10:71-4.11 Trusts
(a) For purposes of this subchapter, effective June 18, 2001, a trust is any legal instrument,
device, or arrangement which is similar to a trust, in which a grantor transfers property to an
individual or entity with fiduciary obligations (considered to be a trustee for purposes of this
section). The grantor transfers the property with the intention that it be held, managed, or
administered by the trustee for the benefit of the grantor or others. For the purposes of this
chapter, a trust shall include, but not be limited to, escrow accounts, annuities, investment
accounts, and other similar devices managed by an individual or entity with fiduciary
obligations.
(b) The standards set forth in this section shall apply to trusts without regard to:
1. The purposes for which the trust is established;
2. Whether the trustee(s) has discretion or exercises such discretion under the trust;
3. Any restrictions on when or whether distribution can be made from the trust; or
4. Any restrictions on the use of distributions from the trust.
(c) Definitions, for the purposes of this section, shall be as follows:
1. A grantor shall be any individual who creates a trust. This section shall apply only to
situations in which the grantor is:
i. The individual;
ii. The individual's spouse;
iii. A person, including a court or administrative body, with legal authority to act in place of,
or on behalf of, the individual or the individual's spouse; or
iv. A person, including a court or administrative body, acting at the direction or upon the
request of the individual or the individual's spouse.
2. A revocable trust is a trust which can, under State law, be revoked by the grantor. A
trust, which provides that the trust can be only modified or terminated by a court, is
considered to be a revocable trust, since the grantor (or his or her representative) can
petition the court to terminate the trust. Also, a trust that declares itself to be irrevocable, but
which terminates upon conditions relating to the grantor during his or her lifetime, shall be,
for the purposes of this section, considered to be revocable. For example, a trust may
require a trustee to terminate a trust and disburse the funds to the grantor if the grantor
leaves a nursing facility. Such a trust shall be considered to be revocable.
3. An irrevocable trust is a trust which cannot, in any way, be revoked by the grantor.
4. A beneficiary is any individual or individuals designated in the trust instrument as
benefiting in some way from the trust. The term "beneficiary" shall not include the trustee or
any other individual whose benefit consists only of reasonable fees or payments for
managing or administering the trust. The beneficiary can be the grantor, another individual,
or individuals, or any combination of any of these parties.
5. For purposes of this chapter, a payment from a trust shall be any disbursal from the
corpus of the trust or from income generated by the trust which benefits the party receiving
it. A payment may include actual cash, as well as noncash or property disbursements, such
as the right to use or occupy real property.
(d) Individuals to whom the trust provisions apply shall include any individual who
establishes a trust and who is an applicant or beneficiary of Medicaid. An individual shall be
considered to have established a trust if any of his or her assets, regardless of the amount,
were used to form part or all of the corpus of the trust and if any of the parties described as
a grantor in (c)1 above established the trust, other than by will.
1. When the corpus of a trust includes assets of another person or persons not described
in (c)1 above, as well as assets of the individual, the rules apply only to the portion of the
trust attributable to the assets of the individual. Thus, in determining countable income and
resources in the trust for eligibility and post-eligibility purposes, the county board of social
services shall prorate any amounts of income and resources, based on the proportion of the
individual's assets in the trust to those of other persons.
2. When the corpus of a trust includes assets of either an institutionalized spouse as
defined in N.J.A.C. 10:71-4.7(b)3 or a community spouse, this section shall apply to the
portion of the trust attributable to either spouse for the purposes of determining eligibility for
the institutionalized spouse.
(e) Treatment of trusts, for purposes of determining Medicaid eligibility, shall be dependent
on the characteristics of the trust. The look-back period for evaluation of resource transfer
shall be 60 months. The following are the rules for consideration of various kinds of trusts:
1. In the case of a revocable trust:
i. The entire corpus of the trust shall be counted as a resource available to the individual;
ii. Any payments from the trust made to or for the benefit of the individual shall be counted
as income (unless otherwise excludable, see N.J.A.C. 10:71-5.3); and
iii. Any payments from the trust which are not made to or for the benefit of the individual
shall be considered assets disposed of for less than fair market value (see N.J.A.C. 10:71-
4.10).
