Can a Special Needs Trust Be Modified or Decanted in New Jersey?

Creating a Special Needs Trust (SNT) is an important way to protect your loved one’s future while preserving their eligibility for benefits like Medicaid and Supplemental Security Income (SSI). These trusts are built to provide long-term support, but life doesn’t always go according to plan. As circumstances change—such as a shift in your child’s health, a change in your family situation, or a relocation to another state—you might ask if your trust can be updated to reflect your family’s current needs. In New Jersey, the answer is often yes. With the right legal approach, it’s possible to modify or even “decant” a Special Needs Trust to better serve your loved one.

If you’re feeling unsure about whether your current trust still meets your goals, you don’t have to figure it out on your own. The Matus Law Group is here to help. With years of experience in New Jersey special needs planning, our team of New Jersey special needs trust attorneys can guide you through your options and help you make informed decisions that protect your family’s future. Call us today at (732) 281-0060. We are ready to support you and your loved one every step of the way.

Built to Last: Understanding Why New Jersey Special Needs Trusts Are “Irrevocable”

To grasp how a Special Needs Trust can be changed, one must first understand why it is designed to be permanent. The “irrevocable” nature of an SNT is not a flaw or an oversight; it is a mandatory legal feature that serves as the foundation of its protective power.

The Core Purpose of an SNT

A Special Needs Trust (SNT) is a legal structure that protects and manages resources for an individual with disabilities. The trust holds assets, often from a settlement, inheritance, or family contribution, and appoints a trustee to manage and disburse funds on behalf of the beneficiary. These distributions are intended to pay for supplemental goods and services, which are not covered by government benefit programs such as Supplemental Security Income (SSI) and Medicaid.

This may include out-of-pocket medical care, rehabilitation therapies, adaptive technologies, educational expenses, transportation, and recreational opportunities that enhance the beneficiary’s quality of life and dignity. In holding and managing the assets through the trust, those funds are not treated as the beneficiary’s personal property. As a result, they are excluded from the strict income and asset limits that public assistance programs impose.

The “Irrevocable” Mandate

For a Special Needs Trust (SNT) to work the way it’s intended, both federal law and New Jersey regulations generally require that it be irrevocable. In simple terms, “irrevocable” means that once the trust is properly established, the person who created it (the settlor or grantor) cannot simply change their mind, cancel the trust, or take the assets back.

This requirement ties directly to the type of SNT involved:

• First-party SNT (self-settled): This trust is funded with the beneficiary’s own assets (for example, a personal injury settlement, inheritance paid directly to them, or their savings). For these trusts, federal and New Jersey law are very strict: the trust must be irrevocable. If the beneficiary or settlor could revoke the trust or reclaim the assets, those assets would be treated as still available to the beneficiary and would count as their “resources” for SSI and Medicaid. That would almost certainly disqualify them from those benefits.
• Third-party SNT:  This trust is funded with someone else’s assets—a parent’s, grandparent’s, or other loved one’s money that is being set aside for the beneficiary. Third-party SNTs are also typically drafted as irrevocable to keep the funds clearly separate from the beneficiary’s own resources and to avoid any suggestion that the beneficiary can reach those assets.

While they are usually irrevocable, some well-drafted third-party SNTs may include limited amendment powers—for example, allowing a trust protector or the settlor to modify certain administrative provisions (such as updating trustee powers or responding to changes in tax or public benefits law). These limited powers do not turn the trust into a revocable one, and they do not give the beneficiary (or the settlor) unfettered access to the trust assets. As long as the trust cannot simply be undone and the assets cannot be reclaimed at will, the trust can still be treated as a separate, protected resource for benefits purposes.

This is why “irrevocable” is so essential in the SNT context. An irrevocable SNT is treated as its own legal entity, distinct from the beneficiary’s personal assets. That separation is what allows the trust to enhance the beneficiary’s quality of life while preserving eligibility for crucial programs like SSI and Medicaid.

The “Sole Benefit” Rule

A foundational requirement of all Special Needs Trusts (SNTs) is that the trust must be administered for the sole benefit of the individual with disabilities. This rule, strictly enforced by the New Jersey Division of Medical Assistance and Health Services (DMAHS), ensures that trust assets are used to enhance the beneficiary’s quality of life while preserving eligibility for means-tested government benefits such as Medicaid or SSI.

Under this rule, trust funds cannot be used to benefit others, except when there is only an incidental or secondary benefit. For example:

• Paying for shared housing expenses may raise eligibility concerns.
• Buying a vehicle must be justified as primarily serving the beneficiary.
• Gifts or services for others are generally not allowed.

