NJELC Guide on 1st and 3rd party SNTs

Guide on First-Party SNTs

General Information:

• The funds may only be used for the sole benefit of the trust beneficiary.
• The trust must be irrevocable.
• The beneficiary's assets must be used to fund the trust (can include gifts).
• The beneficiary must be under age 65 and disabled at the time the trust is established.
  • Transfers to the trust after the SNT beneficiary reaches age 65 are prohibited. Any additions to the trust after that time with assets of the beneficiary are subject to the rules governing the improper transfer of resources.
• Cash distributions from the trust to the SNT beneficiary must be counted as unearned income.
• In the case of a tort recovery funding an SNT, the Medicaid agency must first be repaid for the Medicaid payments related to the tort before the SNT can be established.

Who can establish a First-Party SNT?

• In NJ, a parent, grandparent, or legal guardian of the disabled individual, or a court.

How do I set up a First-Party SNT?

• First, it's highly recommended to consult with the professionals at NJELC who are experienced in special needs planning. We can provide guidance tailored to your specific situation and help ensure compliance with relevant laws and regulations.
• Selecting the right trustee is crucial. This person or entity will be responsible for managing the trust assets and making distributions according to the trust's terms. The trustee should have financial expertise, be trustworthy, and ideally have experience with SNTs.
• Next, work with your attorney to draft the trust document. This document outlines the terms and conditions of the trust, including how assets will be managed and distributed for the beneficiary's benefit. It's essential to include language that ensures the trust complies with Medicaid and SSI rules to preserve the individual's eligibility for these benefits.
• Additionally, the beneficiary's SSN is used for tax reporting purposes and identification of the trust's beneficiary.
• Then, you fund the trust. Transfer assets into the trust according to the terms outlined in the trust document. These assets can include cash, investments, real estate, or other valuable property. Ensure that the funding process complies with legal requirements and does not inadvertently impact the beneficiary's eligibility for government benefits.
• Once the trust is established and funded, the trustee will manage the assets and make distributions as needed for the beneficiary's benefit. It's important for the trustee to keep detailed records of all transactions and to act in the beneficiary's best interests at all times.

How does the trustee withdraw funds from the First-Party SNT?

• The trustee can make withdrawals from the trust's bank account as necessary to cover expenses for the beneficiary. These withdrawals can be made electronically, via checks, or through other authorized means. The bank account is in the name of the trust, typically with the trustee named as well.

What can First-Party SNT funds be used for?

• Medical expenses (including dental and mental), vehicles for accessibility, or transportation, training or specialized education, home modifications to accommodate the beneficiary’s disability, and quality of life enhancements, such as electronic equipment, computers, appliances, movies, vacations, and other things which improve the beneficiary’s self-esteem.
• SNTs can generally not pay for food, shelter, electricity, gas, or water and it may not pay for anything that can be converted into food, shelter, electricity, gas, or water. Additionally, cash should almost never be distributed to a beneficiary from the trust.

Who gets a copy of the First-Party SNT?

• The trustee must provide a copy of the SNT document to the eligibility determination agency, such as the CWA, ISS, or the federal SSA District Office (for SSI beneficiaries). These agencies need a copy as part of the application or redetermination process. The trustee must also provide a copy of the SNT document to the Division of Medical Assistance and Health Services, Beneficiary Administrative Action Unit (Mail Code 5, P.O. Box 712, Trenton, NJ 08625-0712), which monitors SNTs and is the trust remainderman.

Who gets the annual accountings for a First-Party SNT?

• The eligibility determination agency (the CWA, the ISS or SSA), and the Division of Medical Assistance and Health Services, Beneficiary Administrative Action Unit (Mail Code 5, P.O. Box 712, Trenton, NJ 08625-0712) must receive copies of the annual accountings from the trustee.

What is required for a First-Party SNT annual and final accounting?

