Call our office today. Ask for Mr. Niemann to personally discuss your New Jersey Special Needs Trust situation at 855-376-5291 or e-mail him at fniemann@hnlawfirm.com. http://www.specialneedstrustnewjersey.com

1. ADMINISTRATION OF
SPECIAL NEEDS TRUSTS
Presented by
Fredrick P. Niemann, Esq.
3499 Route 9 North, Suite 1F
Freehold, NJ 07728
Phone: (888) 800-7442
Elder Law, Asset & Estate Protection
Planning, Medicare, Medicaid and
Veteran’s Benefit Assistance Lawyers
www.specialneedstrustnj.com
R. 1:40 Approved Mediator, by the NJ Supreme
Court
Accredited Attorney of the US Veteran
Administration for Veteran Benefits

2. Trust Administration
A Special Needs Trust (SNT) must not
only be properly drafted and funded, but
must also be properly administered.
Improper distributions from a properly
drafted and funded SNT can result in the
loss of public benefits for the beneficiary
of the trust.

3. Self-Settled, Third Party
and Marital SNTs
The rules of administration apply to selfsettled, third party and marital SNTs.

4. Distributions May Be Income
Even if the principal of a SNT is not
considered a resource by public benefit
providers because the trust was
properly drafted, distributions from the
trust MAY be considered income to
the disabled beneficiary if not properly
made.

5. Basic Rules for
Trust Administration
These basic rules define the types of
distributions which may be made from a
SNT and the impact of each type of
distribution on the public benefits of the
trust beneficiary. It is critical that trustees
are aware of these rules.

6. Types of Trust Distribution
1. Direct Payments to the Beneficiary.
2. Payments to third party vendors for food,
clothing or shelter.
3. Payments to third party vendors for items
which are not food, clothing or shelter.

7. Direct Payments to the
Beneficiary are NOT Permitted
Cash paid directly from a SNT to a
disabled beneficiary of needs-based public
benefits is considered to be unearned
income and will affect eligibility or the
amount of any benefit received.

8. Example: Distributions from a
SNT Directly to an SSI
Beneficiary
Jill is the trustee of a special needs trust established by her
deceased mother, Paula, for the benefit of Paula’s disabled
daughter and Jill’s sister, Anne. Anne’s living expenses,
including rent, food, transportation and clothing, total
approximately $2,000 per month. Jill sends Anne a check
on the first of every month for $2,000 so Anne can pay her
expenses. Since Anne is receiving cash income in excess
of her monthly SSI benefits, she loses her SSI. Since
Anne received Medicaid based on her SSI payment, she
also loses Medicaid.

9. SSI - ISM + PMV
1. SSI is intended to pay for a beneficiary’s food,
clothing and shelter.
2. Disbursements from a SNT by a trustee to a
third party vendor to cover food, clothing or
shelter costs result in the receipt of in-kind support
and maintenance (ISM) by the beneficiary.
3. ISM is valued under the presumed maximum
value (PMV) rule under which the SSI monthly
benefit is reduced by one-third (1/3rd) of the
federal benefit amount, or the actual value
received, whichever is less.

10. Payments to Third Party Vendors
for Food, Clothing or Shelter
It is often appropriate to make distributions
from a SNT which constitute ISM even
though the beneficiary will have a reduction
in public benefits to the extent of the PMV
because the SSI benefit alone is inadequate
to provide an appropriate level of food,
clothing and shelter for the beneficiary.

11. ISM + Medicaid Eligibility
As long as SSI eligibility is maintained, even
at a reduced level, Medicaid eligibility is
maintained.

12. Example: Distributions from a SNT to
Third Party Vendors for Food, Clothing or
Shelter
Jill is the trustee of a testamentary special needs trust
established by Joan under her last will and testament
for her adult disabled daughter, Pamela. Pamela
receives SSI, Medicaid, food stamps and services
from DDD. Pamela lives in an apartment. Jill signed
the lease as trustee of the SNT and pays all rent
directly to the landlord. The rental payments
constitute ISM and reduce Pamela’s SSI by one-third
(1/3rd), the PMV.

