PS 01825.016: Illinois

changes
←	*	→

~~Effective Dates: 08/03/2017 - Present~~
Effective Dates: 05/10/2018 - Present
~~TN 75 (08-17)~~
TN 108 (05-18)
PS 01825.016 Illinois
~~A. PS 17-071 Review of the DayOne Self Settled Pooled Payback Trust — SSI-Illinois~~
A. PS 17-145 SSI — Updated Six State Survey on “Dry” or “Empty” Trusts within Region V
Date: August 24, 2017
NOTE: This opinion supersedes PS 05-038.
We are replacing our 2004 memorandum (found in POMS sections PS 01205.016, PS 01205.017, PS 01205.025, PS 01205.026, PS 01205.039, and PS 01205.055 (A. PS 05-038)) with this updated opinion. However, we are placing the new six state survey in POMS subchapter PS 01825.000 Trusts.
1. Syllabus
The Regional Chief Counsel (RCC) examined whether a “dry” or “empty” trust is a valid legal entity for purposes of determining eligibility for Supplemental Security Income (SSI) in the six States of Region V. The RCC concluded that a dry trust is only a valid legal entity in Wisconsin because the state adopted a statute that permits dry trusts. It is not a valid legal entity in Minnesota, Illinois, Indiana, Michigan, or Ohio because they do not have statutes that permit dry trusts.
2. Opinion
QUESTION
You have asked for an update on whether a “dry” or “empty” trust is a valid legal entity for purposes of determining eligibility for Supplemental Security Income (SSI) in the six States of Region V. As discussed below, we conclude that a dry trust is only a valid legal entity in Wisconsin. It is not a valid legal entity in Minnesota, Illinois, Indiana, Michigan, or Ohio.
BACKGROUND
On November 30, 2004, we provided advice on whether a “dry” or “empty” trust—a trust without any property as of the inception of the trust—is a valid legal entity for purposes of determining eligibility for SSI in the six States of Region V. Our 2004 memorandum concluded that a dry trust was not a valid legal entity in any of the States in our region, based on the applicable State statutory and case law. However, many of the States in Region V have since updated their trust laws.
DISCUSSION
For SSI purposes, a trust established with the assets of an individual on or after January 1, 2000, will generally be considered a resource even if the trust is irrevocable. 42 U.S.C. § 1382b(e)(3); POMS SI 1120.201(D). There are, however, Medicaid trust exceptions to these resource counting provisions. In particular, under the special needs trust exception, a trust established before December 13, 2016, is not subject to the resource counting provisions where it: (1) contains the assets of an individual under age 65 who is disabled; (2) is established for the benefit of such individual through the actions of a parent, grandparent, legal guardian or a court; and (3) provides that, on the death of the individual, any funds remaining in the trust will be used to reimburse the State(s) for medical assistance paid on behalf of the individual under a State Medicaid plan. See 42 U.S.C. § 1396p(d)(4)(A) (2016); POMS SI 01120.203(B)(1). Effective with trusts established on or after December 13, 2016, the special needs trust exception has been expanded to include a trust established through the actions of the individual himself or herself. See 21st Century Cures Act, Pub. L. No. 114-255, § 5007(a), 130 Stat. 1197 (2016) (codified as amended at 42 U.S.C. § 1396p(d)(4)(A)); POMS EM-16053.
A parent or grandparent who creates a trust with a legally competent, disabled adult’s funds may satisfy 42 U.S.C. § 1396p(d)(4)(A) using two methods: (1) the parent or grandparent can establish a “seed trust” using a nominal amount of his or her own money prior to transferring the individual’s funds to the trust, or (2) the State must allow a “dry” or “empty” trust. See POMS SI 01120.203(B)(1)(f).
In 2004, we concluded that none of the States in our region recognized the existence of a dry trust. Since we prepared our 2004 memorandum, one State has changed its position on dry trusts. Effective July 1, 2014, the Wisconsin Trust Code allows for the creation of dry trusts. Wis. Stat. § 701.0401(2) allows the creation of a trust by a “declaration by any person who intends to create a trust with the expectation that property of the person or others will be transferred to the trust.” Therefore, Wisconsin does not require property to exist at the inception of the trust. Rather, Wisconsin requires only an expectation that property will be transferred to the trust.
The remaining States in Region V have either passed laws that are incompatible with dry trusts or have not changed their trust laws since 2004. Three States—Michigan, Ohio, and Minnesota—have adopted § 401 of the Uniform Trust Code (UTC), which states in relevant part that a trust may be created by “declaration by the owner of property that the owner holds identifiable property as trustee.” Unif. Trust Code § 401(2) (2000); Mich. Comp. Laws § 700.7401(b) (effective December 28, 2012); Ohio Rev. Code § 5804.01(B) (effective January 1, 2007); Minn. Stat. § 501C.0401 (effective January 1, 2016). The comments to § 401 of the UTC indicate that “a trust is not created until it receives property.” Therefore, each of these States requires a trust to contain identifiable property. Similar to § 401 of the UTC, the Restatement (Third) of Trusts (2003) provides that “[a] trust cannot be created unless there is a trust property in existence and ascertainable at the time of the creation of the trust.” Id. at § 2 cmt. i.
Illinois and Indiana have not updated their relevant trust statutes, which do not recognize dry trusts. Indiana’s statute requires that a trust have property. See Ind. Code § 30-4-1-1. Although Illinois’s statute[1 1] does not set forth the elements of a trust, 760 Ill. Comp. Stat. 5/2, case law suggests that property is an essential element of a trust. See Eychaner v. Gross, 779 N.E.2d 1115, 1131 (Ill. 2002).
CONCLUSION
In summary, only one jurisdiction within Region V (Wisconsin) has adopted a statute that permits dry trusts. Three of the jurisdictions within Region V (Michigan, Ohio, Minnesota) have adopted the UTC provision requiring identifiable trust property, thus prohibiting dry trusts. The two jurisdictions (Indiana, Illinois) that have not yet adopted the UTC provision do not have statutes that permit dry trusts. Therefore, we conclude that a dry trust only exists as a valid legal entity in Wisconsin; it does not exist as a valid legal entity in any of the remaining States of our region.
B. PS 17-071 Review of the DayOne Self Settled Pooled Payback Trust — SSI-Illinois
Date: March 27, 2017
1. Syllabus
The Regional Chief Counsel (RCC) opinion examines whether the DayOne Self Settled Pooled Payback Trust (Trust) is in compliance with SSA’s trust policy. The RRC concluded that accounts in the Trust would be considered resources under the Social Security Act due to language in the Trust Agreement that could violate Agency policy regarding the management of pooled trusts. If the issue regarding trust management is corrected, the Trust would qualify for the pooled trust exception. In addition, an account in the Trust would not constitute a resource under the regular resource rules.
2. Opinion
QUESTION
You asked whether the DayOne Self Settled Pooled Payback Trust (Trust) is in compliance with SSA’s trust policy. For the reasons discussed below, we conclude that accounts in the Trust would be considered resources under the Social Security Act due to language in the Trust Agreement that could violate Agency policy regarding the management of pooled trusts. If the issue regarding trust management is corrected, the Trust would qualify for the pooled trust exception. In addition, an account in the Trust would not constitute a resource under the regular resource rules.
BACKGROUND
DayOne Reliance, Inc., an Illinois nonprofit organization, has established the DayOne Self Settled Pooled Payback Trust. It is a pooled trust which is intended to provide for the care and treatment of persons who are “disabled” as defined in the Social Security Act, while qualifying them for Supplemental Security Income. The Trust Agreement was revised on June 10, 2009, and restated on December 21, 2016. DayOne Reliance, Inc. has submitted the Trust Agreement and Joinder Agreement for our review.
Initially, we note that, despite the name of the trust, the Trust Agreement does not explicitly state that accounts in the Trust are funded with the assets of the beneficiaries themselves (or their spouses), and could be interpreted as allowing accounts to be funded entirely by third parties. Trust Agreement Art. 4, §§ 1-2. However, DayOne Reliance, Inc.’s website clarifies that “[t]hese trusts are available to families of individuals with disabilities to permit them to use assets of the individual or the individual’s spouse to supplement services while maintaining or becoming eligible for state and federal benefits or entitlements.” DayOne Reliance, Inc., Fact Sheet, www.dayonereliance.org/index.php/download_file/view/23/71/ (last visited March 11, 2017) (emphasis added).
Trust Agreement
The trustees of the Trust are comprised of current members of the Board of Directors of DayOne Reliance, Inc. Trust Agreement Art. 3, § 1.
An account in the Trust is created when a grantor transfers assets to a beneficiary’s account. Trust Agreement Art. 4, §§ 1-2. Any person may contribute assets to the beneficiary’s account at any time, in the absolute discretion of the trustees. Trust Agreement Art. 6, §§ 4-5.
The trustees have sole and absolute discretion to make distributions from the principal and earnings of a beneficiary’s account to provide care that is not provided for by any other means. Trust Agreement Art. 4, § 6(A).
The powers of the trustees are listed in Article 6, § 14 of the Trust Agreement. Among the listed powers, the trustees may employ banks, custodians, investment counsel, accountants, legal counsel, and other agents and delegate to them any powers of the trustees. Trust Agreement Art. 6, § 14(H).
The beneficiary does not have any right, power, or authority to liquidate the Trust, in whole or in part, or to require payments from the Trust for any purpose. Trust Agreement Art. 4, § 6(C).
The Trust Agreement contains a spendthrift provision in which the beneficiary has no right to anticipate, pledge, encumber, demand, secure, give, assign, transfer, mortgage or borrow, or in any other manner alienate his interest in either the income or principal of his account. Trust Agreement Art. 4, § 8.
On termination of the beneficiary’s account caused by death, other than the expenses listed in POMS SI 01120.203B.3.a, the Trust will first pay from the account to each state that provided Medicaid benefits to the beneficiary an amount up to the total amount of medical assistance provided based on the state’s proportionate share of the total amount of Medicaid benefits paid by all of the states. Any remaining balance will be distributed as designated in the Joinder Agreement or, if no such designation is effectively made, to DayOne Reliance, Inc. Trust Agreement Art. 4, § 13(A).
The Trust Agreement also contains an early termination provision which can only be exercised by the trustees. It provides for reimbursement to the state(s) for Medicaid, and states that only the beneficiary may benefit from the early termination. Trust Agreement Art. 4, § 15.
The Trust Agreement states that it and the trust established by it are irrevocable. Trust Agreement Art. 6, § 8.
Article 5 of the Trust Agreement establishes a separate wholly charitable trust which is devoted to the care and treatment of disabled Illinois residents who are indigent. We note that this charitable trust has no bearing on the Agency’s evaluation of the pooled trust.
The Trust Agreement is governed by laws of the state of Illinois. Trust Agreement Art. 8, § 8.
Joinder Agreement
The Joinder Agreement states that the Trust is formed for the benefit of the grantor (who is also referred to as the beneficiary). Thus, it is a grantor trust.
Under the Joinder Agreement, the grantor irrevocably assigns and transfers to the trustees of the Trust assets to be deposited in the account of the beneficiary. Joinder Agreement pp. 1, 6.
All distributions and disbursements are discretionary as directed by the trustees. Joinder Agreement p. 3.
The grantor has no further interest in and relinquishes all rights in and control over the contributed assets and all income. Joinder Agreement p. 6.
Upon termination of the beneficiary’s account caused by death or for any other reason, the trustees will: 1) pay taxes to the state or federal government due to the death of the beneficiary and reasonable fees for administration of the account associated with termination and wrapping up of the account; 2) reimburse the state(s) for Medicaid; 3) retain 15 percent of the balance of the assets remaining in the account to distribute to the charitable trust; 4) distribute the balance to the remainder beneficiaries designated in the Joinder Agreement; and 5) if no such designation is effectively made, retain the remainder to distribute to the charitable trust. Joinder Agreement pp. 6-7.
DISCUSSION
Statutory Resource Rules
The Trust is subject to the statutory provisions of Section 1613(e) of the Social Security Act for trusts established on or after January 1, 2000. See 42 U.S.C. § 1382b(e); POMS SI 01120.201. Under these provisions, a trust established with the assets of an individual generally will be considered a resource to the extent that the trust is revocable or, in the case of an irrevocable trust, to the extent that any payments could be made from the trust to or for the benefit of the individual (or the individual’s spouse). See 42 U.S.C. § 1382b(e)(3); POMS SI 01120.201D.
However, an exception exists for certain trusts that meet the criteria of 42 U.S.C.
§ 1396p(d)(4)(C), commonly known as the pooled trust exception. See also 42 U.S.C.
§ 1382b(e)(5). This exception applies to a trust containing the assets of a disabled individual which meets the following conditions:
* The trust is established and managed by a nonprofit association.
* The trust maintains a separate account for each beneficiary, but pools these accounts for purposes of investment and management of funds.
* Accounts in the trust are established solely for the benefit of the disabled individual.
* The account is established through the actions of the individual, parent, grandparent, legal guardian, or court.
* 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 will pay to the state(s) from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State Medicaid plan(s).
See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203B.2.
Here, even if the Trust were irrevocable, it would be a resource, since the funds are to be used for the individual’s benefit. Trust Agreement Art. 2; Art. 4, §§ 1-2. Accordingly, we consider whether the Trust qualifies for the pooled trust exception.
We believe the Trust does not meet the first condition of the pooled trust exception. The Trust is established by DayOne Reliance, Inc., a nonprofit association. Trust Agreement Introduction. The trustees of the Trust, comprised of current members of the Board of Directors of DayOne Reliance, Inc., manage the financial activities of the Trust. Trust Agreement Art. 2; Art. 4, § 6; Art. 6, § 14; Joinder Agreement p. 3. However, the Trust Agreement provides that the trustees may “employ banks, custodians, investment counsel, accountants, legal counsel and other agents and delegate to them any powers of Trustees.” Art. 6, § 14(H). In the event that DayOne Reliance, Inc. employs a for-profit entity, we believe that this broad language could violate Agency policy that the non-profit must maintain ultimate managerial control over the pooled trust. See POMS SI 01120.225D. Thus, we recommend that this language be changed to comply with Agency policy.
If the above issue regarding trust management is corrected, the Trust satisfies the remaining criteria of the pooled trust exception:
* The Trust maintains a separate account for each beneficiary but pools the accounts for purposes of investment and management. Trust Agreement Art.4, §§ 2-4.
* Accounts in the Trust are established for the sole benefit of the beneficiary. Trust Agreement Art. 4, §§1-2. Although the Trust contains an early termination provision, it complies with the requirements of POMS SI 01120.199F.1. Trust Agreement Art. 4, § 15. Thus, the early termination provision is acceptable.
* The Trust Agreement is silent as to who takes the action to establish an account in the Trust. However, since only the grantor/beneficiary can sign the Joinder Agreement, we interpret that to mean that only an individual can establish an account in the Trust. This would be consistent with the requirement that the trust be established through the actions of the individual, parent, grandparent, legal guardian or court.
* The Trust provides that, upon the death of the beneficiary, other than the expenses listed in POMS SI 01120.203B.3.a, the Trust will first pay from the account to each state that provided Medicaid benefits to the beneficiary an amount up to the total amount of medical assistance provided based on the state’s proportionate share of the total amount of Medicaid benefits paid by all of the states. Trust Agreement Art. 4, § 13; Joinder Agreement p. 6.
Regular Resource Rules
If DayOne Reliance, Inc. is able to cure the above defect regarding trust management and qualify the Trust for the pooled trust exception, the regular resource rules in POMS SI 01120.200 apply to determine whether a self-settled account in the Trust would be considered a resource. See 42 U.S.C. § 1382b(e)(1); POMS SI 01120.203B.2.a. Under the regular resource rules, the trust principal will be a resource if the individual can (1) revoke or terminate the trust and use the assets to meet his needs for food or shelter, or (2) direct the use of the trust principal for his support and maintenance under the terms of the trust. See POMS SI 01120.200D.1.a. In addition, the individual’s beneficial interest in the trust is a resource if it can be sold. See id.
We first determine whether the grantor of a self-settled account in the Trust can revoke his account. Whether a trust can be revoked depends on the terms of the trust and applicable state law—here Illinois. See POMS SI 01120.200D.2. The Trust Agreement states that it and the trust created by it are irrevocable. Trust Agreement Art. 6, § 8. Likewise, the Joinder Agreement states that the funding of the trust account is irrevocable. Joinder Agreement pp. 1, 6. Notwithstanding these provisions, the account would still be considered revocable if the grantor is also the sole beneficiary. See Restatement (Third) of Trusts § 65 Reporter’s Notes (2003) (if grantor is also sole beneficiary of trust, trust is considered revocable regardless of contrary language in trust); POMS SI 01120.200D.3, SI CHI01120.200C. In this case, however, the grantor would not be the sole beneficiary. Rather, the Trust creates contingent remainder interests in DayOne Reliance, Inc., and any remainder beneficiaries designated by the grantor. The Trust Agreement and Joinder Agreement specify that, upon the grantor’s death, after payment of allowable expenses and reimbursement to Medicaid, the Trust will retain 15 percent of the remaining assets, and the balance will be distributed to the beneficiaries designated by the grantor, or if no designation is effectively made, to the Trust. Trust Agreement Art. 4, § 13(A); Joinder Agreement pp. 6-7. Since there is at least one residual beneficiary, the grantor could not revoke his account unilaterally, but would need to obtain the consent of all residual beneficiaries. See POMS SI CHI01120.200C (“[I]f the trust names a residual beneficiary to receive the benefit of the trust interest after a specific event, usually the death of the primary beneficiary, the trust is irrevocable. The primary beneficiary cannot unilaterally revoke the trust; he needs the consent of the residual beneficiary.”); Thompson v. Waukesha State Bank, 510 F. Supp. 2d 453, 460 (N.D. Ill. 2007) (irrevocable trust may be revoked or terminated upon consent of all beneficiaries). Therefore, we consider an account in the Trust to be irrevocable.
In addition, the Trust provides that the trustees have sole and absolute discretion to make payments from the principal and earnings of an account to provide care for the beneficiary. Trust Agreement Art. 4, § 6(A); Joinder Agreement p. 3. The grantor has no further interest in or right to the account assets, nor does he have any power to liquidate the Trust or require payments from the Trust for any purpose. Trust Agreement Art. 4, § 6(C); Joinder Agreement p. 6. Thus, the grantor cannot direct the use of the account principal for his support and maintenance. Accordingly, the principal of an account in the Trust would not be considered a resource.
With respect to the grantor’s ability to sell his beneficial interest in the Trust, the Trust Agreement contains a spendthrift provision which prohibits the alienation of the grantor’s interest in either the income or principal of his account. Trust Agreement Art. 4, § 8. Generally, states that allow spendthrift trusts do not allow a grantor to establish a spendthrift trust for his own benefit. See POMS SI 01120.200B.16; Restatement (Third) of Trusts § 58(2) & cmt. e (2003). This principle is consistent with Illinois law. See Rush University Medical Center v. Sessions, 980 N.E.2d 45, 52, 58 (Ill. 2012); In re Marriage of Chapman, 697 N.E.2d 365, 371 (Ill. Ct. App. 1998). But even though the Trust’s spendthrift provision is not valid in Illinois, the grantor’s beneficial interest in the account would have no significant market value, since the Trust is discretionary and the trustees cannot be compelled to make any distributions from the account. See Restatement (Third) of Trusts § 60 & cmt. e, f (2003).
Third-Party Contributions
Lastly, we note that the Trust allows contributions to an account from any person. Trust Agreement Art. 6, § 5. Agency policy provides that, in the case of a comingled trust established on or after January 1, 2000, with the assets of both an SSI claimant (or spouse) and third parties, the regular resource rules apply to the portion of the comingled trust attributable to the assets of third parties, and the statutory resource rules apply to the portion attributable to the assets of the SSI claimant (or spouse). See POMS SI 01120.200A.2.b, SI 01120.201C.2.c.
Here, in the event that an account in the Trust receives any contributions from a third party, the portion of the account attributable to the assets of the third party would not be a resource under the regular resource rules. First, the Trust does not give the beneficiary the right to terminate his account. See POMS SI 01120.200D.1.b (beneficiary generally does not have power to terminate a trust). Moreover, under Illinois law, the beneficiary would not be able to unilaterally terminate his account, but would need the consent of all residual beneficiaries. See Thompson, 510 F. Supp. 2d at 460. Second, as discussed above, the Trust contains no provision allowing the beneficiary to direct the use of trust principal for his support or maintenance. Finally, the Trust contains a spendthrift provision, Trust Agreement Art. 4, § 8, which Illinois allows in third party trusts. See 735 Ill. Comp. Stat. 5/2-1403; Chapman, 697 N.E.2d at 367, 369. Accordingly, with respect to the portion of an account attributable to the assets of a third party, neither the principal nor the individual’s beneficial interest should be considered a resource.
CONCLUSION
For the reasons discussed above, we conclude that accounts in the Trust would be considered resources under the Act due to language in the Trust Agreement that could violate Agency policy regarding the management of pooled trusts.
~~B. PS 17-003 SSI—Regional Survey on Revocability of Grantor Trusts~~
C. PS 17-003 SSI—Regional Survey on Revocability of Grantor Trusts
Date: October 5, 2016
1. Syllabus
This Regional Chief Counsel (RCC) opinion provides a survey of state law in Region V concerning the revocability of grantor trusts. Specifically, examining whether a distribution to the grantor’s estate creates a residual beneficiary interest such that the grantor is not the sole beneficiary. The opinion reexamines each state’s law on a grantor’s ability to unilaterally modify or revoke a self-settled trust.
2. Opinion
QUESTION
You asked whether the A~ Irrevocable Trust (the Trust) is excepted as a special needs trust under section 1917(d)(4)(A) of the Social Security Act (the Act). Additionally, even should the agency determine that the exception applies, you asked if the Trust is a countable resource for purposes of determining A~’s eligibility for supplemental security income (SSI).
The Trust is not excepted from resource counting under section 1917(d)(4)(A) of the Act because it contains an improper early termination provision. Furthermore, even if the Trust met the special needs trust exception it still constitutes a countable resource because, as the settlor and sole beneficiary, A~ has power to revoke the Trust and use the Trust assets to meet her basic needs.
FACTS
R~, A~’s mother and guardian, executed the Trust on A~’s behalf on July XX, 2005, pursuant to order of the Marion County Superior Court. A~’s settlement from medical malpractice litigation funded the Trust.
Article Three of the Trust provides that the Trust is irrevocable, except a court may amend or revoke the Trust in order to accomplish its stated purpose. Article Four of the Trust gives the trustee sole discretion to spend or retain the Trust income or principal for A~’s benefit.
Article Five provides that, upon the A~’s death, any remaining balance in the Trust will be used to reimburse Indiana and other applicable state(s) for Medicaid assistance paid on the A~’s behalf, with any remainder paid to “the Personal Representative of the Beneficiary’s probate estate.”
Article Seven provides that, should the trustee determine that the Trust is not economical or if it is in A~’s best interest to receive services through the Arc Pooled Trust, then the trustee may distribute the entire trust principal and undistributed trust income to the Arc Pooled Trust for A~’s benefit, enrolling her in that pooled trust.
Article Ten provides that Indiana law shall govern the Trust.
DISCUSSION
Generally, a trust established after January 1, 2000, with the assets of an individual will be a countable resource to that individual for purposes of determining his or her SSI eligibility. See Social Security Act § 1613(e), 42 U.S.C. § 1382b(e); POMS SI 01120.201.A. However, pursuant to section 1917(d)(4)(A) of the Act, commonly referred to as the Special Needs Trust exception, a trust will be excepted as a resource if:
* It contains the assets of a disabled individual under the age 65;
* It is established for the individual’s benefit by the individual’s parent, grandparent, legal guardian, or a court; and
* It contains language that the State(s) will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan.
Social Security Act § 1917(d)(4)(A), 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203.B.1. The agency has interpreted section 1917(d)(4)(A)(ii) to require that the trust be for the sole benefit of the individual. POMS SI 01120.203.B.1.e. The trust will not be for the individual’s sole benefit if it (1) provides benefits to other individuals or entities during the disabled individual’s lifetime, or (2) allows for termination of the trust prior to the individual’s death and payment of the trust corpus to another individual or entity (other than the State(s) for reimbursement of medical assistance). Id.
Accordingly, if a trust contains an early termination clause, it will only meet the requirements of section 1917(d)(4)(A)(ii) of the Act if: (1) the State is designated to receive all amounts remaining in the trust at the time of termination up to the total amount of medical services paid on behalf of the beneficiary by the State, (2) after reimbursement to the State, all remaining funds are to be distributed to the beneficiary with the exception of certain specified expenses, and (3) the beneficiary does not have the power to terminate the trust. POMS SI 01120.199.F.1.
Article Seven of the A~ Trust violates the sole benefit requirement of section 1917(d)(4)(A) of the Act. Specifically, Article Seven provides that, should the trustee determine that the Trust is not economical or if it is in A~’s best interest to receive services through the Arc Pooled Trust,1 then the trustee may distribute the entire trust principal and undistributed trust income to the Arc Pooled Trust for A~’s benefit, enrolling her in that pooled trust. Article Seven, therefore, allows termination of the Trust during A~’s lifetime and distribution of the Trust corpus without reimbursement to the State(s) for medical services paid on A~’s behalf. Such a provision is in direct violation of POMS SI 01120.199.F.1, which requires that any early termination and distribution to or for the beneficiary may occur only after the State(s) receive reimbursement.2
Article Seven of the A~ Trust violates the sole benefit requirement of section 1917(d)(4)(A) of the Act. Specifically, Article Seven provides that, should the trustee determine that the Trust is not economical or if it is in A~’s best interest to receive services through the Arc Pooled Trust,2 then the trustee may distribute the entire trust principal and undistributed trust income to the Arc Pooled Trust for A~’s benefit, enrolling her in that pooled trust. Article Seven, therefore, allows termination of the Trust during A~’s lifetime and distribution of the Trust corpus without reimbursement to the State(s) for medical services paid on A~’s behalf. Such a provision is in direct violation of POMS SI 01120.199.F.1, which requires that any early termination and distribution to or for the beneficiary may occur only after the State(s) receive reimbursement.3
Agency policy provides a 90-day period during which an SSI recipient may have his or her trust amended without the agency counting the trust as a resource. This 90-day period applies where the agency previously determined that a trust was an excepted resource under 1917(d)(4)(A) or (C), and the trust is currently non-compliant because of an invalid early termination clause. See POMS SI 01120.199.A.
This 90-day amendment period shall begin upon the SSI recipient receiving notice that the trust is non-compliant with the criteria for a special needs trust. Id. If the trust still fails to meet the special needs trust requirements upon expiration of the 90-day period, the agency will begin counting the trust as a resource. Id. Each previously excepted trust is permitted only one 90-day amendment period. Id.
Here, the agency previously determined that the Trust was not a countable resource when A~ applied for SSI as a minor. The agency later determined that the Trust was not excepted under section 1917(d)(4)(A) of the Act due to an improper early termination provision. However, A~ is not entitled to a 90-day amendment period to remove the improper early termination provision because the Trust is otherwise a countable resource, as explained below.
Even if a trust is excepted under section 1917(d)(4)(A) of the Act, it is still subject to regular resource counting rules. See POMS SI 01120.203.B.1.a (“A trust which meets the exception to counting the trust under the SSI statutory trust provisions of Section 1613(e) must still be evaluated under the instructions in SI 01120.200, to determine if it is a countable resource”).
Under the regular resource counting rules, trust property is a resource for SSI purposes if the individual (1) has the authority to revoke the trust and then use the funds to meet his or her basic needs for food or shelter; or (2) can direct the use of the trust principal for his or her support and maintenance. See POMS SI 01120.200.D.1.a. Additionally, if the individual can sell his or her beneficial interest in the trust, that interest is a resource. See id.
Whether a trust can be revoked or terminated depends on the terms of the trust and applicable State law. See POMS SI 01120.201.D.3. Here, Article Three provides that the Trust is irrevocable, except that a court may order revocation or amendment of the trust terms in order to accomplish the trust’s stated purpose. To the extent a trust purports to be irrevocable, most states follow the general principle of trust law that if a grantor is also the sole beneficiary of the trust, the trust is revocable regardless of language in the trust to the contrary. See POMS SI 01120.200.D.3; SI CHI01120.200.C; Rest. (Second) of Trusts § 339 (“If the settlor is the sole beneficiary of a trust and is not under an incapacity, he can compel the termination of the trust, although the purposes of the trust have not been accomplished”); Bogert's The Law of Trusts and Trustees, § 1004 (“Numerous courts have found a trust to be terminated or terminable at the instance of the settlor who is also the sole beneficiary”).
Here, Indiana law governs the Trust. Neither Indiana statute nor case law addresses the revocability of self-settled trusts where the settlor is the sole beneficiary. However, Indiana courts have followed the Restatement (Second) of Trusts, particularly concerning a settlor’s powers of revocation. See Breeze v. Breeze, 428 N.E.2d 286 (Ind. Ct. App. 1981) (finding opinion consistent with Restatement (Second) of Trusts § 330 regarding a settlor’s mode of revocation); Hinds v. McNair, 413 N.E.2d 586, 594 (Ind. Ct. App. 1980) (citing Restatement (Second) of Trusts § 330 on for general principal related to a settlor’s power to amend or revoke an irrevocable trust); see also Zoeller v. East Chicago Second Century, Inc., 904 N.E.2d 213, 221 (Ind. 2009) (following general notion of a constructive trust as outlined in Restatement (Second) of Trusts); Kesling v. Kesling, 967 N.E.2d 66, 81-82 (Ind. Ct. App. 2012) (citing to Restatement (Second) of Trusts and Restatement (Third) of Trusts for evolving legal status of trusts). Likewise, Indiana’s legislature has followed the Restatement (Second) of Trusts in drafting several sections of Indiana’s Trust Code. See e.g., Ind. Code Ann. §§ 30-4-3-2, 30-4-3-7, 30-4-3-10, 30-4-3-11, 30-4-3-26. It follows that, should the scenario arise, an Indiana court would adopt the general trust principle that a settlor could revoke a trust for which he or she is the sole beneficiary regardless of any terms in the trust to the contrary. See POMS SI CHI01120.200.C.
Thus, the only remaining question is whether the Trust contained any identifiable residual beneficiaries. Article Five provides that, upon the beneficiary’s death, any remaining balance in the Trust will be used to reimburse Indiana and other applicable state(s) for Medicaid assistance paid on the beneficiary’s behalf, and then pay any remaining amount to “the Personal Representative of the Beneficiary’s probate estate.”
Under the common law doctrine of worthier title, when a settlor designated his children, issue, heirs, or next of kin as remainder beneficiaries, such successors of the settlor’s estate were regarded as taking through the settlor and not as remaindermen; thus, the settlor was treated as the sole owner of the equitable interest in the trust. See Bogert's The Law of Trusts and Trustees, § 1004. Indiana has followed the modern view, and abolished the doctrine of worthier title. Ind. Code Ann. § 30-4-2-7; see also POMS SI 01120.200.D.3 (“Under the modern view, residual beneficiaries are assumed to be created, absent evidence of a contrary intent, when a grantor names heirs, next of kin, or similar groups to receive the remaining assets in the trust upon the grantor's death.”). However, even with the abolishment of the doctrine of worthier title, designating the settlor’s estate as recipient of a remainder share of the trust corpus does not create an identifiable residual beneficiary. See POMS SI CHI01120.200.D.2 (“Where the trust states only that the grantor’s own estate will receive any remaining trust assets on the grantor’s death, and names no other beneficiaries to the trust, the trust should be considered revocable.”). Here, an Indiana court would likely construe any conveyance to A~’s estate as no more than her retention of a future reversionary interest.
As there are no identifiable remainder beneficiaries, A~ is the sole beneficiary of the Trust. As such, under Indiana law, A~ has power to terminate the Trust and use the Trust funds to meet her basic needs. The Trust, therefore, is a countable resource. See POMS SI 01120.200.D.1.a.
CONCLUSION
The Trust is not excepted from resource counting under section 1917(d)(4)(A) of the Act because it contains an improper early termination provision. Additionally, modification of the Trust to meet the foregoing exception would not result in an exclusion from resource counting. As settlor and sole beneficiary, A~ has power to revoke the Trust and use the Trust assets to meet her basic needs. Therefore, even with removal of the improper early termination provision, the Trust is a countable resource.
Kathryn Caldwell
Regional Chief Counsel, Region V
By: Francesco P. Benavides
Assistant Regional Counsel
~~C. PS 09-104 SSI - Request for Six State Legal Opinion on Spendthrift Clauses - REPL Your Reference: S2D5G6, SI 2-1-3 (Spendshift) Our Reference: 08-0141~~
D. PS 09-104 SSI - Request for Six State Legal Opinion on Spendthrift Clauses - REPL Your Reference: S2D5G6, SI 2-1-3 (Spendshift) Our Reference: 08-0141
DATE: May 8, 2009
1. SYLLABUS
This opinion addresses whether spendthrift clauses are recognized in the six states that compose the Chicago region and whether these states allow for a settler to establish a spendthrift trust for his or her own benefit. A spendthrift clause prohibits both involuntary and voluntary transfers of the beneficiary's interest in the trust income or principle. All states in the Chicago region recognize a spendthrift provision in a third-party trust. Likewise, all states in the Chicago region recognize that a beneficial interest in a self-settled discretionary trust would typically not be a countable resource as it would have little, if any, market value. In Illinois, Michigan, Minnesota, and Wisconsin, the beneficiary of a self-settled trust can sell the right to future mandatory disbursements, regardless of whether the trust has a spendthrift provision. Due to a lack of precedent, self-settled trusts with a spendthrift provision in Indiana or Ohio should be submitted to the Regional Chief Counsel's office for evaluation.
2. OPINION
You have asked whether spendthrift clauses are recognized in the six states in the Chicago Region and, if so, whether these states allow for a settlor to establish a spendthrift trust for his or her own benefit. Each of the six states in Region V recognizes spendthrift clauses as valid when they are established by a settlor for a third party. Therefore, the beneficiary of a third party trust could not sell the beneficial interest in that trust if it has a spendthrift provision. The validity and effect of a spendthrift provision in a self-settled trust varies somewhat from state to state. However, in all six states, the settlor's interest in a discretionary trust would not be a countable resource, regardless of any spendthrift provision, because in the laws of those states, even if the settlor can sell the interest, it would have no significant market value, since the transferee could not demand any payments. In Illinois, Michigan, Minnesota and Wisconsin, the settlor could sell the right to receive future mandatory disbursements, even if the trust includes a spendthrift clause, and the current market value of those disbursements would be a resource. In Indiana and Ohio, it appears that a spendthrift clause may effectively prevent a settlor from selling future mandatory disbursements such that the right to those future disbursements would not be a resource. However, since the law has not yet been interpreted clearly, we recommend that you send any self-settled trusts with mandatory disbursements and spendthrift provisions to our office for evaluation if they are governed by Indiana or Ohio law.
