Families raising a child with special needs in New Jersey need an estate plan that can provide long-term support without putting means-tested benefits at risk. The key programs are usually Medicaid and Supplemental Security Income (SSI). For adults, New Jersey Division of Developmental Disabilities (DDD) services are also important, and eligibility for many adult DDD services is tied to Medicaid. The core tools include a properly drafted special needs trust, coordinated beneficiary designations, powers of attorney when appropriate, and a letter of intent.
At The Matus Law Group, attorney Christine Matus helps Monmouth County families create estate plans for children and adults with special needs. Our New Jersey estate planning lawyers understand how New Jersey trust law, federal benefits rules, and practical long-term care concerns work together. We help families put the right legal and financial protections in place so their loved one can remain supported without unintentionally losing access to essential public benefits.
This guide explains how special needs trusts, beneficiary designations, powers of attorney, guardianship, and letters of intent can work together to protect your child’s benefits and future. Call us at (732) 785-4453 to schedule a consultation.
Why Does Estate Planning Matter for Special Needs Families?
Many people with developmental disabilities rely on SSI and Medicaid, both of which have strict financial eligibility rules. For SSI, an individual generally cannot have more than $2,000 in countable resources. In New Jersey, access to many adult Division of Developmental Disabilities (DDD) services is also connected to Medicaid eligibility. As a result, leaving assets directly to a child with special needs can unintentionally disrupt essential benefits and services.
Standard wills and beneficiary designations often create this problem by transferring money outright to the child. A more effective approach is to direct those assets into a properly structured special needs trust.
What Is a Special Needs Trust in New Jersey?
A special needs trust is designed to supplement public benefits, not replace them. Whether a trust protects SSI or Medicaid eligibility depends on how the trust is written, whose money funded it, and how distributions are made.
New Jersey trust law provides the general trust framework, while SSI and Medicaid eligibility rules for special needs trusts are driven mainly by federal law and Medicaid guidance. A properly drafted trust can help preserve benefits while paying for supplemental needs.
Third-Party SNT vs. First-Party SNT
A third-party special needs trust is funded with assets belonging to someone other than the beneficiary, typically parents, grandparents, or other relatives. When the beneficiary passes away, the remaining funds can be distributed to other family members. There is no requirement to repay Medicaid from a third-party SNT.
A first-party special needs trust is funded with the beneficiary’s own assets, such as proceeds from a personal injury settlement or a direct inheritance. Federal law requires a Medicaid payback provision: when the beneficiary dies, remaining funds must first reimburse Medicaid for benefits paid during the beneficiary’s lifetime. First-party SNTs also require that the beneficiary be under age 65 when the trust is funded.
| Feature | Third-Party SNT | First-Party SNT |
|---|---|---|
| Funded By | Parents, relatives, or others | Beneficiary’s own assets |
| Medicaid Payback Required | No | Yes |
| Remainder Beneficiaries | Family members or others | Medicaid reimbursed first |
| Common Use | Estate and gift planning | Personal injury settlements, direct inheritances |
| Age Restriction | None | Beneficiary must be under 65 |
Who Should Serve as Trustee?
The trustee controls how and when trust funds are distributed, which can directly affect SSI and Medicaid. Direct cash paid to the beneficiary is counted as income for SSI purposes. Payments to third parties are often safer, but they are not automatically safe in every case. Shelter payments can still affect SSI. By contrast, many payments for therapy, education, transportation, professional fees, and other non-cash items are treated more favorably when they are made correctly.
Families may choose a trusted family member, a professional trustee, or co-trustees combining both. A sibling can serve as trustee, but families should consider whether that sibling has the time, financial literacy, and willingness to take on the responsibility. A professional trustee provides experience and oversight but may charge annual fees. Overly restrictive trust language can also create problems: if the document limits the trustee’s discretion too narrowly, the trustee may be unable to pay for expenses that would genuinely improve the beneficiary’s life.
Key Takeaway: The type of special needs trust your family needs depends on the source of the funds. A third-party SNT, funded by parents or relatives, avoids Medicaid payback and is the most common choice in estate planning. Trustee selection and trust language are equally important, as they determine how effectively the trust serves the beneficiary.
How Do You Fund a Special Needs Trust in New Jersey?
One effective funding method is life insurance. When both parents are involved, a second-to-die life insurance policy can provide funds after the second parent’s death for long-term planning. Parents or relatives can also leave assets to the SNT through a will or revocable trust so the assets do not pass directly to the child. Retirement accounts such as IRAs and 401(k)s can also name a special needs trust as beneficiary, but this area is technical and must be coordinated carefully to avoid accelerated distribution rules and unintended tax consequences.
