RED BANK, NJ - Families raising a child with special needs in New Jersey face a unique challenge in estate planning: providing long-term financial support while preserving eligibility for means-tested government programs such as Supplemental Security Income and Medicaid. New Jersey estate planning attorney Christine Matus of The Matus Law Group (https://matuslaw.com/estate-planning-options-families-special-needs-child/) outlines the legal tools available to Monmouth County families seeking to protect their child's future without inadvertently jeopardizing essential public benefits.
According to New Jersey estate planning attorney Christine Matus, the cornerstone of any special needs estate plan is a properly drafted special needs trust, which is designed to supplement public benefits rather than replace them. Standard wills and beneficiary designations that transfer assets outright to the child can disqualify that child from SSI, which limits countable resources to $2,000 for an individual. "Many families don't realize that leaving money directly to their child, even with the best intentions, can create serious problems with government benefit eligibility," Matus explains.
New Jersey estate planning attorney Christine Matus notes that special needs trusts come in two primary forms, and the distinction has significant long-term financial consequences. A third-party special needs trust, funded by parents or relatives, requires no Medicaid payback when the beneficiary passes away, and the remaining funds can be distributed to other family members. A first-party special needs trust, funded with the beneficiary's own assets such as proceeds from a personal injury settlement, does require Medicaid reimbursement from remaining funds upon the beneficiary's death and is only available to beneficiaries under age 65.
Attorney Matus also emphasizes the critical role of trustee selection and trust language in determining how effectively the trust serves the beneficiary. A trustee controls when and how distributions are made, and those decisions can directly affect SSI benefits. Direct cash payments to the beneficiary count as income, while payments made to third parties for therapy, education, and transportation are generally treated more favorably. "Overly restrictive trust language can actually harm the beneficiary by preventing the trustee from paying for expenses that would genuinely improve their quality of life," she advises.
The firm also addresses funding strategies, noting that life insurance, particularly second-to-die policies covering both parents, is a commonly used vehicle for long-term planning. Retirement accounts such as IRAs and 401(k)s can name a special needs trust as beneficiary, though this area requires careful coordination to avoid accelerated distribution requirements under current IRS rules. Certain disabled or chronically ill beneficiaries may qualify for life-expectancy-based distributions rather than the standard 10-year rule that applies to most non-spouse beneficiaries.
Matus highlights the importance of coordinating beneficiary designations across all financial accounts, including life insurance policies and retirement accounts, to ensure those assets flow into the special needs trust rather than directly to the child. Families are also encouraged to consider ABLE accounts, tax-advantaged savings accounts available to eligible individuals whose disability began before age 46, as a complement to the trust rather than a replacement. For 2025, the base annual ABLE contribution limit is $19,000, and SSI disregards the first $100,000 held in such an account. "Using an ABLE account alongside a special needs trust can maximize both benefit protection and day-to-day spending flexibility for the individual," notes Matus.
The Matus Law Group also underscores the importance of legal decision-making authority, particularly as a child with special needs approaches adulthood. Under New Jersey law, parents lose automatic legal authority to make financial or medical decisions on behalf of their child once that child turns 18. If the individual has capacity, a financial power of attorney and an advance healthcare directive should be prepared at or shortly after the 18th birthday. Where capacity is insufficient to sign these documents, families may need to pursue guardianship through the Superior Court, which involves a formal proceeding and may include ongoing reporting obligations. "Acting before the 18th birthday, not after, is the key to avoiding a gap in decision-making authority," Matus observes.
Rounding out a comprehensive special needs estate plan is the Letter of Intent, a non-legally binding but highly practical document that provides trustees and future caregivers with detailed guidance on the individual's daily routines, medical conditions, communication preferences, behavioral considerations, and personal history. For those seeking to protect a family member's long-term care and government benefit eligibility, consulting an experienced estate planning attorney is an important step toward building a legally sound and personally meaningful plan.
About The Matus Law Group:
The Matus Law Group is a Red Bank, New Jersey-based law firm dedicated to estate planning, special needs planning, and elder law. Led by attorney Christine Matus, the firm helps families throughout Monmouth County and across New Jersey put legal and financial protections in place for loved ones who require ongoing support. For consultations, call (732) 785-4453.
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