DISCUSSION
A spendthrift clause prohibits both involuntary and voluntary transfers of the beneficiary's interest in the trust income or principal. POMS SI 01120.200(B)(16). If a state recognizes the validity of a spendthrift clause, the beneficial interest in the trust, or the right to payments as a beneficiary, is not a countable resource because the beneficiary may not sell his or her beneficial interest in the trust. 1_/ Id. In the Chicago Region, all of the states recognize the validity of a spendthrift clause where the trust is established by a settlor for a third party.
However, if a settlor creates a trust for the settlor's own benefit and inserts a spendthrift clause, the spendthrift clause may be considered invalid. All of the states in the Chicago Region view such self-settled spendthrift trusts to be invalid with respect to creditors. However, in determining whether an interest in a trust is a resource, the focus is on whether the individual can sell his or her beneficial interest in the trust. The states vary with respect to whether a spendthrift clause would prevent a settlor from selling his or her beneficial interest in the trust. The majority of states in the region, namely Illinois, Michigan, Minnesota and Wisconsin, are likely to follow the Restatement (Third) of Trusts, which indicates that a spendthrift clause in a self-settled trust is invalid with respect to any interest retained by the settlor. RESTATEMENT (THIRD) OF TRUSTS § 58, cmt. e. Under the Restatement, the spendthrift clause would not prevent the settlor's interest from being reached by the creditors or from being sold. Id. However, the most a transferee could receive are the rights the settlor has under the trust. See RESTATEMENT (THIRD) OF TRUSTS § 60, cmts. b, f. Therefore, we would typically not consider a discretionary interest in a self-settled spendthrift trust to be a countable resource, since such an interest would have little, if any, market value. However, the right to receive mandatory disbursements from such trusts would generally be considered a resource, since the spendthrift clause would not prevent the individual from selling the interest and that interest would generally have market value.
In contrast, Indiana and Ohio law could be read to view self-settled spendthrift clauses to be invalid only with respect to the rights of creditors. Therefore, a spendthrift clause governed by the laws of those states may effectively prevent a settlor from selling his or her interest in the trust. If that is the case, then the right to both mandatory and discretionary disbursements from such trusts may not be considered a resource for SSI purposes in those states. However, we have not encountered any cases actually interpreting these provisions to prevent a settlor from selling the right to mandatory disbursements from a trust. Therefore, we recommend that self-settled trusts with spendthrift provisions that are governed by the law of Indiana and Ohio be referred for an opinion at least where the settlor has a right to mandatory disbursements.
Illinois
In Illinois, a spendthrift clause in a trust established by a third party will effectively prevent the beneficiary from selling his or her beneficial interest. 2_/ See Danning v. Lederer, 232 F.2d 610, 612 (7th Cir. 1956); Hopkinson v. Swaim, 119 N.E. 985, 990 (Ill. 1918). However, a settlor may not establish a spendthrift trust for his or her own benefit. In re Marriage of Chapman, 297 Ill. App. 3d 611 (Ill. App. 1998). Therefore, in a self-settled trust, the settlor could sell the right to mandatory future disbursements for their current market value, despite any spendthrift provision. However, the settlor's beneficial interest in a discretionary trust would not be a countable resource, even though the spendthrift clause would not prevent the settlor from selling the interest because the right to receive discretionary disbursements would have no significant market value. Although we were unable to find any case law which directly addressed this issue, we found that the Illinois courts have relied upon the Restatement (Third) of Trusts as persuasive authority in interpreting trusts. See In Re Estate of Feinberg, 891 N.E.2d 549 (Ill. App. 2008) (generally recognizing Restatement (Third) of Trusts as persuasive authority). Therefore, we believe that Illinois would adopt the Restatement (Third) approach --that a transferee would receive only the rights the settlor had under the trust, i.e., to receive mandatory or discretionary disbursements when the trust is self-settled and contains a spendthrift provision. See RESTATEMENT (THIRD) OF TRUSTS § 58(2), cmt. e. Therefore, the right to receive discretionary disbursements would not be considered a countable resource, as it is unlikely the right to discretionary disbursements would have any significant market value.
Indiana
Indiana law recognizes spendthrift trusts as generally valid against both voluntary and involuntary transfers. Ind. Code § 30-4-3-2(a). When the settlor is also the beneficiary of the trust, Indiana law recognizes an exception to this rule with respect to the rights of creditors. Ind. Code § 30-4-3-2; see also Matter of Cook, 43 B.R. 996 (N.D. Ind. 1984) (recognizing that if a settlor is also the beneficiary of the spendthrift trust, creditors may reach the trust corpus). Because Indiana law expressly addresses only the validity of a spendthrift clause in a self-settled trust with regard to creditors' rights, it is possible that Indiana would recognize a spendthrift provision to be valid to the extent that it would prevent the settlor from selling his beneficial interest in a self-settled trust. See POMS PS 01825.01 (PS 09-015 SSI - Review of the Trust and Annuity for Savanna R. W~) (concluding that even if the settlor could sell the interest, it would have no value because the trust was discretionary). However, the comments to the section state that it follows the rule in the Restatement (Second) of Trusts section 156, which states that a self-settled spendthrift clause is ineffective against both creditors and transferees. See Ind. Code § 30-4-3-2(b); see also RESTATEMENT (SECOND) OF TRUSTS § 156(2). If you encounter a self-settled trust governed by Indiana law with a spendthrift provision and with the right to future mandatory disbursements, we recommend that you refer the case to our office for a legal opinion, since the law is not clear at this time.
Michigan
Michigan recognizes the validity of spendthrift trusts, in general, by statute and common law. Mich. Comp. Laws Ann. § 700.2902(2); Matter of Estate of Edgar, 389 N.W.2d 696 (Mich. 1986). However, under Michigan law, a person cannot create a true spendthrift trust for himself. See In re Hertsberg Intervivos Trust, 578 N.W.2d 289, 291 (Mich. 1998) (adopting RESTATEMENT (SECOND) OF TRUSTS § 156). In Hertsberg Intervivos Trust, the Michigan Supreme Court adopted Restatement (Second) of Trusts section 156, which states that a creditor or transferee could reach the entire amount of the trust that the trustee could, in his or her discretion, pay to or for the benefit of the settlor of the trust. See id. at 291. However, that case involved only the rights of a creditor, and we have previously advised that we think it likely that Michigan would adopt the Restatement (Third) approach--that a transferee, unlike a creditor, would receive only the rights the settlor had under the trust, i.e., mandatory or discretionary disbursements. See POMS PS 01825.025 (PS 09-062 Michigan - SSI-Review of the Annuity and Special Needs Trust for Jeri L. K~) (citing RESTATEMENT (THIRD) OF TRUSTS § 60 and cmts. e, f (2003)). Therefore, the right to future mandatory disbursements from a self-settled trust would be considered a resource despite any spendthrift clause; however, the right to discretionary disbursements would not be considered a resource as it is unlikely the right to discretionary disbursements would have any market value.
Minnesota
Minnesota recognizes the validity of spendthrift trusts though common law; there is no Minnesota statute which expressly deals with spendthrift provisions. See Morrison v. Doyle, 582 N.W.2d 237, 240 (Minn. 1998); In re Mack, 269 B.R. 392 (D. Minn. 2001). Under Minnesota law, cases involving enforcement of spendthrift provisions have always involved protection of the interest of a beneficiary who is not the settlor of the trust; therefore, in Minnesota, it appears that a spendthrift clause in a self-settled trust would likely be considered void and unenforceable. In re Mack, 269 B.R. at 399 (citing Simmonds v. Larison, (B.A.P. 8th Cir. 1999)). In reaching its holding in Mack, the court looked to the Restatement (Second) of Trusts § 156. 3_/ While there is no Minnesota case specifically adopting the Restatement (Third) of Trusts on this issue, we believe it is likely that a Minnesota court would follow the Restatement (Third) approach in determining the extent to which the settlor's interest can be transferred. See Norwest Bank Minnesota North, N.A. v. Beckler, 663 N.W.2d 571 (Minn. Ct. App. 2003) (relying upon Restatement (Third) of Trusts in determining the role of a trustee); compare In re Syverson Trust, 2003 WL 22016795 (Minn. Ct. App. 2003) (unpublished) (declining to adopt the Restatement (Third) of Trusts where doing so would change existing law in Minnesota, noting such change was reserved for the Minnesota Supreme Court or the legislature). Therefore, the settlor's right to mandatory disbursements would be considered a resource; however, the right to discretionary disbursements would not be considered a resource as it is unlikely the discretionary disbursements would have any significant market value. See RESTATEMENT (THIRD) OF TRUSTS § 58(2), cmt. e.
Ohio
Ohio recognizes the validity of a spendthrift clause through statute and case law. See Ohio Rev. Code Ann. § 5805.01; see also Scott v. Bank One Trust, 577 N.E.2d 1077 (Ohio 1991). Ohio adopted the Uniform Trust Code in 2007, and the controlling provisions are applicable to spendthrift trusts created before and after 2007. See Ohio Rev. Code Ann. §§ 5805.01(A), 5805.06(A)(2), and 5811.03(A)(1). Ohio law recognizes the validity of spendthrift provisions in general, and states that "[a] beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision and, except as otherwise provided in this chapter and in section 5810.04 of the Revised Code, a creditor or assignee of the beneficiary may not reach the interest or a distribution by the trustee before its receipt by the beneficiary." Ohio Rev. Code Ann. § 5801.01(C). This suggests that, even in a self-settled trust, a spendthrift provision will prevent the settler from transferring his or her interest in the trust. The only exceptions to the effectiveness of a spendthrift provision relate to when a creditor or assignee of the beneficiary can reach an interest in or a distribution from the trust. Ohio law further states that whether or not a trust contains a spendthrift provision, the settlor's creditor or assignee may reach the maximum amount that can be distributed to or for the settlor's benefit. See Ohio Rev. Code Ann. §§ 5805.06(A)(2), 5811.03(A)(1). Indeed, the official comment notes, "[W]hether the trust contains a spendthrift provision or not, a creditor of the settlor may reach the maximum amount that the trustee could have paid to the settlor-beneficiary. If the trustee has discretion to distribute the entire income and principal to the settlor, the effect of this subsection is to place the settlor's creditors in the same position as if the trust had not been created." Id. Because Ohio law allows such liberal access to the trust assets by "assignees," section 5805.06 could be read to suggest that the beneficiary of a self-settled trust could sell his beneficial interest in the trust and the purchaser could obtain the maximum amount that the trustee could distribute to or for the settlor's benefit. However, the Office of General Counsel has determined that the better reading of this provision presumes that only an assignee who is a creditor, not a purchaser for value, could reach the maximum amount the trustee could distribute for the settlor's benefit. See POMS 01825.039 Ohio (PS 08-159 SSI Review of the Trust and Annuity for Dustin J. E~). Therefore, it appears that spendthrift provisions in self-settled trusts governed by Ohio law may be fully valid with respect to the limitation on selling the settlor's beneficial interest in the trust. This interpretation of Ohio law would not have a significant impact where a trust is wholly discretionary. Even if the settlor could sell that interest, it would have no significant value. However, this interpretation would also mean that even the right to future mandatory disbursements could not be sold and therefore would not be a resource. This would be a significant departure from the Restatement (Third) of Trusts, as well as the Restatement (Second) of Trusts, both of which state that a spendthrift provision restraining the voluntary and involuntary alienation of the settlor's interest in the trust is invalid. See RESTATEMENT (SECOND) OF TRUSTS § 156(1), RESTATEMENT (THIRD) OF TRUSTS § 58(2). In fact, Ohio adopted the comment to Uniform Trust Code provision, which specifically cites to the Restatement (Second) of Trusts § 58(2) and states that "[a] spendthrift provision is ineffective against a beneficial interest retained by the settler." Ohio Rev. Code Ann. § 5805.01, cmt.; Unif. Trust Code § 502, cmt. It would seem odd, therefore, if the Ohio code (and the uniform code) intended to deviate from the Restatement in this important way. Since the law is not entirely clear, and since there are not yet any cases interpreting the Ohio provisions, we recommend that you refer to our office any self-settled trust governed by Ohio with a spendthrift provision and provisions for mandatory disbursements.
Wisconsin
Wisconsin recognizes spendthrift trusts as valid and not subject to voluntary or involuntary alienation only where the beneficiary is a person other than the settlor. Wisc. Stat. Ann. § 701.06(1)-(2). Therefore, it appears that a spendthrift provision would not prevent a settlor from selling his beneficial interest in the trust when he is also the settlor of the trust. Wisc. Stat. Ann. § 701.06(1)-(2)._4 However, we believe that Wisconsin would likely follow the Restatement (Third) approach--that a transferee would receive only the rights the settlor had under the trust, i.e., mandatory or discretionary disbursements. See In re Walters Family Trust, 685 N.W.2d 172 (Wis. Ct. App. 2004) (unpublished) (parties recognizing Restatement (Third) of Trusts as controlling law); see also POMS PS 01825.055 (PS 08-156 - Wisconsin - Review of the Trust for Brian G~) (citing to Restatement (Third) of Trusts as controlling authority in Wisconsin)). Therefore, the right to future mandatory disbursements from a self-settled trust would be considered a resource; however, the right to discretionary disbursements would not be considered a resource, as it is unlikely the right would be of any significant market value.
CONCLUSION
In sum,
o All states in the Chicago region would recognize the validity of a spendthrift provision in a third party trust.
o In all states in the Chicago Region, the beneficial interest in a self-settled discretionary trust would not be a countable resource because even if the individual can sell the interest, it would have no significant market value.
o In Illinois, Michigan, Minnesota, and Wisconsin, the beneficiary of a self-settled trust can sell the right to future mandatory disbursement, regardless of whether the trust has a spendthrift provision.
o Trusts governed by Indiana or Ohio law should be referred for a legal opinion if the trust is self-settled and provides for mandatory disbursements and has a spendthrift clause.
Donna L. C~ Regional Chief Counsel, Region V By: Anne M~ Assistant Regional Counsel
/_1 The trust may still be a resource for other reasons.
/_2 In Matter of Perkins, 902 F.2d 1254 (7th Cir.1990), the Seventh Circuit Court of Appeals noted the following considerations in determining whether a trust under Illinois law qualifies as a spendthrift trust: "(1) whether the trust restricts the beneficiary's ability to alienate and the beneficiary's creditors' ability to attach the trust corpus; (2) whether the beneficiary settled and retained the right to revoke the trust, and (3) whether the beneficiary has exclusive and effective dominion and control over the trust corpus, distribution of the trust corpus and termination of the trust." See, e.g., In re Silldorff, 96 B.R. 859, 864 (C.D.Ill.1989). The degree of control which a beneficiary exercises over the trust corpus is the principal consideration under Illinois law.
/_3 This provision states:(1) Where a person creates for his own benefit a trust with a provision restraining the voluntary or involuntary transfer of his interest, his transferee or creditors can reach his interest. (2) Where a person creates for his own benefit a trust for support or a discretionary trust, his transferee or creditors can reach the maximum amount which the trustee under the terms of the trust could pay to him or apply for his benefit.
/_4 Wisconsin law indicates that where a settlor is a beneficiary of a trust regardless of whether it has a spendthrift provision, a creditor may, at the discretion of the court, receive payments from the income or principal of the trust to satisfy a judgment. Wisc. Stat. Ann. 701.06(6)(a).
~~D. PS 08-080 SSI - Illinois: Review of the Life Insurance-Funded Burial Contract of Marilyn M~, ~ -Reply Your Reference: S2D5G6 (M~, Marilyn) Our Reference: 08-082-NC~~
E. PS 08-080 SSI - Illinois: Review of the Life Insurance-Funded Burial Contract of M~, ~ -Reply Your Reference: S2D5G6 (M~) Our Reference: 08-082-NC
DATE: March 14, 2008
1. SYLLABUS
This opinion evaluates a life insurance funded burial contract to determine if it is a countable resource for SSI purposes. The contract was signed in January, 2008 and the SSI beneficiary attempted to irrevocably assign the life insurance policy to fund the contract. Irrevocable assignment of a life insurance policy to fund a burial contract is permissible under Illinois state law, however, certain conditions must be met. One such condition is that the burial contract must specify whether the price of merchandise and services is guaranteed. In this case, the contract itself fails to meet that criteria and several others dictated by Illinois law. Failure to meet the required criteria means that the burial contract in this case may be void and unenforceable and, in any case, the life insurance policy has not been irrevocably assigned. Since the beneficiary can revoke the assignment and access the cash surrender value of the life insurance policy it is considered a resource for SSI purposes.
2. OPINION
This opinion is in reply to your February 1, 2008, inquiry concerning whether claimant Marilyn M~'s life insurance funded "Funeral Purchase Contract" constitutes a resource for purposes of SSI eligibility. For the following reasons, we conclude that the policy designed to fund the contract constitutes a resource.
This opinion is in reply to your February 1, 2008, inquiry concerning whether claimant M~'s life insurance funded "Funeral Purchase Contract" constitutes a resource for purposes of SSI eligibility. For the following reasons, we conclude that the policy designed to fund the contract constitutes a resource.
Background
Ms. M~ signed a document, apparently in January 2008, entitled "Funeral Purchase Contract." The document outlines funeral services for Ms. M~ in the amount of $8,734.25, to be arranged by Solon Baker & Telford Funeral Home ("Solon"), of Streator, Illinois. Ms. M~ funded the Funeral Purchase Contract with a life insurance policy that she purchased from Great Western Insurance Company ("Great Western") for $8,734.25. The face value of the policy is $9,098, and the cash surrender value is currently $3,812.52, and increases annually. Ms. M~ had the right to cancel the policy within 30 days after it was issued on January 22, 2008. The policy states that if there has been an irrevocable assignment of the policy, the cash value cannot be paid out. Ms. M~ attempted to irrevocably assign the policy to Solon, which agreed to transfer ownership immediately to the Great Western Funeral Trust.
Ms. M~ signed a document, apparently in January 2008, entitled "Funeral Purchase Contract." The document outlines funeral services for Ms. M~ in the amount of $8,734.25, to be arranged by Solon Baker & Telford Funeral Home ("Solon"), of S, Illinois. Ms. M~ funded the Funeral Purchase Contract with a life insurance policy that she purchased from Great Western Insurance Company ("Great Western") for $8,734.25. The face value of the policy is $9,098, and the cash surrender value is currently $3,812.52, and increases annually. Ms. M~ had the right to cancel the policy within 30 days after it was issued on January 22, 2008. The policy states that if there has been an irrevocable assignment of the policy, the cash value cannot be paid out. Ms. M~ attempted to irrevocably assign the policy to Solon, which agreed to transfer ownership immediately to the Great Western Funeral Trust.
DISCUSSION
A life insurance policy funded burial contract involves an individual purchasing a life insurance policy in her name and then assigning, revocably or irrevocably, either the proceeds or ownership of the policy to a third party, generally a funeral provider. The purpose of the assignment is to fund a pre-arranged burial contract. See POMS § SI 01130.425 (A)(1). We assume in these cases that the burial agreement itself is not a resource since it is tied to an insurance policy on the life of that individual. See POMS SI 01130.425(B)(1). The policy and its value, though, may be a resource. An asset is a resource for purposes of SSI eligibility if the claimant owns it and can convert it to cash to be used for his or her support and maintenance. See 20 C.F.R. § 416.1201(a). Thus, a life insurance policy may be a resource if a claimant can surrender it for cash or recover the premiums paid. See 20 C.F.R. § 416.1230.
Here, the policy was a resource for the first 30 days after it was issued because Ms. M~ had the absolute right to cancel the policy and recover the $8,735 premium paid during that time period. Further, the policy would continue to be a resource after the first 30 days, unless the policy was validly irrevocably assigned to the funeral home that put it into the trust. See POMS SI 01130.425(E); POMS SI 01120.201(H)(1) (statutory trust-counting provision would not apply if funeral provider placed funds for funeral in trust); POMS SI 01120.200(D) (trust established by a third party not a resource if individual cannot terminate the trust and recover the assets; directs trustee to provide for support and maintenance; or sells the right to mandatory future disbursements from the trust).
Ms. M~ attempted to irrevocably assign to Solon ownership and all benefits and proceeds of the policy used to fund her funeral services in exchange for Solon's promise to deliver funeral services. Further, such assignments are in accordance with Illinois law, and, indeed, when made irrevocable, protect the benefits and proceeds assigned from being deemed resources for purposes of SSI eligibility: "Nothing shall prohibit the purchaser [of a life insurance funded pre-need contract] from irrevocably assigning ownership of the policy or annuity used to fund a guaranteed price pre-need contract to a person or trust for the purpose of obtaining a favorable consideration for . . . Supplemental Security Income . . . . The seller or contract provider may be named a nominal owner of the life insurance policy only for such time as it takes to immediately transfer the policy to trust." 225 ILCS 45/2a(c). Nevertheless, while sanctioning life insurance funded pre-need burial contracts, the Illinois "Funeral or Burial Funds Act" ("the Act") considers such contracts "unlawful" and forbids a seller from "accept[ing] sales proceeds" where a pre-need contract fails to meet each of several requirements. 225 ILCS 45/1a-1. Here, the pre-need contract does not meet those requirements and is revocable and invalid. Therefore, the assignment of the policy to fund the agreement is revocable and invalid, and Ms. M~ can access the cash surrender value of the policy.
A. The Pre-Need Contract Is Not Price-Guaranteed, Making it Impossible
Under Illinois Law to Irrevocably Assign the Policy Used to Fund It and, Consequently, Rendering the Assignment of the Policy Revocable.
Ms. M~'s Funeral Purchase Contract-which, after Agency follow-up with Solon, appears to be the only pre-needs contract-related document among the parties-does not meet most of the requirements set forth in the Act. Among other things, and perhaps most importantly, the purchase contract does not specify whether the "price of the merchandise and services is guaranteed or not guaranteed as to price." 225 ILCS 45/1a-1(3). Also, whether the price is guaranteed or not, a pre-needs contract must include one of two different "12 point bold type" clauses that elaborate additional conditions depending on whether the price is guaranteed or not. See 225 ILCS 45/1a-1(3). Ms. M~'s purchase contract contains neither clause, and without this necessary language the contract cannot be considered price-guaranteed. Thus, because under Illinois law only a policy used to "fund a guaranteed price pre-need contract" may be irrevocably assigned, Ms. M~ could not have validly irrevocably assigned the policy at stake here. Further, where a pre-needs contract is not price-guaranteed, and therefore revocable, the assignment of the policy used to fund the contract must also be revocable. See 225 ILCS 45/2a(c), (d). Accordingly, Ms. M~ would be entitled to the policy's cash surrender value.
B. The Pre-Need Contract May Be Void and Unenforceable.
When a statute declares that it shall be unlawful to perform an act, and imposes a penalty for its violation, contracts for the performance of such acts are generally void and incapable of enforcement. See Broverman v. City of Taylorville, 381 N.E.2d 373, 376-77 (Ill. App. Ct. 1978); but see, Dixon v. Mercury Finance Company of Wisconsin, 694 N.E.2d 693, 697 (Ill. App. Ct. 1998) (refusing to invalidate a contract where the Sales Finance Agency Act did "not allow a plaintiff to declare a contract void; it only allow[ed] a plaintiff to recover damages for losses incurred due to a violation of the Act."). Here, the pre-need agreement may be void and unenforceable because it unlawfully failed to address several key aspects, including, as explained above, specifying whether the price was guaranteed and whether the agreement was revocable. Given the possibly unlawful and unenforceable nature of the policy, Ms. M~ would likely be entitled to restitution. See RESTATEMENT (SECOND) CONTRACTS § 198, CMT. B (1981) (noting that restitution applies where the public policy violated was intended for the claimant's protection). Therefore, she could recover the insurance policy she assigned to fund the agreement.
In addition, it is not clear whether Ms. M~ was informed of her rights under the agreement and given a copy of the "Illinois Consumers Guide, Pre-Need Funeral and Burial Purchases"; there is no copy of this, or a similar booklet, in the file, and the contract does not contain a required statement "confirming that the seller has explained the terms of the contract prior to the purchaser signing." 225 ILCS 45/1a-1(e). Among other things, the booklet spells out that Ms. M~ may seek restitution through the Illinois Office of the Comptroller and the Attorney General's office if she believes that she has been treated unfairly. See Ill. Admin. Code, Title 38, § 610, Exh. A (2008).
CONCLUSION
In sum, the life insurance policy was a resource for the first 30 days after it was issued because Ms. M~ could cancel the policy and recover the $8,734.25 premium paid. After that time, the policy was still a resource because the pre-need funeral contract was revocable and invalid. Therefore, the assignment of the insurance policy to fund the agreement is revocable and invalid, entitling Ms. M~ to policy's cash surrender value (currently $3,812.52). The $1500 burial funds exclusion, however, may be applied. See POMS SI 01130.412(C)(1)(b).
Donna L. C~ Regional Chief Counsel, Region V By: Kyle K~ Assistant Regional Counsel
~~E. PS 08-061 SSI-Illinois-Review of Annuity Payments for Krysten M~, ~ - REPLY Your Ref: S2D5G6, SI 2-1-3 IL (M~) Our Ref: 07-0337-nc~~
F. PS 08-061 SSI-Illinois-Review of Annuity Payments for Krysten M~, ~ - REPLY Your Ref: S2D5G6, SI 2-1-3 IL (M~) Our Ref: 07-0337-nc
DATE: February 11, 2008
1. SYLLABUS
This opinion addresses whether or not the periodic payments made to the special needs trust in question are income for SSI purposes. A legally assignable payment that is assigned to a trust that is not a resource is income unless the assignment is irrevocable. If the assignment is revocable, then the payments are income to the individual legally entitled to receive them. In this case, while the SSI recipient is a minor, the payments were effectively irrevocably assigned to the trust, and thus they are not income for SSI purposes. However, once the recipient reached the age of majority in Illinois (18 years old), the recipient was entitled to directly receive the periodic payments. The entitlement to direct payments means the assignment is revocable and thus the payments are considered income to the recipient upon reaching the age of majority.
2. OPINION
You asked us whether certain periodic payments made to the Krysten M~ Supplemental Needs Trust are income for SSI purposes. You indicated that you have already determined that the trust is not a resource. We conclude that the annuity payments should not be considered income prior to the date that Krysten became an adult, January 12, 2007. However, beginning January 2007, when Krysten became an adult, the payments should be considered income.
Background
On October 24, 1997, when Krysten was a minor (Krysten is currently 19 years old, having been born in January 1989), Magna B~, then the guardian of Krysten's estate, entered into a personal injury settlement agreement that provided for monthly payments of $1,500 to Magna B~, as guardian. The payments began in November 1997, and will increase to $2,000 per month in 2011, and they continue for Krysten's lifetime. In addition, the payments are guaranteed through 2047, even if Krysten were to die. The guaranteed payments would go to Krysten's parents or as designated by Magna B~, as guardian. The settlement agreement provides that payments cannot be sold, anticipated or assigned.
Also on October 24, 1997, the Krysten M~ Special Needs Trust (hereinafter trust) was established by Krysten's parents and Magna B~, as guardian. The trust states that the trustee (Magna B~) shall receive monthly payments in accordance with the attached schedule of payments commencing in November 1997 and lasting for Krysten's lifetime.
The trust further states that it was established pursuant to a state probate court order, and, indeed, the record contains a probate court order dated October 24, 1997, that approves the creation of a supplemental needs trust as set forth in a petition filed by Krysten's parents and Magna B~, as guardian, and finds that the trust is fair, equitable and in the best interests of Krysten. The petition states that the purpose of the trust is to provide a system for the management of the settlement funds, and a copy of the trust was attached as an exhibit. In addition, at this same time, Magna B~, as guardian, also filed a petition seeking court approval for distribution of Krysten's estate that stated, in part, that the settlement funds and periodic payments would be deposited into the trust. The court also approved this petition.
At some point thereafter, Magna B~ was acquired by Regions B~, and Regions B~ assumed the duties of Krysten's guardian and trustee.
~~On January 12, 2007, Krysten turned 18 years old.~~
On January XX, 2007, Krysten turned 18 years old.
The monthly periodic payments were originally and continue to be made payable to Magna B~, as guardian. The payments are mailed to the attention of one of the trust officers at Regions B~, and then deposited into Krysten's trust account at Regions B~.
There has been no court activity at any time since the October 1997 order approving the creation of the trust.
DISCUSSION
As you know, under the resource rules, a legally assignable payment that is assigned to a trust that is not a resource is income unless the assignment is irrevocable. POMS SI 01120.200(G)(1)(d). If the assignment is revocable, then it is income to the individual legally entitled to receive it. Because the treatment of the periodic payments differs depending on whether Krysten was a minor or an adult, we address the revocability question in two sections.
Treatment of the Periodic Payments During the Time that Krysten Was a Minor
Here, the probate court order approved the creation of a special needs trust as set forth in and attached to the petition filed by Magna B~, as guardian, and Krysten's parents. See 755 ILL. COMP. STAT. 5/11-13(b) (West 2008) (court, upon petition of guardian, may permit guardian to create irrevocable trust for minor). And, the trust states that the trustee (Magna B~) shall receive monthly payments in accordance with an attached schedule of payments commencing in November 1997 and lasting for Krysten's lifetime. Moreover, in the petition seeking approval for distribution of Krysten's estate, which was approved by the court, Magna B~, as guardian, stated that the periodic payments would be deposited into the trust. Thus, although the settlement agreement provides that the payments go to Magna B~, as guardian, and that the payments cannot be sold, anticipated or assigned, the probate court order would require that Magna B~, as guardian, turn over the payments to Magna B~, as trustee. See 755 ILL. COMP. STAT. 5/11-13(b) (guardian shall apply income and principal of minor's estate for any purpose which the court deems to be in the best interests of the ward.). As such, Magna B~ (or Regions B~), as guardians of Krysten's estate, would be blocked from using the periodic payments for the support and maintenance of Krysten. See POMS SI CHI01140.215. And, it follows that any change in this court-ordered disposition of the periodic payments would also require a showing that such a change was in the best interests of Krysten. 755 ILL. COMP. STAT. 5/11-13(b). This, however, would be unlikely since we are not aware of any change of circumstances since the probate court order was entered that would cause the court to reconsider its finding that directing the periodic payments to the trust was in Krysten's best interests. Therefore, during the time that Magna B~, or its successor, Regions B~, was obligated by the probate court order to deposit the periodic payments into the trust (which, as we discuss below, was only during Krysten's minority), the payments were effectively irrevocably assigned to the trust, and thus were not income under POMS SI 01120.200(G)(1)(d). See Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, Review of the Marital Settlement Agreement for Patricia J. H~ and Floyd A. H~ and the Patricia J. H~ Special Needs Trust, at 3-4 (Dec. 4, 2003).
Treatment of the Periodic Payments After Krysten Became an Adult
In Illinois, upon reaching the age of majority (18 years old), a guardianship established during minority is automatically terminated, without the need for court involvement. See In re Estate of W~, 673 N.E.2d 272, 277 (1996) ("The Probate Act of 1975 does not provide for the automatic termination of a guardianship for a disabled ward as in the case of a minor ward who reaches the age of majority (see 755 ILCS 5/11-14.1 (West 1992))." (emphasis in original)); 755 ILL. COMP. STAT. 5/11-14.1 (West 2008) ("Upon the minor reaching the age of majority, the letters of office shall be revoked . . . and the guardianship over that minor shall be terminated."). Thus, as of Krysten's eighteenth birthday, in January 2007, her guardianship terminated. As such, she was then entitled to receive the periodic payments directly. In re Estate of W~, 673 N.E.2d at 277 (Upon restoration of a ward, the ward has the right to be put in possession of his or her property, "and to ask the court to order the guardian to deliver to the ward all of the ward's money and property that the guardian has, or the money and property to which the ward is entitled."). Thus, even though Regions B~ continued to receive and deposit the periodic payments into Krysten's trust account, because Krysten, as of the time she became an adult, could have requested that the payments be turned over to her directly, the assignment was revocable and the payments were income to her as of January 12, 2007.
In Illinois, upon reaching the age of majority (18 years old), a guardianship established during minority is automatically terminated, without the need for court involvement. See In re Estate of W~, 673 N.E.2d 272, 277 (1996) ("The Probate Act of 1975 does not provide for the automatic termination of a guardianship for a disabled ward as in the case of a minor ward who reaches the age of majority (see 755 ILCS 5/11-14.1 (West 1992))." (emphasis in original)); 755 ILL. COMP. STAT. 5/11-14.1 (West 2008) ("Upon the minor reaching the age of majority, the letters of office shall be revoked . . . and the guardianship over that minor shall be terminated."). Thus, as of Krysten's eighteenth birthday, in January 2007, her guardianship terminated. As such, she was then entitled to receive the periodic payments directly. In re Estate of W~, 673 N.E.2d at 277 (Upon restoration of a ward, the ward has the right to be put in possession of his or her property, "and to ask the court to order the guardian to deliver to the ward all of the ward's money and property that the guardian has, or the money and property to which the ward is entitled."). Thus, even though Regions B~ continued to receive and deposit the periodic payments into Krysten's trust account, because Krysten, as of the time she became an adult, could have requested that the payments be turned over to her directly, the assignment was revocable and the payments were income to her as of January XX, 2007.
Finally, we note that the settlement agreement provided that the periodic payments were guaranteed through 2047, even if Krysten should die sooner, and that Magna B~, as guardian, could decide who would receive these guaranteed payments. After Krysten turned 18, this right to designate who would receive the guaranteed payments, like the right to receive the periodic payments while she was alive, would also belong to her. It is possible that this right has some market value; however, given Krysten's young age and without any indication that she has a reduced life span due to her impairment (double leg amputee), the value of this right would likely be insignificant, and thus further development of this issue is probably unnecessary.
CONCLUSION
For the reasons discussed above, we conclude that the periodic payments are income to Krysten as of her eighteenth birthday, in January 2007, but not before.
Donna L. C~ Regional Chief Counsel, Region V By: Todd D~ Assistant Regional Counsel
~~F. PS 08-054 SSI-Illinois-Review of the Ani M. H~ OBRA Pay Back Trust, SSN ~ - REPLY Your Reference: S2D5G6, SI 2-1-3 IL (H~) Our Reference: 08-028~~
G. PS 08-054 SSI-Illinois-Review of the Ani M. H~ OBRA Pay Back Trust, SSN ~ - REPLY Your Reference: S2D5G6, SI 2-1-3 IL (H~) Our Reference: 08-028
DATE: January 28, 2008
1. SYLLABUS
This opinion evaluates a trust established for a disabled SSI beneficiary. The trust is intended to meet the requirements for the Medicaid trust exception. It was established for the benefit of the SSI beneficiary with the assets of the beneficiary's parents and subsequently funded with the beneficiary's assets. While the trust meets the first two requirements under the Medicaid trust exception, it does not meet the third requirement pertaining to Medicaid reimbursement upon death. The terms of the trust state that the beneficiary's home state of Illinois must be reimbursed for Medicaid expenditures, but do not require reimbursement to other states. Instead, the terms establish a complicated process of reimbursement for other states that may not ultimately result in repayment to those states. Specifically, the two sections of the trust require other states to respond to one of the first two requests within a specified timeframe or the remainder of the trust will be distributed to the beneficiary or their heirs-at-law. Since the trust does not comport to the requirements of the Medicaid trust exception, it is determined to be a countable resource.
