New Jersey Law for Children with Special Needs

Fundraising and the Special Needs Trust

Mary W. Browning — Fri, 18 May 2012 09:31:35 -0500

Clients occasionally come to us because their community would like to raise funds on behalf of their child with special needs. It is important that a proper special needs trust is set up before these gifts are made so that assets are not inadvertently given to the special needs child individually. A friend or family member of the special needs person can set up a third party special needs trust for the benefit of the special needs person, and those donating can write checks to the name of the special needs trust. If this trust is structured properly, the funds donated can be used for the benefit of the special needs person but will not disqualify him or her from government benefits.

These types of donations are typically not tax deductible to the donor because the money is only being used for a particular person or family. It is important to let the donors know that their donations are not tax deductible but instead, will be treated as a gift to the trust.

The special needs trust could be structured to qualify for the annual exclusion gift, which would allow donors to give up to $13,000 each year to each trust beneficiary, without using any of his or her lifetime gift tax exemptions. The special needs beneficiary cannot be a beneficiary for purposes of this $13,000, so other family members would need to be beneficiaries of the trust, as well, in order to take advantage of the annual exclusion. This should be disclosed to the donors so that they understand both the tax and personal aspects of their donations to the trust.

The special needs person could be the sole beneficiary of the trust if this is more desirable, but all donations to the trust will use part of the donor’s lifetime gift tax exemption, which is currently $5.12 million.

Inheritance and the Importance of Creating a Special Needs Trust

Tishya M. Signorelli — Wed, 14 Mar 2012 14:03:30 -0500

An inheritance left to a person with special needs must be distributed to a special needs trust to avoid jeopardizing such person’s government benefits. A special needs trust can be created during lifetime or through a person’s Will upon death. If a special needs trust is not properly established, this creates a myriad of problems which could have easily been avoided.

If a third party who wishes to benefit a person with special needs does not establish a special needs trust and he or she leaves assets to an individual with special needs either through his or her Will (without the proper special needs language) or as a result of the intestacy laws, then the only alternative may be for the estate to commence an action with the court to try and fix the non-qualifying trust or to create a special needs trust where one did not exist. If an estate cannot successfully convince the court to create or reform a trust into a proper special needs trust, the beneficiary of the inheritance will have to create a first party special needs trust or contribute his or her inheritance to a pooled trust in order to continue to qualify for government benefits. Neither of these options is ideal for several reasons. Most significantly, they both require reimbursement to the state at the beneficiary’s death.

However, creating a special needs trust through the court is costly and there is no guarantee that the court will agree to create such a trust. In many instances when an estate plan needs to be corrected or modified in some way, an estate will argue that the court should reform the Will or Trust to reflect the decedent’s probable intent. For example, In the Matter of the Trusts to be Established in the Matter of the Estate of Margaret A. Flood, Deceased, the estate attempted to apply the doctrine of probable intent to create testamentary special needs trusts for Ms. Flood’s two disabled children, who received government benefits. Ms. Flood was concerned about leaving an inheritance directly to her disabled daughters and consulted with an attorney prior to her death about the possibility of creating a special needs trusts for them. However, before her estate plan was implemented, Ms. Flood died intestate, without ever establishing a Will or special needs trusts.

The trial court initially determined that Ms. Flood’s intent was to create special needs trusts for her children and agreed to create such trusts for them notwithstanding the fact that Ms. Flood never signed her Will and died without a Will. After years of litigation, the appellate court held that the trial court had no authority to establish and fund special needs trusts for the daughters. The court reasoned that “the doctrine of probable intent is a rule of construction or interpretation and, therefore, [w]here there is no will there can be no will construction.” This case precludes the application of the doctrine of probable intent to create a testamentary disposition where none existed.

This case highlights the importance of establishing an estate plan today that provides for a person with special needs without jeopardizing his or her government benefits. Having a flawed estate plan or no estate plan at all will ultimately result in an estate incurring unnecessary legal fees to try an accomplish something though the court system that the decedent could easily have accomplished before death.

DSM May Narrow the Definition of Autism

Mary W. Browning — Mon, 23 Jan 2012 16:05:59 -0500

The New York Times reported last week that the American Psychiatric Association, which publishes the Diagnostic and Statistical Manual of Mental Disorders, or D.S.M., is expected to narrow the definition of autism in its next edition. Narrowing the definition will mean that less people will be classified on the autism spectrum, which could lead to less people receiving services reserved for those diagnosed with the disorder. The revisions are expected to be finalized by December.

Government Benefits for Special Needs Individuals

Lori I. Wolf — Mon, 03 Oct 2011 09:16:08 -0500

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While it is critical to ensure that you have adequate planning in place to preserve your child’s eligibility for government assistance, it is important for individuals to know what government benefits are available to a special needs child and when these benefits are available. Because government programs can be confusing and since they change often, anyone seeking to learn more about receiving government benefits for a special needs child should consult an attorney or review current documentation on eligibility from each individual government program.

There are four relevant government benefit programs available to special needs families. These are Supplemental Security Income (“SSI”), Medicaid, Medicare and Social Security Disability Insurance (“SSDI”). Both SSDI and Medicare are not means based programs. In other words, there is no investigation into your finances to determine if you qualify for the program based on your income or your resources. Medicare is a form of sponsored health insurance available for the elderly and the disabled and SSDI is available to individuals and minors or special needs children of an individual who has died, retired or become disabled. A special needs child who is under age 22 and who is not working can obtain SSDI benefits based on his or her parents’ prior earnings.

SSI and Medicaid are both means based programs. Eligibility for those programs is based on financial need and strict requirements must be met prior to receiving benefits. Medicaid can provide in-home care, cost of hospitalization and nursing home care as well as some housing benefits to recipients. A special needs child can receive SSI, SSDI, Medicaid and Medicare all at the same time.

The distinction between means and non-means based programs is important to understand. Since these benefits add greatly to a disabled person’s ability to receive care, and given the expensive cost of long-term medical and nursing care, anyone seeking to give a special needs child assets may disqualify him or her from receiving means-based program benefits. However, setting up a supplemental needs trust for your special needs individual can help provide for their care without disqualifying him or her from SSI or Medicaid benefits.

Although the requirements should be reviewed periodically for changes, currently, to qualify for SSI benefits, a disabled adult cannot own more than $2,000 of assets. There is a link between eligibility for Medicaid and eligibility for SSI. Eligibility for SSI makes a disabled person eligible for food stamps and Medicaid, which pays medical expenses, nursing home care and mental health services. Given the very low poverty threshold, setting up a supplemental needs trust can help provide for extra care over and above that which the government may provide.

In addition to applying for the benefits above, special needs individuals with developmental disabilities who reside in New Jersey should apply with the Division of Developmental Disabilities (“DDD”) to preserve availability for various benefits. DDD provides a wide array of benefits including day services such as support for people who are employed, residential services such as individual support that assists an individual living at home or elsewhere in the community, and family support services that assist families caring for loved ones at home.

Parents of special needs children should make sure their child will be protected after they have passed away as they have protected the child during their lifetimes. Given the cost of long-term care for a special needs child, you should consider whether government benefits can be helpful in meeting some of those needs. A typical plan for an individual may include drafting a will and creating a special needs trust. Also important are designations of trustees, a conservator in the event of future incapacity or a standby guardian for a developmentally disabled family member. In addition durable powers of attorney, living will and related documents should be in place. Finally, securing government benefits for a special needs child can enable that person to have the resources necessary for quality long-term care.

Pooled Trusts vs. Special Needs Trusts

Mary W. Browning — Tue, 06 Sep 2011 09:30:47 -0500

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Pooled trusts can be a good alternative to a special needs trust. However, pooled trusts are not appropriate for everyone. To understand why, let’s take a step back and review some basics.

A pooled trust is a type of special needs trust. Special needs trusts are designed to protect the assets of a physically or mentally disabled person, while still allowing that individual to receive government benefits. To qualify for certain government benefits, such as Medicaid and Supplemental Security Income, an individual generally cannot own more than $2,000 of assets.

A special needs trust enables a physically or mentally disabled person to have an unlimited amount of assets set aside for their needs without being disqualified from government benefits. This is because the assets held in a properly drafted special needs trust are not counted as that individual’s resources for purposes of qualifying for government benefits. Funds set aside in a special needs trust allow the disabled individual to pay for extra care beyond what the government provides.

Pooled trusts are a way to provide the benefits of a special needs trust without having to set up and administer a separate trust. As with special needs trusts, pooled trusts can be funded with assets from a third party or assets of the person with special needs. Pooled trusts are required to be run by non-profit companies. The non-profit develops a master trust agreement governing all participants. In most cases, the pooled trust is administrated by a professional administrator, and the funds transferred into the pooled trust are then pooled and invested by an investment manager. Because a pooled trust accepts contributions from many beneficiaries, in theory the pooled trust is able to make more stable investments and provide additional management services that another type of special needs trust might not be able to provide. Like a special needs trust, transfers into a pooled trust do not preclude a person with special needs from receiving government benefits.

There are several distinctions between a pooled trust and a special needs trust. For third-party assets, at the beneficiary’s death, the pooled trust will usually keep a portion of the beneficiary’s trust account to help fund other pooled trusts, while third-party special needs trusts allow 100% of the assets to pass to other family members of the beneficiary or anyone else chosen by the person who created the trust. A pooled trust is managed by the manager selected by the non-profit and not by a friend or family member that has a personal relationship with the beneficiary. In addition, with a pooled trust, the non-profit entity has control of the investments and disbursements. Once you surrender your money to the pooled trust you have no control over how it is spent or invested.

Despite these distinctions, pooled trusts can be a great option if the amount available to fund the trust is small or where there is no person able or willing to serve as trustee. You should consult an expert in this area to determine whether a pooled trust or classic special needs trust is more appropriate for your family.

The Magic Age

Lori I. Wolf — Mon, 08 Aug 2011 08:20:49 -0500

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There are certain ages in a child’s life that are benchmarks for changes. For some children, turning age 17 is an important day, since that is when the child can obtain a driver’s license and for some age 18 is an important age, when they become emancipated and legally adults. For children with special needs, there are also important ages when life changes occur.

Age 18 is a magic age in the life of a child with special needs. Prior to age 18, assets in a parent’s name are relevant in determining whether the child is eligible to receive government assistance. As a result, limited if any government programs are available to most children with special needs before they turn age 18. Once a child turns age 18, their parents’ assets are no longer relevant in determining whether they are eligible for many forms of government assistance. Specifically, Social Security Income (“SSI”) and Medicaid are available to a child with special needs who meets the definition of disabled at age 18, depending upon the resources and income available to that child. Generally speaking, a child cannot have assets in excess of $2,000 without compromising eligibility for government assistance.

It is important as your child approaches age 18 to ensure that there are no assets in the name of your child if government assistance would otherwise be available. Any resources in the child’s name should be spent towards the child’s care. If there are substantial resources beyond the amount needed to provide for that child, another option is to contribute assets to a pooled trust or a first party special needs trust. In most cases, these contributions will not preclude the child from receiving government assistance although both a pooled trust and a first party special needs trust (discussed in more depth in prior blog articles) are fairly restrictive in their use and operation. Better yet would be to ensure that no assets are ever accumulated in the name of your child with special needs.

Another issue which must be addressed as a child approaches age 18 is whether the child has sufficient ability to provide for himself or herself and handle their own financial and medical decisions or whether a guardianship action is appropriate to permit parents to continue to handle financial and medical decisions as guardians. Guardianship proceedings takes three (3) to six (6) months to complete, and is handled through the Court. As such, if it makes sense to have a guardian assume financial and medical responsibility for a child at age 18, this process should begin in or around the middle of the child’s 17th year. If a child can handle his or her own affairs and simply needs assistance by parents, the child should sign a power of attorney and health care proxy when the child turns age 18 to permit parents to assist them with financial and medical decisions. This does not remove autonomy from the child and ultimately the child’s decision controls; however, it will allow parents to assist the child with the child’s consent.

Disinheriting A Child With Special Needs

Lori I. Wolf — Thu, 09 Jun 2011 12:55:03 -0500

Sometimes family members consider disinheriting a child with special needs to avoid putting the child with special needs at risk of becoming ineligible for government assistance. Parents may leave assets to a typical child instead of dividing the assets between the child with special needs and the typical child, and they rely on the typical child to care for their child with special needs. This is not, however, the best way of protecting their children.

A typical child holding assets for the benefit of his or her sibling could voluntarily or involuntarily jeopardize the assets. The assets could become subject to the claims of the typical child’s creditors such as through a judgment from an automobile accident, a bankruptcy or a divorce. Additional risks are that the assets can be exhausted by the typical child so that they are no longer available to be used for the child with special needs or the typical child may marry someone who has less of an interest in insuring that the resources remain available for the benefit of their spouse’s sibling.

Instead of disinheriting a special needs child, a better way to protect that child is to allocate assets to a special needs trust for the benefit of that family member. Transfers to a special needs trust generally will not create any period of ineligibility for that child. The assets in a special needs trust can be available to provide for the care of the child with special needs to supplement, but not replace, monies available through government assistance.

Use of a special needs trust guarantees that the funds will be held only for the benefit of the child with special needs and not for any other individual or any other purpose, while ensuring that eligibility for government assistance is not comprised.

Terminating a Special Needs Trust

Mary W. Browning — Mon, 09 May 2011 09:02:22 -0500

There are several circumstances where it is appropriate to terminate a third party Special Needs Trust. A third party trust is a trust that is comprised of assets that were either gifted or bequeathed from someone other than the trust beneficiary. Most commonly, a termination will occur at the beneficiary’s death. In this situation, the Special Needs Trust most likely directs where the remaining assets will be distributed. This could be other siblings or family members or charities.

Another reason why a Special Needs Trust will terminate is because the Trust is out of funds. This might happen if the Special Needs Trust was not adequately funded in the first place, if the beneficiary’s financial needs were greater than anticipated, or if the beneficiary outlived his or her life expectancy. Even if the Special Needs Trust still has some small amount of assets, the Trustee may decide that the costs of administering the Trust exceed the remaining assets and therefore, it does not make financial sense to continue to maintain the Special Needs Trust.

A third reason for terminating a Special Needs Trust is if the beneficiary is either no longer eligible for government benefits and will likely never be eligible for benefits or if a beneficiary no longer needs government benefits. In this type of circumstance, after all taxes and other expenses are paid, a properly drafted Special Needs Trust would direct the Trustee to either continue to hold the funds for the benefit of the beneficiary in a non-Special Needs Trust (that could be used for any reason for the benefit of the beneficiary) or it would direct the Trustee to distribute the assets directly to the beneficiary, outright.

Laws to Help Families With Special Needs

Mary W. Browning — Mon, 18 Apr 2011 13:46:52 -0500

Parade has published an article on recent legislation aimed at helping families with special needs. The article covers laws on both the federal and state levels and offers information on how to support the respective pieces of legislation. Please click here to view the full article on Parade's website.

5 Tips to Smart Estate Planning When You Have a Special Needs Child

Lori I. Wolf — Thu, 24 Feb 2011 11:15:22 -0500

Families who do their best to protect their children with special needs often make several critical mistakes in developing their family plan. Lori Wolf and Mary Browning of Cole Schotz recently wrote an article for NJ Family about smart estate planning for a special needs child. Click here to read the article.

Governor Christie Proposes County Schools for Children with Autism

Mary W. Browning — Fri, 14 Jan 2011 16:07:26 -0500

In a town hall meeting yesterday, Governor Christie discussed a proposal to set up a school in each county that specializes in teaching children with autism. The Governor believes that this type of structure will cut costs overall and will allow children within the entire county to attend what he called “centers for excellence” in each county, with the goal of increasing access for all children. This system would presumably replace the current regime of each school system having its own program.

New Jersey Appellate Court Disallows Judge's Attempt to Create Special Needs Trusts

Mary W. Browning — Wed, 12 Jan 2011 12:04:00 -0500

A recent New Jersey Appellate Court opinion further confirms the importance of having a Will – especially when a special needs person is involved. The court overturned a state court judge who tried to use the “doctrine of probable intent” to create special needs trusts for a decedent’s daughters even though the decedent did not have a Will. The decedent had told relatives that she wanted to create special needs trusts for her daughters and contacted a lawyer to draft the trusts, but died before signing any Will or trust documents.

The lower court attempted to effectuate the decedent’s intent by allowing the personal representative of the estate to create these special needs trusts notwithstanding the fact that the decedent did not have a Will or trust document in place. The court used the “doctrine of probable intent”, which is a doctrine that has been used by courts in the past to reform a Will, typically for tax savings purposes. The doctrine allows the court to modify a person’s Will in limited circumstances based on what the decedent intended the Will to say.

The Appellate Court overturned this ruling on the grounds that the doctrine of probable intent should only be used when a person already has an existing Will. The fact that the decedent did not have a Will, and therefore, her assets passed via the New Jersey intestacy laws, precluded the court’s use of this doctrine.

As a result, the decedent’s assets passed to her daughters, outright. Some of the assets have been taken by the state Division of Developmental Disabilities to pay for residential care for one daughter, and the other daughter has lost eligibility for Medicaid and other benefits until her share has been used up. The case is yet another example of the importance of having the proper planning in place.

Upcoming Event: JCC of New Jersey Special Needs Symposium

Lori I. Wolf — Mon, 10 Jan 2011 09:55:02 -0500

Lori Wolf, a Member of the Tax, Trusts & Estates Department of Cole Schotz, will speak at the JCC of New Jersey's Special Needs Symposium on February 13, 2011. This symposium is for families, educators and professionals with an interest in special needs issues and topics. Pre-registration is required. Please visit http://www.jccnj.org/specialneeds.html for more information.

Special Needs Planning Just in Case

Mary W. Browning — Fri, 06 Aug 2010 15:13:25 -0500

Many parents, especially parents of young children, may be unsure at the time they are drafting their Wills if a child will qualify for government assistance in the future. The parents may be concerned that a child has a special need but may not know the extent when that child is young. Therefore, parents are hesitant to mandate that assets pass to their child in a special needs trust when such child may or may not need a special needs trust in the future.

An effective way to handle this situation is to draft a discretionary trust for the benefit of such child that allows the trustees the flexibility to create a special needs trust if the need arises in the future. A discretionary trust allows the trustees to distribute principal and income to a child for any reason in the trustee’s discretion. Alternatively, the trust could be drafted as a special needs trust now but could direct the trustees to convert the trust to a purely discretionary trust if the child no longer receives government benefits.

Parents should carefully consider the appointment of trustees of such a trust. Because this is a lifetime trust, a parent should consider naming younger successor trustees and possibly even a corporate trustee to serve if all of the individuals appointed can no longer serve.

A Letter of Intent Should be Prepared by Every Parent of a Child with Special Needs

Mary W. Browning — Fri, 09 Jul 2010 10:34:59 -0500

A letter of intent provides the caregivers of a child with special needs a roadmap for taking care of that child. A letter of intent gives the parent a forum to communicate his or her wishes and concerns regarding a child as well as to set forth important information that will ease the transition of that child’s care to other family members at a parent’s death.

A letter of intent lists vital contact information such as the names and addresses of doctors, specialists and other caregivers. As importantly, a letter of intent also allows the parent to elaborate on the likes and dislikes of a child, such as food preferences, and daily schedules, such as bedtime routines. A letter of intent is helpful both to caregivers of a child and the trustees of a special needs trust.

A letter of intent is not a legal document – instead, it is a document prepared by a parent describing in detail any information that a parent feels is important for a potential caregiver to know about his or her child. Parents should update their letter of intent at least every year to make sure that all information is current and relevant.

Please contact us if you would like us to provide you with a sample letter of intent to get started.

Child Support and Children with Special Needs

Mary W. Browning — Fri, 21 May 2010 15:17:31 -0500

One issue often overlooked by divorce attorneys as well as their clients is the payment of child support when the couple has a child with special needs. Child support, although paid directly to a spouse, is considered to be an asset of the child for purposes of determining eligibility for means-tested governmental programs. To avoid disqualifying the child from governmental benefits, the divorce agreement should direct child support payments to be made directly to a first party special needs trust, instead of directly to the custodial spouse. The child with special needs will be the sole beneficiary of the trust and the custodial parent will be the trustee. In this way, the child support will be used for the child without disqualifying the child from benefits he or she may receive.

First Party Special Needs Trusts Should be Reviewed in Light of a Recent New Jersey Court Ruling

Mary W. Browning — Fri, 30 Apr 2010 16:16:18 -0500

A New Jersey appeals court upheld Medicaid’s denial of benefits after finding that the First Party Special Needs Trust for the benefit of the applicant did not shelter the applicant’s assets.

Medicaid determined, and the court agreed, that a First Party Special Needs Trust will not shelter an applicant’s assets unless and until the Social Security Administration or the New Jersey Disability Review Team determines that the beneficiary of such trust meets the federal definition of “disabled.” In other words, the fact that the applicant may meet the definition of “disabled” is irrelevant unless the Social Security Administration or the state Disability Review Team actually makes this determination.

In addition, the court agreed with Medicaid’s determination that the Special Needs Trust was not an irrevocable trust as required by law because the terms of the Special Needs Trust allowed the trust to terminate if it was deemed an available resource to the beneficiary for purposes of obtaining state or federal benefits.

Interestingly, this Special Needs Trust was previously approved by a New Jersey Law Division judge in connection with the applicant’s workers’ compensation case.

If you or a loved one is the beneficiary of a New Jersey First Party Special Needs Trust, you should have an attorney review the trust in light of this case in order to avoid a similar result.

For the full text of the case, see J.C. v. Division of Medical Assistance and Health Services (N.J. Super. Ct., App. Div., Nos. A-5632-07T25632-07T2, A-6297-07T2, Feb. 8, 2010).

Legal Settlements and Special Needs Trusts

Mary W. Browning — Thu, 18 Mar 2010 08:19:00 -0500

Individuals who become disabled as a result of an accident may receive a monetary award as part of a legal settlement of the case. If this happens, it is important that the individual, prior to finalizing the settlement, speak with a special needs attorney to determine the best way for the settlement to be paid.

The two most common types of pay-outs are the structured settlement and the lump-sum payment. The structured settlement often consists of an income stream (in the form of an annuity) as well as lump-sum payments that may be made at certain times, such as certain birthdates. The payments are usually based on the beneficiary’s life expectancy.

Whether an individual elects a structured settlement or a lump sum, these assets are considered assets of the individual. If, as a result of the disability, the individual would qualify to receive government benefits such as Medicaid but for the monetary award, the individual should consider having the award distributed to a trust for his or her benefit. An individual cannot have assets in excess of $2,000 in his or her name in order to qualify for Medicaid and SSI. If the award is paid to the individual, this eligibility test is not met. If instead, these payments are made to a First Party Special Needs Trust, the individual’s eligibility for governmental benefits is preserved. At the individual’s death, the remaining trust assets will be used to reimburse Medicaid for any money it has expended. Any money left in the trust can pass to successor beneficiaries named in the trust.

Trust Advisory Committees

Mary W. Browning — Wed, 13 Jan 2010 09:31:18 -0500

Sometimes, when a parent creates a third-party special needs trust, he or she does not want the entire burden of decision making to fall on the trustees. Or sometimes the trustees were chosen for their financial and investment savvy and background and they do not necessarily know how to handle the day-to-day life of the child with special needs. In these cases, the appointment of a Trust Advisory Committee by the trust creator may be appropriate.

A Trust Advisory Committee is a group of people (typically 3-5 people) chosen by the person creating the trust or chosen by the trustee who are responsible for advising and making distribution requests on behalf of the special needs person to the trustee. The committee is designed to provide insight, advice and information to the trustee with respect to the special needs person's residential placement, emotional, social, education, medical and therapeutic issues. The committee usually consists of family members, a social worker, care manager, accountant, attorney, nurse, friends, etc. These advisors have no legal authority over the trust, but the trustee is required to consult with them.

Special Needs Tax Credit for Legal Fees?

Mary W. Browning — Tue, 29 Dec 2009 09:18:37 -0500

There is a movement underway to encourage Congress to change the tax code to provide up to a $5,000 tax credit for legal fees paid with establishing legal guardianship. The tax credit may also be available for legal fees paid in connection with establishing a trust for a person with disabilities. The tax credit would be available for the person who actually paid the legal fees.

The Special Needs Tax Credit Alliance, a non-profit organization, has been formed in order to raise awareness for this issue and to build national support for the tax credit. The Special Needs Tax Credit Alliance petition is located at http://specialneedstaxcredit.com.