Under current IRS rules, most non-spouse beneficiaries must fully distribute inherited retirement accounts within 10 years. However, certain disabled or chronically ill beneficiaries, including those using qualifying special needs trusts, may qualify for distributions based on life expectancy instead.
Gifts from family members are another option. Donors should avoid giving money directly to the beneficiary, because direct gifts can create SSI or Medicaid problems. For 2026, the federal annual gift tax exclusion is $19,000 per recipient, and this amount is adjusted annually under IRS rules.
How Should Beneficiary Designations Be Coordinated?
One of the most common mistakes families make is failing to update beneficiary designations on life insurance policies, IRAs, 401(k)s, and other financial accounts. These designations override whatever your will says. If a life insurance policy names your child with special needs as the direct beneficiary, the proceeds will go to the child outright, regardless of what your trust documents provide.
The solution is to name the special needs trust, not the child, as the beneficiary on all relevant accounts. Families should also review real estate titles and jointly held assets, as these can pass outside of probate and bypass the trust entirely.
Contact Christine Matus at The Matus Law Group to review your beneficiary designations and funding strategy. Call (732) 785-4453 to schedule a consultation with our special needs planning team.
Can a Special Needs Trust Work Alongside an ABLE Account?
An ABLE (Achieving a Better Life Experience) account is a tax-advantaged savings account for an eligible individual with a disability that began before age 46. ABLE accounts can be very useful, but they have important limits.
ABLE accounts are often best used alongside a special needs trust, not instead of one. For 2025, the base annual contribution limit is $19,000. This amount is tied to the federal gift tax exclusion under IRS rules, which is adjusted annually for inflation. SSI ignores the first $100,000 in the ABLE account, but SSI cash benefits can be suspended if the amount above $100,000 causes the beneficiary to exceed the SSI resource limit. Medicaid can continue even in that situation if the person is otherwise eligible. Also, when the beneficiary dies, a state may seek Medicaid reimbursement from what remains in the ABLE account after outstanding qualified disability expenses, funeral, and burial expenses are paid.
Some families use both: a special needs trust for large assets and an ABLE account for day-to-day spending managed directly by the beneficiary or family. This combined approach can maximize both benefit protection and spending flexibility.
Special Needs Planning Attorney in NJ: Matus Law Group
Christine Matus, Esq.
Christine Matus founded The Matus Law Group with a focus on estate planning, special needs planning, and elder law, helping New Jersey families prepare for the future with confidence and care. She was admitted to the Bar of the State of New Jersey and the U.S. District Court of New Jersey in 1995. Christine earned her J.D. from Touro College Jacob D. Fuchsberg Law Center and her B.A. in Economics from Douglass College, Rutgers University. She has also lectured on topics including special needs planning, real estate, Medicaid planning, elder care, and nonprofit law, and has co-authored elder law articles published by the New York State Bar.
Her commitment to families extends beyond her legal practice. Christine serves on the Attorney Arbitration Committee and has served on the Board of Directors for 21 Plus, reflecting her long-standing dedication to supporting individuals with special needs and their loved ones. She is also a member of the New Jersey State Bar Association, the Asian Pacific American Lawyers Association, and the American Bar Association, and has served in leadership with the Ocean County Bar Association.
What Power of Attorney Documents Does Your Plan Need?
Under New Jersey law, when a child turns 18, parents no longer have automatic legal authority to make financial or medical decisions on that child’s behalf, even if the child has a disability. If your child has capacity, they should sign a power of attorney upon turning 18. Without one, the family may need to pursue guardianship through the courts, which is more time-consuming and expensive.
A financial power of attorney appoints someone to pay bills, manage bank accounts, and handle financial matters. An advance healthcare directive designates someone to make medical decisions if your child cannot. Both documents should be prepared together so that financial and medical decision-making authority is fully addressed.
Key Takeaway: When a child with special needs turns 18 in New Jersey, parents lose automatic decision-making authority. A financial power of attorney and a healthcare directive should be prepared before or shortly after the child’s 18th birthday to avoid the need for court-ordered guardianship.
When Is Guardianship Needed in New Jersey?
Guardianship gives someone the authority to make all important decisions on behalf of your child, which is broader than what a power of attorney covers. In New Jersey, guardianship of an adult with disabilities requires a court proceeding. The family must file an application with the Superior Court, and a judge must determine that the individual lacks the capacity to make decisions for themselves. The court may appoint a guardian of the person (personal and medical decisions), a guardian of the estate (financial management), or both.