2. OPINION
You have asked whether the trust established for the benefit of Ani M. H~ is a countable resource for purposes of determining Ani's eligibility for Supplemental Security Income (SSI). For the reasons explained below, we conclude that the portion of the trust attributable to Ani's contribution to the trust should be considered a countable resource when determining Ani's eligibility for SSI.
BACKGROUND
The Ani M. H~ OBRA Pay Back Trust (the trust) was established for the benefit of Ani, who is disabled. Ani's parents established the trust with a gift of $10.00, but we assume that the rest of the trust was funded with Ani's assets. The stated purpose of the trust is to maintain Ani's qualifications for all applicable government benefits and to enable Ani to lead as normal, comfortable, and fulfilling life as possible. See Trust, Article I, section 1.2.
Distribution of the income and principal of the trust is made by the Trustees, David and Shirley H~. The Trustees are to distribute the income and principal for Ani's benefit, but shall make no distributions which could result in the disqualification of Ani receiving state provided funds or charity provided funds. See Trust, Article II, section 2.1. The Trustees are authorized to reimburse the Grantor or a family member for any and all federal, state, and municipal income taxes which the Grantor or such family member may be required to pay for taxable income allocable to Ani which is taxable to the Grantor or a family member. See Trust, Article II, section 2.2. Ani may, upon her death, appoint all or any part of the trust estate for the benefit of any one or more persons other than herself, her estate, her creditors or the creditors of her estate, subject to sections 3.1 and 3.2. See Trust, Article II, section 2.3.
The Trust specifies that it may terminate: upon Ani's death; in the event that Ani no longer qualifies as a disabled person; or in the event that the relevant statutes authorizing the execution of the trust are revoked and such revocation is applicable to the trust. See Trust Article 3, section 3.4. Upon termination of the trust, the Trustee shall pay: the Illinois Department of Healthcare and Family Services any amounts due and owing; reasonable fees for the administration of the Beneficiary's guardianship, trust, or probate estate; and all taxes due from the trust to the State or Federal government. See Trust, Article III, Section 3.1. Section 3.2 includes a requirement that the Trustee obtain an accounting from any and all appropriate state agencies of payments made under public benefits programs on behalf of the Beneficiary during her lifetime. See Trust, Article III, Section 3.2. The Trustee is directed to send in writing by certified mail notification at any state agency of Ani's death and subsequent good faith attempts to contact the agencies. If the agencies respond, the Trustee shall pay them any reimbursement owed. However, if the Trustee does not receive a response after two attempts to contact the agency over one year, the Trustee shall send a final notice to the agency and shall disburse the remainder of the trust to the person(s) appointed under Section 2.3 or to Ani or her heirs-at-law within 30 days. See Trust, Article III, Section 3.3, 3.4.
The Trust is described as "irrevocable" and is intended to be irrevocable pursuant to SI-01120.200.D.2 of the POMS. See Trust, Article V, section 5.1.
DISCUSSION
Pursuant to POMS SI 001120.201(D)(2), the principal of an irrevocable trust established with the assets of an individual (on or after January 1, 2000) is a resource if payments from the trust principal could be made to or for the benefit of the individual, unless one of the exceptions applies in POMS SI 01120.203 (listing Medicaid trust exceptions for individuals).
Although the trust purports to fall under the Medicaid payback trust exception, the trust does not meet all of the requirements to qualify for a Medicaid payback trust exception. The Medicaid payback trust exception for individual trusts applies where the trust is: (1) established with assets of an individual under age 65 who is disabled; (2) established for the benefit of such individual by a parent, grandparent, legal guardian or a court; and (3) provides that, on the death of the individual, any funds remaining in trust will be used to reimburse the state for Medicaid payments made for the benefit of the individual during her lifetime. 42 U.S.C.§ 1396p(d)(4)(A); POMS SI 01120.203(B)(1).
While the trust meets the first two requirements of the Medicaid payback trust exception, it fails to meet the third requirement, namely that the state be reimbursed for Medicaid payments made for Ani's benefit during her lifetime. The statute provides that a trust is excepted only "if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State [Medicaid] plan . . . ." 42 U.S.C. § 1396p(d)(4)(A). POMS SI 01120.203 (B)(1)(f) explains that, "[t]o qualify for the special-needs trust exception, the trust must contain specific language that provides that upon the death of the individual, the State will receive all amounts remaining in the trust, up to an amount equal to the total amount of medical assistance paid on behalf of the individual under the State Medicaid plan. This State must be listed as the first payee and have priority over payment of other debts and administrative expenses," subject to specific exceptions. The POMS directs that the trust at issue "must contain language substantially similar to" the above-quoted language. POMS SI 001120.203(B)(1)(f).
The Trust in this case does not identify the state as the primary beneficiary and requires only that the Illinois Department of Healthcare and Family Services be reimbursed for Medicaid expenses made for Ani's benefit during her lifetime. The trust does not require the Trustee to reimburse any other states for Medicaid expenses they have made for Ani automatically. Instead, Sections 3.2 and 3.3 require a complicated process of reimbursement for any state other than the State of Illinois and allow for the possibility that those states could forfeit any amount owed if the state is dilatory in responding to the Trustee's two written notifications. See Trust, Article III, Section 3.2 and 3.3. Sections 3.2 and 3.3 require the State to respond within a specific timeframe to the Trustee's correspondence and, if no response is received, the Trustee is directed to distribute the remainder of the trust to Ani or her heirs-at-law. This provision is at odds with the Medicaid payback trust exception which requires states to be reimbursed for medical assistance paid on behalf of the individual under the State Medicaid plan. The Medicaid payback trust exception does not allow for the possibility of forfeiture of the state's entitlement to costs and, therefore, the trust does not qualify under the exception.
Moreover, it appears that the trust allows for other payments prior to the reimbursement to states other than Illinois which are not allowable expenses. This is inconsistent with the requirement that the State be listed as the first payee and have priority over payment of other debts and administrative expenses. See 42 U.S.C. 1396p(d)(4)(A); see also POMS SI 001120.203(B)(1)(f). While the trust provides for payment to the Illinois Department of Healthcare and Family Services any amounts due and owing upon termination of the trust, it then allows for reasonable fees to be paid for the administration and termination of the Beneficiary's guardianship prior to reimbursement to any other state which may be entitled to reimbursement under the Medicaid payback exception. See Trust, Article III, Section 3.1. While taxes due from the trust and fees for trust administration may be paid prior to reimbursing the State Medicaid expenses, payments of debts to third parties prior to Medicaid reimbursement are specifically prohibited. POMS SI 001120.203(B)(3)(a), POMS SI 001120.203(B)(3)(b). As such, the allowance of payment owed for the administration and termination of the guardianship may not be made prior to reimbursement of the State.
Additionally, the trust's provision allowing for the Grantor or Ani's family members to be reimbursed for income taxes they are required to pay for taxable income allocable to Ani which is taxable to the Grantor or such family member is problematic because it could allow for reimbursement which could benefit someone other than Ani during Ani's lifetime. See Trust, Article II, Section 2.2. In order to qualify for the Medicaid payback exception, the trust must be established for the sole benefit of the disabled individual (during his or her lifetime). POMS SI 01120.203(B)(1)(a); POMS PS 01825.016 Illinois - Review of the Brian V~ Irrevocable OBRA Pay Back Trust Our Reference: 04S044 Your Reference: S2D5G6, S1 2-1-3 IL (V~). This provision is too broad as it allows for relief of another individual's tax burden which is not necessarily associated with the trust itself, even if the income is allocable to Ani.
Finally, you have questioned whether the trust would be a countable resource for SSI purposes under the regular resource rules. As we have previously advised, the rules governing when trust assets affect eligibility for Medicaid are different from SSI rules for determining when assets are countable resource. Even if the trust is amended such that it is consistent with the provisions of the Medicaid payback exception, it may still be a resource for SSI purposes. See States Named as Beneficiary of a Trust, OGC-V (D~) to Gloria P~, ARC-MOS (June 24, 1997). Assets are a resource for SSI purposes if the individual owns them and can convert them into cash to be used for her support and maintenance. See 20 C.F.R. § 416.1201(a). Trust assets are a resource if the individual can revoke the trust and use the assets to meet her needs for food, clothing and shelter, or if the individual can direct the use of the trust assets to be used for her support and maintenance. See POMS SI 01120.200(D). An individual's beneficial interest in a trust may also be a resource if the individual can sell that interest. See Zebley Trust as aan SSI Resource-Wisconsin, Bernard W~; OGC V (M~) to M~, Acting ARC-POS (Feb. 23, 1993) at 5.
Here, we conclude that if the trust were amended so that it met the Medicaid payback exception, it would not be a countable resource for SSI purposes. Under the terms of the trust, Ani cannot direct the Trustees to use the assets in the trust for her support and maintenance. Rather, the trustees have sole discretion to disburse such funds and disbursements are to be made only for the beneficiary's supplemental care. See Trust, Article I, Section 1.2, and Article II, Section 2.1.
Ani also lacks the right to revoke the trust. The trust expressly provides that it is irrevocable pursuant to SI-01120.200.D.2 of the POMS. See Trust, Article V, section 5.1. And, indeed, there are remainder beneficiaries to the trust whose assent would be required in order to revoke the trust. See Trust, Article 3, Section 3.5.
We do not believe that the limited power of appointment afforded to Ani in sections 2.3 and 8.2 constitutes the ability to sell her interest in the trust. See Trust, Article II, section 2.3 and Article VIII, Section 8.2. Although these sections allow for the possibility that Ani could assign a future heir of her choosing the right to receive the proceeds of her trust in exchange for money in the present day, there is no real likelihood of that occurring because the trust is valued at only about $40,000.00, and the trust will likely be exhausted by obligations to reimburse the state, as Ani is only 19 years old.
CONCLUSION
For the above reasons, we conclude that any portion of the trust that was established with Ani's funds is a countable resource and does not satisfy the requirements of a Medicaid payback trust because it does not require reimbursement to all states for Medicaid expenses and it allows for payments relating to Ani's guardianship to be made prior to state reimbursement. For these reasons, we conclude that trust does not comply with the Medicaid trust payback exception and therefore is a resource. If the trust is amended to comply with the Medicaid trust payback exception, we conclude that it would not constitute a resource for SSI purposes.
~~G. PS 08-017 SSI- Illinois-Review of the Life Insurance Funded Burial Contract of Connie T~, ~-REPLY Your Ref: S2D5G6, SI 2-1-4 IL Our Ref: 07-0329-NC~~
H. PS 08-017 SSI- Illinois-Review of the Life Insurance Funded Burial Contract of Connie T~, ~-REPLY Your Ref: S2D5G6, SI 2-1-4 IL Our Ref: 07-0329-NC
DATE: October 31, 2007
1. SYLLABUS
In this case the assignment of a life insurance policy as collateral to a funeral home does not meet the requirement to be non-countable because there is no written contract. A written contract is a required element of a pre-need funeral arrangement under the Illinois Funeral or Burial Funds Act. In fact, the absence of a written contract in this situation is unlawful under Illinois law. Being unlawful at the outset the owner of the policy has a right to request that the funeral home surrender the life insurance policy to her and therefore, the policy is considered a countable resource.
2. OPINION
You asked us whether a life insurance policy originally owned by the claimant, but recently assigned as collateral to a funeral home, should be considered a resource. For the reasons discussed below, we conclude that it should.
BACKGROUND
In March 2007, the claimant, Connie T~, signed a document that purports to assign to Templeton Funeral Homes, Paris, IL, ("Templeton") an interest in Country insurance policy number ~. The document states that it "protects [Templeton] in case [Ms. T~ does] not live up to [her] obligations." The document also states that most rights under the policy are being assigned, including the right to collect the surrender value, the right to collect the proceeds when they become payable, and the right to borrow on the policy. The document adds that Templeton will not cash in the policy or borrow on it unless Ms. T~ is in "default," which is defined as occurring (1) when Ms. T~ fails to pay any obligations to Templeton as they become due, (2) when Ms. T~ files for bankruptcy, or (3) when Ms. T~ dies.
The Country insurance policy that was assigned listed Ms. T~ as both the owner and the insured. The policy apparently has a net value, as of May 9, 2007, of $3,486.65 (cash value plus paid-up additions minus a loan amount of $1,180.40).
In response to your concern about the absence of a contract with Templeton, an individual from the Field Office contacted Templeton, but was told that all they had in Ms. T~'s file was the assignment document and some personal identifying information.
DISCUSSION
It appears that Ms. T~ intended to enter into a prepaid burial contract with Templeton, which would be funded with her life insurance policy. See generally POMS SI 01130.420, 01130.425 (describing prepaid burial contracts and life insurance funded burial contracts). Unfortunately, although Ms. T~ assigned her life insurance policy as collateral for the arrangement, which is acceptable in Illinois, see, e.g., Winstead v. Peoples Bank of Bloomington, 493 N.E.2d 1183 (Ill. App. Ct. 1986), it does not appear that Ms. T~ ever entered into a contract for goods or services-at least not a written contract.
A written contract, however, is a required element of a pre-need funeral arrangement under the Illinois Funeral or Burial Funds Act, 225 ILL. COMP. STAT. ANN. § 45/1a-1(a)(3), (d) (West 2007). Indeed, the Act states that it "shall be unlawful . . . to accept sales proceeds . . . unless the seller enters into a [written] pre-need contract with the purchaser." Id. "Sales proceeds" is defined as "the entire amount paid to a seller . . . for the purpose of performing funeral services or furnishing . . . property . . . of any nature in connection with the final disposition of a dead human body, including, but not limited to, the retail price paid for such services and . . . property." 225 ILL. COMP. STAT. ANN. § 45/1a (West 2007). We believe that this broad definition of "sales proceeds" would encompass the assignment of an insurance policy that was clearly intended to be used to pay for the claimant's funeral, if she has one, and thus, Ms. T~'s pre-need arrangement is unlawful under Illinois law.
Contracts of insurance, including assignments thereof, are governed by the principles of contract law generally. In re Cohen's Estate, 163 N.E.2d 533, 536-37 (Ill. App. Ct. 1959). And, under contract law, "when a statute declares that it shall be unlawful to perform an act, and imposes a penalty for its violation, contracts for the performance of such acts are void and incapable of enforcement." Frankel v. Allied Mills, 17 N.E.2d 570, 583 (Ill. 1938); Broverman v. City of Taylorville, 381 N.E.2d 373, 376-77 (Ill. App. Ct. 1978); see also RESTATEMENT (SECOND) CONTRACTS §§ 178, 179 (1981) (discussing unenforceability on grounds of public policy). Here, the statute has a penalty provision, 225 ILL. COMP. STAT. ANN. § 45/8 (West 2007), and thus the assignment was void at the outset, at least in terms of Templeton's ability to enforce the arrangement.
Notwithstanding the unlawful nature of the arrangement entered into by Ms. T~, she might be able to enforce it despite the absence of a written contract, if she could prove that the parties had a contract for the provision of goods and/or services. Broverman, 381 N.E.2d at 376 ("Exceptions to the rule may be applicable where the parties are not In pari delicto, or where the law which makes the agreement unlawful is intended for the protection of the party seeking relief."). In any case, what is critical here is that Ms. T~ would also have the alternative remedy of restitution, meaning she could ask for the insurance policy to be returned to her. RESTATEMENT (SECOND) CONTRACTS § 198, cmt. b (1981) (noting that restitution applies where the public policy that was violated was intended to protect the claimant, as is the case with the Illinois Funeral or Burial Funds Act). Because of this right to request that Templeton surrender the insurance policy, the policy is a resource to the extent of its cash surrender value, $3,486.65, although the $1,500 exclusion should be applied, if applicable. POMS SI 01130.300(B)(1), (2).
CONCLUSION
For the reasons discussed above, the Trust should be considered a resource for SSI purposes.
Donna L. C~ Regional Chief Counsel, Region V
By: Todd D~ Assistant Regional Counsel
~~H. PS 07-153 SSI- Illinois - review of the David C~ f/k/a K~ Supplemental Care and Needs Trust, ~ - REPLY Our Ref: 07-0266 Your Ref: S2D5G6; SI 2-1-3 IL (C~)~~
I. PS 07-153 SSI- Illinois - review of the David C~ f/k/a K~ Supplemental Care and Needs Trust, ~ - REPLY Our Ref: 07-0266 Your Ref: S2D5G6; SI 2-1-3 IL (C~)
DATE: June 11, 2007
1. SYLLABUS
This opinion evaluates whether a self-funded trust meets the statutory requirements to be excluded under section 1917(d)(4)(A) of the Social Security Act. The trust in question was funded by a settlement awarded to an SSI eligible minor child and established by the child's guardian. The trust recognizes that the child may, at some point, move to another state, but fails to provide for potential payback for Medicaid services provided in any state other than Illinois. This type of provision does not satisfy the statutory requirements because it would frustrate any other state's ability to receive reimbursement. Further, even if that language was amended, the trust is countable resource due to the ability of the child's guardian to revoke the trust in her capacity as the child's agent.
2. OPINION
You have asked whether the David C~ f/k/a K~ Supplemental Care and Needs Trust (Trust) is a resource. We have reviewed the Trust documents and determined that the Trust is a resource to David C~, a disabled minor (David), because the Trust does not meet the Medicaid payback requirements. In addition, even if the Trust were amended to meet these requirements, it would still be a resource because it can be revoked and/or amended by the guardian of David's estate.
BACKGROUND
On February 20, 2007, the Trust was established by Tina M~, David's mother and guardian, and Trust and Investment Group of Belvidere Bank (Bank), guardian of David's estate. See Trust, introductory paragraph. The Bank was also named as trustee of the Trust. Id. Although the Trust does not state the source of the corpus, we are aware that the Trust was funded with proceeds of a malpractice settlement on David's behalf. The purpose of the Trust is to provide for David's supplemental needs and is designed to meet the Medicaid Trust Exception under section 1917(d)(4)(A) of the Social Security Act, commonly referred to as the special needs trust exception. See Trust, Art. One. Although David cannot revoke or amend the Trust directly, the Trust can be revoked and/or amended by the Bank as grantor of the Trust. See Trust, Art. One, § 1.03; Art. Two, § 2.05. The Trust is to be interpreted by Illinois law or the state "in which the Trust Corpus is present." Trust, Art. Seven, § 7.01.
At David's death, the Trust provides that the principal is to be distributed as follows:
Pay back to the State of Illinois, or its successor government agency, the amount expended on David's behalf for medical assistance under the State of Illinois Medicaid Plan;
The remaining principal is to be distributed to Tina M~;
If Tina M~ predeceases David (or does not survive him for more than thirty days), the remainder shall be divided equally and distributed to Linda L~ and Debra H~.
Trust, Art. Four.
APPLICABLE LAW
Under the statutory trust resource rules, 42 U.S.C. § 1382b(e), a self-funded trust is generally considered a resource to the individual unless it satisfies one of the Medicaid trust exceptions or the waiver for undue hardship. POMS SI 01120.203.
The Medicaid trust exception for individual trusts requires that the trust (1) be established with the assets of a disabled individual under age sixty-five; (2) be established for the [sole] benefit of such individual by a parent, grandparent, legal guardian, or a court; and (3) expressly provide that any amounts remaining in the trust upon the death of the individual will be distributed first to the State, up to an amount equal to the total medical assistance paid on behalf of the individual under a state Medicaid plan. See 42 U.S.C. §§ 1382b(e)(1) and (5), 1396p(d)(4)(A); POMS SI 01120.203(B)(1)(a).
The trust must also satisfy the regular trust resource rules. POMS S 01120.200 (B)(1)(a). Thus, regardless of whether the statute applies, or whether the trust qualifies for the Medicaid payment trust exception, the trust must be irrevocable and satisfy the regular resource rules or it will be considered a resource for purposes of SSI eligibility. Id.
DISCUSSION
This Trust Does not Satisfy the Medicaid Trust Exception for Individual Trusts.
To meet the Medicaid trust exception, a trust must contain the assets of a disabled person. David is disabled and receiving SSI. The Trust is funded with the assets from David's Settlement Agreement. The individual must be younger than sixty-five and David was born in 1993, so he is younger than sixty-five. The trust must have been established by a parent, grandparent, legal guardian or court. In this case, the Trust was established by both David's mother and the guardian of his estate. An additional requirement is that the trust must be established for the sole benefit of the beneficiary. Here, the Trust repeats several times that the purpose of the Trust is for David's benefit. No other individual is named as receiving any benefit during David's lifetime.
However, the key element of the Medicaid trust exception is that, at the death of the beneficiary, all amounts remaining in the trust must be distributed first to the State as payback for prior medical assistance. At David's death, the Trust provides that the principal is to be distributed to the State of Illinois as payback for prior medical assistance. Although the Trust recognizes that the Trust may, at some point, move to a different state, see Trust § 7.01, the Trust does not provide for the payment of medical assistance paid by any other state if David were to move. The Office of Income Security Programs advised that the agency does not consider this type of provision to satisfy the statutory requirements because it would frustrate any state's (other than Illinois') ability to receive medical assistance paid to David during his lifetime. The Statute requires that the trust must provide for reimbursement of "the total medical assistance paid on behalf of the individual under a State plan under this subchapter." 42 U.S.C. § 1396p(d)(4)(a). Because this Trust permits reimbursement only to payments made under Illinois' plan, it does not meet this standard. Thus, we believe that not all of the elements of the Medicaid trust exception are satisfied. POMS SI 01120.203(B)(1)(a).
This is a Revocable Trust: David can Revoke the Trust Through his Guardian .
However, even if the Trust satisfied the Medicaid Payback provisions, the Trust would still be a resource if (1) David can revoke the Trust and use the assets for his support and maintenance, or (2) he can direct the Trustee to pay him the funds or use the funds for his support and maintenance. POMS SI 01120.200(D). In addition, David's interest in the Trust is a resource if it can be sold. Id.
The Trust provides that David does not have the right or ability to obtain Trust assets, to direct the Trustee to use the Trust assets for his support or maintenance; and does not have the authority to liquidate the beneficial interest in the Trust or otherwise alienate the beneficial interest of the Trust. See Trust, Art. Two, § 2.05; Art. Five, §§ 5.01, 5.03, 5.04.
Thus, the only consideration is whether the Trust is revocable. If so, it would be considered a resource. 42 U.S.C. § 1382b(e)(3)(A); POMS SI 01120.201(D)(1)(a); see also, generally, 20 C.F.R. § 416.1201(a) (defining resources for SSI purposes). Here, the plain language of the Trust states that the Trust is revocable and can be amended. See Trust Art. One, § 1.03. However, this power appears to be limited to the Bank, as the named grantor of the Trust and guardian of David's estate. The Trust specifically states that David, as the Trust beneficiary, is unable to revoke or amend the Trust. See Trust Art. Two, § 2.05.
For SSI purposes, an agent is a person or organization acting on behalf of and/or with the authorization of another person. The term applies to anyone acting in a fiduciary capacity, whether formal or informal, and regardless of the applicable title, which, in this case, is guardian of David's estate. See POMS SI 01120.020(B)(1). An action by David's guardian of his estate is equivalent to an action by David. See POMS SI 01120.020(C)(1) (action of an agent is equivalent to an action by the individual for whom he acts). Thus, since the guardian of David's estate is presumed to act on his behalf, the question is whether the Trust, notwithstanding its provision that David is unable to revoke the Trust, can be revoked indirectly by David. Because the Trust clearly allows the guardian to amend and/or revoke the Trust, the Trust is revocable. Since the Trust is revocable, it is a resource to David.
CONCLUSION
For the reasons discussed above, the Trust should be considered a resource for SSI purposes.
Donna L. C~ Regional Chief Counsel, Region V
By: Janet M. G~ Assistant Regional Counsel
~~I. PS 07-069 SSI-Illinois Review of the Second Amendment to the Illinois Disability Pooled Trust - ACTION, Your Ref: SI 2-1-3 IL, Our Ref: 06-0064~~
J. PS 07-069 SSI-Illinois Review of the Second Amendment to the Illinois Disability Pooled Trust - ACTION, Your Ref: SI 2-1-3 IL, Our Ref: 06-0064
DATE: February 14, 2007
1. SYLLABUS
This opinion addresses whether or not a sub-account in the Illinois Disability Pooled Trust can be excluded from resources for SSI purposes. To be excluded from resources under the Medicaid trust exception a pooled trust must satisfy several criteria. Two of the criteria are that the trust must be established for the sole benefit of the beneficiary and that to the extent that the trust does not retain funds remaining in the sub-account, the State Medicaid Agency must be listed as first payee. The amended trust below contains several provisions that could allow for third-parties to benefit from the trust during the beneficiary's lifetime. In addition, the trust also contains provisions that frustrate the Medicaid payback requirement. While these provisions would preclude the trust from being excluded from resources for SSI purposes, the trust contains a null and void clause. This clause renders the offending provisions as void and thus the trust can be excluded under the Medicaid pooled trust exception.
2. OPINION
You asked whether the Second Amendment to the Illinois Disability Association's Pooled Trust (Trust) corrects the defects which, but for the Trust's "null and void" clause, would have prevented the Trust from meeting the Medicaid payback exception for pooled trusts as discussed in the legal opinion dated May 4, 2005, for the sub-account of Robert K~. See Memorandum from OGC Region V to SSA-ARC-MOS, SSI-Illinois-Review of the Sub-Account of Robert K~ In the Illinois Disability Pooled Trust - REPLY, (May 4, 2005). For the reasons discussed below, it is our opinion that, despite the changes made by the Second Amendment to the Trust, the Trust still would not meet the pooled trust exception to counting sub-trust accounts as resources under the statute. However, the "null and void" clause still enables the Trust to qualify for the statutory exception, since that clause nullifies the offending language in the Trust.
BACKGROUND
On July 17, 1998, the Illinois Disability Association, an Illinois not-for-profit corporation, established the Illinois Disability Pooled Trust ("Trust"). See Trust at 1, 3, 21. The purpose of the Trust is to provide for each beneficiary's supplemental care, and not to provide for a "disabled" beneficiary's basic support and maintenance. See Trust at 3-4. The Trust identifies the beneficiaries as disabled persons as defined by Section 1614(a)(3) of the Social Security Act ("Act"), 42 U.S.C. § 1382c(a)(5). See Trust at 4.
Within the Trust, individual trust accounts, called sub-accounts, are created and maintained for each beneficiary, but the funds from each sub-account are pooled for investment and management of funds. See Trust at 9. The Trust is activated for an individual beneficiary when a Joinder Agreement is signed by a grantor (defined under the Trust as a parent, grandparent, guardian, the beneficiary himself, any court, or any person that establishes a sub-account for the benefit of a beneficiary or contributes assets to an existing sub-account) and a trustee. See Trust 2, 8. Upon approval of the Joinder Agreement by the trustee and acceptance of assets from the grantor by the trustee, the sub-account is established, and the trustee has sole discretion to handle all funding matters. See Trust at 8. The Trust states that the Trust and each sub-account are irrevocable, and a spendthrift provision provides that, to the extent permitted by law, a beneficiary cannot assign or transfer his or her interest in the Trust. See Trust at 7-8.
At the time of the original signing, July 17, 1998, the Trust provided that upon the death of a beneficiary, any amounts remaining in the beneficiary's sub-account, would be distributed first to pay the beneficiary's funeral and estate administration expenses; then to the Trust, to the extent the beneficiary authorized in the Joinder Agreement that funds be retained by the Trust to be used for the benefit of other trust beneficiaries who are indigent; then, to the extent that the deceased beneficiary's sub-account was funded with his or her own money, to reimburse the State for any benefits provided under the Medicaid program. See Trust at 18. Any funds remaining after this would be paid to remainder beneficiaries as named in the Joinder Agreement. See Trust at 18. The Joinder Agreement further provides, in an anti-lapse clause, that "if a lapse occurs in distribution, all remaining funds shall be retained as part of the Trust's Remainder Share." Joinder Agreement at 19.
On April 30, 2002, the Trust was amended. See Trust at 17 (permitting amendments by trustee). This "First Amendment" revised the payment of any monies that had been authorized by the Grantor upon the death of the Beneficiary. See First Amendment to the Illinois Disability Pooled Trust (First Amendment). In particular, the First Amendment deletes the language that would require or allow payment of funeral expenses before any amounts are retained by the Trust or used to reimburse Medicaid.
In 2005, the Agency informed the Illinois Disability Pooled Association that there were some provisions in the Trust that were inconsistent with the Program Operations Manual System ("POMS") provisions discussing and interpreting statutory provisions at 42 U.S.C. § 1396p. See POMS PS 01825.016(D) (PS 05-225 SSI - Review of the Sub-Account of Jesus C~(~) in the Illinois Disability Pooled Trust). However, the Agency concluded at that time that sub-accounts in the Trust nevertheless would not be resources under the statute because a provision in the Joinder Agreement incorporated the provisions of the statute and states that if there is a conflict between the trust and the statutory provision, the statutory provisions apply. Id. We advised that this provision rendered null and void any trust provision that is inconsistent with the statute. Id.
In July 2006, the Illinois Disability Association sent the Agency a draft of a Second Amendment to the Illinois Disability Pooled Trust (Second Amendment). See Trust at 17 (permitting amendments by trustee). In particular, the Second Amendment revokes Section 4.2 of the Trust. In addition, the Second Amendment revokes Section 11.2(A) of the First Amendment by inserting the following in lieu thereof:
11.2 . Distribution of Remainder Interest Upon Death of Beneficiary. Upon the death of a Beneficiary, any amounts remaining in the Beneficiary's Trust sub-account (the "Remainder") shall be distributed as follows, to the extent that there are funds remaining:
First, after the payment of a beneficiary's estate administration expenses (including taxes and attorney's fees) and reimbursement for income taxes (if any), to the extent they are not due from the trust to the State or federal government because of the death of the beneficiary, may not be paid from the trust prior to reimbursing the State, the Trust shall retain the portion of the Remainder that has been authorized by the Grantor in the Joinder Agreement to be added to the sub-account retained by and in the name of the Trust (the "Trust's Remainder Share"), if any, to be used as set forth in Section 12.1; then,
DISCUSSION
The Social Security Act ("Act") provides that an individual is not eligible for SSI if he or she has resources that exceed $2,000.00. 42 U.S.C. §§ 1382(a)(1)(B)(ii), (a)(3)(B). A resource is defined as "[c]ash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance." 20 C.F.R. § 416.1201(a). Trust property may be such a resource for SSI purposes. 42 U.S.C. § 1382b(e); POMS SI 01120.200(A). Trust assets are a resource to an individual if he can revoke the trust and use the assets to meet his needs for food, clothing, and shelter, or if the individual can direct the use of the trust assets to be used for his support and maintenance under the terms of the trust. See POMS SI 01120.200(D). For trusts established on or after January 1, 2000, statutory provisions also may affect the status of a trust as a resource. See POMS SI 01120.201(A).
As we have previously advised, under the regular resource rules, a sub-account in the Trust would not be considered a resource to individual beneficiaries of the pooled Trust, since the individual cannot direct the trustee to make payments on their behalf for their support and maintenance, cannot sell their beneficial interests in the trusts, and cannot revoke or terminate the trust and obtain the assets. See Memorandum from OGC Region V to SSA-MOS, SSI-Illinois-Review of the Illinois Disability Association's Pooled Trust Drafted by the Office of the Cook County Public Guardian, (July 13, 1998). We previously reasoned, in particular, that the Trust was not unilaterally revocable because the anti-lapse provision establishes a contingent, but irrevocable beneficial interest in the Trust itself. Id. Thus, the Trust is not a resource under the regular resource rules.
However, under the statutory amendments that took effect on January 1, 2000, even an irrevocable trust will be considered a resource "if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual . . . ." 42 U.S.C. § 1382b(e)(3)(B); see also POMS SI 01120.201(D)(2). Since the Trust allows the trustee to use the assets in the sub-account for the benefit of the individual beneficiary, the sub-account would generally be a resource under this provision if the individual signed a Joinder Agreement after the effective date of the statute, January 1, 2000. See POMS SI 01120.201(D)(2).
Certain pooled trusts, however, are excepted from this provision if they qualify as a Medicaid payback trust under the provisions of Section 1917(d)(4)(C) of the Act, 42 U.S.C. § 1396p(d)(4)(C). See POMS SI 01120.203(B)(2). The Medicaid payback trust exception applies to pooled trusts where the trust:
* contains the assets of an individual who is disabled as defined in the Act;
* is established and managed by a nonprofit association;
* maintains a separate account for each beneficiary of the trust; but, for purposes of investment and management of funds, the trust pools these accounts;
* contains accounts established by the individual, or parent, grandparent, legal guardian, or court solely for the benefit of the disabled individual;
* provides that, 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 must pay to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan.
See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203(B)(2).
Although the Trust represents that the beneficiary's sub-account is established for the sole benefit of the beneficiary, a reading of the Trust reveals that certain provisions continue to create contingent interests that could benefit third parties during the beneficiary's lifetime. See POMS PS 01825.016(D)(2). If these contingent interests were valid, the Trust would not be considered to be established for the sole benefit of the beneficiary. However, the Joinder Agreement has a clause that appears to void this offending language and, thus, we continue to conclude that use of the "null and void" clause is necessary for the Trust to be not be considered a resource under the statutory trust resource rules. See Joinder Agreement at 3. Furthermore, there is still some ambiguity, even after the "Second Amendment," as to whether certain taxes could be paid before Medicaid is reimbursed. However, as we previously advised, to the extent that these provisions could be read as inconsistent with the statutory requirements of 42 U.S.C. § 1396p, those provisions would be null and void.
A. Under the Current Language, If Valid, the Sub-Account Could Potentially Benefit Others During the Lifetime of the Beneficiary.
Section 1917(d)(4)(C)(iii) of the Act, 42 U.S.C. § 1396P(d)(4)(C)(iii), states, in relevant part, "[a]ccounts in the trust are established solely for the benefit of individuals who are disabled . . . ." The implementing POMS provide that one should "[c]onsider a trust established for the sole benefit of an individual if the trust benefits no one but that individual, whether at the time the trust is established or at any time for the remainder of the individual's life." See POMS SI 01120.201(F)(2) (emphasis in original). However, several provisions of the Trust continue to create contingent interests that could benefit third parties during the lifetime of the beneficiary such that beneficiary's sub-account cannot be considered established for his sole benefit.
