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

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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).

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

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