These guidelines shape how trustees make decisions and highlight the importance of detailed recordkeeping and legal guidance in trust administration.

Since the SNT must always operate within the boundaries of the sole benefit rule, any proposed change to the trust will be closely scrutinized. Modifications must continue to support the trust’s primary purpose: to protect and support the beneficiary without transferring value to anyone else.

Although the trust is irrevocable, the law provides limited flexibility to adapt to changing circumstances. However, any changes must maintain the beneficiary’s exclusive interest at the center of the trust’s function.

New Jersey Special Needs Trust Attorneys

When Your Best-Laid Plans Need a Second Look

Creating a Special Needs Trust (SNT) is an act of love, foresight, and responsibility. It is designed to protect a vulnerable individual’s financial future and preserve access to essential public benefits. However, even the most well-drafted trust can become outdated as life circumstances, legal environments, and family dynamics evolve.

Recognizing when a trust no longer fits its purpose is not a sign of failed planning. Instead, it is a prudent and necessary step to ensure continued protection and support for the beneficiary. New Jersey law, particularly through its adoption of the Uniform Trust Code, provides legal options for updating, modifying, or even terminating an SNT when appropriate.

Changing Needs of the Beneficiary

Over time, the beneficiary’s health, personal goals, or living situation may change significantly. A person whose medical condition improves might pursue new levels of independence, education, or employment. On the other hand, a decline in health could require more intensive support or specialized care. Changes in living arrangements, daily expenses, or accessibility needs can also make the original distribution strategy less effective.

These developments often prompt families and trustees to reassess if the trust still meets the beneficiary’s evolving needs.

Shifting Legal and Regulatory Requirements

The legal landscape is never static. Updates to federal or state tax laws may introduce new obligations or eliminate previously helpful strategies. Similarly, changes to public benefit rules, such as those governing SSI or Medicaid, might necessitate updates to the trust language to avoid unintended disqualification from benefits.

Keeping the trust aligned with current laws helps preserve its effectiveness and the beneficiary’s eligibility.

Family and Trustee Transitions

The people involved with the trust may also change over time. A trustee may pass away, resign, become incapacitated, or prove to be an unsuitable fit for the role. Family dynamics can shift as well, through events such as divorce, the birth of another child, or the death of a parent. These kinds of changes may require a fresh look at the trust’s terms and structure.

Regularly reviewing trustee appointments and roles ensures the trust remains in capable and appropriate hands.

Relocation Out of New Jersey

If the beneficiary moves to another state or country, the trust may need to be modified. This is especially true because government benefits like Medicaid are state-administered, and the rules vary significantly from state to state. A trust created to comply with New Jersey’s requirements might not meet the standards of the new jurisdiction.

Burdensome Administration and Diminishing Value

In some cases, the trust itself becomes impractical to maintain. If the asset value drops too low, the cost of administration, including trustee fees, tax filings, and professional services, may no longer be justified. Additionally, the language of the trust might be so rigid or cumbersome that it interferes with effective management.

When the trust becomes a burden rather than a benefit, it may be time to consider modifying or even dissolving it, depending on the circumstances.

Heading from Your Article	Key Legal or Practical Details in New Jersey	Why This Matters
Changing Needs of the Beneficiary	A Special Needs Trust should serve the sole benefit of the beneficiary and remain flexible to meet evolving needs.	As the beneficiary’s condition, goals, or living situation change, the trust should be reviewed to stay effective.
Shifting Legal and Regulatory Requirements	The New Jersey Uniform Trust Code allows modifications and terminations of trusts under certain circumstances.	Changes in laws or benefit rules may require updates to maintain eligibility and compliance.
Family and Trustee Transitions	Trustees must maintain proper records and continue required administration even when personnel changes occur.	When a trustee changes or becomes unable to serve, the trust must still meet its administrative obligations.
Relocation Out of New Jersey	Medicaid and other benefit programs vary by state, and a New Jersey trust may not meet another state’s requirements.	Moving to a new state often requires trust review or modification to ensure continued benefit eligibility.
Burdensome Administration and Diminishing Value	Maintaining a trust with low assets can become impractical due to costs and oversight requirements.	If administration costs outweigh the benefits, modifying or ending the trust may be appropriate.

How to Modify Your Irrevocable Trust Under the NJ Uniform Trust Code

On July 17, 2016, New Jersey enacted the Uniform Trust Code (NJ UTC), a landmark change that improved the flexibility and transparency of trust administration. Before this law, modifying an irrevocable trust typically required an expensive and time-consuming court process. The NJ UTC streamlined many of these procedures through codifying existing legal principles and introducing new statutory tools that make it easier for trustees and beneficiaries to adapt trusts to changing circumstances.