Termination Clauses Create Contingent Interests That Could Benefit Third Parties During the Lifetime of the Beneficiary.
a. "Deemed Death" Termination.
Section 11.1(A) of the Trust continues to provide:
11.1 Sub-Account Terminations. Every reasonable attempt will be made to continue the Trust for the purposes for which it is established. However, the Trustee does not and cannot know how future developments in the law including administrative agency and judicial decisions, may affect the Trust of any Trust Sub-Account. If the Trustee has reasonable cause to believe that the assets of a Trust Sub-Account are or will become liable for basic maintenance, support, or care that has been or that would otherwise be provided to such Beneficiary by local, state, or federal government, or an agency or department thereof, the Trustee in its sole discretion, may:
Terminate the Trust Sub-Account as to the affected Beneficiary as though he or she had died, and the Trustee shall then treat the assets in the Trust Sub-Account according to the provisions of Section 11.2....
Trust at 17. This section of the Trust results in a "Deemed Death" termination, in which the trustee terminates the Sub-Account as though the beneficiary has died. Under this fiction, the trustee, upon terminating a Sub-Account, distributes the amounts remaining in the Sub-Account in accordance with Section 11.2 of the Trust. Trust at 17.
The new Section 11.2(A) of the Second Amendment provides that if there are amounts remaining in the sub-account, after reimbursing the State, "…the Trust shall retain the portion of the Remainder that has been authorized by the Grantor in the Joinder Agreement to be added to the sub-account retained by the and in the name of the Trust (the "Trust's Remainder Share"), if any, to be used as set forth in Section 12.1…." Because the Trust may retain funds under this provision, a Sub-Account cannot be considered established for the sole benefit of the beneficiary because a third-party, in this case the Trust and other Trust beneficiaries (under Section 12.1), could benefit from the assets of the sub-account during the beneficiary's lifetime.
Moreover, Section 11.2(C) continues to provides, "the Trustee shall distribute all remaining funds, subject to Section 11.2(A) and (B) of this Trust Agreement, to the Final Remainder Beneficiaries listed under the Joinder Agreement...." Under 11.2(C), individuals named as Final Remainder Beneficiaries have a contingent interest in the assets of the sub-account. Thus, the sub-account would not have been established for the sole benefit of the disabled individual during the beneficiary's lifetime.
b. Termination of Trust During Beneficiary's Lifetime.
Section 11.3 of the Trust continues to provide that the Trustee may, in his or her sole discretion, terminate the sub-account during the beneficiary's life if "it becomes impracticable to fulfill the conditions of the Trust with regard to the respective Beneficiary's sub-account for reasons other that [sic] death of the Beneficiary." Trust at 18. In such an event, the trustee terminates a Sub-Account and may distribute all or any portion of the assets in the Trust sub-account "to such party designated by the Primary Representative...." Thus, if the Primary Representative irrevocably designates a party to receive distributions in the event of an early termination, there exists a contingent interest in the assets of the sub-account that benefits third parties during the claimant's lifetime.
c. Termination of Entire Trust.
Section 11.4 of the Trust continues to permit the Trustee to terminate the entire Trust "[i]f it becomes impossible or impracticable to carry out the Trust's purposes with respect to all or substantially all Beneficiaries...." In such an event, the Trustee terminates the Trust and distributes the assets of the sub-account "to such party designated by the Primary Representative" in accordance with Section 11.3. Trust at 18-19. As discussed above, this clause would also create a beneficial interest in a third party, assuming the Primary Representative has irrevocably designated a party to receive such distributions.
B. Medicaid Must Be Reimbursed First.
To qualify for the pooled trust exception, the Trust also must contain specific language that provides that, to the extent that amounts remaining in the beneficiary's sub-account upon the death of the beneficiary are not retained by the Trust, the Trust pays to the State from such remaining amounts in the sub-account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State Medicaid plan. See POMS 01120.203(B)(2)(g). To the extent that the Trust does not retain the funds remaining in the sub-account, the State must be listed as the first payee and have priority over payment of other debts and administrative expenses except as listed in POMS SI 01120.203(B)(2)(g); SI 01120.203(B)(3)(a). POMS SI 01120.203(B)(2)(a) explains that only the following types of administrative expenses may be paid from the trust prior to reimbursement of medical assistance to the State: "[t]axes due from the trust to the State or Federal government because of the death of the beneficiary" and "[r]easonable fees for administration of the trust estate such as an accounting of the trust to a court, completion and filing of documents, or other required actions associated with termination and wrapping up of the trust."
Here, Section 11.2(A) of the Second Amendment provides that:
11.2 Distribution of Remainder Interest Upon Death of Beneficiary. Upon the death of a Beneficiary, any amounts remaining in the Beneficiary's Trust sub-account (the "Remainder") shall be distributed as follows, to the extent that there are funds remaining:
First, after the payment of a beneficiary's estate administration expenses (including taxes and attorney's fees) and reimbursement for income taxes (if any), to the extent they are not due from the trust to the State or federal government because of the death of the beneficiary, may not be paid from the trust prior to reimbursing the State, the Trust shall retain the portion of the Remainder that has been authorized by the Grantor in the Joinder Agreement to be added to the sub-account retained by and in the name of the Trust (the "Trust's Remainder Share"), if any, to be used as set forth in Section 12.1; then,
It is not clear what the phrase "may not be paid from the Trust prior to reimbursing the State" is intended to modify. See Second Amendment, Section 11.2(A). It appears that the amended language may be intended to state that the trustee can pay estate expenses and taxes and reimburse taxes owed by others, but that the trustee cannot pay these expenses or taxes before reimbursing the state if the amounts at issue are not "due from the trust…because of the death of the beneficiary." In that case, the language of the trust would be consistent with the statutory requirements. We have previously advised that the trustee can pay estate and other taxes due by virtue of the trust if the trust is included in the state. See Memorandum from OGC Region V to SSA-ARC-MOS, SSI-Ohio-Review of the Trust for Dustin D~, ~ -REPLY, (December 6, 2006). However, it is far from clear that this is what is intended by the amended language. Nevertheless, due to savings clause, the provisions must be read to be consistent with the statute.
C. The Savings Clause Voids Any Provisions That Are Inconsistent With the Statute.
Even if the foregoing provisions are inconsistent with the statute, the Trust nevertheless qualifies for the Medicaid payback exception for pooled trusts. The Joinder Agreement at Section Q(3) provides "[t]his Trust is a pooled trust, governed by the laws of Illinois, in conformity with the provisions of 42 U.S.C. § 1396p, amended August 10, 1993, by the Omnibus Budget Reconciliation Act of 1993. To the extent there is a conflict between the terms of this Trust and the governing law, the law and regulations shall control." Joinder Agreement at 23. The clause appears to void any offending language, which permits the Trust to meet the exception under 42 U.S.C. § 1396p(d)(4)(C). Section 12.4 of the Trust states that "[s]hould any provision of this Agreement be or become invalid or unenforceable, the remaining provisions of this Trust Agreement shall be and continue to be fully effective." Trust at 20. As such, the offending provisions should be considered void and the remainder of the trust would be valid and would not be a resource under the statutory resource rules. See POMS PS 01825.016(D)(2).
CONCLUSION
In sum, we conclude that, while the Second Amendment to the Trust does not bring the Trust in line with the statutory requirements, sub-accounts in the Trust with the null and void clause in the Joinder Agreement still are not resources under the statute.
Donna L. C~ Regional Chief Counsel, Region V
By: Alfred C. S~ Assistant Regional Counsel
~~J. PS 06-165 SSI-IL-Review of the Declaration of Trust for Monica D. L~--REPLY Our Ref: 06-0031 Your Ref: S2D5G6, SI 2-1-3 IL (L~)~~
K. PS 06-165 SSI-IL-Review of the Declaration of Trust for Monica D. L~--REPLY Our Ref: 06-0031 Your Ref: S2D5G6, SI 2-1-3 IL (L~)
DATE: June 7, 2006
1. SYLLABUS
This opinion addresses whether or not the trust in question is a resource for SSI purposes. As outlined in the POMS at SI 01120.201(D)(1)(a), a trust established by an individual after January 1, 2000 is a countable resource if the trust is revocable. In this case, the trust claims to be irrevocable and identifies a as the grantor. However, the actual trust language indicates that the SSI claimant is the true grantor of the trust and the trust can be revoked by the claimant who is the sole beneficiary. Because the trust can be revoked by the claimant, it is a countable resources for SSI purposes.
2. OPINION
You asked whether the Monica D. L~ Supplemental Care Trust (hereinafter "trust") is a resource for purposes of determining eligibility for Supplemental Security Income (SSI). We conclude that the trust is a resource.
BACKGROUND
The trust was created for the benefit of Monica D. L~ (hereinafter "Monica"), who is disabled. According to the trust, Trust and Savings (), as guardian of the estate of Monica, is both the trust grantor or settlor, and trustee. Trust, at 1, paragraph 1. The trust was funded with assets from a personal injury settlement on behalf of Monica. The stated purpose of the trust is to provide for extra and supplemental needs, comforts and luxuries to Monica which are over and above, and will not cause disqualification from the benefits that Monica otherwise receives as a result of her disability from any local, state or federal program, or from private agencies or any combination thereof. Trust, Article Two, paragraphs 1-3. The trust provides that neither Monica nor the guardian of her person or estate shall have any right or power to demand distribution from the trust at any time. Trust, Article Two, paragraph 4. The trustee is to use the trust income and principal to enhance the quality of Monica's life without disqualifying her for any state, federal or local benefits or programs when providing for her needs. Trust, Article Two, paragraph 5. Making any such expenditure is subject to approval by the probate court. Trust, Article Two, paragraph 5.
Unless the trust is terminated sooner by exhaustion of the corpus, the trust terminates upon Monica's election following her restoration of rights or upon her death. Trust, Article Three. Upon termination of the trust, the remaining trust assets shall be paid to the appropriate State agencies, as reimbursement to the State of Illinois for benefits provided to Monica during her lifetime, except that the trustee may with court approval and consistent with existing law first pay any outstanding, reasonable expenses for maintaining the existence of the trust, and final taxes, legal fees, and trustee fees. Trust, Article Three. After these payments, any remaining amounts are to be paid as provided in Monica's will, or in the absence of a will, to Monica's estate. Trust, Article Three.
DISCUSSION
Under federal law, a trust established by an individual after January 2000 will be considered a resource to her if the trust is revocable. 42 U.S.C. § 1382b(e)(3)(A); POMS SI 01120.201(D)(1)(a). While a trust, like this one, purports to be irrevocable, it can be revoked because the grantor or settlor of the trust is also the sole beneficiary. See Stewart v. Merchants National of Aurora, 278 N.E.2d 10, 12 (Ill. App. 1972); Restatement (Second) of Trusts § 339, comment a (1959); Restatement (Third) of Trusts § 65 and comment a and Reporter's Note (2003). Although the trust identifies as the grantor or settlor, Monica is the true settlor of the trust because the trust was formed with her assets. See In re Estate of , 635 N.E.2d 853, 855 (Ill. App. 1994); POMS SI 01120.200(L)(3).
Based on our research, we conclude that Monica is also the sole beneficiary of the trust. Monica is the only named beneficiary of the trust during her lifetime, and on termination of the trust, or her death, the remainder of the trust assets, after reimbursement to state agencies for benefits received and other specified administrative costs, are to be distributed as provided in Monica's will, or if there is no will, to her estate. Trust, Article Three. Scott on Trusts clarifies that Monica is the sole beneficiary of the trust. Under Scott, a settlor is a sole beneficiary when she coveys property in trust to pay the income to her for life, and on her death to covey the property to her estate, or as she should by will or deed appoint. William F. F~, Scott on Trusts, § 127.1 (1987).
It follows that, under the Restatement (Second) of Trusts, the inference is that, although there is a provision under the power of appointment as to the disposition of the trust property on Monica's death, Monica intended to be the sole beneficiary of the trust and no residual interest was created. See Restatement (Second) of Trusts § 127, comment b; Bescor, Inc., v. Chicago Title & Trust Co., 446 N.E.2d 1209, 1211 (Ill. App. 1983) (the test for determining who is the beneficiary of an express trust is the intent of the parties imposing the trust, and this intention will be ascertained from the express language of the trust). Section 127 also provides that Monica is the sole beneficiary where she transfers the property in the trust to pay the income to herself for life and on her death to pay the principal to her estate. See Restatement (Second) of Trusts § 127, comment b. Under Restatement (Second) of Trusts § 127, Monica is the sole beneficiary of the trust. The trust is, therefore, revocable and should be considered a resource.
Sections of the Restatement (Third) of Trusts present apparently conflicting interpretations of the trust's language and whether Monica would be the sole beneficiary. Under § 44 of the Restatement (Third), it is not necessary that the intended beneficiary or beneficiaries be known at the time of the creation of the trust, but a beneficiary must be capable of becoming existent and ascertainable in the future by exercise of a power of appointment. Restatement (Third) of Trusts § 44, comment a. Under this explanation, the power of appointment by will arguably creates a residual interest and Monica is not the sole beneficiary.
However, § 46 of the Restatement (Third) of Trusts states that where "…the owner of property transfers it upon intended trust for the members of an indefinite class of persons, no trust is created." Restatement (Third) of Trusts § 46(1). A class of persons is indefinite if the identity of all individuals comprising its membership cannot be ascertained. Restatement (Third) of Trusts § 44, general comment. We note that, with the paragraph discussing the termination of the trust upon Monica's death with the remainder of the trust assets to be distributed as provided in Monica's will, the trust gives Monica the right to distribute the property to persons to be selected from an indefinite class of beneficiaries. Under this explanation of the Restatement (Third) of Trusts, this power of appointment by will does not create a residual interest, and Monica is, therefore, the sole beneficiary.
Because the Restatement (Third) does not resolve this apparent conflict, and does not purport to reverse the position taken in the Restatement (Second), we believe that application of § 127 of the Restatement (Second) and Scott is appropriate. Accordingly, the disposition of the trust property on Monica's death under the power of appointment does not create a residual interest, and the trust is revocable and should be considered a resource.
Finally, we note that the trust provides for termination during Monica's lifetime, "following her restoration of rights." Article III. It appears that remaining assets would then be distributed as if Monica had actually died. Thus, if the trust had named residual beneficiaries, this could result in trust assets being distributed to third parties during Monica's lifetime. This, however, would be inconsistent with 42 U.S.C. § 1396p(d)(4)(a), and would result in the trust being characterized as a resource. See POMS PS01825.016(E), PS 05-033 SSI-Illinois-Review of the Brian V~ Irrevocable OBRA Pay Back Trust (termination clause that created contingent interests in third parties rendered the exception under Section 1917(d)(4)(A) of the Act unavailable). Accordingly, the claimant may want to remove the termination clause along with the absence-of-residual-beneficiaries issue.
CONCLUSION
For these reasons, we conclude that the trust is a resource.
~~K. PS 06-152 SSI-Illinois-Review of Assignment to a Trust of Child Support Payments for Michael L~, ~ -REPLY Our Ref: 06-0040 Your Ref: S2D5G6, SI 2-1-3 IL (L~)~~
L. PS 06-152 SSI-Illinois-Review of Assignment to a Trust of Child Support Payments for Michael L~, ~ -REPLY Our Ref: 06-0040 Your Ref: S2D5G6, SI 2-1-3 IL (L~)
DATE: June 2, 2006
1. SYLLABUS
This opinion addresses whether or not the assignment of child support payments into a supplemental needs trust is irrevocable and whether the payments should be considered countable income for SSI purposes. According to the POMS at SI 01120.200(G)(1)(d), a legally assignable payment that is assigned to a trust is income for SSI purposes unless the assignment is irrevocable. If the assignment is revocable, the payment is income to the individual legally entitled to receive it.
Under Illinois law, a trust is allowed to receive child support payments. In this case, it has been determined that the child support payments have been irrevocably assigned to a trust that is not a countable resource, thus the child support payments are not countable income for SSI purposes.
2. OPINION
You asked whether the assignment of child support payments into "The Michael P~ L~ Irrevocable Discretionary Supplemental Needs Trust" is irrevocable and whether the payments should be considered income to Michael for purposes of determining eligibility for Supplemental Security Income (SSI). You did not request an opinion on whether the trust is a resource. We conclude that the child support payments do not count as income.
BACKGROUND
Michael L~ was born on July XX, 1983. His parents, Judith L~ and James L~, divorced and entered into an Agreed Order, dated September 23, 2002, that required James L~ to pay Judith L~ $660.00 a month in child support. This order contemplated continued child support payments even though Michael is an adult, apparently because he is mentally disabled. On December 2, 2005, Michael's parents created "The Michael P~ L~ Irrevocable Discretionary Supplemental Needs Trust," which is intended to provide for Michael's needs that are not otherwise received as a result of Michael's disability. Trust at Article 4.02(a). The Trustee is authorized to use Trust income and principal to provide for Michael's supplemental care and funeral expenses, but may not use funds to provide basic support such as food and shelter. Id. On January 4, 2006, an Illinois state court modified the prior Agreed Order so that the child support payments (still in the amount of $660.00 per month) would be paid into the Supplemental Needs Trust.
DISCUSSION
Child Support Payments Paid Directly to the Trust Pursuant to the Court Order Are Not Income to Michael
In Illinois, child support generally terminates when a child reaches the age of 18. In re Marriage of F~, 570 N.E.2d 636 (Ill. App. 1991). However, under the Illinois Marriage and Dissolution of Marriage Act,
"The court may award sums of money out of the property and income of either or both parties or the estate of a deceased parent, as equity may require, for the support of the child or children of the parties who have attained majority:
(1) When the child is mentally or physically disabled and not otherwise emancipated**
750 ILCS 5/513(a)(1). The Illinois Marriage and Dissolution Act also contains a statutory provision that allows a trust to receive child support payments. 750 ILCS 5/503(g). Illinois courts have recognized the validity of such trusts. See In re Marriage of G~, 576 N.E.2d 946 (Ill. App. 1991).
Here, Michael's parents entered into an Agreed Order pursuant to 750 ILCS 5/513(a)(1), and after creating a Special Needs Trust in December 2005, petitioned the court for modification so that the child support payments would be made to the Trust instead of Michael's mother. The petition was granted on January 4, 2006, and child support payments are presumably being made to the Trust at present. We believe that under Illinois law, it is permissible for the child support payments to be made to "The Michael P~ L~ Irrevocable Discretionary Supplemental Needs Trust" instead of to Michael's mother.
Under Agency policy, child support payments will not be considered income if they are irrevocably assigned to a trust that is not a resource. POMS SI 01120.200(G)(1)(d). In this case, whether the Trust itself is a resource is not at issue. As such, the question at this juncture is whether the court would grant a request by Michael to have the support payments go directly to him, and thus be considered income. POMS SI 01120.200(G)(1)(d). Although the court order states that the payments will be made directly to the Trustee, if Michael could ask the court to modify the order so that the payments would be made directly to him, the child support payments should be considered Michael's income. See Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, Review of the Crable Special Needs Trust for the Benefit of Taneal Huffman, at 4 (September 27, 2005); Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, Review of the Marital Settlement Agreement for Patricia J. H~ and Floyd A. H~ and the Patricia J. H~ Special Needs Trust, at 3-4 (December 4, 2003).
Our reading of the law in Illinois suggests that Michael could not obtain such an order absent some change in circumstance. The pertinent statutes, 750 ILCS 5/513(a)(1) and 5/510(a), contemplate modification of a court order providing for the support of a child who has attained the age of majority and is disabled when there is a change of circumstances. But, Illinois courts have held that the order awarding child support benefits is res judicata so long as there is no change in circumstances underlying the decree. See In re Marriage of L~, 597 N.E.2d 907, 910 (Ill. App. 1992); In re Marriage of W~, 512 N.E.2d 1371, 1377 (Ill. App. 1987). At this time, we are not aware of any change of circumstance that would cause the court to modify its order requiring the child support payments to be made to the Trust. Therefore, the child support payments are, at this time, irrevocably assigned to the trust, and thus are not income under POMS SI 01120.200(G)(1).
We further note that it is unclear whether Michael would even have standing to seek modification of the court order. Several Illinois courts have questioned whether a third-party beneficiary, such as Michael, has standing to seek modification of a support order. In re Marriage of P~, 696 N.E.2d 1263, 1266 (Ill. App. 1998); People ex rel. Collins v. Burton, 668 N.E.2d 1185, 1187 (Ill.App. 1996); In re Marriage of G~, 593 N.E.2d 102, 104 (Ill. App. 1992). In the event there was a case of changed circumstances here or in another case that might warrant modification of a support order under 750 ILCS 5/513(a)(1), it would be appropriate to consult our office further regarding developments in the law on the standing issue.
CONCLUSION
For the reasons discussed above, we conclude that the sub-account assets should not be considered a resource to R~, the individual beneficiary of the pooled trust.
~~L. PS 06-078 SSI - Illinois - Review of the Sub-Account of Teresa R~ in the Illinois Disability Pooled Trust Joinder Agreement - REPLY Your Reference: S2 D 5G6 SI 2-1-3 IL (R~) Our Ref: 05-0185~~
M. PS 06-078 SSI - Illinois - Review of the Sub-Account of Teresa R~ in the Illinois Disability Pooled Trust Joinder Agreement - REPLY Your Reference: S2 D 5G6 SI 2-1-3 IL (R~) Our Ref: 05-0185
DATE: February 28, 2006
1. SYLLABUS
This opinion reviews a sub-account in the Illinois Disability Pooled Trust. The corpus of the sub-account was formed in August, 2005 from funds held in a guardianship account for the SSI beneficiary. The execution of the Joinder Agreement by the Public Guardian created the sub-account with the SSI beneficiary as the sole beneficiary of the Trust and her estate as the Final Remainder Beneficiary. The Agreement states that the State will receive reimbursement for services provided (e.g. Medicaid) upon the death of the beneficiary. Based on the terms of the Master Trust and the sub-account, the Trust qualifies as a Medicaid payback Trust meeting the pooled trust exception and is excluded from resource counting under those provisions. Further, since the beneficiary cannot direct use of the funds and the anti-lapse Trust language creates an irrevocable residual beneficiary, the Trust is not countable under normal resource counting policy.
2. OPINION
You asked whether the Sub-Account of Teresa R~ in the Illinois Disability Pooled Trust, should be treated as a countable resource because the remainder beneficiary is the decedent's estate of Teresa R~. We have reviewed the documents provided to us and, for the reasons discussed below, we conclude that this trust should not be counted as a resource.
FACTS
On August XX, 2005, Robert F. H~, Cook County Public Guardian (Cook County Guardian), on behalf of Teresa R~ (R~), executed a Joinder Agreement (Agreement) creating a sub account in the Illinois Disability Pooled Trust (Trust) for R~. The corpus of the sub account would be comprised of the assets of R~, consisting of $120,000.00 currently held in a guardianship account at Northern Trust. Agreement Part K at p. 9. The Agreement names the Cook County Guardian as the Grantor of the Trust. Agreement Part C at p. 1. It also names the Cook County Guardian as the Primary Representative unless the beneficiary has a legal representative. Agreement Part E at p. 2. R~ is the sole beneficiary of the Trust while she is alive. Agreement Part D at p. 2. Upon her death, the Agreement directs that, if the Trust assets are insufficient to satisfy the State's Reimbursement Claim, then the Grantor/Beneficiary elects to have the assets utilized to reimburse the State's Reimbursement Claim. Agreement Part L at p. 13. If the Trust assets are sufficient to satisfy the State's remainder claim, then the Beneficiary/Grantor also elects to satisfy the State's Remainder Claim and have the remaining amount paid to the final remainder beneficiary. Agreement Part L at p. 14. The Agreement names the Decedent's estate of Teresa R~ as the Final Remainder Beneficiary upon the death of R~. Agreement Part L at p. 15. The Agreement provides that the Cook County Guardian, the named Grantor of the trust, reserves the authority to amend the designation of remainder beneficiaries. Agreement Part L at p. 15. Finally, the Agreement contains an anti-lapse provision which provides that, “[i]f a lapse occurs in distribution, all remaining funds shall be retained as part of the Trust's Remainder Share.” Agreement Part L at p. 15.
DISCUSSION
The Social Security Act (“Act”) provides that an individual is not eligible for SSI if she has resources that exceed $2,000.00. 42 U.S.C. § 1382(a)(1)(B)(ii). A resource is defined as “[c]ash or other liquid assets or any other real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance.” 20 C.F.R. § 416.1201(a). Trust property may be such a resource for SSI purposes. 42 U.S.C. § 1382b(e); Program Operations Manual System (“POMS”) SI 01120.200(A). Trust assets are a resource to an individual if she can revoke the trust and use the assets to meet her needs for food and shelter, or if the individual can direct the use of the trust assets to be used for her support and maintenance under the terms of the trust. See POMS SI 01120.200(D). For trusts established on or after January 1, 2000, statutory provisions also may affect the status of a trust as a resource. See POMS SI 01120.201(A).
Under the statutory amendments that took effect on January 1, 2000, even an irrevocable trust will be considered a resource “if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual . . . .” 42 U.S.C. § 1382b(e)(3)(B); see also POMS SI 01120.201(D)(2). Since the Trust allows the trustee to use the assets in the sub-account for the benefit of the individual beneficiary, the sub-account would be a resource under this provision if the individual signed a Joinder Agreement after the effective date of the statute, January 1, 2000. See POMS SI 01120.201(C)(1).
Certain pooled trusts, however, are excepted from this provision if they qualify as a Medicaid payback trust under the provisions of Section 1917(d)(4)(C) of the Act, 42 U.S.C. § 1396p(d)(4)(C). See POMS SI 01120.203(B)(2). The Medicaid payback trust exception applies to pooled trusts where the trust:
* contains the assets of an individual who is disabled as defined in the Act;
* is established and managed by a nonprofit association;
* maintains a separate account for each beneficiary of the trust; but, for purposes of investment and management of funds, the trust pools these accounts;
* contains accounts established by the individual, or parent, grandparent, legal guardian, or court solely for the benefit of the disabled individual;
* provides that, 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 must pay to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan.
See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203(B)(2).
Here, the Joinder Agreement appears to qualify for the Medicaid payback trust exception. Part K of the Joinder Agreement indicates that the Sub-Account is to be funded with “$120,000.00 in N. Trust G'ship account”. Agreement Part K at 9. The Joinder Agreement indicates that R~ does not receive Social Security Disability Insurance Benefits or Supplemental Security Income. However, the Agreement indicates that R~ is disabled due to schizophrenia, paranoid type. Agreement Part I at p. 8. The Master Illinois Disability Pooled Trust provides that the Illinois Disability Association, which established and manages the Trust, has identified itself as an Illinois not-for-profit corporation. See Trust Agreement at page 2, § 1.2. The Joinder Agreement lists R~ as the sole beneficiary of the trust. Agreement Part D at p. 2. Finally, the Joinder Agreement provides that, in accordance with section 11.2 of the Illinois Disability Pooled Trust Agreement, upon the death of the beneficiary, to the extent the beneficiary's sub-account was funded with her own money, claims for reimbursement for services by the State of Illinois that provide Medicaid or other benefits to the beneficiary shall be satisfied, equal to the amount of total assistance paid on behalf of the beneficiary. Agreement Part L at p. 13. Accordingly, we believe that the Joinder Agreement qualifies for the Medicaid Trust exception because all of the conditions are met.
However, even if a trust is not a resource under POMS SI 01120.203(B)(2), the Agency applies regular resource counting rules to determine if it is a resource. POMS SI 01120.203(B). Under the ordinary resource rules, the trust principal will be a resource if (1) the claimant can revoke the trust and use the assets for her support and maintenance, or (2) the claimant can direct the trustee to pay her the funds or use the funds for her support and maintenance. POMS SI 01120.200(D). In addition, the claimant's interest in the Trust is a resource if it can be sold. POMS SI 01120.200(D).
Here, we believe that R~ cannot revoke the Trust. The Master Agreement provides that the Settlor (Grantor) relinquishes all power to amend, alter, or revoke the trust agreement. It further provides that the Trustee, in his sole discretion, may make payment or distributions under the Trust. However, Illinois follows the general rule that even if a trust purports to be irrevocable, it nevertheless may be revoked if the settlor and all beneficiaries consent. SSA does not consider a trust fund to be a resource if the settlor would be required to obtain the consent of another beneficiary in order to revoke the trust and obtain the funds. Under the Joinder Agreement, R~ would not be the sole beneficiary of the trust.
Though R~ is the sole lifetime beneficiary of the sub-account, the Joinder Agreement provides that, on the death of R~, assets are to be paid subject to section 11.2 of the Master Pooled Trust to the State for reimbursement for Medicaid or other government benefits paid to the Beneficiary, with any remaining amount paid to the Final Remainder Beneficiaries. Joinder Agreement Part L at p. 15. The Joinder Agreement names the “Decedent's estate of Teresa R~” as the Final Remainder Beneficiary. Agreement Part L at p. 13-15. It also reserves a right in the Grantor (Cook County Public Guardian), to amend the designation of remainder beneficiaries. Agreement Part L at p. 15. Finally, the Joinder Agreement contains an anti-lapse provision which provides that, “[i]f a lapse in distribution occurs, all remaining funds shall be retained as a part of the Trust's Remainder Share.” Agreement Part L at p. 18. Though the Grantor can amend the designation of the Remainder Beneficiary, pursuant to the Master Agreement, this right to amend is limited and “shall not reduce the amount to be retained by the Trust (if any) upon the death of a Beneficiary as set forth in the original Joinder Agreement.” Pooled Agreement, Art. VI, §6.2.
The anti-lapse provision of the Joinder Agreement creates an irrevocable additional residual beneficiary. As noted above, the anti-lapse provision provides that: “[i]f a lapse in distribution occurs, all remaining funds shall be retained as a part of the Trust's Remainder Share.” Agreement Part L at p. 18. The Pooled Trust Agreement provides that a beneficiary “shall not reduce the amount to be retained by the Trust (if any) upon the death of a Beneficiary as set forth in the original Joinder Agreement.” Pooled Agreement, Art. VI § 6.2. Though the Joinder Agreement designates the “decedent's estate of Teresa R~” the Final Remainder beneficiary, a designation we do not believe could lapse, it also reserves in the Grantor the authority to amend the designation of Remainder Beneficiaries, subject to the limitations imposed by the Pooled Agreement at § 6.2. . While we believe that the current Remainder beneficiary, the decedent's estate of Teresa R~ cannot lapse, there exists the possibility that Grantor may amend the Joinder Agreement and name a different remainder beneficiary whose interest could lapse. This creates a contingent remainder interest in the Trust's Remainder Share. See Memorandum from OGC Region V to SSA-MOS, SSI-Illinois-Review of The Disability Association's Pooled Trust Drafted by the Office of the Cook County Guardian, (July 13, 1998). It appears, therefore, that a beneficiary could not amend the trust to exclude this anti-lapse provision which creates an irrevocable residual interest in the Trust's Remainder Share. As such, R~ is not the sole Trust beneficiary and R~ would not be able to unilaterally revoke the Trust. Accordingly, the Joinder Agreement should not be counted as a resource for SSI purposes under the regular resource rules either. Id. (discussing the other two elements of the regular resource rules as they apply to sub-accounts in their pooled trust).
CONCLUSION
For the reasons discussed above, we conclude that the sub-account assets should not be considered a resource to R~, the individual beneficiary of the pooled trust.
~~M. PS 05-225 SSI- Review of the Sub-Account of Jesus C~ (~) in the Illinois Disability Pooled Trust - REPLY SSN: ~ Number Holder: Jesus C~ Your Ref: S2D5G6, SI 2-1-3 IL (C~)~~
N. PS 05-225 SSI- Review of the Sub-Account of Jesus C~ (~) in the Illinois Disability Pooled Trust - REPLY SSN: ~ Number Holder: Jesus C~ Your Ref: S2D5G6, SI 2-1-3 IL (C~)
DATE August 18, 2005
1. SYLLABUS
A pooled trust was created by the Illinois Disability Association on July,17 1998. The Illinois Disability Pooled Trust and the subaccounts contained therein are irrevocable and the terms of the Trust contain a spendthrift provision preventing transfer or assignment of a beneficiary's interest in the Trust. The trustee has sole discretion regarding all distributions. At the time the Trust was created, the Trust and the subaccounts were determined to be countable resources for SSI purposes because the terms did not meet the requirements for the Medicaid payback trust exception. On April 30, 2002 the Trust was amended and the language that allowed payment of funeral expenses before payment to Medicaid was deleted. For the beneficiary cited in this opinion, an irrevocable subaccount was created in May, 2002 that named the Illinois Disability Association as the residual beneficiary. The Trust and the subaccount should not be considered resources for SSI purposes since they are now excluded under the Medicaid payback trust exception. Due to the revisions that occurred on April 30, 2002, this opinion should only be used for the Illinois Disability Pooled Trust after that date. For Trusts or subaccounts established before April 30, 2002 refer to PS 01825.016(E).
2. OPINION
You asked whether Jesus C~ sub-account in the Illinois Disability Association's Pooled Trust would constitute a resource for Supplemental Security Income purposes. For the reasons discussed below, we conclude that the Sub-Account should not be considered a resource.
FACTS
On July 17, 1998, the Illinois Disability Association, an Illinois not-for-profit corporation, established the Illinois Disability Pooled Trust (“Trust”). See Trust § 2.7, page 3. The purpose of the Trust is to provide for each beneficiary's supplemental care, and not to provide for a “disabled” beneficiary's basic support and maintenance. See Trust §§ 3.1 and 3.2, pages 3-4. The Trust identifies the beneficiaries as disabled person as defined by Section 1614(a)(3) of the Social Security Act (“Act”), 42 U.S.C. § 1382c(a)(3). See Trust § 2.1 at page 2.
Within the pooled Trust, individual trust accounts, called sub-accounts, are created and maintained for each beneficiary, but the funds from each sub-account are pooled for investment and management of funds. See Trust § 2.5, page 2; § 7.1, pages 9-10. The Trust is activated for an individual beneficiary when a Joinder Agreement is signed by a grantor (defined under the Trust as a parent, grandparent, guardian, the beneficiary himself, any court, or any person that establishes a sub-account for the benefit of a beneficiary or contributes assets to an existing sub-account) and a trustee. See Trust § 2.2, page 2; § 6.1, page 8. Upon acceptance of the Joinder Agreement, the sub-account is established and the trustee has sole discretion to handle all funding matters. See Trust § 6.1, page 8. The pooled Trust states that the Trust and each sub-account are irrevocable, and a spendthrift provision provides that, to the extent permitted by law, a beneficiary cannot assign or transfer his or her interest in the Trust. See Trust § 4.5, page 7; § 6.3, page 8.