13. Payments to Third Party Vendors for
Items Which Are Not Food, Clothing or
Shelter
Distributions of this kind do not result in
any reduction of benefits so they are the
most desirable types of distributions for a
trustee to make.

14. Example: Distributions from a SNT to
Third Party Vendors for Items Which are
Not Food, Clothing or Shelter
Jill, a disabled adult, receives SSI. Joan is the
trustee of a special needs trust established by Jill’s
parents for her benefit. Jill likes to read the New
York Times.
Joan arranges with the local
newspaper distributor to deliver the New York
Times to Jill on a daily basis, including Sundays,
and pays the bill directly to the newspaper
distributor. This is not considered income, and
will not affect Jill’s SSI benefits.

15. Types of Distributions Not Considered
Food, Clothing and Shelter
• Home improvements, repairs, and maintenance by
outside source
• Tools to perform home improvements or repairs
• Installation of burglar alarm or monitoring/ response
system home
• School tuition, books, and supplies
• Health and life insurance premiums

16. Types of Distributions Not Considered
Food, Clothing and Shelter (Cont’d)
• Entertainment, including books, magazines and
newspapers; trips, movies, plays, museums and sporting
events; audio/video equipment; hobby supplies, etc.
• Vacation travel, but not lodging, since that is shelter
• Purchase and maintenance of car, or bus passes
• Household goods and other items of personal property of
reasonable value
• Payment for cleaning supplies and paper products

17. Types of Distributions Not Considered
Food, Clothing and Shelter (Cont’d)
• Telephone expenses
• Dental care, physical therapy, massages, support
services, and other medical costs not covered by any
public benefit programs
• Home care services not covered by another program
• Durable medical equipment, such as wheelchairs

18. Examples of Trust Distributions
Which Will Reduce SSI Benefit
• Shelter-related expenses (mortgage payments, real
property taxes, heating and cooling bills, electricity,
water, sewage, garbage collection)
• Groceries or meals
• Items of clothing
• Cash for any purpose

19. Other Types of Distributions Which
May Effect Public Benefits Eligibility
Income and resources of parents are deemed
to minor children. Trust distributions to
parents may be considered income to them
and, therefore, may be deemed to minor
children. If the children are public benefit
recipients, distributions to parents may effect
the eligibility of children.

20. Other Rules
Governing Distributions
Distributions should be made by the trustee to
accomplish the intention of the grantor as set
forth in the trust instrument.
Distributions should be made to provide for
the beneficiary’s needs.

21. Credit Cards
In appropriate cases, it makes sense to consider
providing the trust beneficiary with a credit card.
Credit cards are loans and loans are not income.
Even if the credit card is used for food, clothing,
and shelter, it is still a loan. The credit card could
be in the name of the individual beneficiary or the
name of the trust.

22. SNT as Owner of Home
• Home is an “exempt” asset.
• A beneficiary of public benefits living in a home
which he owns or which is owned by a SNT is
NOT considered to be receiving ISM in the form of
rent-free shelter.

23. SNT as Owner of Home
Advantages
1. Many beneficiaries of SNTs do not have the
capacity to manage residential real estate.
2. The home is protected from creditors and from
the temptation to borrow against the home.
3. If beneficiary is married, trust ownership
protects the home in the event of a divorce.

24. SNT as Owner of Home
Disadvantages
1. If a self-settled SNT owns a home, the home is
likely to be lost upon the death of the beneficiary
due to the required pay back provision.
2. Family members or others who occupy the
home must pay their pro rata share of the
expenses.

25. SNT as Owner of Home
• If a self-settled SNT is involved, parents should
purchase the home. Will avoid pay back and no
pro rata contribution needed.
• If the SNT beneficiary is under age 55 and not
likely to live to age 55, home should be owned by
the beneficiary since NJ only seeks recovery of
Medicaid benefits paid after age 55 from the estate
of a deceased beneficiary.

26. SNT as Owner of a Home
If possible, home should be purchased in cash.
Payment of mortgage is ISM to the disabled
person, each monthly payment being valued at no
more than the PMV.

