Special Needs Trusts: Background

A self-settled special needs trust is exempt from being counted as a “resource,” for purposes of determining eligibility for public benefits, pursuant to section (d)(4)(a) of 42 U.S.C. §1396p. (For this reason, this type of trust is sometimes referred to as a “(d)(4)(a) trust.”) Pursuant to this federal law, as amended on August 10, 1993 by the Omnibus Budget Reconciliation Act of 1993, Public Law No. 103-66, placing an individual’s funds directly into a special needs trust permits that individual to obtain eligibility for public benefits, because those assets are not counted in determining eligibility. That statute begins with the general provision that, when the assets of an individual are placed in a trust, those assets are countable:

For purposes of determining an individual’s eligibility for … benefits under a State plan established under this subchapter, subject to paragraph (4),  the rules specified in paragraph (3) [regarding trust assets being considered “available” and countable resources of the individual] shall apply to a trust established by such individual.

However, the above-quoted provision includes an exception to the general rule, found in paragraph (4) of that subsection. According to paragraph (4), when the assets of an individual are placed in a certain type of trust (a “(d)(4)(A)” or “self-settled special needs” trust), those assets are not “countable” resources:

This subsection [regarding treating trust assets as countable assets of the individual] shall not apply to any of the following trusts:

(A) A trust containing the assets of an individual under age 65 who is disabled … and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this subchapter.

This exception to trust countability is also acknowledged in the Social Security Program Operations Manual System (“POMS”) Section SI 01120.203, Exceptions to Counting Trusts Established on or After 1/1/01, which states that “sections 1917(d)(4)(A) and (C) of the Social Security Act (the Act) (42 U.S.C. §1396(d)(4)(A) and (C)) set forth exceptions to the general rule of counting trusts as income and resources for the purposes of Medicaid [and Supplemental Security Income (“SSI”)] eligibility.”

This federal law, which permits assets to be placed in a self-settled special needs trust without affecting an individual’s Medicaid/SSI eligibility, is echoed by our New Jersey state law and Medicaid regulations, N.J.S.A. 3B:11-36 et seq., and N.J.A.C. 10:71-4.11 (g)(1)(i-xviii).

Thus, according to both federal and state law, placing funds in the special needs trust is specifically recognized as a permissible method by which to protect eligibility for SSI or other public benefits based on need. Moreover, the assets in the special needs trust can be used on behalf of the disabled beneficiary (a) to pay for any and all medical care which Medicaid does not cover, and (b) to enhance the beneficiary’s quality of life.

Not only are these special needs trusts specifically permitted under federal and state Medicaid law; they are also favored based upon New Jersey’s public policy regarding the rights of the disabled. Our state legislature has announced that public policy as follows:

The Legislature finds and declares that … it is in the public interest to encourage persons to set aside amounts to supplement and augment assistance provided by government entities to persons with severe chronic disabilities…. [T]he United States Congress affirmed this view by permitting the establishment of a trust to supplement and augment assistance for a person who is disabled without disqualifying that person from benefits under the Medicaid program… Therefore, legislation is appropriate to facilitate the establishment of trusts to supplement and augment assistance provided by government entities to persons with severe chronic disabilities and persons who are disabled under the federal Social Security Act.

N.J.S.A. 3B:11-36; see J.P. v. Division of Medical Assistance and Health Services, 392 N.J. Super. 295 (App. Div. 2007).

In sum, the establishment of the Special Needs Trust is a public benefits planning tool accepted by federal and state law, and favored by the public policy of our State.