At the time of the original signing, July 1, 1998, the Trust provided that upon the death of a beneficiary, any amounts remaining in the beneficiary's sub-account, would be distributed first to pay the beneficiary's funeral and estate administration expenses; then to the Trust, to the extent the beneficiary authorized in the Joinder Agreement that funds be retained by the Trust to be used for the benefit of other trust beneficiaries who are indigent; then, to the extent that the deceased beneficiary's sub-account was funded with his or her own money, to reimburse the state for any benefits provided under the Medicaid program. See Trust § 11.2(B) at page 18. Any funds remaining after this would be paid to remainder beneficiaries as named in the Joinder Agreement. See Trust at pages 18-19. The Joinder Agreement further provides that if no remainder beneficiaries are listed 1% of the remaining assets go to the Illinois Disability Association. See Joinder Agreement at Section L, subsection (C) at page 15.
On April 30, 2002, the Trust was amended. See Trust § 10.2, page 17 (permitting amendments by trustee). The amendment revised the payment of any monies that had been authorized by the Grantor upon the death of the Beneficiary. See First Amendment to the Illinois Disability Pooled Trust ("First Amendment"). In particular, the amendment deletes the language that would require or allow payment of funeral expenses before any amounts are retained by the trust or used to reimburse Medicaid.
On May 28, 2002, a Sub-Account was created for Jesus C~ ("Mr. C~"), when his Co-Guardian executed a Joinder Agreement on his behalf.
ANALYSIS
Introduction.
The Social Security Act ("Act") provides that an individual is not eligible for SSI if he or she has resources that exceed $2,000.00. 42 U.S.C. § 1382(a)(1)(B)(ii). A resource is defined as "[c]ash or other liquid assets or any other real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance." 20 C.F.R. § 416.1201(a). Trust property may be such a resource for SSI purposes. 42 U.S.C. § 1382b(e); Program Operations Manual System ("POMS") SI 01120.200(A). Trust assets are a resource to an individual if he can revoke the trust and use the assets to meet his needs for food or shelter, or if the individual can direct the use of the trust assets to be used for his support and maintenance under the terms of the trust. See POMS SI 01120.200(D). For trusts established on or after January 1, 2000, statutory provisions also may affect the status of a trust as a resource. See POMS SI 01120.201(A).
Under the statutory amendments that took effect on January 1, 2000, even an irrevocable trust will be considered a resource "if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual . . . ." 42 U.S.C. § 1382b(e)(3)(B); see also POMS SI 01120.201(D)(2). Since the Trust allows the trustee to use the assets in the sub-account for the benefit of the individual beneficiary, the sub-account would be a resource under this provision if the individual signed a Joinder Agreement after the effective date of the statute, January 1, 2000. See POMS SI 01120.201(C)(1).
Certain pooled trusts, however, are excepted from this provision if they qualify as a Medicaid payback trust under the provisions of Section 1917(d)(4)(C) of the Act, 42 U.S.C. § 1396p(d)(4)(C). See POMS SI 01120.203(B)(2). The Medicaid payback trust exception applies to pooled trusts where the trust:
* contains the assets of an individual who is disabled as defined in the Act;
* is established and managed by a nonprofit association;
* maintains a separate account for each beneficiary of the trust; but, for purposes of investment and management of funds, the trust pools these accounts;
* contains accounts established by the individual, or parent, grandparent, legal guardian, or court solely for the benefit of the disabled individual;
* provides that, 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 must pay to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan.
See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203(B)(2).
Although the Trust purports that Mr. C~ sub-account is established for his sole benefit, a reading of the Trust and Joinder Agreement reveals that certain provisions create contingent interests that could benefit third parties during Mr. C~ lifetime. Due to these contingent interests, the Trust cannot be considered to be established for the sole benefit of the beneficiary. In addition, the Trust provides for payment of certain of the beneficiary's taxes at death, and prior to reimbursing the State or retention by the Trust. However, the Trust and Joinder Agreement have clauses that appear to void the offending language and, thus, we concluded that the Trust is not a resource under the statutory trust resource rules.
The Sub-Account May Benefit Others During the Lifetime of the Beneficiary.
Section 1917(d)(4)(C)(iii) of the Act, 42 U.S.C. § 1396p(d)(4)(C)(iii), states, in relevant part, "[a]ccounts in the trust are established solely for the benefit of individuals who are disabled . . . ." The implementing POMS provide that one should "[c]onsider a trust established for the sole benefit of an individual if the trust benefits no one but that individual, whether at the time the trust is established or at any time for the remainder of the individual's life." See POMS SI 01120.201(F)(2) (emphasis in original).
In a prior opinion, we discussed how certain provisions of the Trust create contingent interests that could benefit third parties during the lifetime of the beneficiary such that the sub-account could not be considered established for his sole benefit. See Trust §§ 4.2, 11.1, 11.3, 11.4; First Amendment § 11.2(A). However, we opined that if the offending provisions were removed from the Trust, it would appear that, based on the remaining language of the Trust, the Trust would qualify for the Medicaid payback exception for pooled trusts. See Memorandum from OGC Region V to SSA-MOS, SSI- Review of the Sub-Account of Robert K~ in the Illinois Disability Pooled Trust - REPLY, (May 4, 2005). Specifically, Section 12.4 of the Trust states that "[s]hould any provision of this Agreement be or become invalid or unenforceable, the remaining provisions of this Trust Agreement shall be and continue to be fully effective." Trust at 20. In addition, the Joinder Agreement at Section Q(3) provides "[t]his Trust is a pooled trust, governed by the laws of Illinois, in conformity with the provisions of 42 U.S.C. § 1396p, amended August 10, 1993, by the Omnibus Budget Reconciliation Act of 1993. To the extent there is a conflict between the terms of this Trust and the governing law, the law and regulations shall control." Joinder Agreement at 23. Thus, these clauses appear to void the offending language, which permits the Trust to meet the exception under 42 U.S.C. § 1396p(d)(4)(C). As such, the Trust would not be a resource under the statutory resource rules.
Turning to the regular resource rules, with respect to the sub-account at hand, Mr. C~ did not name any Final Remainder Beneficiaries under his Joinder Agreement. See Joinder Agreement at Section L, subsection (C) at page 15. Accordingly, upon Mr. C~ death, pursuant to Section 11.2(B) of the Trust, the assets of the sub-account are used to pay back the State the total amount of medical assistance paid on behalf of the beneficiary. Should any funds remain after paying back the State, Section 11.2(C) provides, "the Trustee shall distribute all remaining funds, subject to Section 11.2(A) and (B) of this Trust Agreement, to the Final Remainder Beneficiaries listed under the Joinder Agreement...." The Joinder Agreement adds that "[i]f no Remainder Beneficiary is named or identified, then, by default, the Illinois Disability Association shall receive 1% of the remaining assets in the Sub-Account after Section 11.2(A) and (B) of the Master Pooled Trust Agreement have been satisfied." See Joinder Agreement at Section L, subsection (C) at page 15. As noted above, Mr. C~ has not named any Final Remainder Beneficiaries. See Joinder Agreement at Section L, subsection (C) at pages 14-17. Consequently, as it stands now, if the Trust were to be terminated while Mr. C~ was alive, the Illinois Disability Association would receive 1% of the remaining assets in the sub-Account during his lifetime. The balance would be held as a resulting trust for Mr. C~ estate. In situations where no Final Remainder Beneficiaries have been named and the express trust fails, the Restatement (Third) of Trust explains that "if the intended trust fails in whole or in part at a later time, or has been or is being fully performed without exhausting or fully utilizing the trust estate, the transferee then holds the trust property, or an appropriate part thereof or interest therein, upon a resulting trust for the transferor or for the successors in interest of the transferor." RESTATEMENT (THIRD) OF TRUSTS § 8 ("When Express Trust Fails In Whole Or In Part"). Thus, upon paying back to the State pay the total amount of medical assistance paid on behalf of the beneficiary, the remaining assets would revert to Mr. C~ estate, with the Illinois Disability Association receiving 1% of the remaining funds. Because the Illinois Disability Association is a residual beneficiary, the Trust is irrevocable. Moreover, we have previously opined that the Trust would not be a resource under the other elements of the regular resource rules since the individual cannot direct the trustees to make payments on their behalf for their support and maintenance and cannot sell their beneficial interests in the trusts. See Memorandum from OGC Region V to SSA-MOS, SSI-Illinois-Review of the Illinois Disability Association's Pooled Trust Drafted by the Office of the Cook County Public Guardian, (July 13, 1998). Thus, Mr. C~ sub-account is not a resource under the regular resource rules either.
CONCLUSION
For the reasons discussed above, we conclude that the Sub-Account should not be considered a resource.
~~N. PS 05-215 SSI-Illinois-Review of the Katelyn J. H~ 2005 Trust, SSN ~ -Reply Your Reference: S2D5G6, SI 2-1-3 IL (H~)Our Reference: 05-139~~
O. PS 05-215 SSI-Illinois-Review of the Katelyn J. H~ 2005 Trust, SSN ~ -Reply Your Reference: S2D5G6, SI 2-1-3 IL (H~)Our Reference: 05-139
DATE: August 9, 2005
1. SYLLABUS
An SSI beneficiary's mother established an irrevocable trust funded by a previously countable Coverdell Educational Savings Account. The intent of the trust was to qualify as a Medicaid pay-back trust. The trust allows for allocation of assets within the trust between two sub-trusts: one for the SSI beneficiary's benefit during her lifetime, and the other to be funded only after she attains age 65 and exclusively for post-mortem use by her descendants. The trust language establishes contingent beneficiaries and directs that the SSI beneficiary's mother, as trustee, holds absolute authority to direct use of of trust assets. As such, the beneficiary's interest in the trust is a countable resource with zero value. The descendant's share sub-trust does not impact the beneficiary's eligibility at this time since nothing can be transferred until she attains age 65. Since the trust meets the Medicaid pay-back exception, it is not a countable resource, however, any distributions from the trust may be countable income.
2. OPINION
You have asked whether assets held in the Katelyn J. H~ 2005 Trust are a resource to Katelyn J. H~ (Katelyn) for SSI purposes. For the reasons stated below, we concluded that the trust should not be considered a resource.
BACKGROUND
Katelyn is a 13 year old, who is, apparently, an SSI beneficiary. You have told us that Katelyn's aunt previously established a Coverdale Educational Savings Account (ESA), also known as a 530 account, with Katelyn as beneficiary. Based on communications from OISP/OBDS/DIRT and SSA Regional Program Circular No. 2005-006, you determined that the Coverdale ESA was a resource to Katelyn. Therefore, Katelyn's mother, Jacqueline J. S~ (S~), established the Katelyn J. H~ 2005 Trust (the Trust) to hold these assets in a manner that would not result in them being counted as a resource to Katelyn.
The stated intent of the Trust is to qualify under the provisions of 42 U.S.C. § 1396p(d)(4)(A), which excludes from consideration for benefit eligibility trusts that have been established by a parent for a disabled individual, so long as the State will be repaid for medical assistance after the individual's death. The Trust provides that any provisions of the Trust that may prevent it from fully complying with 42 U.S.C. § § 1396p(d)(4)(A) and all related regulations shall be null and void. Trust 1.04. During Katelyn's life, the trustee has sole discretion to pay income or principle to Katelyn, Trust 3.01(a), to provide for Katelyn's "extra and supplemental needs over and above the benefits, if any, Katelyn may otherwise receive as result of her handicap or disability . . . and which will not cause her to become disqualified from receiving any benefits." Trust 3.01(c).
The Trust allows for allocation of assets within the trust between two separate sub-trusts: The "separate trust named for Katelyn" and the "descendants share." However, any addition to the trust property made before Katelyn reaches age 65 must be allocated to the separate trust named for Katelyn. Trust 2.01. It appears that additions to the trust after Katelyn reaches age 65 will be allocated to the descendant's share and distributed outright to S~'s other descendants at S~'s death. Trust 2.01, 3.02.
The Trust does not specify how it might be funded, or by whom. It was initially funded with a token of $10 from S~. Trust, introductory paragraph and Schedule. The trust permits additions from any source. You have informed us that Ms. S~ intends to fund the trust with assets Katelyn's aunt placed in a Coverdale ESA for Katelyn's benefit.
Upon Katelyn's death, any assets in the separate trust named for Katelyn will first be used to reimburse the Illinois Department of Public Aid for medical assistance paid on behalf of Katelyn during her lifetime. Trust 3.01 (b)(1). Katelyn may, through her will, direct how any remaining assets are distributed. Trust 3.01(b)(2). Any further remaining trust assets will be distributed among Katelyn's then-living descendants or, if she has no descendants, among S~'s then-living descendants or, if none, among the then living descendants of S~'s mother. Trust 3.01(b)(3). S~, as the creator of the trust, waived any right to amend, revoke, or modify the trust. Trust 1.03.
DISCUSSION
As a preliminary matter, the assets which we understand are to fund this trust must be considered to be Katelyn's assets. When Katelyn's aunt funded the Coverdale ESA for Katelyn, she relinquished control of the assets and only Katelyn or, if she is still a minor, a responsible party acting on her behalf may withdraw the funds. SSA Regional Program Circular, No. 2005-006; 26 U.S.C. § 530; IRS Publication 970, http://www.irs.gov/publications/p970/ch07.html. Therefore, if, as we are given to understand, the Trust is funded with assets taken from Katelyn's ESA, the assets must be considered to be Katelyn's, her aunt having relinquished control upon making the initial gift of the Coverdale ESA.
Under federal law, a trust established by an individual after January 2000 generally will be considered a resource to her if the trust is revocable. 42 U.S.C. § 1382b(e)(3)(A); POMS SI 01120.201(D)(1). If the trust is irrevocable, the trust is still a resource if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual. In that case, the value of the resource is the portion of the trust corpus which could be made to or for the benefit of the individual. 42 U.S.C. § 1382b(e)(3)(B); POMS SI 01120.201(D)(2)(a).
Certain Medicaid payback trusts are excluded from this rule. 42 U.S.C. § 1382b(e)(1), (5); POMS SI 01120.203(B)(1)(a). If the trust falls within this exception, the Agency applies regular resource rules, and the trust may still be considered a resource if it is revocable. See POMS SI 01120.203(B)(1)(a); see also generally 20 C.F.R. § 416.1201(a) ("A resource, for the purpose of SSI eligibility, is "cash or other liquid assets or any real or personal property that an individual . . . owns and could convert to cash to be used for his or her support and maintenance.").
Thus, regardless of whether the statute applies, or whether the trust qualifies for the Medicaid payback trust exception, the trust must be irrevocable or it will be considered a resource. Here, the trust is irrevocable. While a trust, like this one, that purports to be irrevocable can be revoked if the settler (grantor) of the trust is also the sole beneficiary, Katelyn is not the sole beneficiary. See Stewart v. Merchants National of Aurora, 278 N.E.2d 10, 12 (Ill. App. 1972); Restatement (Second) of Trusts § 339, comment a (1959); Restatement (Third) of Trusts § 65 and comment a and Reporter's Note (2003). Although the trust identifies S~ as the creator of the trust, Katelyn is the settlor of the trust because the trust was funded primarily with her assets. See In re Estate of , 635 N.E.2d 853, 855 (Ill. App. 1994). However, Katelyn is not the sole beneficiary of the trust. While she is the only named beneficiary of the separate trust named for Katelyn during her lifetime, on her death, the remainder of the trust (after reimbursement of government agencies for benefits received and administrative costs associated with the accounting for such benefits) is to be distributed to whomever she names in her will, or (if there is no will provision) to Katelyn's "descendants," S~'s descendants, or S~'s mother's descendants. Trust 3.01(b)(2)-(3). A contingent gift to "descendants," in the absence of a clearly contrary intent, will create a remainder interest. See Memorandum from Office of General Counsel, Chicago, to John W~, Program Specialist, SSI - Review of Regional POMS Transmittal on State Laws Pertaining to Grantor Trusts at 2-3 (March 11, 2003); see also Restatement (Second) of Trusts § 127, comment b (". . . if the beneficial interest is limited to the settlor for life and on his death the property is to be conveyed to his children, issue, or descendants, he is not the sole beneficiary of the trust, but an interest in remainder is created in his children, issue, or descendants."); Restatement (Third) of Trusts § 49 and comment a (even future interest in "heirs" may be sufficient to establish additional beneficiaries). Therefore, Katelyn does not have the power to revoke the trust.
Even if the sub-trust named for Katelyn is irrevocable, it will still be a resource under the statute unless the Medicaid payback trust exception applies. The Medicaid payback trust exception applies where the trust is: (1) established with the assets of an individual under age 65 who is disabled; (2) established for the benefit of such individual by a parent, grandparent, legal guardian or a court; and (3) provides that, on the death of the individual, any funds remaining in the trust will be used to reimburse the state for Medicaid payments made for the benefit of the individual during his lifetime. See 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.201(B)(1). Here, Katelyn is under age 65 and, we presume, disabled. The trust was established for her benefit by her mother using Katelyn's assets. The trust provides that, upon Katelyn's death, any remaining funds would first be used to reimburse the state(s) for Medicaid payments made for his benefit during his lifetime. Therefore, we believe that the sub-trust named for Katelyn satisfies the Medicaid payback exceptions.
Under the ordinary resource rules, a trust will be a resource if: (1) the SSI beneficiary can revoke the trust and use the assets for her support and maintenance; (2) the individual can direct the trustee to pay her the funds or use the funds for her support and maintenance; or (3) if the individual can sell her beneficial interest in the trust. POMS SI 01120.200(D). Here, as we have explained, Katelyn cannot revoke the trust. Moreover, Katelyn cannot direct the use of the trust assets. Whether Katelyn can direct the use of the trust assets depends upon the terms of the trust agreement and applicable state law. See POMS SI 01120.200(D)(1), (D)(2). The trust provides that the Trustee shall have sole discretion to pay income or principal to Katelyn, Trust 3.01(a), and should do so to provide for supplemental needs over and above any benefits she receives, which will not cause her to become disqualified for such benefits. Trust 3.01(c). Moreover, the Trust contains no provision allowing Katelyn to act on her own or order actions by the trustee, which, if present, could constitute directing the use of the assets. See POMS SI 01120.200(D)(1)(b). Therefore, the trust gives the trustee sole and absolute discretion to distribute trust income or principal and, as such, Katelyn does not have authority to direct the use of the trust assets. Finally, applying normal resource rules, a trust can also be a resource if the individual can sell his beneficial interest in the trust. The trust contains a spendthrift provision which precludes any beneficiary from transferring or encumbering his or her interest in the principal or income of the trust. Trust 6.03. Here, the spendthrift clause would not be effective with respect to Katelyn, since she is the grantor of the trust. But, since disbursements are completely within the trustee's discretion, Katelyn's interest in the trust has no significant market value. The interest, however, is a resource since a resource is defined as an interest that an individual (1) owns (2) has the right, power or authority to convert to cash, and (3) is not legally restricted from using for his support and maintenance, POMS SI 01110.100(B)(1), even if the interest has no current market value, POMS SI 01110.100(B)(2), SI 01140.044. Accordingly, Katelyn's interest in the Trust should be considered a resource with no market value, even though the Trust principal is not a resource.
Although assets retained in the trust are not considered a countable resource, certain distributions may be considered income. For example, any disbursements of cash made directly to Katelyn would be considered unearned income for SSI purposes. 20 C.F.R. §§ 416.1120-416.1121; POMS SI 01120.201(I)(1)(a). In addition, any disbursements made to a third party resulting in Katelyn's receipt of food, clothing or shelter are considered income in the form of in-kind support and maintenance, if and when the distributions are actually made. 20 C.F.R. § 416.1102; POMS SI 01120.201(I)(1)(b). Therefore, disbursements from the trust may be income and should be analyzed under POMS SI 01120.201(I)(1).
Based on the facts available, the existence of provisions for a separate trust called the Descendants Share does not affect Katelyn's eligibility for SSI. It appears that no assets can be allocated to this separate trust until after Katelyn, now aged 13, turns 65. Trust 2.01. At the time of S~'s death, any assets in the Descendant's Share will be distributed to S~'s descendants, not including Katelyn. Trust 3.02. If, however, any of Katelyn's assets (or assets of which Katelyn is a co-owner) were transferred to this subtrust for S~'s descedants, this could constitute a transfer for less than fair market value. POMS SI 01150.110.
CONCLUSION
In sum, because the sub-trust named for Katelyn meets the Medicaid Payback Trust exception and because Katelyn cannot revoke the trust or direct its expenditures, we conclude that the trust should not be considered a resource when determining Katelyn's eligibility for SSI. However, distributions from the trust may be considered income to her. As for the descendant's share, this does not appear to impact Katelyn's SSI eligibility, but further development would be required if any of Katelyn's assets (or assets in which she is a co-owner) are transferred to this sub-trust.
~~O. PS 05-188 S2D5G6 SSI-Illinois Review of Life's Plan Self Funded Payback Trust - Reply Your Ref: SI-2-1-3 IL (H~)Our ref: 05 0113~~
P. PS 05-188 S2D5G6 SSI-Illinois Review of Life's Plan Self Funded Payback Trust - Reply Your Ref: SI-2-1-3 IL (H~)Our ref: 05 0113
DATE: June 29, 2005
1. SYLLABUS
An SSI beneficiary established a sub-account in a pooled Trust held by a not-for-profit corporation. She funded the irrevocable account with her own money in the form of a check post-1/1/00. The Trust grants the trustee sole discretion regarding distributions and contains a spendthrift provision precluding transfer or anticipation of the funds. Although the Trust contains Medicaid payback provisions, it is determined to be a countable resource as a result of the "deemed death" early termination clause. Language in the Trust provides that the trustee can terminate the Trust at their discretion as if the SSI beneficiary had died. The money in the Trust would then be distributed to: an expense account, the State of Illinois, a Charitable Fund, and the beneficiary's children. The possibility that others could benefit from the Trust while the SSI beneficiary is still alive means that the Trust does not meet the sole benefit requirement to be excluded under the pooled trust exception.
OPINION
You have asked for our assistance in determining whether a sub-account created for Susan H~ in Life'sPlan Inc.'s Self Funded Payback Trust (Trust) would constitute a resource to Ms. H~ for SSI purposes. For the reasons discussed below, it is our opinion that Ms. H~'s participation in the sub-account would be a resource.
BACKGROUND
Life'sPlan Inc., an Illinois not-for-profit corporation, established a pooled trust in January 1997. Life'sPlan amended the trust on July 14, 2004. Life'sPlan has defined the purpose of the trust as to provide for the "care encouragement or treatment of one or more named residents of Illinois who are developmentally disabled and unable to provide for their own care." See Trust at Article Two. The trust defines a developmentally disabled person as such person is defined in the Illinois Mental Health and Developmental Disability Code. Article Four, Section 12. The trust is intended to supplement or enhance, but not supplant the benefits and services to which participants in the trust may be eligible. It is also intended to qualify the participant for SSI.
Within the trust, individual accounts are created and maintained for each beneficiary, including Ms. H~. Trust Art. Four (Trust Assets) Section 2. The funds from each sub-account can be commingled (or pooled) with the amounts in other accounts for administrative and investment purposes. The Trust is activated for Ms. H~ when she, as an individual beneficiary, accepts a "Transfer Agreement." Our materials include a Transfer Agreement that identifies Susan Y. H~ as the donor. Ms. H~ signed the agreement. The sub-account for Ms. H~ is funded by a check signed by Ms. H~ in the amount of nine-thousand dollars.
Within the trust, individual accounts are created and maintained for each beneficiary, including Ms. H~. Trust Art. Four (Trust Assets) Section 2. The funds from each sub-account can be commingled (or pooled) with the amounts in other accounts for administrative and investment purposes. The Trust is activated for Ms. H~ when she, as an individual beneficiary, accepts a "Transfer Agreement." Our materials include a Transfer Agreement that identifies Susan Y. H~ as the donor. Ms. H~ signed the agreement. The sub-account for Ms. H~ is funded by a check signed by Ms. H~ in the amount of nine-thousand dollars.
Those funds are to be managed by a Trustee. A trustee is defined a member of Life'sPlan's Board. Article Three (Trustees), Section 1. The trustee has sole and absolute discretion to pay amounts from the principal and earnings in Ms. H~'s account to Ms. H~ in order to provide for her care. Article Four, Section 4(A). The trust states that it is irrevocable and the trust includes a spendthrift provision that provides that Ms. H~, as a participant, who is a beneficiary of her individual account, cannot anticipate, alienate, encumber or hypothecate to receive either the income or the principal in her individual account.
The Trust provides that on termination of an individual's participation in the Trust caused either by Ms. H~'s death, or "any other reason," that 15% of the value of her account shall be distributed to an expense fund within the Trust. Monies in that expense fund are to be used for payment of expenses of the Trust. Article Four, Section 8(a). The balance of the value of the account after the 15% for expenses has been taken out are to be used to pay the state of Illinois for reimbursement of expenditures made by the state for medical assistance (that has not been reimbursed from any other source). After the state of Illinois has been paid, 10% of the remaining value of Ms. H~'s account is to be distributed to a Charitable Fund for the Third Part Supplemental Trust to provide services to unnamed indigent individuals with disabilities.
Similarly, the Termination Clause in Ms. H~'s transfer agreement provides for the 15% distribution of the value of her account to be used for payment of expenses of the Trust. Then, the Transfer Agreement provides for the distribution to the State of Illinois, and for the subsequent transfer of 10% of the remaining value to the Charitable Fund for the purpose of providing supplemental services to individuals with disabilities. Finally, in a provision that applies solely to Ms. H~'s account, the transfer agreement provides that any remaining balance shall be distributed to Ms. H~'s three children.
The Trust at Article Four, Section 4 C, also provides that;
If at any time the Trustees believe that continued payment of principal and net income of any portion thereof on behalf of a Participant would be contrary to the best interests of such Participant, or the account itself lacks the funds necessary to carry out its purposes, or the trust is unable to carry out the purpose as is required by an account, then the Trustees may pay or may apply such principal and/or net income to or for the benefit of the Participant in such manner as the Trustees believe advisable including the termination of participation of the individual in the Trust so as to proceed in Accordance with Section 8 of this Article. Any net income not distributed shall be accumulated in the account for the benefit of the named Participant.
DISCUSSION
Under the Social Security Act, trusts created on or after January 1, 2000, from the assets of an SSI claimant or beneficiary will be considered a resource to the extent that the trust is revocable or to the extent that any payments can be made from the trust for the benefit of individual. See 42 U.S.C. § 1382b(e); POMS SI 01120.201. In Ms. H~'s trust, the trustee has the discretion to use the income and principal in the Trust sub-account for Ms. H~'s benefit. Article Four, Section 4(a). Therefore, the Trust would be a resource to Ms. H~ under these provisions. See 42 U.S.C. § 1382b(e)(3)(B).
Certain pooled trusts, however, are exempted from the above cited provision if they qualify as a Medicaid payback trust under the provisions of Section 1917(d)(4)(C) of the Social Security Act, 42 U.S.C. § 1396p(d)(4)(C). See POMS SI 001120.203(B)(2). In order to qualify for the Medicaid payback trust exemption, the trust must contain assets belonging to the disabled individual and must satisfy the following conditions:
* It must be established and managed by a nonprofit corporation.
* A separate account must be maintained for each beneficiary or the trust; but, for purposes of investment and management of funds, the trust may pool or commingle these accounts
Accounts in the trust must be established solely for the benefit of the disabled individual by the individual, or parent, grandparent, legal guardian, or court.
The trust must provide that 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 will pay to the state from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary.
See POMS SI 01120.203(B(2).
Here, Ms. H~'s participation in Life'sPlan Self Funded Payback Trust does not qualify for the Medicaid Payback exemption because some of its provisions show that the accounts in the trust have not been established solely for Ms. H~'s benefit.
The trust contains a provision that allows the Trustee, in certain circumstances, to terminate Ms. H~'s participation in the Trust. Article 4 Section 4(C). That same provision then states that once Ms. H~'s participation is terminated, distributions of the Trust will proceed in accordance with Section 8 of Article 4. The latter explains how the Trust principal and interest will be distributed on termination which can occur due to Ms. H~'s death, or any other reason. Thus, the language cited from Article Four Section 4(C) allows the Trustee, in his or her discretion, to terminate the trust as if Ms. H~, the beneficiary, had died (i.e., a "deemed death").
This means that while Ms. H~ is still alive, 15% of the value of her account could be distributed to an expense fund within the trust and that this money will be used to pay the expenses of the trust. Since the Trust already includes a provision that entitles Life'sPlan to fair and reasonable compensation for services rendered to the Trust, we believe that the "deemed death" provision establishes Life'sPlan as a contingent beneficiary of the Trust. If Life'sPlan has a contingent beneficial interest in the trust that could vest while Ms. H~ is alive, the Trust does not exist solely for Ms. H~'s benefit.
Similarly, should the Trustee decide to terminate Ms. H~'s participation in the Trust for reasons set forth in Article Four Section 4(C), 10% of the value balance in her account (after the funds deducted for expenses and after paying back the State of Illinois) is directed to be distributed to a Charitable Fund that would provide for supplemental services to indigent persons with disabilities. Thus, this provision (Article Four, Section 8(c)) establishes another person (or class of persons) who could benefit from the Trust while Ms. H~ is alive; specifically an indigent individual with a disability. Because that person can be identified as a beneficiary of the Trust, it is again evident that the Trust has not been established for the sole benefit of Ms. H~ during her lifetime.
There is also a provision in Ms. H~'s Transfer Agreement that provides for distribution after (1) the 15% taken for expenses; (2) the payback to the State of Illinois; and the (3) 10% that goes into the charitable fund for indigent disabled individuals. Ms. H~ has provided that any balance remaining after those distributions have been made, should be distributed to her three children. Because the trust can be terminated during Ms. H~'s lifetime, this interest could pass to her children and her children can be considered beneficiaries of the Trust. Thus, this provision as well demonstrates that the trust has not been established solely for Ms. H~'s benefit.
Thus, terminating the Trust under the fiction of a "deemed death" creates the possibility that other individuals (here the Trust itself, certain indigent disabled individuals, and Ms. H~'s children) could benefit from the Trust during the beneficiary's, Ms. H~'s lifetime. The Trust, therefore, fails to meet the resource exception for Medicaid payback trusts under the Social Security Act.
CONCLUSION
For the foregoing reasons, we conclude that Ms. H~'s sub-account in the Trust would be a resource for her.
~~P. PS 05-149 SSI-Illinois-Review of the Jonathon L. D~ Special Needs Irrevocable Pay Back Trust, ~ Your Reference: S2D5G6, SI-2-1-3 IL (D~) Our Reference: 05-0087~~
Q. PS 05-149 SSI-Illinois-Review of the Jonathon L. D~ Special Needs Irrevocable Pay Back Trust, ~ Your Reference: S2D5G6, SI-2-1-3 IL (D~) Our Reference: 05-0087
DATE: April 29, 2005
1. SYLLABUS
This opinion examines whether or not the trust in question is a resource for SSI purposes. As outlined in the POMS at SI 01120.201, the principal of an irrevocable trust established with the benefits of individual (on or after January 1, 2000) is a resource if payments from the trust principal could be made to or for the benefit of the individual or the individual's spouse, unless one of the exceptions in SI 01120.203 (Medicaid trust exceptions) applies. As outlined in SI 01120.203B.1., a special needs trust established under Section 1917(d)(4)(A) of the Act is not a countable resource assuming it meets the criteria established in that section. In this case, the trust is a countable resource because it fails to satisfy the requirement that the trust be established for the benefit of the individual by a parent, grandparent, legal guardian, or a court.
2. OPINION
You have asked whether the trust entitled "The Jonathon L. D~ Special Needs Irrevocable Pay Back Trust" established for the benefit of Jonathon L. D~ (Jonathon) is a resource for purposes of determining Jonathon's eligibility for SSI. For the reasons explained below, we conclude that the trust is a resource.
BACKGROUND
On May 4, 2004, Leo D~ III and Bonnie D~ (Jonathon's parents) created "The Jonathon L. D~ Special Needs Irrevocable Pay Back Trust" (Trust) for Jonathon's benefit. This special needs trust was funded by Jonathon's parents transferring Jonathon's assets to the trust, which were assets gifted to him from his parents through the Uniform Gifts to Minors Act (UGMA). Trust Preamble & Trust §§ 1.1, 1.2. These assets amounted to $45,682.91 in investment accounts and stocks owned by Jonathon's parents as custodians for Jonathon. See Schedule A of Trust. Jonathon's parents were both named as settlors and trustees of the Trust. Trust Preamble & Trust § 1.1. The Trust provides that it is irrevocable, subject to the right of the trustees to amend any administrative provisions of the Trust, upon court approval, so that it conforms with any regulations that are approved by any governing body or agency relating to 42 U.S.C. 1396p or related statutes. Trust § 1.4.
The Trust declares that its purpose is to supplement, but not to supplant, whatever benefits and services Jonathon may receive as a result of age, disability, or other factors from federal, state, and local governmental and charitable sources. Trust § 2.1(a).
The Trust provides that it will terminate upon Jonathon's death. Trust § 4.1(a). The Trust also provides that it may terminate upon court order when Jonathon is no longer found to be a "disabled person" pursuant to the Social Security Act § 1614(a)(3), 42 U.S.C. § 1382c(a)(3), but further states that, if Jonathon would be found ineligible for benefits solely because of the existence of this clause, then this clause shall be considered null and void. Trust § 4.1(b).
Upon the Trust's termination, the Trust provides that its assets will be distributed in the following order:
The assets would be used to repay the State of Illinois (or any other State or Federal agency) for any payments that had been made on behalf of Jonathon during his lifetime.
The assets would then be used to pay for Jonathon's funeral expenses; death taxes; court fees for probate administration of his estate; and all legal, trustee, and accounting fees related to his estate.
If the trust is terminated during Jonathon's lifetime (i.e., if he is no longer considered disabled for purposes of SSI), the Trust assets would then be distributed to his parents equally or to their survivors. If his parents do not survive, then the Trust assets would be distributed to other certain named family members or, if none, then to Jonathon's heirs at law.
If the trust is terminated by Jonathon's death, the remaining Trust assets would then be distributed in accordance with any appointments in Jonathon's will, or, absent such appointments, to certain named family members, and any remaining interests to Jonathon's heirs at law.
Trust § 4.2
The Trust indicates that its terms are to be construed under Illinois law. Trust § 8.2.
DISCUSSION
Under federal law, a trust established by an individual after January 2000 generally will be considered a resource to him if the trust is revocable, unless it meets certain exceptions. 42 U.S.C. § 1382b(e)(3)(A); POMS SI 01120.201(D)(1). If the trust is irrevocable, the trust is still a resource if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual. In that case, the value of the resource is the portion of the trust corpus which could be made to or for the benefit of the individual. 42 U.S.C. § 1382b(e)(3)(B); POMS SI 01120.201(D)(2)(a).
