension statute which prohibits a retiree from designating a primary or a contingent beneficiary for the receipt of the retiree’s pension death benefits in the event of the retiree’s death. The pension board said:

[It c]ould not comply with your request to pay a trust, instead all monthly benefits must be paid to a named beneficiary or the check could be sent to ‘in care of’ anyone designated to act as the trustee for the trust.

Thereafter, we appealed the PFRS decision administratively to the Division of Pensions and Benefits, which affirmed the denial, and then to the Appellate Division of New Jersey’s Superior Court, which affirmed the Division’s decision. On Petition for Certification, the New Jersey Supreme Court summarily reversed the Appellate Division and remanded the matter back to the PFRS to decide the case on the merits.

On remand, the administrative agency again denied Tom’s request, concluding that Tom could not designate a special needs trust as a beneficiary of the pension death benefits. Tom filed a second Notice of Appeal, and the Appellate Division again affirmed the administrative denial.

On the second petition for certification, amicus counsel and I argued that the Supreme Court should extend a right to retired public employees with disabled children to pay a retiree’s pension death benefit to a special needs trust for the retiree’s disabled child, rather than directly to the child, in order to maintain the child’s eligibility for needs-based public benefits.

On September 11, 2014, the Supreme Court again reversed the decisions by the lower court and administrative agency, holding that “the disabled son of a retired [PFRS] member … may have his survivors’ benefits paid into a first-party … SNT created for him under 42 U.S.C.A. §1396p(d)(4)(A).”

The Supreme Court characterized the state pension board’s contrary decisions as “arbitrary, capricious and unreasonable”:

Properly viewed, the question on appellate review is whether the Board acted arbitrarily, capriciously, or unreasonably in declining to consider an SNT as Anthony’s proposed equivalent, thereby allowing him to receive his future survivors’ death benefit, should his father predecease him, through a vehicle that prevents the benefit from becoming a financial liability. So viewed, the Board’s response is contrary to the legislative policy underlying the statute the Board was charged with executing for the benefit of its members. … The Board’s determination required a disabled child of a PFRS retiree to have to choose between abandoning the survivors’ benefit earned by his father and forgoing public assistance programs for his medical needs. That choice is harsh and unwarranted. No legitimate public policy is advanced by the Board’s interpretation…. We reject as arbitrary, capricious, and unreasonable the Board’s interpretive determination that foists on disabled children of PFRS retirees, such as the child involved here, what is essentially a forfeiture of survivors’ benefits.

It concluded that paying Anthony’s share of survivors’ benefits to an SNT established for the sole benefit of Anthony is equivalent to paying those benefits to Anthony himself.

The Supreme Court also faulted the pension board for taking a “one size fits all” approach when applying the pension statutes, rather than properly examining the equities of each public employee’s situation when applying the pension regulations:

New Jersey’s courts have long emphasized that pension statutes are “remedial in character” and “should be liberally construed . . . in favor of the persons intended to be benefited thereby.” …The Board has been reminded of its obligation to consider the equities of each public employee’s unique and individual circumstances when applying its regulations. (Citations omitted.)

The Supreme Court also recognized special needs trusts as “legitimate planning tools” which would allow Anthony to meet his care needs in the future.

3. In the Matter of A.N., a Minor, 430 N.J. Super. 235 (App. Div. Apr. 16, 2013)

In 2000, A.N.’s parents created a self-settled special needs trust to hold an award of money damages resulting from litigation filed on A.N.’s behalf. A.N.’s parents are co-trustees, along with the Bank of America. A.N. lives in the family home. When the home was threatened with foreclosure, the trust began assuming the mortgage payments and carrying costs. A.N.’s parents wanted the trust to purchase the home, and sought payment of various expenses from the trust.

The corporate co-trustee filed a complaint seeking, inter alia, instructions regarding the trust’s proposed purchase of the home and payment of expenses, and the “impact on the Trust beneficiary’s Medicaid eligibility.”

DMAHS was served with the pleadings as an interested party, and expressed its position that the court lacked jurisdiction to “make administrative determinations with regard to a person’s future Medicaid eligibility or make determinations about the evaluation of transactions under Medicaid rules.”