2. In an irrevocable trust from which payment can be made under the terms of the trust to
or for the benefit of the individual from all or a portion of the trust, the following shall apply to
that trust or that portion of the trust:
i. Payments from income or from the corpus made to or for the benefit of the individual
shall be treated as income to the individual unless otherwise excludable (see N.J.A.C.
10:71-5.3);
ii. Income on the corpus of the trust which could be paid to or for the benefit of the
individual shall be counted as a resource available to the individual;
iii. The portion of the corpus that could be paid to or for the benefit of the individual shall
be treated as a resource available to the individual; and
iv. Payments from income or from the corpus that are made, but not to or for the benefit of
the individual, shall be treated as a transfer of assets for less than fair market value (see
N.J.A.C. 10:71-4.10).
3. In the case of an irrevocable trust from which payments from all or a portion of the trust
cannot, under any circumstances, be made to or for the benefit of the individual, all of the
trust, or any such portion or income thereof, shall be treated as a transfer of assets for less
than fair market value (see N.J.A.C. 10:71-4.10).
i. In treating these portions as a transfer of assets, the date of transfer shall be considered
to be the date the trust was established, or, if later, the date on which the right of payment to
the individual was foreclosed.
ii. For transfer of assets purposes, in determining the value of the portion of the trust which
cannot be paid to the individual, amounts that have been paid, for whatever purpose, shall
not be subtracted from the value of the trust on the date the trust was created or, if later, the
date that payment to the individual was foreclosed. The value of the transferred amount
shall be no less than the value on the date the trust is established or on the date that
payment is foreclosed. If additional funds are added to this portion of the trust, those funds
shall be treated as a new transfer of assets or less than fair market value.
4. Payments made from a revocable or irrevocable trust to or on behalf of the individual
shall include payments of any sort, including an amount from the corpus or income
produced by the corpus, paid to another person or entity such that the individual derives some benefit from the payment. For example, such payments may include purchase of
clothing or other items, such as a radio or television, for the individual. Such payments may
also include payment for services the individual may require, or care, whether medical or
personal, that the individual may need. Payments to maintain a home shall also be
considered payments for the benefit of the individual.
i. When a payment to or for the benefit of the individual is made which would not be
considered income in the eligibility process, then the payment shall not be counted as
income to the individual under this section. For example, payments made on behalf of an
individual for medical care are not counted in determining income eligibility for Medicaid,
and are therefore not counted as income under these trust provisions.
5. In determining whether payments can or cannot be made from a trust to or for an
individual, the county board of social services shall take into account any restrictions on
payments, such as use restrictions, exculpatory clauses, or limits on trustee discretion that
may be included in the trust. Any amount in a trust for which payment can be made, no
matter how unlikely the circumstance of payment might be or how distant in the future, shall
be considered a payment that can be made under some circumstances.
i. For example, if an irrevocable trust provides that the trustee can disburse only $1,000 to
or for the individual out of a $20,000 trust, only the $1,000 is treated as a payment that
could be made. The remaining $19,000 is treated as an amount which cannot, under any
circumstances, be paid to or for the benefit of the individual and may be subject to a transfer
penalty. On the other hand, if a trust contains $50,000 that the trustee can pay to the
grantor only in the event that the grantor needs, for example, a heart transplant, this full
amount is considered as payment that could be made under some circumstances, even
though the likelihood of payment is remote. Similarly, if a payment cannot be made until
some point in the distant future, it is still payment that can be made under some
circumstances and the funds are included.
6. Placement of excluded assets in trust, with the exception of a home, shall not result in a
penalty of ineligibility because the transferred asset is not an asset for transfer purposes.
However, a home, whether excluded or not, when transferred into a trust shall be presumed
to have been transferred for the purposes of qualifying for Medicaid.