As noted above, the Trust states that it is irrevocable. Trust § 1.4. Moreover, even though Jonathon should be considered the true settlor of the Trust (since the Trust was established with funds that belonged to him), he is not the sole beneficiary under the Trust (which would make the Trust unilaterally revocable notwithstanding any contrary language). POMS SI 01120.200(B)(2), 01120.200(D)(3), 01120.201(B)(7), CHI01120.200. Specifically, the Trust creates contingent remainder interests in certain named family members. POMS SI CHI01120.200(D)(1). Accordingly, the Trust is irrevocable. POMS SI CHI01120.200(C) ("[I]f the trust names a residual beneficiary to receive the benefit of the trust interest after a specific event, usually the death of the primary beneficiary, the trust is irrevocable. The primary beneficiary cannot unilaterally revoke the trust; he needs the consent of the residual beneficiary.").
However, pursuant to POMS SI 01120.201(D)(2), the principal of an irrevocable trust established with the assets of an individual (on or after January 1, 2000) is a resource if payments from the trust principal could be made to or for the benefit of the individual or the individual's spouse (which is the case here, since Jonathon is a beneficiary), unless one of the exceptions in POMS SI 01120.203 (which lists the Medicaid trust exceptions) applies. However, it does not appear that any of the exceptions in POMS SI 01120.203 are applicable.
Specifically, the Medicaid trust exception for individual trusts applies where the trust is:
* established with the assets of an individual under age 65 who is disabled;
* established for the benefit of such individual by a parent, grandparent, legal guardian or a court; and
* provides that, on the death of the individual, any funds remaining in the trust will be used to reimburse the state for Medicaid payments made for the benefit of the individual during his lifetime.
POMS SI 01120.203(B)(1).
Here, Jonathon is under age 65 and, according to your e-mail indicating a medical allowance has been granted, he is disabled. Also, the Trust provides that, upon Jonathon's death, any remaining funds would be used to reimburse the State(s) for Medicaid payments made for his benefit during his lifetime. Trust § 4.2(a).
The Trust, however, fails to satisfy the second requirement, which requires that it be established for the benefit of Jonathon by a parent, grandparent, legal guardian or a court. Here, the Trust was established when Jonathon's parents transferred his assets into the trust (which were assets gifted to him from his parents through the UGMA). Trust Preamble & Trust §§ 1.1, 1.2. We have been advised, by the Team Leader of the Office of Disability and Income Security Program's Deeming Income and Resources Team, that under Agency policy, where a parent, acting as the agent for a competent adult, creates a trust by merely transferring a competent adult's funds, the parent has not "established" the trust for purposes of 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203(B)(1)(e). This policy is based upon the absence of the term "individual" from the list of entities that are permitted to establish a trust under 42 U.S.C. § 1396p(d)(4)(A). Compare 42 U.S.C. § 1396p(d)(4)(C) (permitting an "individual" to establish his or her own "account" in a pooled trust). See Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm'r-MOS, Chicago, SSI- Illinois-Review of the Brian V~ Irrevocable OBRA Pay Back Trust at p. 3 (November 22, 2004). We have been further advised, however, that a parent may establish a trust under 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203(B)(1) for a competent adult by creating a "seed trust", i.e., contributing some amount of funds not belonging to the individual prior to transferring the individual's funds to the trust.
Accordingly, it does not appear that any of the exceptions in POMS SI 01120.203 apply, and thus the Trust should be considered a resource under POMS SI 01120.201(D)(2).
CONCLUSION
For the reasons discussed above, we conclude that the trust is a resource. This trust was established when Jonathon's parents transferred his assets to the trust and it does not meet any exceptions under POMS SI 01120.203.
~~Q. PS 05-036 SSI - Illinois - Review of the Proposed Jewish Federation of Metropolitan Chicago OBRA '93 Pooled Trust Your Reference: S2D5G6; SI 2-1-3 IL (Jewish Federation) Our Ref: 04-P-093~~
R. PS 05-036 SSI - Illinois - Review of the Proposed Jewish Federation of Metropolitan Chicago OBRA '93 Pooled Trust Your Reference: S2D5G6; SI 2-1-3 IL (Jewish Federation) Our Ref: 04-P-093
DATE: November 29, 2004
1. SYLLABUS
The opinion in this case addresses whether or not the sub-accounts within the master pooled trust are a resource for SSI purposes. The POMS at SI 01120.203B.2. outline the criteria that must be met in order for a pooled trust to qualify for the special needs trust exception. One of the criteria is that the sub-accounts in the trust must be established solely for the benefit of the disabled individual. One the provisions in the trust in question creates a possibility that upon termination of the trust, other individuals could benefit from the trust during the primary beneficiary's lifetime. Because of this provision, a sub-account in the pooled trust is considered a resource for SSI purposes.
2. OPINION
On August 19, 2003, we provided a legal opinion regarding whether an earlier version of the proposed Jewish Federation of Metropolitan Chicago OBRA '93 Pooled Trust would constitute a resource for SSI purposes. We advised that, if an individual joined the pooled trust, the sub- account within the Master Trust would be a resource. You subsequently received a revised pooled Trust (Trust), and have asked whether this Trust would constitute a resource for SSI purposes. For the reasons discussed below, we believe that, if an individual joined the pooled trust, the sub-account within the Master Trust would be a resource.
BACKGROUND
The Jewish Federation of Metropolitan Chicago, an Illinois not for profit corporation, proposes to establish the Jewish Federation of Metropolitan Chicago OBRA '93 Pooled Trust. See Trust at 1. The purpose of the trust is to hold assets of primary beneficiaries who are disabled and provide for their supplemental needs and supplemental care, and not to provide for their general support. See Trust Art. Two, Section 2.01 at 3. The trust defines primary beneficiary as a person with one or more disabilities as defined by Section l6l4(a)(3) of the Social Security Act, 42 U.S.C. § 1382c(a)(3). See Trust Art. One, Section 1.02 at 2.
Within the Trust, individual trust accounts, called Sub-Accounts, are established and maintained for each Primary Beneficiary. See Trust Art. One, Section 1.03 at 2; Trust Art. Three at 4. The funds from each sub-account are pooled for investment and management of the funds. See Trust Art. Three at 4. A sub-account within the trust is established for a primary beneficiary when an Adoption Agreement is signed by a grantor, who according to the trust may be the primary beneficiary, a parent, grandparent, sibling, or legal guardian. See Trust Art. One, Section 1.05 at 2; Trust Art. Five, Section 5.01 at 4. Upon execution of the Adoption Agreement by the grantor, or by court order, subject to the approval of the trustee, the sub-account is established. See Trust Art. Five, Section 5.02 at 4. The trustee has sole discretion to reject any Adoption Agreement and to handle all funding matters. See Trust Art. Five, Section 5.02 at 4. The Trust states that the sub-account is irrevocable and the contributed property shall not be refundable. See Trust Art. Five, Section 5.02 at 5. The Trust also states that property or interests in property can be designated for future transfer by a grantor as a contribution, and that the designation of the property can be revoked by the grantor during the grantor's life and continued competence, upon written notice from the grantor to the trustee. See Trust Art. Five, Section 5.03 at 5. Examples of such contributions include a life insurance policy on a grantor's life in which the Master Trust is designated as a beneficiary, or the Master Trust being named as a beneficiary of any future interest of property, such as that which would pass by way of a grantor's will. See Trust Art. Five, Section 5.03 at 5.
The Trust provides that upon the death of a primary beneficiary, any amounts remaining in the primary beneficiary's sub-account, may be distributed first to pay any outstanding, reasonable, administrative expenses and fees for administration of the sub-account associated with the termination and wrapping up of the sub-account, such as an accounting to the court and filing of documents, and taxes due from the sub-account to the State or Federal government because of the death of the beneficiary. See Trust Art. Nine, Section 9.01 at 10.
After payment of those expenses, the assets of the primary beneficiary's trust account would be distributed to the Trust as specified below, with the termination of the sub-account:
In accordance with 42 U.S.C. § 1396p(d)(4)(C) and Ill. Admin. Code Sect. l20.347(d)(2), as the assets of a Primary Beneficiary's Sub-Account shall be retained at death by the Master Trust, neither the Master Trust nor the Sub-Account shall reimburse the government and/or its agencies at that time for any services provided to the deceased Primary Beneficiary; provided, however, that to the extent any funds remaining in the Primary Beneficiary's Sub-Account after payment of the expenses set forth in Section 9.01 are not for any reason retained by the Master Trust, such amounts (up to the amount expended by the State of Illinois, or any other state, for medical assistance for the Primary Beneficiary) shall be paid to the State of Illinois or such other state as has provided benefits to the Primary Beneficiary as reimbursement to the State of Illinois or such other state for such medical benefits provided to the Primary Beneficiary during his or her lifetime. Assets of a deceased Primary Beneficiary's Sub-Account which are retained by the Master Trust shall be maintained in the General Fund Sub-Account, to be utilized, administered and distributed, from time-to-time, for the benefit of any Primary Beneficiary of this Master Trust. Such General Fund Sub-Account shall be administered and distributed in accordance with the terms and provisions of this Master Trust. However, neither the Trustee nor the Settlor has an obligation to expend funds from the General Fund Sub-Account or the Master Trust or provide services for the benefit of any Primary Beneficiary as a result of the depletion of his or her own individual Sub- Account. The JEWISH FEDERATION OF METROPOLITAN CHICAGO shall be considered the Grantor of this General Fund Sub-Account.
Trust Art. Nine, Section 9.02 at 10-11. The Trust further states:
If the Trustee has reasonable cause to believe that the income or principal in a Sub- Account for a Primary Beneficiary is or will become liable for basic maintenance, support, or care for a Primary Beneficiary which has been or would otherwise be provided by local, state, or federal government, or any agency or department thereof, the Trustee, in its sole discretion, may either: (1) distribute the funds in the Sub-Account to an individual trust or to an account in another pooled or community trust for the sole benefit of the Primary Beneficiary, so long as the purposes of the receiving trust are consistent with the purposes of Article II and, if applicable to the Sub-Account, with 42 U.S.C. § 1396p(d)(4)(A); or (2) continue to administer the Sub-Account under separate arrangement with the affected Primary Beneficiary or his or her guardian for the Primary Beneficiary's sole benefit.
Trust Art. Nine, Section 9.03 at 11. The Trust also states:
If, for reasons outside of the control of the Trustee, it becomes impossible or impracticable to carry out the Master Trust's purposes and the trust is terminated, all remaining trust property in each Primary Beneficiary's Sub-Account and the General Fund will be distributed as follows: such amounts (up to the amount expended by the State of Illinois, or any other state, for medical assistance for the Primary Beneficiary) shall be paid to State of Illinois or such other state as has provided benefits to each Primary Beneficiary as reimbursed to the State of Illinois or such other state for such medical benefits provided to each Primary Beneficiary during his or her lifetime, and any remaining funds in each Sub-Account and the General Fund shall be distributed to either: (1) another pooled or community trust so long as the purposes of the receiving trust are consistent with the purposes of Article II and, if applicable to each Sub-Account, with 42 U.S.C. § 1396p(d)(4)(A); or (2) pursuant to a court order after a final accounting along with a petition seeking direction for final distribution is filed in a court of competent jurisdiction in the State of Illinois.
See Trust Art. Nine, Section 9.04 at 11.
DISCUSSION
Under the Social Security Act, trusts created on or after January 1, 2000, from the assets of a SSI claimant or beneficiary, will be considered a resource to the extent that the trust is revocable, or, in the case of an irrevocable trust, to the extent that any payments can be made from the trust for the benefit of the individual. See 42 U.S.C. § 1382b(e)(3)(B); POMS SI 01120.201(D)(2)(a).
Certain pooled trusts are excepted from this statutory provision if they qualify as a Medicaid payback trust under the provisions of Section 1917(d)(4)(C) of the Social Security Act, 42 U.S.C. § 1396p(d)(4)(C). See POMS SI 01120.203(B)(2). To qualify for the Medicaid payback trust exception, the trust must contain assets belonging to a disabled individual and must satisfy the following conditions:
* It must be established and managed by a nonprofit association;
* A separate account must be maintained for each beneficiary of the trust, but assets are pooled for investing and management purposes;
* Accounts in the trust must be established solely for the benefit of the disabled individual by the individual, parent, grandparent, legal guardian, or court; and
* The trust must provide that 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 will pay to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under a State Medicaid plan.
See POMS SI 01120.203(B)(2).
The revised pooled Trust does not qualify for the Medicaid Payback exception because the third requirement is not met. Section 1917(d)(4)(C)(iii) of the Social Security Act, 42 U.S.C. § 1396p(d)(4)(C), requires, in relevant part, that, to qualify for the Medicaid Payback exemption to counting trusts under the statute, "[a]ccounts in the trust [must be] established solely for the benefit of individuals who are disabled ...." The POMS provides that one should "[c]onsider a trust established for the sole benefit of an individual if the trust benefits no one but that individual, whether at the time the trust is established or at any time for the remainder of the individual's life." See POMS SI 01120.201(F)(2).
The trust provisions at Trust Art. Nine, Section 9.03 at 11, do not violate this rule because terminating the trust would result in distribution of the funds for the sole benefit of the Primary Beneficiary, and would thus satisfy 42 U.S.C. § 1396p(d)(4)(C). Furthermore, the trust provision at Trust Art. Nine, Section 9.04(1) at 11, also does not violate this rule because terminating the trust would result in distribution of the funds to another pooled or community trust so long as the purposes of the receiving trust were consistent with the purposes of Article II and with 42 U.S.C. § 1396p(d)(4)(A), which we assume would also be in the sole benefit of the Primary Beneficiary.
However, the trust provision at Trust Art. Nine, Section 9.04(2) at 11, appears to violate the rule that sub-accounts in the trust must be established solely for the benefit of the disabled individual by the individual, or parent, grandparent, legal guardian, or court. See POMS SI 01120.203(B)(2). Terminating the Trust pursuant to a court order after a final accounting along with a petition seeking direction for final distribution creates a possibility that upon termination of the Trust, other individuals could benefit from the Trust during the primary beneficiary's lifetime. Because of this provision, the Trust should be considered a resource under 42 U.S.C. § 1382b(e).
CONCLUSION
For the foregoing reasons, we conclude that a sub-account in the proposed pooled trust should be considered a resource.
~~R. PS 05-033 SSI - Illinois. - Review of the Brian V~ Irrevocable OBRA Pay Back Trust Our Reference: 04S044 Your Reference: S2D5G6, S1 2-1-3 IL (V~)~~
S. PS 05-033 SSI - Illinois. - Review of the Brian V~ Irrevocable OBRA Pay Back Trust Our Reference: 04S044 Your Reference: S2D5G6, S1 2-1-3 IL (V~)
DATE: November 22, 2004
1. SYLLABUS
This opinion determined that an Illinois special needs trust does not meet the requirements for an exception under section 1917(d)(4)(A) of the Social Security Act. This trust contains a Disclaimer provision coupled with a Distribution-Upon-Termination-of-the-Trust provision. The combination of these 2 provisions creates contingent interests which could benefit third parties during the lifetime of the beneficiary. Accordingly, the trust does not meet the requirement in section 1917(d)(4)(A) that the trust must be established for the benefit of the beneficiary. Thus, it should be counted as a resource for SSI purposes.
2. OPINION
You have asked whether a trust purporting to be an Irrevocable OBRA Payback Trust established for Brian A. V~ ("Mr. V~"), a minor, is a resource for the purposes of determining Mr. V~'s eligibility for Supplemental Security Income (SSI). We believe, for the reasons stated below, that the trust is a resource to Mr. V~.
BACKGROUND
Mr. V~ was declared a disabled minor on October 22, 2003. On that date, LaSalle State was appointed guardian of his estate. Mr. V~'s mother brought a medical malpractice claim on behalf of Mr. V~, and a settlement was reached resulting in the sum of $455,992.94 to be paid to Mr. V~. The trust will be funded with the money Mr. V~ received as a result of his medical malpractice settlement. Trust, Exhibit A. His family has retained counsel to create an irrevocable OBRA payback trust. A proposed draft of the trust was submitted for our review.
The name of the trust is "The Brian V~ Irrevocable OBRA Payback Trust." Trust § 1.7. The Trust names LaSalle State as the settlor of the Trust. Trust §§ 1.1, 1.6. The Trust, however, is funded with the assets of Mr. V~, who is named as the Beneficiary of the Trust. Trust §§ 1.2, 1.5. The purpose of the Trust is to supplement but not to supplant, whatever benefits Mr. V~ may be entitled to, and is intended to qualify Mr. V~ for Supplemental Security Income ("SSI"). The trustee is directed to use the principal and income from the trust to provide Mr. V~ with only those benefits and services that, in the trustee's judgment, are necessary for the beneficiary's welfare and are not otherwise available to the beneficiary from other sources. Trust § 2.1. The making and amount of any disbursement from the trust is subject to Court Order. Trust § 3. The Trust grants the trustee alone any "right, power, or authority to liquidate the Trust, . . . or to require payments from the Trust for any purpose. Trust § 3. Finally, the Settlor of the trust "relinquishes all power to alter, amend, or revoke any provisions of the Trust Agreement" and the Trust is expressly made "irrevocable and is intended so pursuant to Section SI-01120.200.D.2 of the Social Security Administration Program Operation Manual System." Trust § 1.4. The trustee may amend any administrative provisions of the Trust with leave of Court, and may alter or reform the Trust so that it conforms with any regulations relating to 42 U.S.C. § 1396p. Trust § 1.4.
The Trust is intended to be an OBRA Pay Back Trust, established under 42 U.S.C. § 1396p(d)(4)(C). The Trust provides that the Trust shall terminate upon the death of the beneficiary. Trust § 4.1(a). Upon the Trust's termination, except upon exhaustion of the corpus, the trustee is directed to execute the following administrative provisions of the Trust in the order listed:
* pay any amount (up to the amount expended by the State of Illinois or any other state, for medical assistance) to the appropriate state agencies as reimbursement to such state for any benefits provided to Mr. V~ during his lifetime;
* may first pay death taxes due from the Trust to the state or federal government and reasonable fees for the administration of the Trust Estate, such as an accounting to a Court, a completion and filing of documents, or other required actions associated with termination and wrapping up the Trust;
Trust § 4.2. Any remaining Trust assets shall be distributed to that person or persons other than Mr. V~ or his estate, on such terms as designated by Mr. V~ in a will admitted to probate. Trust § 4.2. In the absence of such a will, the Trustee is directed to pay the remaining Trust estate to Rosa N~ or her descendants, per stirpes, if Rosa N~ predeceases Mr. V~. Trust § 4.2.
The Trust also contains a clause providing for the termination of the Trust prior to the death of Mr. V~, upon court order, if Mr. V~ is found to be no longer disabled under the Social Security Act, 42 U.S.C. § 1382c, and the Guardian petitions the Court to have the Trust terminated. Trust § 4.1(b). Additionally, the Trust provides for termination prior to the death of the beneficiary, where the beneficiary is restored to capacity under the state Probate Act, is no longer disabled under the Social Security Act, and the beneficiary petitions the court to have the Trust terminated. Trust § 4.1(b). The Trust provides that if applicable federal or state law or regulations are amended or interpreted to render the beneficiary of the trust ineligible for government benefits solely because of this clause, then this clause "shall be null and void." Trust § 4.1(b). The Trust also contains a disclaimer provision that allows Mr. V~, through his guardian, to disclaim his interest in the Trust after having received Court authority. Trust § 7.2. If the Trust is terminated prior to Mr. V~'s death or Mr. V~ disclaims his interest, the Trust provides that the Trust corpus will be paid as designated in Mr. V~'s will, if he has one, and otherwise to Rosa N~ or her descendants. Trust §§ 4.2, 7.2.
DISCUSSION
Under federal law, a trust established by an individual after January 2000 generally will be considered a resource to him if the trust is revocable, unless it meets certain exceptions. 42 U.S.C. § 1382b(e)(3)(A); POMS SI 01120.201(D)(1). If the trust is irrevocable, the trust is still a resource if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual. In that case, the value of the resource is the portion of the trust corpus which could be made to or for the benefit of the individual. 42 U.S.C. § 1382b(e)(3)(B); POMS SI 01120.201(D)(2)(a).
As explained above, the Trust document states that it is irrevocable. Trust § 1.4. Moreover, even though Mr. V~ should be considered the true settlor of the Trust (since the Trust was established with funds that belonged to him), he is not the sole beneficiary under the Trust (which would make the Trust unilaterally revocable notwithstanding any contrary language). POMS SI 01120.200(B)(2), 01120.200(D)(3), 01120.201(B)(7), CHI01120.200. Specifically, the Trust creates contingent remainder interests in persons named in Mr. V~'s will, if he has one, or in Rosa N~ or her descendants in the absence of a will. POMS SI CHI01120.200(D)(1). Accordingly, the Trust is irrevocable. POMS SI CHI01120.200(D) ("[I]f the trust names a residual beneficiary to receive the benefit of the trust interest after a specific event, usually the death of the primary beneficiary, the trust is irrevocable. The primary beneficiary cannot unilaterally revoke the trust; he needs the consent of the residual beneficiary.").
However, pursuant to POMS SI 01120.201(D)(2), the principal of an irrevocable trust established with the assets of an individual (on or after January 1, 2000) is a resource if payments from the trust principal could be made to or for the benefit of the individual or the individual's spouse (which is the case here, since Mr. V~ is a beneficiary), unless one of the exceptions in POMS SI 01120.203 applies. However, it does not appear that any of the exceptions in POMS SI 01120.203 are applicable.
In particular, the exception under Section 1917(d)(4)(A) of the Act (POMS SI 01120.203(B)(1)), which requires that the trust be established for the benefit of an individual by a parent, grandparent, legal guardian or court, would be unavailable. We have recently been advised by the Office of Program Law that this provision should be interpreted to require that the trust be established for the sole benefit of the individual during his or her lifetime. See POMS SI 01120.201(F)(2) (defining "established for the sole benefit of the individual"). Here, however, the Disclaimer provision in Article 7.2 coupled with the Distribution-Upon-Termination-of-the-Trust provision in Article 4.2 create contingent interests that could benefit third parties during the lifetime of the claimant. Specifically, should Mr. V~ disclaim his interest in the trust under Article 7.2, the corpus of the trust would pass to individuals named in his will, if he has one, and, if not, would pass Rosa N~, or her descendants.1 Because of these contingent interests in third parties, the trust would not be for the sole benefit of Mr. V~ during his lifetime, and thus the exception under Section 1917(d)(4)(A) of the Act (POMS SI 01120.203(B)(1)), as well as any other exceptions, would be unavailable.2 Therefore, the trust should be considered a resource to Mr. V~ under POMS SI 01120.201(D)(2).
CONCLUSION
We believe that the provision of the Trust which allows Mr. V~ to revoke his interest in the Trust, creates a contingent interest in third parties. Accordingly, the Trust would not be for the sole benefit of Mr. V~ during his lifetime, and thus the exception under Section 1917(d)(4)(A) of the Act (POMS SI 01120.203(B)(1)), as well as any other exceptions, would be unavailable. Accordingly, we believe that the Trust is a resource to Mr. V~.
1 The termination clause in Article 4.1(b) also appears to create contingent interests in the same third parties. However, the termination provision also provides that it should be considered null and void if it renders the claimant ineligible for government benefits. Trust § 4.1(b). Thus, we do not believe the termination clause would, standing alone, prevent the Trust from satisfying § 1917(d)(4)(A).
2 We have previously opined that a "third-party termination clause" in a pooled trust is inconsistent with the requirements in POMS SI 01120.203(B)(2), which explicitly requires that the trust have been established for the sole benefit of the individual during his or her lifetime. Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, SSI-Michigan-Review of Proposed Pooled Amenities Trust Fund for Community Advocates for Persons with Developmental Disabilities, (Feb. 13, 2003). Third-party termination clauses are similar to the third-party disclaimer provision above, except that, unlike the disclaimer provision, they are exercised by the trustee, not the claimant. However, both types of clauses create the possibility that third parties could benefit from the trust during the claimant's lifetime.
~~S. PS 05-002 SSI-Illinois-Review of Joyce H~ Special Needs Trust ~ Your Reference: SI-2-1-3 IL (H~) Our Reference: 04P004~~
T. PS 05-002 SSI-Illinois-Review of Joyce H~ Special Needs Trust ~ Your Reference: SI-2-1-3 IL (H~) Our Reference: 04P004
DATE: September 27, 2004
1. SYLLABUS
This Illinois opinion concerns a Medicaid payback trust that is funded with maintenance (alimony) payments, has a termination clause, and is established by a court order. The opinion states that Illinois would allow a court to create a trust to receive maintenance payments and that the payments are not income to the beneficiary because the court ordered that the payments must go directly to the trust. The opinion states that the termination clause does not prevent the trust from meeting the requirements for an exception under section 1917(d)(4)(A) because exercise of the termination clause would not benefit anyone other than the beneficiary during the beneficiary's lifetime. The opinion also states that the court ordered the creation of this trust consistent with the requirement for an exception under section 1917(d)(4)(A).
2. OPINION
You asked whether a discretionary special needs trust for the benefit of SSI beneficiary Joyce H~ is a resource to Ms. H~ for SSI purposes and whether the court-ordered maintenance payments made to the trust by Ms. H~'s ex-husband constitute income for SSI purposes. We conclude that the trust is not a resource and the maintenance payments made directly to the trust are not income for SSI purposes.
BACKGROUND
On July 30, 2003, pursuant to the petition of Joyce H~, the Domestic Relations Division of the Circuit Court of Cook County, Illinois entered an order directing that "an irrevocable special needs pay back trust" be created on Ms. H~'s behalf to receive: (1) future discovered assets of Ms. H~; (2) future maintenance payments from Dennis H~; and (3) any funds in excess of the Illinois Department of Public Aid cash asset limit which accumulate in Ms. H~'s account. Order 1-2. The court directed that Ms. H~'s ex-husband, Dennis H~, sign an irrevocable transfer of $300.00 per month to the trust from an account to which his pension deposits were made. Order 4, 6. The $300 monthly payment to the trust represents total payment of Mr. H~'s maintenance obligation. Order 8. The order specified that such payments are taxable to Ms. H~. Order 5. The Court stated that the order "shall remain in effect whether or not the Social Security Administration approves the Trust. . ." Order 9.
The trust declaration names the Circuit Court of Cook County as settlor and states that the trust is irrevocable and intended to comply with POMS SI 01120.200.D.2. Trust Declaration (Decl.) §§ 1.1, 1.4. Ms. H~'s ex-husband consented to the creation of the trust, which was to be funded initially by the monthly maintenance payments. Decl. at p. 11, Schedule A. The trustee is authorized to accept additions to the trust from any source, as long as they are in Ms. H~'s best interests. Decl. § 1.3. The trust terms must be construed under Illinois law. Decl. § 8.2. The trustee has power to amend only with respect to administrative provisions. Decl. § 1.4. The trustee is directed to use the principal and income of the trust to provide the beneficiary, Joyce H~, with "only those benefits and services, that, in the Trustee's judgment, are not otherwise available to the Beneficiary from other sources as or when needed for her welfare," the purpose being to enable Ms. H~ to lead "as normal, comfortable, and fulfilling a life as possible." Decl. § 2.1. Disbursements from the trust are subject to court order. Decl. § 3. The trustee is instructed to conserve and accumulate the trust estate to the extent feasible, but accumulation or use of the trust is determined solely based on Ms. H~'s needs, without regard for the remaindermen's interests. Decl. § 3. The trust contains a spendthrift provision protecting the beneficiary's interest from assignment, alienation, pledges, attachments, or creditors' claims. Decl. § 7.1. No one except the trustee has the power to require payments from the trust or liquidate the trust. Decl. § 3.
The trust terminates at Ms. H~'s death or upon court order when she no longer meets the Social Security Act definition of "disabled." Decl. § 4. If the trust terminates during Ms. H~'s lifetime, the trust property is to be distributed to Ms. H~ or her guardianship estate. Decl. § 4.2(c). If the trust terminates at Ms. H~'s death, the trust property is to be distributed in the following order: (1) death taxes imposed on Ms. H~'s estate; (2) court fees related to administration of Ms. H~'s estate; (3) other fees related to Ms. H~'s estate; (4) the State of Illinois as reimbursement for assistance paid under public benefit programs; (5) those whom Ms. H~ may appoint in her will. Any property remaining in the trust and not distributed under Ms. H~'s power of appointment is to be distributed to Ms. H~'s children in equal shares. Decl. § 4.2.
DISCUSSION
Do the Maintenance Payments Paid Directly into the Supplemental Needs Trust Constitute Income?
Alimony, sometimes called maintenance, is an allowance ordered by a court to be paid to one spouse from the funds of the other spouse pursuant to a proceeding for divorce or legal separation. 20 C.F.R. § 416.1121. "For SSI purposes, alimony and support payments are cash or in-kind support contributions to meet some or all of a person's needs for food, clothing, or shelter." 20 C.F.R. § 416.1121. Such payments are generally classified as unearned income. 20 C.F.R. § 416.1121.
The domestic relations court has ordered maintenance payments from Ms. H~'s ex-husband to be paid directly into a trust with Ms. H~ as the beneficiary. Initially, the inquiry is whether the creation of the special needs trust and the payment of Ms. H~'s maintenance payments into the trust is permissible under Illinois law. If not, the payment of maintenance into the trust cannot be sheltered from being countable income to Ms. H~.
In Illinois, a court's power to award maintenance in connection with a proceeding for a divorce or legal separation is derived from § 504 of the Marriage and Dissolution of Marriage Act. 750 Illinois Compiled Statutes (ILCS) 5/504. The statute enumerates the factors which a court considers, including each spouse's income, property, and needs, each spouse's present and future earning capacity, the standard of living established during the marriage, the age and physical and emotional condition of each spouse, any valid agreement between the spouses, and any other factors the court finds just and equitable. 705 ILCS 5/504(a). Thus, one of the purposes of maintenance payments is to meet a spouse's needs. See In re Marriage of S~, 729 N.E.2d 546, 551 (Ill. App. 2000), citing In re Marriage of S~, 656 N.E. 2d 215, 220 (Ill. App. 1995) ("Maintenance may be appropriate where a spouse is not able to earn enough money to meet his needs, even if he is employed"). Placing maintenance payments in a trust that does not allow distributions for basic support would appear to be inconsistent with that purpose. See, e.g., In re Marriage of B~, 547 N.E.2d 590, 597 (Ill. App. 1989) (improper to provide for child support payments to trust which did not allow use of the trust corpus for support during the child's minority). See also Memorandum from Reg. Chief Counsel, Chicago to Asst. Reg. Comm. - MOS, Chicago, Illinois Trust for Krystal L~ S~ (July 10, 1998) (payment of court-ordered child support into supplemental needs trust for benefit of disabled adult child not proper under Illinois law). The statute, however, also provides for court consideration of the standard of living established during the marriage. 750 ILCS 5/504(a)(6). See In re Marriage of R~, 539 N.E.2d 1365, 1367 (Ill. App. 1989) (citing In re Marriage of H~, 505 N.E.2d 1294, 1301 (Ill. App. 1987)) (goal of maintenance, in certain situations, is "to provide supplementary income where the spouse cannot support herself in her pre-dissolution lifestyle"). Requiring that maintenance payments be made into a trust that allows only for supplemental needs does not appear to be inconsistent with the purpose of assuring that the spouse can maintain the standard of living established during the marriage.
Even though maintenance payments made to a supplemental needs trust may not be contrary to the purposes for awarding maintenance, the question remains whether a court, in connection with a dissolution of marriage, has the authority to create such a trust to receive maintenance payments. A trial court's authority in proceedings for dissolution of marriage is limited to the authority provided for by statute. See In re Marriage of R~, 760 N.E.2d 592, 596 (Ill. App. 2001) (trial court was without jurisdiction to enter order relating to termination of parental rights during proceeding brought pursuant to the Marriage Act because court can act only within the limited authority vested in it by the applicable provisions of the Marriage Act). In In re Marriage of I~, 788 N.E.2d 794 (Ill. App. 2003), the court noted that a trial court's authority in a dissolution proceeding is conferred only by statute and, therefore, the court may not rely on its general equity powers. 788 N.E. 2d at 799 (citing In re Marriage of R~, 760 N.E.2d 592 (Ill. App. 2001)); In re Marriage of B~, 643 N.E.2d 268 (Ill. App. 1994).
The Marriage and Dissolution of Marriage Act contains a statutory provision allowing the court to establish a trust to receive child support payments. 750 ILCS 5/503(g). However, we located no such provision authorizing the court to establish a trust to receive maintenance payments. Nor did we locate any Illinois cases in which the domestic relations court formed a trust for the purpose of receiving maintenance payments. In In re Marriage of G~, 576 N.E.2d 946 (Ill. App. 1991), the court directed the husband's attorney to establish a trust fund, pursuant to 750 ILCS 503(g), and make disbursements from the trust fund for various purposes, including child support arrearage and unallocated maintenance to the wife at a monthly rate of $1300 per month for 12 months. 576 N.E.2d at 948. The court stated that, although the domestic relations court had properly invoked 750 ILCS § 503(g) in creating a trust for the child's benefit, the unallocated maintenance for the wife was not a proper distribution from the trust. 576 N.E. 2d at 948-49.
We conclude that, because there is no statutory authority to do so, the court may not have had authority, absent consent of the parties, to create a trust to receive the maintenance payments owed to Ms. H~. See In re Marriage of R~, 381 N.E.2d 744, 748 (Ill. App. 1978) (creation of trust as part of dissolution decree must conform to statutory requirements); In re Marriage of B~, 441 N.E.2d 1283, 1289 (Ill. App. 1982) ("The authority of Illinois courts to set aside separate funds or create trusts for dependents is strictly limited to the purposes set forth in this subsection [now 750 ILCS 5/503(g)]"). It may be, however, that the creation of such a trust would be permissible by agreement of the parties. See In re Marriage of B~, 441 N.E.2d 1283, 1291 (Ill. App. 1982); ("The law favors amicable settlement of property rights in cases involving dissolution of marriage and are (sic) reluctant to disturb an agreed order in the absence of fraud, coercion, or settlement terms which are against public policy or morals") (citing Horwich v. Horwich, 386 N.E.2d 620). It appears from the statement in the court order that Ms. H~ requested the creation of the trust and from Mr. H~'s consent appended to the trust declaration that the trust was created pursuant to the agreement of the parties. Therefore, we conclude that the court's creation of the trust to receive maintenance payments was likely allowable under Illinois law. Because the payments are made directly into the trust, they would not be considered income to Ms. H~ when paid into the trust.
Is the Trust a Resource?
