To qualify for Supplemental Security Income (SSI) from the Social Security Administration (SSA), Medicaid, and other government disability benefits, an individual’s income must be within program limits. Pensions and most other payments typically throw a disabled person’s income over SSI and Medicaid income caps. However, pensions and other payments don’t count against income caps for SSI, Medicaid, and various other benefits when paid into a special needs trust under 42 U.S.C. 1396p(d)(4)(A), (commonly called d4A special needs trust or d4A SNT). These d4A special needs trusts are further explained in the Practice Area and Q&A pages of www.SpecialNeedsNJ.com.

New Jersey provides survivor pensions to surviving spouse and children of police officers and fire fighters. A retired New Jersey fire fighter sought to ensure that the benefit for his disabled son would be paid into a special needs trust under 42 U.S.C. 1396p(d)(4)(A), commonly called d4A special needs trust or d4A SNT. When pension administrators rejected his request that any survivor benefit for the disabled son be paid into a d4A special needs trust, the retired New Jersey fire fighter appealed.

In Saccone v. Board of Trustees of the Police and Firemen’s Retirement System (__ NJ __, Sept. 11, 2014), the New Jersey Supreme Court ruled that the benefit could be paid into a d4A special needs trust for the disabled child. The New Jersey Supreme Court cited New Jersey’s strong public policy favoring special needs trusts as reflected in New Jersey Statutes 3B:11-36 & 37, which were authored by FriedmanLaw attorney Lawrence A. Friedman on behalf of the New Jersey State Bar Association.

The New Jersey Supreme Court further held that a d4A SNT is “the equivalent of” the d4A SNT beneficiary– and therein could lie an unintended can of worms. The Supreme Court says New Jersey law now provides that a d4A special needs trust is the equivalent of the beneficiary. Therefore, one has to wonder whether the Social Security Administration and perhaps Medicaid will take the next logical step and claim amounts in a d4A SNT should be considered resources of the trust beneficiary. If so, the d4A SNT would cause the beneficiary’s resources as well as income to exceed SSI and Medicaid limits. While that would seem contrary to the Court’s goal in Saccone, it could be a logical consequence– especially since SSA is not obligated to further goals of the New Jersey Supreme Court.

Finally, since the Supreme Court holds that the firefighter himself can’t designate a beneficiary for his pension survivor benefit, the surviving spouse or child must ask that the spouse or child survivor benefit be paid to a d4A special needs trust or SNT. However, court approval is required to transfer assets of a minor or incapacitated disabled person into a d4A special needs trust. Therefore, court approval should be required to cause a survivor’s benefit to be paid into a d4A SNT where the surviving spouse or child lacks capacity and didn’t give appropriate power of attorney (POA) while the surviving spouse or child had capacity.

While the concerns noted above may never arise, they could wreck havoc with special needs planning if they do. Stay tuned; it should be interesting.

Further information on special needs, estate planning, long term care, and other subjects is available throughout SpecialNeedsNJ.com. To subscribe to our frequent blog updates, click on the “Subscribe to RSS” button at the top left of this page and then click on “subscribe to this feed.”