(f) Transfer to a trust (or similar instrument, including an annuitized trust) for the sole benefit
of a community spouse shall be treated in accordance with the provisions of (e) above. If the
trust is established by either member of the couple (using at least some of the couple's
assets), the trust shall be reviewed by the county board of social services for availability of
resources, in accordance with (e) above. If the payment from such a trust shall be
considered an available resource to either spouse, the trust shall be included as a countable
resource in determining Medicaid eligibility for the institutionalized spouse pursuant to
N.J.A.C. 10:71-4.8.
(g) The trust provisions shall not apply to the following trusts so long as the trust document
meets all the requirements set forth in this chapter:
1. A special needs trust, that is, a trust containing the assets of a disabled individual and
which is established prior to the time the disabled individual reaches the age of 65 and
which is established for the sole benefit of the disabled individual by a parent, grandparent, legal guardian of the disabled individual, or a court, may be excluded from the rules
regarding the treatment of a trust. To qualify for the exclusion, the trust shall contain the
following provisions:
i. The trust shall be identified as an OBRA '93 trust established pursuant to 42 U.S.C. §
1396p(d)(4)(A).
(1) The trust shall not contain any provisions intended to give anyone or a Court the
power to alter the form of the trust from an individual trust to a "pooled trust" under 42
U.S.C. § 1396p(d)(4)(C). Similarly, there shall be no provisions permitting the trust to be
altered for any other reasons.
ii. The trust shall specifically state that the trust is for the sole benefit of the trust
beneficiary.
(1) Only trusts which are intended for the sole benefit of the disabled individual are
special needs trusts. Any trust which provides benefits to other persons shall not be
considered an individual special needs trust. If expenditures are made from the trust which
shall also incidentally provide an ongoing and continuing benefit to other persons, those
other persons who also benefit shall contribute a pro-rata share to the trust for the
subsequent expenses associated with their use of the acquisition,
(A) For example, if the trust acquires housing for the benefit of the trust beneficiary, and
other family members also live in that house, the trust document shall provide that the
trustee shall require and collect a pro rata contribution for the expenses of uses incurred,
and shall return such contribution to the trust. Such collections shall be reflected in the
annual required trust accounting. Any property acquired by the trust shall be titled solely in
the trust's name. In addition, unless the trust is given equity in any improvements to real
property, the trust shall not pay for upkeep, property taxes or other expenses associated
with the property or any additions to the existing property.
iii. The trust shall specifically state that its purpose is to permit the use of trust assets to
supplement, and not to supplant, impair or diminish, any benefits or assistance of any
Federal, State or other governmental entity for which the beneficiary may otherwise be
eligible or which the beneficiary may be receiving.
(1) If the trust provides for food, clothing or shelter, such expenditures shall be considered
income under Social Security and Medicaid eligibility rules.
(2) It may be permissible for the trust to acquire property which is used to provide shelter
for the trust beneficiary, but the trustee shall take care to ensure that such acquisitions do
not create unintended problems (such as disqualifying someone for Federal benefits).
Additionally, parents shall not be relieved of their duty to support their minor child, if they are
capable of doing so. A minor's funds in a trust shall not be expended on routine support,
unless the parents' income is insufficient for these expenses. N.J.S.A. 3B:12-43.
iv. The trust shall specifically state the age of the trust beneficiary, that the trust
beneficiary is disabled within the definition of 42 U.S.C. § 1382c(a)(3), and whether the
trust beneficiary is competent at the time the trust is established.
(1) If the trust beneficiary is a minor, the trustee shall execute a bond to protect the child's
funds or shall get a court's permission not to do so.
(2) If there is some question about the trust beneficiary's disability, independent proof
may be required.
(3) If the trust beneficiary is a minor, the trust shall state whether the trust beneficiary is expected to be competent at his or her majority.
v. The trust shall specifically identify, in an attached schedule, the source of the initial trust
property and all assets of the trust. If the trust is being established with funds from the
proceeds of a settlement or judgement subsequent to the bringing of a legal cause of action,
Medicaid's claim for its expenditures that are related to the cause of action shall be repaid
immediately upon the receipt of such proceeds and prior to the establishment of the trust.