Assets are a resource for SSI purposes if the individual owns them and can convert them to cash for her support and maintenance. 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate the property, it is a resource. 20 C.F.R. § 416.1201(a). Although the court is nominally the settlor of this particular trust, the assets used to fund the trust at its creation were maintenance payments belonging to Ms. H~. Decl. Schedule A. A trust established on January 1, 2000 or later with the assets of an individual will be considered that individual's resource for SSI purposes unless a Medicaid trust exception applies. See POMS SI 01120.203. Because this trust was created after January 1, 2000, with Ms. H~'s assets, the trust is a resource to Ms. H~ unless the Medicaid trust exception applies. See POMS SI 01120.203.
Under the Medicaid trust exception, trust assets will not be considered a resource to the individual where (1) the individual is disabled and under age 65, (2) the trust was established for the individual's benefit by a parent, a grandparent, a legal guardian, or a court, and (3) the terms of the trust provide that, upon the death of the individual, the State will be reimbursed for the total medical assistance paid on the individual's behalf under a State Medicaid plan. POMS SI 01120.203B.1.a. Where an individual's assets form only a part of the trust, these rules will apply to that portion of the trust attributable to the individual. Thus, a proration of the trust assets may be necessary where only part of the trust derives from the individual's property.
The materials you sent us indicate that Ms. H~ is disabled and under age 65. See SSID dated 09/26/03. We cannot be certain from those materials whether Ms. H~ has been adjudicated incompetent. We have been advised by the Office of Disability and Income Security Programs (ODISP), however, that, consistent with 42 U.S.C. § 1396p, a court may create a Medicaid payback trust for a competent adult, but only if the court establishes the trust by order, as opposed to merely approving a trust that has already been created. The individual, however, may petition the court to enter the order establishing the trust. Here, although Ms. H~ petitioned the court to create the trust, the court entered an order directing creation of the trust. Therefore, even if Ms. H~ is competent, that fact would not preclude creation of a Medicaid payback trust because the court ordered the trust to be created.
The terms of the trust provide that, upon Ms. H~'s death, the trust property will be distributed in the following order: (1) death taxes imposed on Ms. H~'s estate; (2) court fees related to administration of Ms. H~'s estate; (3) other fees related to Ms. H~'s estate; (4) the State of Illinois as reimbursement for assistance paid under public benefit programs; and (5) those persons appointed by Ms. H~'s will. Any remaining trust property not distributed under Ms. H~'s power of appointment is to be distributed to Ms. H~'s children in equal shares. Decl. § 4.2. The payment of death taxes, court fees related to administration of the estate, and other fees related to administration of the estate before payment to the State as reimbursement for Medicaid assistance is permissible under the Medicaid exception rules. POMS SI 01120.203B.3. Thus, the provision for termination of the trust at Ms. H~'s death complies with the Medicaid trust exception. See POMS SI 01120.203B.1.a.
The trust declaration also provides, however, for court ordered termination and distribution of the trust assets prior to Ms. H~'s death if Ms. H~ ceases to meet the Social Security Act definition of "disabled." Decl. § 4. If the trust terminates under this provision, the trust assets must be distributed to Ms. H~ or to her guardianship estate. Decl. § 4.2(c). We have been advised by the Team Leader of the Office of Disability and Income Security Programs (ODISP) Deeming, Income, and Resources Team that such termination clauses are consistent with the statutory Medicaid payback provisions, at least so long as exercise of the termination clause would not benefit anyone other than the individual during the individual's lifetime. Because there is no indication that exercise of the termination clause would benefit anyone other than the individual here, it would not appear to prevent the trust from complying with the Medicaid payback provisions. Should the clause be exercised, however, the Agency would need to consider whether the assets distributed to the claimant should be considered as either a resource or as income. Thus, we conclude that the portion of the trust derived from Ms. H~'s assets meets the Medicaid payback trust exception.
The portion of the trust attributable to Ms. H~'s assets is also not a resource under SSA's regular resource rules. Under the regular resource rules, a trust is a resource if the SSI beneficiary can: (1) revoke the trust and use the assets for her support and maintenance; (2) direct the trustee to pay her the trust assets or use the trust assets to pay for her support and maintenance; or (3) sell her beneficial interest in the trust. POMS SI 01120.200D. Under the terms of the trust declaration, the trust is irrevocable. Decl. § 1.4. Ms. H~, thus, cannot revoke the trust unless she is both the trust settlor and the sole beneficiary. See Stewart v. Merchants National of Aurora, 278 N.E. 2d 10, 12 (Ill. App. 1972) (trust settlor who is also sole beneficiary can revoke trust without the trustee's consent, even though no power of revocation was reserved when the trust was created). Although the court is nominally the settlor of this particular trust, the assets used to fund the trust at its creation are maintenance payments belonging to her. Decl. Schedule A. Therefore, Ms. H~ is the true settlor of the trust, at least as to that portion of the trust attributable to the maintenance payments or other property belonging to Ms. H~. See In re Estate of H~, 635 N.E.2d 853, 855 (Ill. Ct. App. 1994) (citing Stewart v. Merchant's Nat'l of Aurora, 278 N.E.2d 10, 12 (Ill. Ct. App. 1972)("[the person] who furnishes consideration for the creation of a trust is the settlor, even though, in form, the trust is created by another."). Ms. H~, however, is not the sole beneficiary of the trust and, therefore, cannot revoke the trust. Although Ms. H~ is the only named beneficiary during her lifetime, on termination of the trust at her death, the remainder of the trust estate, after payment of estate taxes, estate administration fees, and the Medicaid payback, must be distributed to those whom Ms. H~ appoints by will or, if she does not exercise her testamentary power of appointment, to her children in equal shares. See Rest.3d Trusts § 49(b) (an interest may be subject to a power of appointment), comment b (beneficiary has an existing future interest even though it is subject to another's power of appointment). Although no Illinois statutes or cases were located on the subject, we conclude that Illinois courts would likely apply basic trust law to find that a remainder interest is created in Ms. H~'s children. See Rest.2d Trusts § 127, comment b ('if the beneficial interest is limited to the settlor for life and on his death the property is to be conveyed to his children, issue, or descendants, he is not the sole beneficiary of the trust, but an interest in remainder is created in his children, issue, or descendants"); Memorandum from Acting Reg. Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, Review of Regional POMS Transmittal on State Laws Pertaining to Grantor Trusts (Mar. 11, 2003) at 2; Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, Update on the Law Regarding Grantor Trusts (July 23, 2003) at 2. See also Rest.3d Trusts §49(a)(1) (remainder interest created even where "heirs" are designated).
Ms. H~ also cannot direct the trustee to make payments for her basic support and maintenance. The trust declaration gives the trustee sole discretion to use the principal and income of the trust only for Ms. H~'s supplemental needs. Decl. § 2.1. It further states that no one other than the trustee can compel payments from the trust. Decl. § 3. Thus, Ms. H~ cannot direct the trustee to make payments for her basic support and maintenance. Nor can she sell her beneficial interest in the trust. The trust contains a spendthrift provision which precludes her from assigning or otherwise alienating her beneficial interest in the trust. Decl. §7.1. Even if Ms. H~ could sell her beneficial interest in the trust, it would likely have no real fair market value because no reasonable person would purchase the right to have the trustee, in his sole discretion, make disbursements to, or on behalf of, Ms. H~. Because Ms. H~ cannot revoke the trust, direct payments from the trust for her basic support and maintenance, or realistically sell her beneficial interest in the trust, the trust should not be considered Ms. H~'s resource for SSI purposes.
Although the trust was created to hold assets belonging to Ms. H~, including the maintenance payments from her husband, the trust declaration contains a provision allowing the trustee to accept property from other sources, as long as the trust addition is in Ms. H~'s best interest. Decl. § 1.3. If additions are made to the trust from other sources, the regular resource rules apply to determine whether that portion of the trust attributable to the additions from other sources constitute Ms. H~'s resource for SSI purposes. As discussed above, Ms. H~ cannot revoke the trust, direct distributions from the trust for her basic support and maintenance, or sell her beneficial interest in the trust. Therefore, like the portion of the trust attributable to her own property, any portion attributable to additions from other sources would not be considered Ms. H~'s resource for SSI purposes.
CONCLUSION
We conclude that the Joyce H~ Special Needs Irrevocable Pay Back Trust, created by the Circuit Court of Cook County, should not be considered a resource to Ms. H~ for SSI purposes. We also conclude that the maintenance payments from Dennis H~ are not income to Ms. H~ when paid directly into the trust.
~~T. PS 04-308 Illinois Disability Pooled Trust for Jerry L. R~, ~; Your Reference: S2D5G6~~
U. PS 04-308 Illinois Disability Pooled Trust for Jerry L. R~, ~; Your Reference: S2D5G6
DATE: December 12, 2001
1. SYLLABUS
This opinion concerns a pooled trust in Illinois. This pooled trust has been determined to be countable as a resource for SSI purposes because it does not meet the requirements for an exception as a Medicaid payback trust. This trust inappropriately provides for payment of the trust beneficiary's funeral expenses before the State is reimbursed for Medicaid benefits.
2. OPINION
You requested an opinion as to whether the Illinois Disability Pooled Trust entered into by Jerry R~, an SSI claimant, constitutes a countable resource for SSI purposes. For the reasons discussed below, it is our opinion that the trust is a countable resource.
BACKGROUND
On May 24, 2000, Mr. R~, by his guardian, executed a Joinder Agreement and adopted the Illinois Disability Pooled Trust ("Trust"). The Trust consists of sub-accounts which are maintained for the benefit of individual beneficiaries, but are pooled and managed collectively for purposes of investment and management of funds. See Pooled Trust Agreement at 1; 2, 2.5; 4, 3.2. Mr. R~ is the named beneficiary of the Trust sub-account. See Joinder Agreement at 1, D. The trust is funded with the proceeds of a wrongful death claim involving Mr. R~ deceased brother. See Joinder Agreement at 8, K(a), 9. The Trustees are the Illinois Disability Association and the LaSalle National , or their respective successors. See Pooled Trust Agreement at 3, 2.7.
The Trust provides that the Trustee has discretion to spend the trust funds for Mr. R~ supplemental needs rather than for his basic support and maintenance. See Pooled Trust Agreement 3.2 through 4.1(A). The Trust further provides that:
[I]f the mere existence of this authority to make distributions will result in a reduction or loss of the Beneficiaries's entitlement to benefits, regardless of whether the Trustee actually exercises that discretion, the preceding paragraph shall be null and void and the Trustee's authority to make these distributions shall terminate and the Trustee's authority to make distributions shall be limited to purchasing supplemental goods and services that will not adversely affect the Beneficiary's government benefits.
Pooled Trust Agreement at 4.1(A). The Pooled Trust Agreement provides that, on the death of the Beneficiary, any trust funds will be used first to pay for the beneficiary's funeral and estate administration and taxes; second to the Pooled Trust Fund (to be used for other beneficiaries) to the extent the grantor has authorized a remainder share for the trust; third to reimburse the State for Medicaid expenditures; and fourth to any remainder beneficiaries designated in the Joinder Agreement. Pooled Trust Agreement at 11.2. Mr. R~ Joinder Agreement does not list any remainder beneficiaries. However, the agreement states that if no such beneficiaries are named, the Pooled Trust will, by default, receive 1% of the remaining assets from Mr. R~ trust account.
DISCUSSION
Amendments to the Social Security Act provide that, an irrevocable trust created by an individual after January 1, 2000, is a resource if the trust allows payment to or for the benefit of the individual. 42 U.S.C. § 1382b(e)(3). The Trust provides the Trustee has the sole discretion to make special, supplemental, and non-support distributions that are appropriate to or for the benefit of a beneficiary. See Pooled Trust Agreement at 4, 3.2. Since the Trust specifically allows for payment to or for the benefit of the individual, it is a countable resource under the Act. See 42 U.S.C. § 1382b(e)(3); POMS SI 01120.201(D)(2)(a).
We note the Trust provides it is the intent of the Trust that the Trustee shall not exercise any discretionary powers granted to it in any manner which would disqualify a beneficiary from qualifying for federal, state, or local government benefits or programs which a beneficiary may be entitled to receive. See Pooled Trust Agreement at 5, 4.1A. It also indicates that, if the Trustee's discretionary authority to make distributions will result in a reduction or loss of the beneficiary's entitlement program benefits, the Trustee's authority to make special, supplemental, and non-support distributions shall terminate. See Pooled Trust Agreement at 6, 4.1A. However, the Trust provides that the Trustee will continue to have authority to make distributions, limited to purchasing supplemental goods and services in a manner that will not adversely affect the beneficiary's government benefits. See Pooled Trust Agreement at 6, 4.1A. Since the Trustee still has discretion to make distributions for goods and services for the beneficiary, the Trust is a countable resource under 42 U.S.C. § 1382b(e).
We have also considered whether the Trust is excluded under the Medicaid payback trust exception to counting trusts as a resource under 42 U.S.C. § 1382b(e). The Trust is not excluded as a Medicaid payback trust because it gives priority to payment of funeral expenses before the State is reimbursed for Medicaid benefits. See Pooled Trust Agreement at 18, 11.2A, B. The POMS instructs that, to qualify for the pooled trust exception, the trust must contain specific language that provides that, to the extent that amounts remaining in the individual's account upon the death of the individual are not retained by the trust, the trust reimburses the State for medical assistance paid on behalf of the individual under Medicaid. See POMS SI 011020.203 B.2.g. To the extent the trust does not retain the funds in the account, the State must be listed as the first payee and have priority over payment of other debts and administrative expenses. Id. Further, Agency policy instruction specifically indicates that funeral expense payment is not permitted prior to reimbursement to the State for medical expenses. See EM-01085 B.3. The Trust does not meet the exception for counting as a resource under 42 U.S.C. § 1382b(e).
CONCLUSION
In sum, we conclude that Mr. R~ Illinois Disability Pooled Trust is a countable resource for SSI purposes because the Trustee has discretion to expend the trust assets for Mr. R~ benefit, and the Trust does not qualify for the Medicaid payback trust exception because, when Mr. R~ dies, the trust will pay for funeral expenses before reimbursing the State for Medicaid benefits.
Sincerely, Thomas W. C~ Chief Counsel, Region V
By: Cynthia A. B~ Assistant Regional Counsel
~~U. PS 04-256 Illinois Oral Trust - Eloise H~, ~~~
V. PS 04-256 Illinois Oral Trust - Eloise H~, ~
DATE: March 9, 1992
1. SYLLABUS
This 1992 opinion concludes that an oral trust agreement alleged by an SSI recipient did not meet the requirements to be a valid trust under Illinois law. In 1981, the recipient entered into an oral agreement that had some aspects of a trust, but all the legal requirements for a trust were not present. Therefore, the assets in the alleged trust were counted as resources for SSI purposes. It is important to note that this trust was evaluated under SSI rules applicable before the 1999 legislation which changed how trusts are counted in the SSI program. The analysis done on this trust would not be sufficient for a trust established on or after 1/1/2000 that purports to meet the requirements for a Medicaid payback exception.
2. OPINION
You have requested an opinion on whether a trust agreement entered into by Eloise H~, a Supplemental Security Income (SSI) claimant, constituted a valid trust under Illinois law and, if so, whether the funds held pursuant to the terms of the agreement should be treated as a resource of Ms. H~ for purposes of determining eligibility for SSI.
The pertinent SSI regulations provide at 20 C.F.R. § 416.1201(a)(1991) that:
. . . resources means cash or other liquid assets or any real or personal property
that an individual (or spouse, if any) owns and could convert to cash to be used for
his or her support and maintenance. If the individual has the right, authority or
power to liquidate the property or his or her share of the property, it is considered a
resource. . .
Thus, if an individual is able to obtain funds or convert property to cash to be used toward her support and maintenance, such funds or property are to be included as resources for purposes of SSI eligibility determinations.
The question to be addressed is twofold. First, we must determine whether the claimant entered into a valid oral trust prior to applying for SSI benefits on May 6, 1986, and, if so, whether the funds held pursuant to that agreement should be treated as a resource of Ms. H~ for purposes of determining SSI eligibility for SSI. Second, if the oral trust did not sufficiently limit Ms. H~'s power to liquidate the property, we must determine whether a subsequent written trust agreement signed on May 27, 1988, adequately restricted Ms. H~'s control over the assets. For the reasons outlined below, it is our opinion that Ms. H~ retained the authority to liquidate the assets at all times and that those assets are to be included as resources for purposes of determining her SSI eligibility.
It appears from the materials provided that the pertinent facts are as follows. On December 15, 1980, a check in the amount of $20,912.80 was paid to Eloise H~ by James B~ III as "administrator," which Ms. H~ subsequently endorsed "for deposit only in the account of James E. B~ III as natural guardian for Eloise K. H~." Shortly thereafter, on December 24, 1980, a certificate of deposit in the amount of $20,912.08 was issued to Mr. B~ "as Trustee of Eloise K. H~" with a maturity date of June 24, 1981, and with monthly payments of interest to passbook #~. A letter to Mr. B~ from Patrick O~, an attorney, dated March 17, 1981, which indicated that the attorney had "roughed out a draft of an irrevocable trust agreement which may possibly be used by your aunt." On August 14, 1981, after the maturity date on the original certificate, Ms. H~ spent $960.00 for cemetery lots for herself and her husband. The next activity recorded in the file is a July 9, 1985 certificate of deposit in the amount of $19,639.23 issued to Mr. B~ "as Trustee for Eloise K. H~." This amount is presumably the original amount of $20,912.08, less $960.00 for cemetery lots and $312.85 for an unknown purpose. Once again, the interest was to be paid monthly to passbook #~. On May 6, 1986, Ms. H~ applied for SSI alleging that she had zero income. Ms. H~ signed an additional form on June 1, 1986, alleging no income other than that received from the Department of Public Aid.
In 1988, an interface between IRS records and SSI records revealed the income payments to Ms. H~'s account. It also revealed that on March 14, 1988, Mr. B~ reported that the trust was established on July 9, 1980, with Mr. B~ as trustee and monthly income payments to Ms. H~. Mr. B~ and Ms. H~ were unable to produce a written trust agreement from the date the alleged trust was entered into, but did submit a photocopy of an unsigned document titled "Eloise K. N. H~ Irrevocable Trust." This document begins by stating "THIS TRUST AGREEMENT made this day of May, 1988, and memorializing the Trust Agreement made March 17, 1981, by and between ELOISE K. N. H~ of Chillicothe, Illinois (D~), and JAMES E. B~, III, of Dunlap, Illinois (Trustee) . . ." and proceeds to describe the terms of the trust. A signed copy of the 1988 document, dated May 27, 1988, was submitted on November 1, 1988. This document contains a clause which states "[t]he Donor by execution of this instrument waives the right to revoke, alter or amend this Agreement, in whole or in part, and as such has by her direction and operation of law, created an irrevocable trust, under the terms and conditions herein stated." Four of Ms. H~'s children submitted statements indicating that they were aware of the existence of the trust, and listed 1988, 1987, 1985, and 1974 as the approximate dates that they were informed of the existence of the trust. Three of them indicated that it was their understanding that their mother did not have access to the principal in the trust, and two of them stated that the principal of the trust was set aside for the benefit of the children.
An oral trust for personal property will be recognized in Illinois provided the following requirements are satisfied:
(1) an intention to create a trust, which may be shown by a declaration of trust by the settlor or by circumstances which show that a trust was intended to be created by the settlor; (2) a definite subject matter or trust property; (3) ascertainable beneficiaries; (4) a trustee; (5) a trust purpose; (6) delivery of the trust property to the trustee.
Price v. State, 398 N.E.2d 365, 370, 371 (Ill. App. 1979)(citations omitted); see also Estate of Wilkening, 441 N.E.2d 158, 163 (Ill. App. 1982). The party seeking to establish the existence of an oral trust, however, must prove the above requirements with clear and convincing evidence. Estate of Wilkening, 441 N.E.2d at 163; Price v. State, 398 N.E.2d at 371. Additionally, the evidence used to establish the existence of the trust must be so unequivocal as to eliminate any other reasonable explanation. Id.
In our opinion, Ms. H~ has failed to satisfy these stringent requirements. Ms. H~ contends that she and Mr. B~ entered into an irrevocable oral trust on March 17, 1981. A 1988 written trust agreement "memorializing" the oral agreement alleges that the terms of the oral agreement were as follows: (1) she and Mr. B~ intended to create an irrevocable trust in March of 1981; (2) the trust property consisted of a certificate of deposit in the amount of $19,639.23 and a deed for interment rights in consideration of the sum of $960.00; (3) Ms. H~ was to receive the income from the trust during her lifetime, with the principal passing to her children upon her death; (4) Mr. B~ was the trustee; (5) the purpose was to provide for Ms. H~'s children upon her death; and (6) the property was delivered to Mr. B~ as trustee. This written agreement is alleged to be a "memorialization" of the oral agreement of 1981, yet many of the terms in the written agreement are inconsistent with the facts in existence at the time the trust was allegedly created. First, Ms. H~ has failed to prove an intent to create a trust in March of 1981, as the principal was invaded after that point in time. Second, the designation of trust assets in the written agreement is inconsistent with the facts in existence in March of 1981. At that time, the certificate of deposit was in the amount of $20,912.08 rather than $19,639.23, and the deed for interment rights had not yet been purchased. Although Ms. H~ apparently considered entering into a trust agreement, and perhaps even believed she was doing so, at no single time did all of the elements of a valid oral trust exist concurrently. Consequently, Ms. H~ has failed to provide clear and convincing evidence of the existence of a trust.
Most significantly, Ms. H~ has failed to provide sufficient evidence of intent to create a trust. She clearly did not intend to create a trust on March 17, 1981. The only significance of that date is that it happens to be the date of the letter from Mr. O~ to Mr. B~, which indicated that the attorney had completed a rough draft of an irrevocable trust agreement that could possibly be used by Ms. H~. This letter may suggest that Ms. H~ was considering entering into a trust agreement, but no other acts were peformed at that time. The requisite intent to create a trust must exist at the same time as the actions conveying property into trust; an intent to convey in trust at some time in the future is insufficient. G.C. Bogert & G.G. Bogert, Law of Trusts § 11, at 23 (1973). The only time when Ms. H~'s actions were remotely consistent with an intention to create a trust was in December of 1980. At that time, Ms. H~ endorsed a check in the amount of $20,912.08 "for deposit only in the account of James E. B~ III as natural guardian for Eloise K. H~." Approximately a week later, a certificate of deposit in this amount was issued to Mr. B~ "as Trustee of Eloise K. H~" with a maturity date of June 24, 1981. The most substantial factor tending to defeat an assertion that this action established an irrevocable trust, however, is the fact that the principal of the trust is not intact.
Specifically, someone invaded the principal in August of 1981, using $960.00 to purchase burial plots, and again at an unascertained time, using $312.00 for an unknown purpose. Ms. H~ contends, however, that the trust was irrevocable. The invasion of the principal lends itself to two possible interpretations. The first possibility is that Ms. H~ and Mr. B~ intended to, and succeeded in, creating a valid trust in December of 1980. Once a valid trust is created, however, the trust is irrevocable in the absence of an express reservation of the power to revoke by the settlor. William v. Springfield Marine Bank, 475 N.E.2d 1122, 1124 (Ill. App. 1985). Similarly, the terms of the trust cannot be modified unless such power is reserved. Restatement (Second) of Trusts, §§ 331, 332, 367 (1959). Thus, if Ms. H~ created a valid trust containing the terms she alleges, she could only access the principal by either revoking the trust or modifying its terms. If Ms. H~ had the power to do either of these two things, she also had the power to liquidate the property, rendering it a resource for SSI purposes. This is clearly not the reading of the facts which Ms. H~ asserts.
The only other explanation for the invasion of the principal, however, is that Ms. H~ and Mr. B~ never intended to create a trust in the first place. A "trust" is defined as "a right of property, real or personal, held by one party for the benefit of another." Black's Law Dictionary 782 (5th Ed. 1983). In evaluating the intentions of the parties, a court looks for any indication that an interested party believed herself to be in complete control of the assets, which would be inconsistent with an alleged intention to create a trust. See Estate of Wilkening, 441 N.E.2d at 164. If Ms. H~ did not expressly reserve the power to revoke the trust, but was able to access the principal several months after the alleged creation of the trust, she did not adequately relinquish control of the assets. Ms. H~'s use of the principal is inconsistent with the separation of legal and equitable interest inherent in a trust agreement.
It is also unclear which items Ms. H~ is alleging to be the actual assets of the trust. The written "memorialization" states that the trust assets consisted of a certificate of deposit in the amount of $19,639.23 and a deed for interment rights in consideration of the sum of $960.00. There were two certificates of deposit held by Mr. B~ "in Trust for Eloise K. H~." The first was issued in 1980 in the amount of $20,912.08, and contained a maturity date of June 24, 1981. The second was not issued until 1985, in the amount of $19,639.23. The $960.00 deed was not purchased until August of 1981, two months after the original certificate matured, apparently having been purchased from the assets of that certificate. If this deed was a part of the agreed upon trust assets, then the attempt to create the trust necessarily must have occurred sometime after August of 1981. Furthermore, there are no records concerning the remaining money between the maturation of the first certificate of deposit on June 24, 1981 and the issuance of another certificate of deposit on July 9, 1985. There is no evidence that these assets were even being held by Mr. B~ during that time, nor is there any explanation for the expenditure of the additional $312.00.
Given the confusion between the objective facts and the alleged terms of the oral trust embodied in the 1988 written agreement, we cannot conclude that Ms. H~ entered into a valid trust at any time. Twice during the preceeding years Ms. H~ transferred money to Mr. B~ "in trust," but there is no evidence that all of the requisite elements of a trust were present concurrently at any time.*/ Furthermore, the act of preparing a written instrument in 1988 did not serve to validate the trust as of that date. The 1988 instrument did not purport to be a current conveyance of property in trust. Rather, its terms indicate that its purpose was to memorialize a prior, oral agreement. Thus, the intention of the parties in 1988 was not to create a trust, but to reduce to written form an agreement they entered into in 1981. The difficulty is that whatever oral agreement they entered into was insufficient to constitute a trust. Consequently, it appears that Ms. H~ retained the power to liquidate the "principal" of the trust at all times, rendering it a resource for purposes of determining SSI eligibility.
Donna M. W~ Chief Counsel, Region V
By: Kelly R. L~ Assistant Regional Counsel
~~V. PS 04-243 Illinois Trust for Krystal L. S~ ~~~
W. PS 04-243 Illinois Trust for Krystal L. S~ ~
DATE: July 10, 1998
1. SYLLABUS
The issue is whether child support payments deposited in a trust are a countable resource for SSI purposes. Also, whether the assets of a sub-trust intended to hold property previously owned by the SSI recipient or within her control, should be considered a resource.
Child support payments made by the father of the SSI recipient into the trust or sub-trust are illegal under Illinois law because the Declaration prohibits the use of property in either trust for the recipient's support. The Illinois court ordered the child support for "the support of" an adult disabled child. Since the trust declaration specifically states the trust monies cannot be used for the recipient's support, the payment of support into either trust is improper under Illinois State law. Therefore, the support payments continue to be countable income for SSI purposes and any portion of such support payments improperly deposited into and retained in the trust are a resource for SSI purposes.
Assets in a sub-trust intended to hold property previously owned by the SSI recipient or within her control are not the SSI recipient's resources because she cannot revoke the sub-trust. Trust assets properly not within the sub-trust (i.e., assets not derived from the SSI recipient's property and not under her control), are not a resource since she has no power to revoke and she does not have grantor/sole beneficiary status. Any trust assets which are derived from the SSI recipient's property, or property under her control, but not placed in the sub-trust are her resources for SSI purposes only if her mother is also her legal guardian, because her mother can revoke the trust as to those particular assets and use the assets to pay for the SSI recipient's support and maintenance.
2. OPINION
You inquired whether funds placed in a trust established for the benefit of Krystal L. S~ (Krystal) would be considered a countable resource for SSI purposes.
We have concluded that the court ordered child support payments from Krystal's father, James P. S~ (James) cannot properly be paid into the trust under Illinois law. The support payments, therefore, continue to be countable income for SSI purposes, and any portion of such support payments improperly deposited into and retained in the trust should be considered Krystal's resource for SSI purposes.
With regard to assets in the trust which are not derived from the court ordered support payments, we conclude that assets of a Sub-trust, intended to hold property previously owned by Krystal or within her control, should not be considered Krystal's resources for SSI purposes because Krystal cannot revoke the Sub-trust. Trust assets properly not within the Sub-trust, i.e., assets not derived from Krystal's property and not under Krystal's control, likewise should not be considered Krystal's resource, since Krystal has no power to revoke and she does not have grantor/sole beneficiary status. Any trust assets which are derived from Krystal's property, or property under Krystal's control, but not placed in the Sub-trust should be considered Krystal's resource for SSI purposes only if Krystal's mother, Susan S~ (Susan) is also her legal guardian, because Susan can revoke the trust as to those particular assets and use the assets to pay for Krystal's support and maintenance.
FACTS
In 1992, Krystal's parents, Susan and James, were divorced and entered into a marital settlement agreement. On January 16, 1997, Susan created "The Krystal L. S~ Discretionary Supplemental Needs Trust," (January Trust) a revocable trust for the benefit of her disabled adult daughter, Krystal. Susan was the trustee.
On May 14, 1997, the Circuit Court of Lake County, Illinois entered an agreed order modifying the 1992 marital settlement agreement. The agreed order required James to pay all child support payments for Krystal to Susan as trustee of "The Krystal L. S~ Discretionary Supplemental Needs Trust."
On July 17, 1997, Susan amended the January Trust and executed a trust certification stating that she established a trust on that date by Declaration of Trust, called "The Krystal L. S~ Irrevocable Discretionary Supplemental Needs Trust." Susan also signed a "Restatement of the Krystal L. S~ Discretionary Supplemental Needs Trust" (Declaration) which amended the January Trust by, in effect, revoking it and replacing it with a new trust (July Trust).
The July Trust, created for the primary benefit of Krystal, is subject to Illinois law. Declaration §§ 1.01, 3.01. As trustee, Susan has sole discretion to expend principal and income for Krystal's supplemental support and maintenance, over and above any funds available from any governmental agencies or other sources. Declaration § 4.02(a). Distributions for Krystal's basic support, including basic food, clothing, or shelter, are prohibited, as is reimbursement to any government or private agency for benefits paid on Krystal's behalf. Declaration at § 4.02. The trustee cannot distribute directly to Krystal, nor can Krystal control any portion of the trust property. Declaration § 1.01.
In addition to disbursements on Krystal's behalf, the trustee has discretion to make some distributions to or for the benefit of any of Susan's other descendants, in their own right. Declaration § 4.02(g). The trustee also has discretion to make disbursements for gifts to others on Krystal's behalf and for various expenses which may be incurred by persons who may live with and care for Krystal after Susan's death. Declaration §§ 4.02(g)-(j).
The July Trust terminates upon Krystal's death, at which time the trust property remaining after payment of Krystal's debts, funeral expenses, and estate and inheritance taxes, is to be distributed to Susan. Declaration, § 4.02(m). If Susan is deceased, the trustee is to distribute 1% of the remaining trust property to the entity operating the residential facility where Krystal lived at the time of her death and the remainder per stirpes to Susan's living descendants other than Krystal or, if none, then to Susan's living heirs-at-law under the Illinois intestacy succession statute. Declaration § 4.02 (m).
Despite the title of the July Trust, § 2.01 of the Declaration reserves to Susan, as settlor, the power to revoke or amend the July Trust, in whole or in part. The Declaration provides, however, for creation of a separate sub-trust for Krystal's benefit, entitled the "Krystal L. S~ Irrevocable Supplemental Care Trust" (Sub-trust) to hold any additions to the trust which come from Krystal's assets or from property under Krystal's control. Declaration § 1.04. The Sub-trust is explicitly irrevocable, with neither Susan nor Krystal having any power to alter, amend, or revoke it. Upon Krystal's death, the Sub-trust terminates and the trust property is to be used to reimburse the State of Illinois for Medicaid and other assistance provided on Krystal's behalf and to pay outstanding debts and funeral expenses. The residue is to be distributed in the same manner as the main portion of the July Trust under § 4.02 of the Declaration, i.e., all to Susan and, if Susan is deceased, 1% to Krystal's residential facility and the remainder per stirpes to Susan's descendants or heirs-at-law.
Two agreed orders were filed in the Circuit Court of Lake County on October 16, 1997. One orders correction of a "scrivener's error" to add the word "Irrevocable" to the trust title. The other agreed order modifies the marital settlement agreement to require James to pay all child support payments for Krystal to Susan as trustee of "The Krystal L. S~ Irrevocable Discretionary Supplemental Needs Trust."
DISCUSSION
Resources, for SSI purposes, include assets that a person owns and can convert to cash to be used for the person's support or maintenance. See 20 C.F.R. § 416.1201(a). If the person has the right or power to liquidate property, or her share of the property, it is a resource. Id. Trust assets are considered to be an SSI recipient's resources if the SSI recipient has the power to revoke the trust and use the trust assets to meet her needs for food, clothing, or shelter, if she can direct use of the trust assets for such purposes, or if she can sell her beneficial interest in the trust. See POMS SI 01120.200(D)(1)(a). Whether the person can revoke the trust or direct use of the trust assets depends on the terms of the trust declaration and on applicable State law. POMS SI 01120.200(d)(2).
As a preliminary matter, it is not entirely clear from the court orders whether the support payments made by James are to go into the Sub-trust or into the main portion of the trust (July trust). We conclude, however, that, despite the court's order, payment of child support by James for Krystal into either trust is improper under Illinois law because the Declaration prohibits use of the property in either trust for Krystal's support. Illinois law provides that a court may award money "for the support of" an adult disabled child. 750 ILCS 5/513. Yet, the Declaration in this instance specifically prohibits the use of the assets of either the July trust or the Sub-trust for such a purpose, stating that distributions cannot be made for Krystal's basic support, including basic food, clothing, or shelter. Declaration § 4.02. We conclude, therefore, that James' payment of "support" into either trust is improper under Illinois law.
Child support payments made for the support of an SSI beneficiary are considered the SSI beneficiary's income for SSI purposes. See 20 C.F.R. § 416.1121(b). Because the support payments cannot properly be paid into either the July Trust or the Sub-trust under Illinois law, they cannot be sheltered from being countable income to Krystal. See In Re Marriage of Raski, 381 N.E.2d 744, 748 (Ill. App. 1978) (striking down marital settlement provision conveying, in trust to a minor child, marital property that was unrelated to the child's support and maintenance and was to be distributed only after the child reached majority); see also, In re Marriage of Bush, 547 N.E. 2d 690, 597 (Ill. App. 1989) (improper to provide for support payments to trust which did not allow use of the trust corpus for support during the child's minority). Moreover, any support payments improperly paid to and then retained in either the July Trust or the Sub-trust should be treated as Krystal's resources for SSI purposes, since Krystal could likely compel removal from the trust of that portion of assets derived from her support payments and then use those funds for her support and maintenance. See In re Marriage of Bush, 547 N.E. 2d at 599 (reversing trial court's order creating a trust which precluded use for support during child's minority).