• A listing of the details of trust assets, receipts, and expenditures for the accounting period, including the date, amount, payee, and purpose of each expenditure, is needed for an accounting, as well as the balance that remains in the trust. DMAHS has a form on its SNT website that may be used for an accounting.  Additional explanations or documentation of expenditures may be required if the sole-benefit or special-need purpose of an expenditure is not clear.

What advance notice of expenditures is needed?

• The trustee is required to provide DMAHS with advance notice of any expenditure in excess of $5,000, and of any amount which would substantially deplete the principal of the trust. Notice shall be given to the Division of Medical Assistance and Health Services, Beneficiary Administrative Action Unit, Mail Code 5, PO Box 712, Trenton, New Jersey 08625-0712, 45 days prior to the expenditure. Any payment by the trust to an individual or entity, that is expected to be greater than $5,000, either per expenditure or in the aggregate in any 12-month period, shall be considered an expenditure requiring such advance notice. If DMAHS finds that any such expenditure is inconsistent with the trust and/or not for the sole benefit of the trust beneficiary, it will notify the trustee and the eligibility determination agency in writing.

What happens upon the death of the First-Party SNT beneficiary? 

• Upon the death of the SNT beneficiary, the trustee shall notify the Division of Medical Assistance and Health Services, Beneficiary Administrative Action Unit (Mail Code 5, P.O. Box 712, Trenton, NJ 08625- 0712) of the death, and obtain DMAHS’s total claim. All assets remaining in the trust must be liquidated and a check up to the amount of DMAHS’s total claim must be paid to the “Treasurer State of New Jersey” (checks sent by regular mail should be sent to Division of Revenue, Lockbox 656, 200 Woolverton Ave., Bldg. 20, Trenton, NJ 08646; checks sent by certified mail, courier or overnight should be sent to Division of Revenue, Attn: Processing Bureau, 200 Woolverton Ave., Bldg. 20, Lockbox 656, Trenton, NJ 08646). No expenditure other than allowable trustee administrative costs may be paid before DMAHS’s claim is paid. DMAHS’s claim must be paid prior to the payment of any funeral costs. A final accounting must also be provided to the Beneficiary Administrative Action Unit.

Guide on Third-Party SNTs

General Information:

• The trust can be established by a third party with the third party’s own assets for the benefit of a disabled person which is designed to supplement, but not duplicate or reduce, Medicaid benefits.
• Because the SNT is not funded with the disabled individual’s assets, there is no required payback to the State for Medicaid provided to the disabled beneficiary.
• Because it is not funded with the disabled person’s own assets, the drafter is much freer to satisfy the desires of the grantor. Broad discretion can be given to trustees regarding income and principal distribution to anyone other than the disabled individual.
• The beneficiary cannot put their own assets into the trust.
• The beneficiary can be any age.
• This type of SNT does not have to be irrevocable in order to preserve the eligibility of the SNT beneficiary for means-tested public benefits. However, if the SNT beneficiary has the power to revoke or control the SNT, the SNT assets would be considered an available resource for Supplemental Security Income and Medicaid purposes.

Who can establish a Third-Party SNT?

• In NJ, a parent, grandparent, or legal guardian of the disabled individual, or a court.
• Other family members, such as aunts and uncles, can also put money into this type of trust.

How do I set up a Third-Party SNT?

• First, it's highly recommended to consult with the professionals at NJELC who are experienced in special needs planning. We can provide guidance tailored to your specific situation and help ensure compliance with relevant laws and regulations.
• Selecting the right trustee is crucial. This person or entity will be responsible for managing the trust assets and making distributions according to the trust's terms. The trustee should have financial expertise, be trustworthy, and ideally have experience with SNTs.
• Next, work with your attorney to draft the trust document. This document outlines the terms and conditions of the trust, including how assets will be managed and distributed for the beneficiary's benefit. It's essential to include language that ensures the trust complies with Medicaid and SSI rules to preserve the individual's eligibility for these benefits.
  • Third-party SNTs offer more flexibility in terms of how the trust is structured and administered because the funds do not belong to the beneficiary. The grantor (the person who establishes the trust and contributes assets) can provide specific instructions or guidelines regarding how the trust funds should be used.
• Additionally, the SSN of the grantor (the person funding the trust) is generally used for tax reporting purposes and identification.
• Then, you fund the trust. Transfer assets into the trust according to the terms outlined in the trust document. These assets can include cash, investments, real estate, or other valuable property. Ensure that the funding process complies with legal requirements and does not inadvertently impact the beneficiary's eligibility for government benefits.
• Once the trust is established and funded, the trustee will manage the assets and make distributions as needed for the beneficiary's benefit. It's important for the trustee to keep detailed records of all transactions and to act in the beneficiary's best interests at all times.