(1) Subsequent additions made to the trust corpus shall be reported to the appropriate
eligibility determination agency. Subsequent additions to the trust (other than interest on the
corpus) shall cease when the trust beneficiary reaches age 65, or shall be subject to
transfer provisions.
(2) If subsequent additions are to be made to the trust corpus with funds not belonging to
the trust beneficiary, it shall be understood that those funds are a gift to the trust beneficiary
and cannot be reclaimed by the donor.
vi. If the trust makes provisions which are intended to limit invasion by creditors or to
insulate the trust from liens or encumbrances, the trust shall state that such provisions are
not intended to limit the State's right to reimbursement or to recoup incorrectly paid benefits.
vii. The special needs trust shall state that it is established by a parent, grandparent, or
legal guardian of the trust beneficiary, or by a court.
(1) The trust shall identify the grantor/settlor by name and as the parent, grandparent,
legal guardian, or court. A court can be named as the grantor, if the trust is established
pursuant to a settlement of a case before it, or if the court is otherwise involved in the
creation of the trust.
viii. The trust shall specifically state that it is irrevocable. Neither the grantor, the
trustee(s), nor the beneficiary shall have any right or power, whether alone or in conjunction
with others, in whatever capacity, to alter, amend, revoke, or terminate the trust or any of its
terms or to designate the persons who shall possess or enjoy the trust estate during his/her
lifetime.
(1) Notwithstanding the irrevocability provision above, the trust can state that "the trust
shall be irrevocable except that the trust may be amended as necessary to conform with the
requirements of 42 U.S.C. 1396p and/or state law."
ix. The trustee shall be specifically identified by name and address. The trust shall state
that the original trust beneficiary cannot be the trustee. The trust shall make provisions for
naming a successor trustee in the event that any trustee is unable or unwilling to serve. The
Bureau of Administrative Control, Division of Medical Assistance and Health Services, as
well as the trust beneficiary and/or guardian, shall be given prior notice if there is a change
in the trustee.
x. The trust shall specifically state that the trustee shall fully comply with all State laws,
including the Prudent Investor Act, N.J.S.A. 3B:20- 11.1 et seq. The trust shall provide that
the trustee cannot take any actions not authorized by, or without regard to, State laws. If the
trust gives the trustee authorization or power not provided for in the Prudent Investor Act, an
accompanying letter shall provide an explanation for each such authorization or power.
xi. The trust shall specifically state that the trustee shall be compensated only as provided
by law (N.J.S.A. 3B:18-1 et seq.) If the trust identifies a guardian, the trust shall specifically
identify him or her by name. A guardian shall be compensated only as provided by law. The
parent of a minor child shall not be compensated from the trust as the child's guardian. (1) If an adult beneficiary is not competent, the trust shall specifically state that the
"guardianship protections for the incompetent's funds which are required by New Jersey law
and Court rules are incorporated by reference into this trust." The trustee shall either file a
bond or shall get the Court's permission not to do so.
xii. The trust shall specifically state that, upon the death of the primary beneficiary, the
State will be notified, and shall be paid all amounts remaining in the trust up to the total
value of all medical assistance paid on behalf of the beneficiary. The trust shall comply fully
with this obligation under the statute to first repay the State, without requiring the State to
take any action except to establish the amount to be repaid. Repayment shall be made to
the Treasurer, State of New Jersey, and shall be sent to the Division of Medical Assistance
and Health Services, to the attention of the Bureau of Administrative Control, PO Box 712,
Trenton, New Jersey 08625-0712, or to any successor agency.
xiii. If there is a provision for repayment of other assistance programs, the trust shall
specifically state that the Medicaid Program shall be repaid prior to making repayment to
any other assistance programs.
xiv. The trust shall specifically state that if the beneficiary has received Medicaid benefits
in more than one state, each state that provided Medicaid benefits shall be repaid. If there is
an insufficient amount left to cover all benefits paid, then each state shall be paid its
proportionate share of the amount left in the trust, based upon the amount of support
provided to the beneficiary.