27. SNT as Owner of a Home
Payment of other household expenses by a SNT
may also constitute ISM. The following 10 items
are the only expenses considered in determining
whether the beneficiary has received ISM:
Food
Gas
Mortgage
Electricity
Real Estate Taxes
Water
Rent
Sewer
Heating Fuel
Garbage Removal

28. Additional Household Expenses
If the trust pays for improvements or renovations to
the home, e.g., renovations to the bathroom to
make it handicapped accessible or installation of a
wheelchair ramp or assistance devices, etc., the
individual does not receive income.
Disbursements from the trust for improvements
increase the value of the resource and, unlike
household operating expenses, do not provide ISM.

29. SNT as Owner of a Vehicle
1. Often a handicap-equipped van is required.
Who should own the van?
2. Title - held by trust or family member?
- liability for accidents
- “pay-back” provision
3. Insurance - critical to have adequate insurance
- trust may pay insurance costs
4. Document transportation needs of disabled
person for Medicaid.

30. SNT as Owner of a Vehicle
The difficulty with a SNT owning a van is that it
is often impossible to obtain insurance for the
trust. A simple solution - have the trust lease the
van and pay all expenses, including insurance,
gas, maintenance, etc.

31. SNTs and Section 8 Housing
The Special Needs Trust should never pay the
beneficiary’s rent in Section 8 Housing.
Distributions from the trust are considered income
to the tenant regardless of whether the distribution
is made directly to the beneficiary or to a third
party.

32. Recap of Distribution Rules
for Special Needs Trusts
• Do not pay cash to beneficiary
• Do not pay cash to family of beneficiary under
18 years of age
• Distribute to third party vendors
• Retain public benefits counsel
• Retain care manager

33. Recap of Distribution Rules
for Special Needs Trusts (Cont’d)
• Always pay:
--Income taxes
--Trustee fees
--Attorney fees
--Administrative costs
--All regularly recurring expenses

34. Recap of Distribution Rules
for Special Needs Trusts (Cont’d)
• Try to avoid payment of :
--Mortgage
--Rent
--Real estate taxes
--Homeowner’s insurance
--Utilities: Gas, Electric, Heat, Water, Sewer
--Garbage removal
--Food
--Clothing

35. First Steps for Trustees
Review the document with an attorney familiar with
Special Needs Trusts
Meet with the beneficiary and assess his or her needs
Identify the public benefits which the beneficiary is
receiving or for which he/she may be eligible
Gather all of the assets subject to the trust
Get tax identification number for the trust
Meet with any care managers, advisors, or fiduciaries
required by the trust agreement
Seek assistance and hire advisors

36. How to Identify the
Beneficiary’s Needs
1. Trustee should develop a wish list of goods and
services to be purchased for the beneficiary.
- List should be prepared by the beneficiary and
the beneficiary’s friends and family
2. Trustee should obtain information from the
beneficiary’s school records or life care plan.
3. Care manager performs an annual evaluation of
the beneficiary which will help identify his/her
needs.

37. Trustee Duties and Responsibilities
1. Trustees should hold periodic meetings to
receive input and make decisions concerning
distributions.
2.
Expectations should be established.
3. An agenda should be maintained and minutes
provided to participants.

38. Trustee Duties and Responsibilities
(Cont’d)
4. Self-Settled SNTs - the trustee must balance the
long and short-term needs of the beneficiary.
5. Third Party SNTs - trustee must consider the
interests of the remainder beneficiaries.

39. Choose a Management System and
Team to Carry Out Your Intent
Many SNTs fail because of ill-equipped Trustees.
A system of checks and balances works best in
trust administration.
Divide the duties into three categories:
• Financial
• Personal, including advocacy and care
management
• Accountability

40. Selection of Management
Team Members
Parent, sibling or friends
Attorney
Financial Institution
Nonprofit Organization
Co-Trustees
Social Worker or Care Manager

41. SNT Trustee:
Financial Manager
The Trustee should be a person with expertise
in money management and disability
programs. Institutional trustees may provide
investment acumen. Although a parent often
wants a sibling to act as trustee, there is often
an inherent conflict of interest. Since the
sibling is usually named as a remainder
beneficiary, he/she has an incentive to
accumulate rather than distribute trust assets.

