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New Jersey Supreme Court’s Saccone Opinion Creates Special Needs Trust Opportunities and Pitfalls

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.”

Social Security Amends POMS Governing Special/Supplemental Needs Trust Expenditures

People with serious disabilities often qualify for government benefits like Supplemental Security Income (SSI) and Medicaid that limit eligibility based on finances.  Thus personal injury recoveries attributable to a disabled person often are placed in trust to minimize benefit reduction.  However, federal and state law provide that trusts containing assets of the disabled beneficiary or the beneficiary’s spouse may be disqualifying unless the trust satisfies a safe-harbor exception.

Social Security Administration (SSA) Program Operations Manual System (POMS) SI 01120.201 says that to satisfy a safe-harbor exception, a trust must be for the exclusive benefit of the trust’s disabled beneficiary.  While a safe-harbor trust may pay reasonable amounts for goods and services routinely provided to the disabled beneficiary, other trust payments can prove suspicious.  For instance, where a trust pays family to provide services to the beneficiary, the trust should be prepared to prove the payments are reasonable and have a sole purpose to benefit the trust’s disabled beneficiary rather than family.

New POMS provisions issued in 2011, caused an uproar among the disabilities community and families with special needs trusts by dramatically tightening the exclusive benefit rule.  The 2011 POMS provided that a trust violates the exclusive benefit requirement if the trust authorizes payments for the beneficiary’s family to visit the disabled beneficiary because trust payments of travel costs benefit the family.  Compounding the concern, SSA staff orally stated that payments to family to care for a trust’s disabled beneficiary also may be disqualifying in common situations.

While SSA’s goal to guard against diversion of trusts that should be administered to benefit a disabled trust beneficiary, the SSA pronouncements triggered great concern and impeded trust flexibility to provide legitimate benefits to disabled people..  Reacting to these undesirable side effects, SSA withdrew the travel provision from the POMS, agreed to study the exclusive benefit rule, and invited the disabilities community to work with SSA to resolve the issue.

On May 15, 2013, SSA announced a series of POMS changes designed to ensure that safe-harbor trusts operate for the sole benefit of the trust’s disabled beneficiary without unduly precluding legitimate expenditures to aide the disabled beneficiary that also impart incidental benefits to family or others.  The POMS now provide that when a trust purchases durable goods like a car or house, the trust or beneficiary must receive appropriate equity interest.  It is unclear whether this requirement will be triggered where a trust funds accessibility improvements that don’t increase value.  The POMS also now permit a trust to pay a third person’s travel costs when necessary for the trust’s disabled beneficiary to get medical treatment or to visit the trust beneficiary in a long term care facility, group home or other supported living arrangement in which persons other than family are paid to provide or oversee the living arrangement and the travel is to ensure safety or health.  While the POMS don’t say trust payment of third party travel costs in all other situations will be disqualifying, that is a major risk and generally should be avoided unless facts are extremely favorable.

The new POMS go a long way to protecting rather than hampering disabled trust beneficiaries.  While they still leave questions open, they are a major improvement over the POMS issued in 2011.

Further information on special needs planning, elder law, long term care, wills, trusts, and estates is available throughout SpecialNeedsNJ.com. To subscribe to our frequent blog updates, click on “Subscribe to this Blog” in the Meta box to the left and then click on “subscribe to this feed.”

Poorly Drafted Special Needs Trusts May Not Prove “Special”

Calling a trust special needs trust or supplemental needs trust doesn’t prevent it from disqualifying the trust beneficiary from government aid like SSI, Medicaid, and free group home placement.  So-called SNTs will prove disqualifying unless drafted and administered properly.  At a minimum, an SNT must not have any obligation to fund the beneficiary’s support or distribute at fixed times, and the trust beneficiary must not have the right to terminate the trust and capture the amounts in it.  Although not stated explicitly, such disqualifying obligations and rights can be implied from poorly drafted trust terms as sometimes arise when the person drafting a so-called SNT lacks expertise in this arcane area of the law.  In addition, a trust containing amounts attributable to the trust beneficiary (such as a personal injury recovery, outright inheritance, or divorce share) must contain numerous provisions mandated by complex Medicaid regulations.  Finally, even a well drafted trust can disqualify the beneficiary for government aid if it isn’t administered properly.

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