For families managing a Special Needs Trust (SNT), the NJ UTC outlines three primary ways to seek modifications when the trust no longer meets the beneficiary’s needs.

Method 1: Modification by Consent (N.J.S.A. § 3B:31-27)

If all beneficiaries and the trustee agree, they may modify or terminate a noncharitable irrevocable trust, including most SNTs, without going to court. This agreement must not conflict with a material purpose of the trust. In the case of an SNT, a key purpose is to preserve the beneficiary’s eligibility for public benefits such as Medicaid or SSI. Any change that could threaten that purpose would be disallowed under this method.

The statute notes that a spendthrift clause, a provision protecting trust assets from creditors, is not presumed to be a material purpose. This clarification makes it easier for parties to agree to changes without undermining the trust’s core function.

If one beneficiary does not consent, the parties may petition the court. A judge can still approve the modification if it determines that the change would be valid with unanimous consent and that the objecting beneficiary’s financial interests are adequately protected.

Method 2: Court-Ordered Modification (N.J.S.A. § 3B:31-28)

When full agreement is not possible or circumstances have changed in ways the trust creator could not have predicted, the court may authorize modifications. The court will do so if the proposed change would better fulfill the trust’s purpose.

A clear example is the 2024 case In re Trust of Davi H. Kato, involving an SNT created to maintain Medicaid eligibility for a New Jersey child. After the family relocated to Brazil, New Jersey Medicaid was no longer relevant. The court found that the original intent of the trust no longer applied and approved its termination so the funds could be used in a way that better suited the child’s current situation.

This statute also allows courts to revise administrative provisions when the original terms become impractical or inefficient.

Method 3: Non-Judicial Settlement Agreements (N.J.S.A. § 3B:31-11)

For more limited and non-substantive issues, the NJ UTC allows the use of a Non-Judicial Settlement Agreement (NJSA). 

NJSAs are commonly used to interpret unclear trust language, approve trustee changes, or adjust administrative procedures such as accounting requirements. However, they cannot be used to make changes that alter what the trust can do. Changes to what beneficiaries can receive must still go through either the consent or court approval process.

The Power of Trust Decanting in New Jersey

Trust “decanting” allows a trustee to move assets from an existing irrevocable trust into a newly drafted trust with improved terms. It modernizes the structure without dismantling the original instrument. Many states use detailed decanting statutes, but New Jersey relies on common-law principles. This approach is flexible, but it requires close attention to the trust language and relevant case law.

Under New Jersey common law, decanting is permitted only when the trustee has very broad distribution discretion, often described as “absolute,” “sole,” or “uncontrolled.” If the trustee can distribute assets outright to the beneficiary, courts may view that authority as broad enough to distribute the same assets into a better-structured trust for that beneficiary. When discretion is limited by a HEMS standard (health, education, maintenance, and support), decanting is usually not available. Trustees should review the trust instrument carefully to confirm the scope of their discretion before pursuing decanting.

Decanting is also distinct from UTC “modification by consent.” UTC modification relies on agreement among the beneficiaries and the trustee and cannot defeat a material purpose of the trust. Decanting, by contrast, is a trustee-driven fiduciary act. It must be justified solely under the trustee’s existing distribution powers, not through beneficiary consent.

When available, decanting can correct drafting errors, add Special Needs Trust provisions, update administrative terms, or strengthen asset protection. If the beneficiary receives Medicaid or SSI, trustees must coordinate any proposed changes with the relevant benefits rules. In some cases, notice to DMAHS or other benefit authorities is required to preserve eligibility. Used appropriately, decanting allows a trust to evolve while still honoring the settlor’s original intent.

Planning with Confidence: Speak with The Matus Law Group

Modifying or decanting a Special Needs Trust in New Jersey may feel overwhelming, but you don’t have to face the process alone. With the right legal guidance, you can adapt your trust to meet new challenges while still protecting the benefits and support your loved one depends on. Whether your circumstances have changed or your original trust no longer fits your family’s needs, there are flexible legal tools available to help you move forward with confidence.

At The Matus Law Group, we help families like yours tackle special needs planning with clarity and care. If you’re considering a change to an existing trust or simply want to better understand your options, we’re here to help. Contact us at (732) 281-0060 to schedule a consultation with a dedicated New Jersey special needs trust attorney who puts your family’s future first.