A WIN FOR THE DISABLED

For parents with disabled children, providing for the child’s well-being after the death of the parents is a primary concern. For example, if your child suffered from cerebral palsy and required substantial assistance – costly, assistance – obviously, you would be concerned about providing for that child’s care after your death.

In many instances, disabled children receive government entitlement benefits, such as Medicaid and Supplemental Security Income. These entitlement programs are means-tested program, meaning that an individual must meet stringent income and asset standards in order to qualify for the programs. In order to qualify for Medicaid, for instance, an individual can have no more than $2,000 in assets.

Medicaid is a health insurance program and will pay for many of the care needs of a disabled child, but medical needs aren’t the only issues a disabled individual faces. While Medicaid may pay for some or all of his medical expenses, Medicaid does not address housing, clothing, and food needs. And, in reality, Medicaid often fails to address all of the care needs of a disabled individual or fails to adequately address those care needs.

Supplemental Security Income, or SSI, is designed to provide cash assistance to needy individuals to meet their housing, food, and clothing needs, but the dollar amount of the cash assistance is painfully inadequate to actually meet those needs. For instance, the federal SSI benefit is currently $552 per month. Who in Monmouth County could afford to rent an apartment and purchase food and clothing on $552 per month?

So, a parent’s concern for their disabled child is legitimate. The child would benefit from a supplementary source of assets or income that could pay for items that Medicaid and SSI do not. But if a disabled child can have no more than $2,000 in assets and remain qualified for Medicaid and SSI, how does a parent leave their disabled child money without disqualifying the child from government entitlement programs.

The best method of providing for a disabled child’s care after the death of the parent is through a trust commonly known as a “special needs trust.” A special needs trust is designed to supplement government entitlement benefits, such as Medicaid and SSI, not supplant those benefits. The assets and income of the trust are to be used to pay for items for which Medicaid and SSI do not. In this way, the assets can be held in the trust for the child’s benefit and the child will remain eligible for Medicaid and SSI.

This type of special needs trust, where the parent leaves the parent’s money to a trust upon the parent’s death for the benefit of the child, is called a “third-party special needs trust.” It’s a “third-party” trust because the assets in the trust are not the child’s assets but the parent’s; the parent is the “third-party.”

There are other forms of special needs trusts that are called “self-settled special needs trusts.” These trusts are “self-settled” because the assets in the trust belonged to the disabled individuals. For example, a person is injured in an automobile accident at age 35 and is severely disabled. Years later the individual receives a personal injury award of $500,000. That person could place those assets into a self-settled special needs trust and preserve his eligibility for Medicaid, which he may need because of the severity of his injuries.

In New Jersey, self-settled special needs trusts are permitted, but the validity of third-party special needs trusts is questionable. Oddly enough, a New Jersey statute attempts to invalidate such third-party trusts. The statute, commonly known as the “trust-buster statute,” provides as follows: “any provision in a will or trust … which … excludes coverage … for health care-related goods and services … because of that individual’s actual … eligibility for … Medicaid benefits shall be null and void ….”

In other words, if a parent’s Will establishes a special needs trust for his disabled child, the special needs trust provision of the testamentary trust is null and void. At least, that is what the “trust-buster” statute provides.

But an unpublished decision of the Superior Court of New Jersey, Appellate Division, has held that the “trust-buster” statute should be given very limited scope. In short, the Court upheld third-party special needs trusts and, in essence, rendered the “trust-buster” statute a nullity.

Hooray for the disabled. They could stand a break.