Trust for a Disabled Child

Medicaid has insisted that the first remaining beneficiary of all trusts be the State. This concept has been in effect since the institution of OBRA '93 and is based upon a misreading of the federal statute.

The administrative regulations (N.J.A.C. 10:71-4.10 (f) require that in order for a trust for the "sole benefit of" a spouse (subject to the community spouse resource allowance), disabled child or disabled individual under the age of 65 to be exempt, the State must be the first remaining beneficiary. That is, the reimbursement requirement imposed by New Jersey applies to all "sole benefit of" trusts. Response to Comment 33 (of the OBRA '93 regulations) indicates so long as the Medicaid claim is satisfied, the trust can provide for other remainder beneficiaries.


This interpretation that the State be the remainderman is a requirement based upon a misunderstanding of the federal statute.


OBRA '93 requires the State be reimbursed from trusts known as "(d)(4)(A)" trusts (trusts for disabled individuals under 65, Miller Trusts-no longer effective in New Jersey, pooled income trust-trusts for groups of disabled children). These trusts are known as exempt trusts. It is noted that the only "sole benefit of" trust referenced under this federal statute relates to a trust for a disabled individual under the age of 65. The exemption from the transfer rules for transfers for the "sole benefit of" a spouse or for the "sole benefit of" a disabled child is not based upon the aforementioned federal statute dealing with exempt trusts. The exemption for these transfers is based upon the federal statute which sets forth the list of exempt transfers. While the federal statute requires that the remainderman of "(d)(4)(A)" exempt trusts be the State, there is obviously no such requirement in the transfer provisions and Medicaid is being more restrictive that the federal law.