What can Third-Party SNT funds be used for?

• Medical expenses (including dental and mental), vehicles for accessibility, or transportation, training or specialized education, home modifications to accommodate the beneficiary’s disability, and quality of life enhancements, such as electronic equipment, computers, appliances, movies, vacations, and other things which improve the beneficiary’s self-esteem.
• SNTs can generally not pay for food, shelter, electricity, gas, or water and it may not pay for anything that can be converted into food, shelter, electricity, gas, or water. Additionally, cash should almost never be distributed to a beneficiary from the trust.

Who gets a copy of the Third-Party SNT?

• The trustee must provide a copy of the SNT document to the eligibility determination agency, such as the CWA, ISS, or the federal SSA District Office (for SSI beneficiaries). These agencies need a copy as part of the application or redetermination process. The trustee must also provide a copy of the SNT document to the Division of Medical Assistance and Health Services, Beneficiary Administrative Action Unit (Mail Code 5, P.O. Box 712, Trenton, NJ 08625-0712), which monitors SNTs and is the trust remainderman.

Who gets the annual accountings for a Third-Party SNT? 

• The eligibility determination agency (the CWA, the ISS or SSA), and the Division of Medical Assistance and Health Services, Beneficiary Administrative Action Unit (Mail Code 5, P.O. Box 712, Trenton, NJ 08625-0712) must receive copies of the annual accountings from the trustee.

What is required for a Third-Party SNT annual and final accounting? 

• A listing of the details of trust assets, receipts, and expenditures for the accounting period, including the date, amount, payee, and purpose of each expenditure, is needed for an accounting, as well as the balance that remains in the trust. DMAHS has a form on its SNT website that may be used for an accounting.  Additional explanations or documentation of expenditures may be required if the sole-benefit or special-need purpose of an expenditure is not clear.

What advance notice of expenditures is needed?

• The trustee is required to provide DMAHS with advance notice of any expenditure in excess of $5,000, and of any amount which would substantially deplete the principal of the trust. Notice shall be given to the Division of Medical Assistance and Health Services, Beneficiary Administrative Action Unit, Mail Code 5, PO Box 712, Trenton, New Jersey 08625-0712, 45 days prior to the expenditure. Any payment by the trust to an individual or entity, that is expected to be greater than $5,000, either per expenditure or in the aggregate in any 12-month period, shall be considered an expenditure requiring such advance notice. If DMAHS finds that any such expenditure is inconsistent with the trust and/or not for the sole benefit of the trust beneficiary, it will notify the trustee and the eligibility determination agency in writing.

What happens upon the death of the Third-Party SNT beneficiary? 

• The trust document may specify how any remaining funds in the trust should be distributed upon the beneficiary's death. Common options include distributing the remaining assets to other beneficiaries named in the trust, such as other family members or charities, or directing the trustee to use the funds for a specific purpose outlined in the trust document. Unlike first-party SNTs, third-party SNTs do not have a Medicaid payback requirement. Therefore, any remaining funds in the trust may be distributed according to the terms of the trust document without the need to reimburse the state for Medicaid benefits provided to the beneficiary. The trustee is responsible for administering the trust in accordance with its terms and applicable laws. This includes gathering information about the beneficiary's death, notifying interested parties, and carrying out the instructions outlined in the trust document regarding the disposition of trust assets.