The court approved acquisition of the property and the expenses from the trust, and held that they “shall not act to deprive [the beneficiary] of … Medicaid.” After the State’s motion for reconsideration was denied, DMAHS appealed.

The Appellate Division reversed. The appeals court held that “the court can … provide advice that the proposed transaction is consistent with [Medicaid] statutes and regulations and is unlikely to adversely affect Medicaid eligibility. [But the ruling] can have no binding effect in the future on DMAHS in rendering a Medicaid eligibility determination, [because] only the designated Medicaid agency is authorized to determine Medicaid eligibility.”

I have seen the results of this case in my practice. For example, in the past when I have filed Orders to Show Cause to establish or reform an SNT, DMAHS would typically send a form letter stating that it takes no position on the application but reserves the right to conduct a Medicaid eligibility review later. Since the A.N. decision, not only do I receive this form letter from DMAHS; I also have seen judges include reference to A.N. in their Orders, such as,

The Court is not making a determination as to whether the relief satisfies the Medicaid regulations or any other administrative code, provision, statute or law, and, pursuant to In re A.N., it is DMAHS’s position that it is not bound by the Court’s finding as to the impact the relief is likely to have on eligibility for Medicaid programs.


The Affordable Care Act has been described as “the most important legislation affecting special needs planning since [OBRA 93].” This is because the three primary barriers to health insurance coverage for disabled adults have been removed. In the past, access to health care was generally tied to employment (which is often unavailable to the more severely disabled), leaving Medicaid and its needs-based restrictions as the only viable option. Thanks to the Affordable Care Act, disabled adults, even if unemployed, may access health care privately. In addition, in the past, access to private health insurance for the disabled was severely restricted because of insurance companies’ restrictions of coverage of preexisting conditions. Under the Affordable Care Act, insurance companies are no longer permitted to deny health care based on preexisting conditions. Finally, in the past, health plans could establish annual or lifetime limits on covered benefits. Under the Affordable Care Act, this is generally prohibited.

Historically, Medicaid eligibility was subject to stringent financial qualifications, with a resource limit of $2,000.00. Because Medicaid had been the only viable health insurance option for many disabled adults, SNTs were critical planning tools used to hold funds for use of a disabled beneficiary; because the funds are inaccessible to the disabled beneficiary, they are not countable in the beneficiary’s Medicaid resource calculation. Thus, the beneficiary is able to preserve Medicaid eligibility while having the benefit of funds from the SNT.

However, under the Affordable Care Act’s Medicaid Expansion, which has been adopted in New Jersey, Medicaid is expanded to include individuals whose incomes are up to 133% of the federal poverty limit, with no resource limitation (although the expansion does not apply to persons who currently receive Medicaid, or for persons over age 65 seeking long-term care).

So is the need for special needs trusts a thing of the past?

Some argue that the ACA removes the primary motivation for the establishment of a special needs trust, and caution that elder law attorneys should be particularly wary of recommending self-settled (d(4)(a)) SNTs, because the required payback provision provisions may be unnecessary.

Others note that special needs planning is driven by many considerations other than obtaining Medicaid; planning often requires making arrangements for the protection and care of the disabled individual and his/her finances, including living arrangements and advocacy for the disabled individual. Incorporating such arrangements into a special needs trust can protect the disabled individual, while avoiding the expense and embarrassment of a later guardianship. An SNT will also preserve the individual’s eligibility for Supplemental Security Income (SSI) and Medicaid, which may be vital to the unemployed or underemployed disabled.

An important question is whether the SNT can pay private health insurance premiums without adversely affecting the individual’s eligibility for SSI/Medicaid. Some practitioners believe this is possible as long as the SNT does not expressly prohibit such payment ; others recommend including language in the SNT to expressly authorize such payment. Using the SNT to pay private health insurance premiums will preserve Medicaid eligibility, provide the disabled individual with the perks of private health insurance, and preserve the individual’s access to long-term care coverage provided through Medicaid.

For additional information concerning Medicaid and public benefits planning, visit: