Federal Court Supports Special Needs Trusts

Posted on: August 27th, 2011 by Lawrence A. Friedman

Federal law provides that trusts containing assets of a disabled beneficiary generally disqualify the beneficiary for Medicaid, Supplemental Security Income, and various other disability benefits. However, amounts in certain pooled special needs trusts and individual special needs trusts are not subject to this general rule.

Pennsylvania enacted various restrictions on pooled special needs trusts limiting beneficiaries to people under age 65, requiring beneficiaries to demonstrate a need for the trust, limiting permissible expenditures, and limiting the amount pooled trust sponsors may retain to benefit other disabled people when a beneficiary dies. In the recent case of Lewis v. Alexander, 2011 U.S. Dist. LEXIS 95109, U.S. District Court Eastern District of PA, Case 2:06-cv-03963-JD Document 73 Filed 08/23/11, a federal court invalidated all these restrictions as violating federal law. While the case is in Pennsylvania, it may prove relevant in New Jersey because Pennsylvania and New Jersey are in the same federal circuit and if the State should appeal and lose, the decision may be considered authoritative by other courts.

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