42. Investments
Prudent Investor Rule - requires trustee to
invest and manage trust assets “as a prudent
investor would, by considering the purposes,
terms, distribution requirements and other
circumstances of the trust. N.J.S.A. 3B:2011.3
Generally, a growth and income
investment strategy is appropriate for a SNT.

43. SNT Trustee:
Public Benefits Expert
In addition to the usual challenges involved in
managing a trust (financial acumen, record
keeping, etc.), the trustee of a SNT has a
more difficult job. He/She must know the
rules of the applicable governmental
programs, and must make and keep track of
payments to third party vendors.

44. Trustee Duties: Surety Bond
If there is no corporate trustee, a trust document
may include provision requiring a surety bond for
the individual. Since the trustee has very broad
discretion as to how the trust income and principal
are to be used, a surety bond might be considered
as a way to safeguard trust assets. The bond
should be in an amount equal to the trust assets.
The amount the bond should be reviewed annually.
The premiums can be paid by the trustee from
trust income.

45. Trustee Duties: Accountings
The trust document may also provide for annual
accountings by the trustee. This enables the trust
beneficiary and non-trustee family members to
scrutinize the performance of the trustee. Public
benefit providers always require accountings from
trustees of self-settled SNTs.

46. Trustee Duties: Investments
The trustee has an obligation to invest the trust
assets in a manner designed to achieve the
objectives of the trust. As a general rule, the duties
of a trustee cannot be delegated. However, the
Prudent Investor Act authorizes the delegation of
the investment functions by trustee and relieves the
trustee of liability for investment performance
under certain circumstances.

47. Trustee Duties:
Investments (Cont’d)
An analysis must be made of the degree of risk
which the beneficiary can tolerate, as well as the
cash-flow needs of the beneficiary. Expenses, such
as insurance premiums for a home or a van,
medical expenses not covered by other sources and
necessities not covered by other sources, must be
considered in any analysis of the beneficiary’s
cash-flow needs. The trustee must educate the
beneficiary and his or her family as to what are
appropriate investment vehicles and expectations.

48. Trustee Duties: Recordkeeping
It is crucial that the trustee maintain accurate
records of assets, income and disbursements. SSA
reserves the right to review all disbursements made
to or on behalf of the beneficiary. The trustee’s
records must clearly reflect the payee of each
distribution and the purpose for which it is made.
If a challenge is made by SSA that a distribution
constitutes income to the beneficiary, the trustee
must have accurate records to refute the challenge.

49. Trustee Duties:
Reporting Requirements
SSA requires certain reporting for all SSI
recipients. The trustee must complete these reports
in a timely manner, so that the beneficiary’s
eligibility will continue. Existence of the SNT
must be reported to SSA and a copy provided, if
requested.
Any change in the beneficiary’s
address, employment, living arrangements or
income must be reported, including distributions
which exceed $5,000.

50. Trustee Duties: Appeals
If the beneficiary receives notice of an adverse
action, the decision must be appealed within ten
days in order to maintain benefits during the appeal
period. The trustee should request copies of all
communications from SSA to the beneficiary.

51. Trustee Duties: Budgeting
A trustee should establish a budget for the trust and
the beneficiary at the outset of the relationship, and
annually thereafter. The trustee will estimate the
annual income on a conservative basis. Any large
expenditures, such as for housing or transportation,
should be deducted prior to estimating income.
Taxes and trustee’s fees must then be deducted.
The remaining income should then be broken down
for use by the trustee in an appropriate manner on a
monthly basis.

52. Trustee Duties:
Tax Responsibilities
The trustee is responsible for preparing and filing
all federal and state tax returns for the trust. The
trustee should also prepare and file all federal and
state tax returns for the beneficiary in situations
where the beneficiary is unable to file those tax
returns him/herself.

53. Trustee Protector
• A Trust Protector oversees how the trust is
managed, without day-to-day involvement.
• The Trust Protector reviews accountings and
assessments from the care manager.
• The Trust Protector may hire and fire the trustee
or care manager without cause.
• A Trust Protector can be a professional, family
or friends.

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