Guardianship is appropriate when the child lacks the cognitive capacity to sign a power of attorney, or when the scope of decision-making needed exceeds what a POA covers. Guardians may be required to file annual reports with the court. Families should also consider how guardianship coordinates with the special needs trust: in some cases, the guardian and trustee are different people, providing a check and balance on care and finances.
What Is a Letter of Intent and Why Does It Matter?
A Letter of Intent, also known as a Letter of Instruction, is a crucial companion to a special needs trust. While the trust handles legal and financial matters, the Letter of Intent focuses on the personal side of your child’s life. It does not carry legal weight under New Jersey law, but it serves as a detailed guide for the trustee and future caregivers.
A thorough Letter of Intent should cover the following areas of your child’s life and care needs:
- Daily routines and schedules
- Medical conditions, medications, and treating physicians
- Dietary needs and food preferences
- Therapies and therapeutic providers
- Communication style and preferences
- Behavioral triggers and calming strategies
- Social preferences and relationships
- Educational history and current programs
- Religious or cultural practices
- Housing preferences and living arrangements
This document helps the trustee and caregivers understand not just what care your child needs, but how to provide it in a way that respects their individuality and promotes their well-being. Updating the Letter of Intent regularly as your child’s needs change helps keep the guidance accurate and useful.
Key Takeaway: A Letter of Intent has no legal force, but it is one of the most valuable documents in a special needs estate plan. It gives the trustee and future caregivers detailed guidance on your child’s daily needs, preferences, and personality, helping them maintain consistency and quality of life.
Legal Assistance for Special Needs Estate Planning in New Jersey
Planning for a child with special needs involves more than drafting basic estate documents. Families need to consider how special needs trusts, powers of attorney, guardianship proceedings, and beneficiary designations work together to protect long-term care, financial security, and continued eligibility for public benefits.
Christine Matus and our estate planning attorneys at The Matus Law Group help New Jersey families create estate plans for children with special needs. Our firm works with parents and caregivers on the legal and practical issues involved in planning for a child who may need ongoing support, decision-making authority, and long-term benefit protection.
Call The Matus Law Group at (732) 785-4453 to schedule a consultation. Our office is located at 125 Half Mile Rd #201A, Red Bank, NJ 07701, and we serve families throughout Monmouth County and across New Jersey.
Frequently Asked Questions
Will leaving money to my child disqualify them from SSI or Medicaid in NJ?
It can. If your child receives money directly through an inheritance, gift, or beneficiary designation, it may count as a resource for SSI purposes. Because SSI has a strict resource limit, a direct transfer can jeopardize benefits and may also affect Medicaid eligibility. A properly drafted special needs trust is usually the safer way to hold those assets.
How much can be held in a Special Needs Trust in New Jersey?
New Jersey families usually focus less on a fixed dollar cap and more on whether the trust is drafted and administered correctly. A third-party special needs trust can be used for larger inheritances or life insurance proceeds, but families should avoid assuming the money automatically will not count for SSI or Medicaid. Eligibility depends on the trust terms, the source of the funds, and how the trustee makes distributions.
What is the difference between a special needs trust and an ABLE account?
They serve different roles. An ABLE account has its own contribution limits and SSI/Medicaid rules, while a special needs trust is often used for larger assets and longer-term planning. Both can help protect benefits when used properly, and many families use them together rather than choosing one over the other.
Can a sibling be the trustee of a special needs trust?
Yes. The sibling must understand SSI and Medicaid rules and exercise discretion appropriately. Some families appoint a sibling alongside a professional co-trustee to balance personal knowledge of the beneficiary with financial and legal guidance. This arrangement can provide both personal insight and professional accountability.
What happens to a special needs trust when my child passes away?
For a third-party SNT, remaining funds pass to the remainder beneficiaries named in the trust, typically other family members, with no obligation to reimburse Medicaid. For a first-party SNT, remaining funds must first repay Medicaid for benefits provided during the beneficiary’s lifetime before any remainder is distributed. Proper trust drafting supports the intended outcome for each type.
Does my child need to sign a power of attorney when they turn 18 in NJ?
If your child has the legal capacity to sign one, a power of attorney should be considered at or shortly after age 18. Without it, parents may need to pursue guardianship through the courts to continue handling financial and medical decisions.
Can I use my IRA to fund a special needs trust?
Yes, but it should be done carefully. Under current IRS rules, inherited retirement accounts can trigger specific distribution requirements, and some disabled or chronically ill beneficiaries may qualify for different payout treatment. Because this area is technical, the trust language and beneficiary designation should be reviewed together.