xv. No provisions in the trust shall permit the estate's representative to first repay other
persons or creditors at the death of the beneficiary. Only what remains in the trust after the
repayments specified in (g)1xii, xiii and xiv above have been made shall be considered
available for other expenses or beneficiaries of the estate. The trust may provide for a
prepaid burial plan, but shall not state that it will pay for reasonable burial expenses after
the death of the trust beneficiary.
xvi. The trust shall specify that a formal or informal accounting of all expenditures made by
the trust shall be submitted to the appropriate eligibility determination agency on an annual
basis.
xvii. The State shall be given 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, Bureau of Administrative
Control, PO Box 712, Mail Code 6, Trenton, New Jersey 08625-0712, or any successor
agency, 45 days prior to the expenditures.
xviii. New Jersey rules and laws do not permit a trust to create a will for an incompetent or
a minor. The money creating the trust, any additions and/or interest accumulated, cannot be
left to other parties, but shall pass by intestacy. The trust shall not create other trusts within
it.
2. A pooled trust is a special needs trust, containing the assets of a disabled individual,
which meets the following conditions:
i. The trust shall be established and managed by a non-profit association;
ii. A separate account shall be maintained for each beneficiary of the trust, but for
purposes of investment and management of the funds, the trust may pool the funds from
those accounts;
iii. Accounts in the trust shall be established solely for the benefit of the disabled individual by the individual, by a parent, grandparent, or legal guardian of the individual, or by a court;
iv. To the extent that amounts remaining in the beneficiary's account upon the death of the
beneficiary are not retained by the trust, the trust shall pay to the State of New Jersey the
amount remaining in the account, up to an amount equal to the total amount of medical
assistance paid under Title XIX of the Social Security Act on behalf of the individual. To
meet this requirement, the trust shall include a provision specifically providing for such
payment; and
v. Funds of an individual 65 or older which are transferred to a pooled trust shall be
subject to the transfer penalty provisions contained in N.J.A.C. 10:71-4.7.
(h) Title XIX of the Social Security Act (42 U.S.C. § 1917(d)(4)(B)) provides for an
exemption from the trust provisions for qualified income trusts (also known as Miller trusts).
Special provisions for this form of trust apply, under the law, only in those states which do
not provide medically needy coverage for nursing facility services. Because New Jersey
does cover services in nursing facilities under the medically needy component of the
Medicaid program, the establishment of a qualified income trust shall be presumed to be an
asset transfer for the purposes of qualifying for Medicaid. This presumption shall apply
whether the individual is seeking nursing facility services or home and community based
services under one of the waiver programs.
(i) Upon the denial of eligibility or the termination of long-term care level services due to the
application of these trust provisions, the county board of social services shall notify the
applicant/beneficiary of his or her right to request an undue hardship exception. An
applicant/beneficiary may apply for an exception to these trust provisions if he or she can
show that the transfer will cause an undue hardship to him or herself. The
applicant/beneficiary shall provide sufficient documentation to support the request for an
undue hardship waiver to the county board of social services within 20 days of notification of
the denial of eligibility or termination of benefits due to these trust provisions.
1. For the purposes of this chapter, undue hardship shall be considered to exist when:
i. The application of the trust provisions would deprive the applicant/beneficiary of medical
care such that his or her health or his or her life would be endangered. Undue hardship may
also exist when application of the trust provisions would deprive the individual of food,
clothing, shelter, or other necessities of life; and
ii. The applicant/beneficiary can irrefutably demonstrate the assets placed in trust are
beyond his or her control and that the asset cannot be recovered. The applicant/beneficiary
shall demonstrate that he or she made good faith efforts, including exhaustion of remedies
available at law or in equity, to recover the assets placed in trust.
2. In the event that a waiver of undue hardship is denied, neither the Department of
Human Services, the Department of Health and Senior Services, nor the county boards of
social services shall have any obligation to take any action to assure that payment of
services is provided during the penalty period.
3. If the request for undue hardship consideration is denied by the county board of social
services, the county board of social services shall notify the applicant of the denial and that
the applicant may request a fair hearing in accordance with the provisions of N.J.A.C. 10:49-
10.