Although we conclude that the support payments cannot properly be paid into either trust, the question remains whether other property in either trust, if any, may be considered Krystal's resources for SSI purposes. We deal first with property in the Sub-trust. Under the terms of the Declaration, if any of Krystal's property, or any property under Krystal's control is placed in the trust, it must be placed in the Sub-trust. If, under the terms of the Declaration, Krystal, or Susan as her guardian, can revoke the Sub-trust, or direct distributions from it, for her food, clothing, and shelter, the Sub-trust assets must be considered Krystal's resources for SSI purposes. See POMS SI 01120.200(D)(1)(a).
Susan reserved the right, under § 2.01 of the Declaration, to amend or revoke the trust, in whole or in part. Section 1.04 of the Declaration, however, explicitly provides that the Sub-trust is irrevocable. When there is an apparent ambiguity or conflict in the language of a trust document, the primary concern is to ascertain the intent of the donor at the time the instrument was executed. Estate of Dawson, 522 N.E. 2d 770 ( Ill. App.1988), williams v. Springfield Marine bank, 475 N.E.2d 1122, 1124 ( Ill. App. 1985). Intent is to be ascertained from the entire document. Williams, 475 N.E.2d at 1124. In determining the donor's intent, sections dealing with a subject matter in detail take precedence over sections containing general provisions on the same subject. 2416 Corp. v. First National Band of Chicago, 415 N.E.2d 420 ( Ill. App.1980). Here the portion of the Declaration dealing specifically with the Sub-trust should take precedence over the portion of the Declaration dealing with the trust generally. Also, Restat. 2d Trusts § 330, comment n, states that a settlor may reserve a power to revoke a trust as to a part of the trust property. We located no Illinois cases to the contrary. Here, it seems clear that Susan's intent was to reserve the right of revocation with regard to assets in the trust derived from her own property or property contributed to the trust by others, while making the trust irrevocable as to that portion derived from Krystal's own property.
Even though the Declaration does not specifically provide for revocation of the Sub-trust, Krystal would have the power to revoke the Sub-trust if she were both its settlor and its sole beneficiary. See Stewart v. Merchants National of Aurora, 278 N.E. 2d 10, 12 (Ill. App. 1972) (trust settlor who is also sole beneficiary can revoke the trust without the trustee's consent, even though no power of revocation was reserved when the trust was created). Since the property in the Sub-trust, by definition, is Krystal's property or property under her control, Krystal is the true settlor of the Sub-trust, even though Susan holds legal title. See In re Estate of , 635 N.E. 2d 853, 855 (Ill. App. 1994), cert. denied, 642 N.E.2d 1281 (one who furnishes consideration is the settlor of the trust).
While Krystal is the true settlor of the Sub-trust, she cannot revoke the Sub-trust because she is not the sole beneficiary. Here, the trustee can make disbursements to descendants of Susan other than Krystal. Declaration § 4.02(g). In addition, Susan's descendants are residual beneficiaries upon termination of the trust if Susan does not survive Krystal. Thus, Krystal cannot revoke the Sub-trust because, although she is the true settlor, she is not the sole beneficiary.
Nor can Krystal direct the trustee to make payments from the Sub-trust for her support and maintenance, since the Declaration specifically prohibits distributions to her or at her direction, distributions for her basic support, and distributions to reimburse any governmental agencies for benefits on Krystal's behalf. Declaration at §§ 1.01, 4.02 . Finally, even if Krystal could sell her beneficial interest in the Sub-trust, or the July Trust for that matter, it would likely have no real fair market value because no reasonable person would purchase the right to have the trustee, in her sole discretion, make disbursements in Krystal's behalf. Since Krystal cannot revoke the Sub-trust, direct its use for her basic support, or realistically sell her beneficial interest in the Sub-trust, the Sub-trust property should not be considered Krystal's resource for SSI purposes.
With regard to assets properly deposited in the July Trust rather than the Sub-trust, i.e., assets not derived from Krystal's property or property under Krystal's control, Krystal has no express power of revocation, nor does she have grantor/sole beneficiary status. Those trust assets, therefore, should not be considered Krystal's resource for SSI purposes. If, however, there are any assets in the July Trust rather than the Sub-trust which are derived from Krystal's property or property under Krystal's control (contrary to the terms of the Declaration), whether or not those assets constitute an SSI resource depends on whether Susan is Krystal's guardian. If Susan is not Krystal's guardian, the assets, like those in the Sub-trust, cannot be considered Krystal's resource because Krystal cannot revoke the July trust. If Susan is Krystal's guardian, her express power of revocation means that she could revoke that portion of the July Trust on Krystal's behalf and then use the property for Krystal's support and maintenance. Therefore, any property improperly placed in the July Trust rather than the Sub-trust should be considered Krystal's resource for SSI purposes.
CONCLUSION
The support payments James was ordered to make to Susan as trustee may not properly be paid into either trust under Illinois law. As a result, those support payments continue to be countable income to Krystal. To the extent they are retained, the funds are Krystal's resource. Assets properly in the Sub-trust and the July trust should not be considered Krystal's resource. Assets of the July trust which, contrary to the Declaration, are not contained in the Sub-trust but are derived from Krystal's property or property under Krystal's control should be considered as Krystal's resource only if Susan is Krystal's legal guardian.
Sincerely, Thomas W. C~ Chief Counsel, Region V
By: Nancy L. B~ Assistant Regional Counsel
~~W. PS 04-134 Illinois Trust - Countable Resource - Joseph W~, ~~~
X. PS 04-134 Illinois Trust - Countable Resource - Joseph W~, ~
DATE: November 5, 1992
1. SYLLABUS
NOTE: This trust was established before 1/1/00.
The issue in this case is whether or not the SSI recipient has access to the trust funds. If an individual has legal authority to revoke the trust and then use the funds to meet his/her food, clothing or shelter needs, or if the individual can direct the use of the trust principal for his/her support and maintenance under the terms of the trust, the trust principal is a resource for SSI purposes. In this situation, the SSI recipient has no access to the trust funds, thus it is not a countable resource for SSI purposes.
2. OPINION
ISSUE
This is with reference to your memorandum inquiring whether the trust created by Austin W~ is a countable resource to Joseph W~, an SSI applicant. We conclude that this trust is not a countable resource under 20 C.F.R. § 416.1201 (1992).
FACTS
The facts may be briefly summarized: On February 4, 1978, Austin W~ as settlor entered into an inter vivos revocable trust agreement with Janet H~ and the First National of Vandalia as trustees. This trust was amended one month later on March 4, 1978. The agreement expressly reserved the right of the settlor to revoke the trust. It also provided for the creation of two separate trusts for Austin's sons, Paul and A. W~, upon his death. They were named as beneficiaries of these two trusts. The amended version of the trust agreement stated that "[u]pon the death of the beneficiary for whom such separate Trust A or B was created, the principal and any undistributed income shall be paid over, distributed and conveyed in equal shares to the . . . descendants of said beneficiary." Alan, Joseph's father and beneficiary of Trust B, died in a car accident on February XX, 1989. The trust agreement provided further that "[i]n event any beneficiary who shall be entitled to a distribution under this Trust shall, at the time of such distribution as herein provided, be a minor or under legal disability the portion of such Trust shall be held for the beneficiary and when he shall attain his majority or be restored to competency then the balance of his share shall be paid to him." Joseph was born on May XX, 1982.
DISCUSSION
The primary issue to be resolved here is whether Joseph has any access to the trust funds. If he has access, then the trust is considered as a countable resource. A resource, for the purpose of being eligible for SSI benefits, is defined as property that the beneficiary owns and could convert to cash, or property over which the beneficiary has the right, authority, or power to liquidate. 42 U.S.C. § 1382b; 20 C.F.R. § 416.1201 (1992). In applying this definition to trusts, the Program Operation Manual System ("POMS") states that if the claimant is a beneficiary of a trust but has his access to the trust funds restricted, then the funds are not a resource for the claimant. POMS § 01120.105(A)(2). As we explain below, Joseph currently has no access to the trust funds, and they, as a result, cannot be counted as a countable resource.
Article VIII, No. 2 of the amended trust provides for the distribution of trust funds to the descendants of Paul and Alan. There is no dispute that Joseph is a descendant of Alan and would therefore be eligible for a share of the trust funds. Article VIII, No. 3 states, however, that a minor's share of the trust funds shall be held until such beneficiary attains his majority. There is some question as to whether the term "beneficiary" and its majority requirements actually apply to Joseph and all other descendants or apply instead only to Alan and Paul who were the original beneficiaries of Trusts A and B. The document's language and information provided by Jane W~ (Alan's widow and Joseph's mother) both evidence an intent by Austin (the settlor) to include only Joseph and the other descendants as beneficiaries, at least insofar as that term is used in Article VIII, No 3. of the trust agreement.
An Illinois Appellate court stated that its "primary concern in construing a trust is to discover the intent that the settlors had when they executed the instrument." The court further stated that it "must consider the plain and ordinary meaning of the words used, and the intent must be ascertained from the entire document." Williams v. Springfield Marine Bank, 475 N.E.2d 1122, 1124 (Ill.App. 1985). Here, Article VIII, No. 3 states "In event any beneficiary who shall be entitled to a distribution . . .shall, at the time of such distribution as herein provided, be a minor. . .the portion of such Trust shall be held for the beneficiary [untill he attains majority]" (emphasis added.) The use of the word "any" instead of "either" suggests that this provision refers to more than two beneficiaries. In other words, it implies that Austin intended the term beneficiary to apply to the descendants of Alan and Paul. Furthermore, if the settlor intended for the term beneficiary to apply only to Paul and Alan in this situation, correct grammar and common usage would have required that he use the term "either" instead of the term "any". Moreover, this provision of the trust agreement concerns the minority status of a beneficiary. However, when Austin created this trust in 1978, both Alan and Paul were well beyond their 18th birthday,/ evidencing an unmistakable intent to exclude Alan and Paul and include Joseph and the other descendants in his definition of beneficiary, at least in Article VIII, No. 3.
Because Joseph is a minor, the terms of the trust agreement restrict his access to the trust funds. As a result, the trust is not a countable resource until he attains the age of 18 years./
Respectfully yours, Donna M~ W~ Chief Counsel, Region V
By: Jeffery C~ Assistant Regional Counsel
~~X. PS 04-017 SSI - Illinois - Review of Irrevocable Special Needs Pay Back Trusts Devon B~, SSN: ~ - Action Your Reference: S2D5G6 SI 2-1-3 IL (B~) Our Reference: 04P~~
Y. PS 04-017 SSI - Illinois - Review of Irrevocable Special Needs Pay Back Trusts Devon B~, SSN: ~ - Action Your Reference: S2D5G6 SI 2-1-3 IL (B~) Our Reference: 04P
DATE: October 20, 2003
1. SYLLABUS
This opinion concerns an Ohio trust that was established by a third party for the benefit of an individual who has now applied for SSI payments. Although the beneficiary is neither the grantor nor the sole beneficiary of the trust, and although the beneficiary does not retain the power to revoke or terminate the trust, he does have the power to convert his interest into cash and then use those funds to meet his needs for food, clothing or shelter. This is because the trust does not contain a spendthrift provision, which is intended to protect the beneficiary from spending his money in improvident ways. Because OGC concluded that the beneficiary could sell the right to his future income stream, the value of that interest is a resource for SSI purposes. OGC concluded by saying that, while the value of the beneficiary's interest in the trust is difficult to measure given the complexity of buying someone's interest in a trust that would terminate with his death, the value is at least $2,000. NOTE: Although this involves an Ohio trust, OGC did not rely on specific State law. The principles discussed in this opinion apply Regionwide.
2. OPINION
You asked whether the Devon B~ Irrevocable Special Needs Pay Back Trust would be a resource to Devon for purposes of SSI. We have reviewed the trust documents and, for the following reasons, we conclude that the trust itself should not be considered a resource when determining Devon's eligibility for SSI, but that certain disbursements might be considered income.
BACKGROUND
In late 2001, attorneys for Doris M~, guardian of the estate of Devon B~, submitted a draft of a proposed trust agreement. The Agency reviewed the documents and, in a letter dated January 8, 2002, concluded that this original trust, if filed in court, would be a countable resource. In particular, the Agency concluded that the trust did not qualify for the Medicaid payback trust exception, per SI 01120.203, because, upon Devon's death, the state would not be reimbursed for Medicaid expenditures until after funeral and other expenses were paid. The attorneys subsequently amended the proposed trust agreement so that, on termination of the trust, the state would be reimbursed for medical assistance before any other payments were made. After reviewing the amendments, the Agency advised in a letter dated January 28, 2002, that the amended trust, if filed in court, would not be a resource to Devon for SSI purposes. Due to several delays, the trust agreement was not authorized and executed until April 2, 2002. The final, executed version of the trust contained different provisions than those presented to the Agency in January 2002. Namely, as shown below, the trust provides that certain administrative expenses will be paid before the state is reimbursed for medical assistance.
The "Devon B~ Irrevocable Special Needs Pay Back Trust" ("Trust" or "the trust") was created for the benefit of Devon, who is disabled and receives SSI benefits. The trust was funded by cash from settlement ($69,677.42), cash from Leonard B~ (Devon's father) ($34,495.85), and "Beneficial Interest in Annuity funded with settlement proceeds" (present cash value $300,000.00). Trust § 1.6, Schedule A. Ms. M~ was named as the settlor of the Trust (Trust § 1.2), while the Fifth Third was named as trustee of the Trust (Trust § 1.5).
The stated purpose of the trust is to "supplement, but not to supplant, whatever benefits and services the Beneficiary may from time to time be eligible to receive by reason of age, disability, or other factors, from federal, state, and local governmental and charitable sources including, but not limited to, Supplemental Security Income and Medicaid benefits." Trust § 2.1(a). The trust states that it is irrevocable, Trust § 1.8, and that it is intended that Devon qualify for SSI benefits. Trust § 2.2. The trust gives Devon only the right to amend the designation of residual beneficiaries. Trust § 1.8. The trustee is to use the trust principal and income to provide Devon "with those benefits and services, and only those benefits and services, that, in the Trustee's judgment, are not otherwise available to [Devon] from other sources as or when needed for his welfare." Trust § 2.1(c). The making and the amount of any payment from the trust is subject to court order. Trust, Article Three.
The trust may be amended by the trustee "so that it conforms with any regulations that are approved by any governing body or agency relating to 42 U.S.C. 1396p or related statutes," including "state statutes that are consistent with the provisions and purposes of the Revenue Reconciliation Act of 1993 and amendments to such Act." Trust § 1.8.
The trust terminates upon Devon's death, or at such time as Devon is no longer disabled under the Social Security Act and a court orders the trust terminated. Trust § 4.1. Upon termination of the trust, the trustee is directed to distribute the trust estate in the following order:
* Court and administrative expenses related to the guardianship, probate, or other estate proceedings of Devon's estate;
* Repayment of the State of Illinois;
* Devon's funeral and burial expenses;
* Income and/or death taxes imposed on Devon's estate;
* If the trust terminates because Devon is no longer disabled, the remaining trust estate shall be distributed directly to Devon, if he is of legal age and under no disability, or to his guardian, if one is in place;
* If the trust terminates because Devon is deceased, the remaining trust estate shall be distributed to Devon's decedent's estate, as he appointed in his last will; or
* If the trust terminates because Devon is deceased and he failed to exercise the aforementioned power of appointment, the remaining trust estate shall be distributed to Devon's descendants, under Illinois rules of intestate succession. Trust § 4.2.
DISCUSSION
In sum, because the trust meets the Medicaid Payback Trust exception to counting it under the trust and because Devon cannot revoke the trust or direct its expenditures, we conclude that the trust should not be considered a resource when determining Devon's eligibility for SSI. However, some distributions from the trust may be considered income to him.
~~Y. PS 03-174 SSI - Illinois - Review of the proposed Jewish Federation of Metropolitan Chicago OBRA '93 Pooled Trust Your Reference: S2D5G6; SI 2-1-3 IL Our Ref: 02-P-066~~
Z. PS 03-174 SSI - Illinois - Review of the proposed Jewish Federation of Metropolitan Chicago OBRA '93 Pooled Trust Your Reference: S2D5G6; SI 2-1-3 IL Our Ref: 02-P-066
DATE: August 19, 2003
1. SYLLABUS
This legal opinion serves as an excellent reminder that a pooled trust must meet four basic requirements in order to be excluded as a resource. They are as follows: the trust must be established and maintained by a non-profit organization; a separate account must be maintained for each trust beneficiary; accounts must be established solely for the benefit of the disabled individual by the individual, parent, grandparent, legal guardian or court; and the trust must provide that to the extent that funds that remain in the sub-account upon the death of the beneficiary are not retained by the trust, the trust will pay to the State an amount equal to the total of medical assistance paid on behalf of the beneficiary. In this case, regional counsel determined that the sub-account would be a countable resource because of specific language contained in the trust document. The trust provided, for example, that the trustee in his or her sole discretion could terminate the sub-account. OGC opined that this violated the third requirement that the trust be established solely for the benefit of the individual since this provision might create the possibility that other individuals could benefit from the trust during the primary beneficiary's lifetime. Further, regional counsel opined that the fourth and final requirement may also not be met because the trust language suggests funeral or other prohibited expenses may be paid prior to State reimbursement.
2. OPINION
You asked whether the proposed Jewish Federation of Metropolitan Chicago OBRA '93 Pooled Trust (Trust) would constitute a resource for SSI purposes. For the reasons discussed below, it is our opinion that, if an individual joined the pooled trust, the sub-account within the Master Trust would be a resource.
BACKGROUND
The Jewish Federation of Metropolitan Chicago, an Illinois not for profit corporation, proposes to establish the Jewish Federation of Metropolitan Chicago OBRA '93 Pooled Trust. See Trust at 1. The purpose of the trust is to hold assets of primary beneficiaries who are disabled and provide for their supplemental needs and supplemental care, and not to provide for their general support. See Trust Art. Two, Section 2.01 at 3. The trust defines primary beneficiary as a person with one or more disabilities as defined by Section 1614(a)(3) of the Social Security Act, 42 U.S.C. § 1382c(a)(3). See Trust Art. One, Section 1.02 at 2.
Within the Trust, individual trust accounts, called sub-accounts, are established and maintained for each primary beneficiary. See Trust Art. One, Section 1.03 at 2; Trust Art. Three at 4. The funds from each sub-account are pooled for investment and management of the funds. See Trust Art. Three at 4. A sub-account within the trust is established for a primary beneficiary when an Adoption Agreement is signed by a grantor, who according to the trust may be the primary beneficiary, a parent, grandparent, sibling, or legal guardian. See Trust Art. One, Section 1,03 at 2; Trust Art. Five, Section 5.01 at 4. Upon execution of the Adoption Agreement by the grantor, or by court order, subject to the approval of the trustee, the sub-account is established. See Trust Art. Five, Section 5.02 at 4. The trustee has sole discretion to reject any Adoption Agreement and to handle all funding matters. See Trust Art. Five, Section 5.02 at 4-5. The Trust states that the sub-account is irrevocable and the contributed property shall not be refundable. See Trust Art. Five, Section 5.02 at 5. The Trust also states that property or interests in property can be designated for future transfer by a grantor as a contribution, and that the designation of the property can be revoked by the grantor during the grantor's life and continued competence, upon written notice from the grantor to the trustee. See Trust Art. Five, Section 5.03 at 5. Examples of such contributions include a life insurance policy on a grantor's life in which the Master Trust is designated as a beneficiary, or the Master Trust being named as a beneficiary of any future interest of property, such as that which would pass by way of a grantor's will. See Trust Art. Five, Section 5.03 at 5.
The Trust provides that upon the death of a primary beneficiary, any amounts remaining in the primary beneficiary's sub-account, may be distributed first to pay any outstanding, reasonable, administrative expenses and fees for maintaining the sub-account, taxes, court costs, and other items and/or services which may be paid pursuant to statute or regulation in existence or subsequently enacted because of the primary beneficiary's death that are not and cannot be paid by governmental sources. See Trust Art. Nine, Section 9.01 at 10.
After payment of these expenses, the assets of the primary beneficiary's trust account would be distributed to the Trust as specified below, with the termination of the sub-account.
In accordance with 42 U.S.C. § 1396p(d)(4)(C) and Ill. Admin. Code Sect. 120.347(d)(2), as the assets of a Primary Beneficiary's Sub-Account shall be retained at death by the Master Trust, neither the Master Trust nor the Sub-Account shall reimburse the government and/or its agencies at that time for any services provided to the deceased Primary Beneficiary; provided, however, that to the extent any funds remaining in the Primary Beneficiary's Sub-Account after payment of the expenses set forth in Section 9.01 are not for any reason retained by the Master Trust, such amounts (up to the amount expended by the State of Illinois, or any other state, for medical assistance for the Primary Beneficiary) shall be paid to the State of Illinois or such other state as has provided benefits to the Primary Beneficiary as reimbursement to the State of Illinois or such other state for such medical benefits provided to the Primary Beneficiary during his or her lifetime. Assets of a deceased Primary Beneficiary's Sub-Account which are retained by the Master Trust shall be maintained in the General Fund Sub-Account, to be utilized, administered and distributed, from time-to-time, for the benefit of any Primary Beneficiary of this Master Trust and/or other persons with disabilities who are indigent and receive services from the JEWISH FEDERATION OF METROPLITAN CHICAGO but who may not be Primary Beneficiaries, either individually or for programs servicing such persons with disabilities, in the Trustee's sole discretion.
Trust Art. Nine, Section 9.02 at 10-11. The Trust further states:
If the Trustee has reasonable cause to believe that the income or principal in a Sub-Account for a Primary Beneficiary is or will become liable for basic maintenance, support, or care for a Primary Beneficiary which has been or would otherwise be provided by local, state, or federal government, or any agency or department thereof, the Trustee, in its sole discretion, may either terminate the Sub-Account as to the affected Primary Beneficiary as though he or she had died, and the Trustee shall then treat the property in the Sub-Account according to Section 9.02, or continue to administer the Sub-Account under separate arrangement with the affected Primary Beneficiary or his or her guardian.
Trust Art. Nine, Section 9.03 at 11.
If the Master Trust is ever terminated, upon termination all remaining Master Trust property shall be distributed to the State of Illinois. See Trust Art. Nine, Section 9.04 at 11.
DISCUSSION
Under the Social Security Act, trusts created on or after January 1, 2000, from the assets of a SSI claimant or beneficiary, will be considered a resource to the extent that the trust is revocable, or, in the case of an irrevocable trust, to the extent that any payments can be made from the trust for the benefit of the individual. See 42 U.S.C. § 1382b(e)(3)(B); POMS SI 01120.201.1 In the present Trust, the trustee has discretion to use the entire income and the principal in the Trust sub-account for the benefit of the beneficiary for whom the sub-account was established. See Trust Art. Seven, Section 7.01 at 6. Therefore, the Trust would be a resource to the beneficiary under these provisions. See 42 U.S.C. § 1382b(e)(3)(B).
1. The Trust Does Not Meet The Requirements For The Pooled Medicaid Payback Trust Exemption to The Statute.
Certain pooled trusts are excepted from this statutory provision if they qualify as a Medicaid payback trust under the provisions of Section 1917(d)(4)(C) of the Social Security Act, 42 U.S.C. § 1396p(d)(4)(C). See POMS SI 01120.203(B)(2). To qualify for the Medicaid payback trust exception, the trust must contain assets belonging to a disabled individual and must satisfy the following conditions:
* It must be established and managed by a nonprofit association.
* A separate account must be maintained for each beneficiary of the trust; but, for purposes of investment and management of funds, the trust pools these accounts.
* Accounts in the trust must be established solely for the benefit of the disabled individual by the individual, or parent, grandparent, legal guardian, or court.
* The trust must provide that 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 must pay to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary.
See POMS SI 01120.203(B)(2).
The Trust does not qualify for the Medicaid Payback exception because the third requirement is not met. We also have concerns about the fourth requirement.
According to the terms of the Trust,
If the Trustee has reasonable cause to believe that the income or principal in a Sub-Account for a Primary Beneficiary is or will become liable for basic maintenance, support, or care for a Primary Beneficiary which has been or would otherwise be provided by local, state, or federal government, or an agency or department thereof, the Trustee, in its sole discretion, may either terminate the Sub-Account as to the affected Primary Beneficiary as though he or she had died, and the Trustee shall then treat the property in the Sub-Account according to Section 9.02, or continue to administer the Sub-Account under separate arrangement with the affected Primary Beneficiary or his or her guardian.
Trust Art. Nine, Section 9.03 at 11. The Trust further provides that:
If, for any reason, the Master Trust is ever terminated, upon termination all remaining Master Trust property shall be distributed to the State of Illinois.
Trust Art. Nine, Section 9.04 at 11. The Master Trust “includes all Sub-Accounts and the General Fund Sub-Account created for the benefit of such disabled individuals.” Trust Art. One, Section 1.01 at 2.
Section 1917(d)(4)(C)(iii) of the Social Security Act, 42 U.S.C. § 1396(d)(4)(C), requires, in relevant part, that, to qualify for the Medicaid Payback exemption to counting trusts under the statute, “Accounts in the trust are established solely for the benefit of individuals who are disabled . . . . The implementing POMS provide that one should”“[c]onsider a trust established for the sole benefit of an individual if the trust benefits no one but that individual, whether at the time the trust is established or at any time for the remainder of the individual's life.” (emphasis in original). See POMS SI 01120.201(F)(2). Both of the Trust provisions above appear to violate this rule. Since terminating the trust “as though he or she had died ”would create the possibility that other individuals could benefit from the Trust during the primary beneficiary's lifetime, the Trust fails to meet the resource exception for Medicaid payback trusts under the Social Security Act. Therefore, a primary's beneficiary's sub-account in the Trust would be a resource to the primary beneficiary. See 42 U.S.C. § 1382b(e)(3)(B). Also, it appears that there is a possibility that the Trust could be terminated and that the assets turned over to the State of Illinois, if the Master Trust is terminated “for any reason.”
We are also concerned that the Trust permits that, on a beneficiary's death, funds in the sub-account may first be used to pay any outstanding, reasonable, administrative expenses and fees for maintaining the existence of the Sub-Account, taxes, court costs, and for such other items and/or services which may be paid pursuant to statute or regulation now in existence or hereafter enacted or issued becoming payable because of the Primary Beneficiary's death that are not or can not be paid by governmental sources. Trust Art. Nine, Section 9.01 at 10. A Medicaid payback trust can permit payment of taxes due from the trust, and payment of administrative expenses for wrapping up the trust before Medicaid is reimbursed. POMS SI 01120.203(B)(3)(a). However, a trust does not qualify for the true Medicaid payback trust exemption if it allows for payment of other expenses (e.g. funeral expenses or payment of debts owed to third parties) before Medicaid is reimbursed. POMS SI 01120.203(B)(3)(b). Here, it appears that the Trust may allow for these types of expenses if allowed by any state or federal statute now in existence or enacted at any time after the Trust was made.
2. If Offending Provisions Were Removed, The Trust, As Written,Would Otherwise Qualify For The Exemption To Counting The Trust Under The Statute.
If these provisions were removed from the Trust, it seems that the Trust may qualify for the Medicaid payback exception.2
The Trust provides that it intends to create a self-funded, irrevocable trust. Trust Art. Five, Sections 5.01, 5.02 at 4-5. The Trust describes the primary beneficiaries of the Trust as persons with one or more disabilities as defined in section 1614(a)(3) of the Social Security Act. See Trust Art. One, Section 1.02 at 2. The Jewish Federation of Metropolitan Chicago, which is the organization that proposes to establish the Trust, is identified as a Illinois Not For Profit Corporation. See Trust at 1. The Trust maintains a separate sub-account for each primary beneficiary, but pools the sub-accounts for purposes of investing and managing the funds. See Trust Art. One, Section 1.03 at 2, Trust Art. 3 at 4. The Trust further states that each sub-account is established by a grantor, which is defined as the primary beneficiary, a parent, grandparent, sibling, or legal guardian of a primary beneficiary, and the trust is established for the benefit of disabled individuals. Trust Art. One, Sections 1.01, 1.05 at 2. And, finally the Trust provides that, on the primary beneficiary's death, after the payment of expenses in Section 9.01, any remaining assets in the primary beneficiary's sub-account shall be retained by the Trust in the General Fund Sub-Account. Trust Art. Nine, Section 9.02 at 10-11. In the event that any assets remaining in the primary beneficiary's sub-account at the primary beneficiary's death are not retained by the Trust, the trustee shall pay to the State of Illinois or any other state from such remaining assets, amounts equal to the amount of medical assistance provided to the primary beneficiary during his or her lifetime. Trust Art. Nine, Section 9.02 at 11. Therefore, it appears that the Medicaid payback exception would apply.
~~3. If The Trust Were Excepted From The Statute, It Would Not,As Currently Written, Likely Be a Resource Under The Regular Resource Rules.~~
3. If The Trust Were Excepted From The Statute, It Would Not, As Currently Written, Likely Be a Resource Under The Regular Resource Rules.
If the Medicaid payback exemption to the statute applied, it appears that the Trust as written would otherwise not be considered a resource under the regular resource rules, except to the extent of any property designated for future transfer as a contribution. See POMS SI 01120.200(D). Based on the evidence we have, it does not appear that a beneficiary would have the right to revoke or terminate the Trust Sub-Account. Since the Master Trust will receive any remaining trust assets in a Sub-Account on the beneficiary's death, the Master Trust would be a residual beneficiary of the Trust sub-account, whose consent would be necessary to revoke the Trust.3 See Pernod American National & Trust Company of Chicago, 132 N.E.2d 540, 542 (Ill. 1956). Although the trust itself is not revocable, any property, or interests in property, that have been revocably designated for future transfer would be a resource. See POMS SI 01120.200(D)(1). Aside from such revocably assigned future interests, however, the remainder of the trust property would not be a resource. The irrevocable portion of the Trust would not be a resource because the beneficiary cannot compel the trustee to provide for his or her support and maintenance, and because the beneficiary presumably could not sell his or her interest in the Trust, since it is a discretionary trust for the beneficiary's interest. See POMS SI 01120.200(D)(1); RESTATEMENT (THIRD) OF TRUSTS § 60 and comment f (2003); Trust Art. Two, Section 2.02 at 3.
CONCLUSION
For the foregoing reasons, we conclude that a sub-account in the proposed pooled trust would be a resource.
KIM L~ B~ Regional Chief Counsel, Region V
By: Henry S. K~ Assistant Regional Counsel
~~Z. PS 03-141 SSI-Illinois-Review of the Illinois Disability Pooled Trust and Amendment Action~~
AA. PS 03-141 SSI-Illinois-Review of the Illinois Disability Pooled Trust and Amendment Action
DATE: September 20, 2002
1. SYLLABUS
This opinion clarifies that the Illinois disability association's pooled trust was amended effective April 30, 2002 to reimburse the state for Medicaid payments prior to the payment of any funeral expenses. As a result of this amendment, for those who joined the trust before January 1, 2000, the trust sub-account would not be a resource. For those who joined the trust on or after January 1, 2000 but before April 30, 2002, the trust would be a resource until April 30, 2002, but not thereafter. And, for those who joined the trust on or after April 30, 2002, the sub account would not be a resource at any time.
2. OPINION
You asked whether the Illinois Disability Association's Pooled Trust (Trust) would constitute a resource for SSI purposes. For the reasons discussed below, it is our opinion that if an individual joined the pooled trust between January 1, 2000 and April 30, 2002, the trust assets would be a resource until April 30, 2002. However, the trust would not be a resource to those who joined the trust before that time period; nor would it be a resource for any member of the trust on or after April 30, 2002.
BACKGROUND
On July 17, 1998, the Illinois Disability Association, an Illinois not-for-profit corporation, established the Illinois Disability Pooled Trust. See Trust at 3, 22. The purpose of the trust is to provide for each beneficiary's supplemental care, and not to provide for a “disabled” beneficiary's basic support and maintenance. See Trust at 3-4. The trust identifies the beneficiaries as disabled person as defined by Section 1614(a)(3) of the Social Security Act, 42 U.S.C. § 1382c(a)(3). See Trust at 3.
Within the pooled trust, individual trust accounts, called sub-accounts, are created and maintained for each beneficiary, but the funds from each sub-account are pooled for investment and management of funds. See Trust at 9. The trust is activated for an individual Beneficiary when a Joinder Agreement is signed by a grantor (defined under the trust as a parent, grandparent, guardian, the beneficiary himself, any court, or any person that establishes a sub-account for the benefit of a beneficiary or contributes assets to an existing sub-account) and a trustee. See Trust 2, 8. Upon acceptance of the Joinder Agreement, the sub-account is established and the trustee has sole discretion to handle all funding matters. See Trust at 8. The pooled trust states that the trust and each sub-account are irrevocable, and a spendthrift provision provides that, to the extent permitted by law, a beneficiary cannot assign or transfer his or her interest in the trust. See Trust at 7-8.
At the time of the original signing, July 1, 1998, the trust provided that upon the death of a beneficiary, any amounts remaining in the beneficiary's trust sub-account, would be distributed first to pay the beneficiary's funeral and estate administration expenses; then to the trust, to the extent the beneficiary authorized in the Joinder Agreement that funds be retained by the trust to be used for the benefit of other trust beneficiaries who are indigent; then, to the extent that the deceased beneficiary's sub-account was funded with his or her own money, to reimburse the state for any benefits provided under the Medicaid program. See Trust at 18. Any funds remaining after this would be paid to remainder beneficiaries as named in the Joinder Agreement. See Trust at 18-19. The Joinder Agreement further provides, in an anti-lapse clause, that “if a lapse occurs in distribution, all remaining funds shall be retained as part of the Trust's Remainder Share.” Joinder Agreement at 19.
On April 30, 2002, the trust was amended. See Trust at 17 (permitting amendments by trustee). The amendment revised the payment of any monies that had been authorized by the Grantor upon the death of the Beneficiary. See Trust Amendment. In particular, the amendment deletes the language that would require or allow payment of funeral expenses before any amounts are retained by the trust or used to reimburse Medicaid.
DISCUSSION
Assets generally are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for his or her support and maintenance. See 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate the property, it is a resource. See 20 C.F.R. § 416.1201(a)(1). For trusts established on or after January 1, 2000, statutory provisions also may affect the status of a trust as a resource. See POMS SI 01120.201(A).
We previously advised that, under the laws and rules in effect prior to the statutory amendments regarding trusts, a sub-account in this trust should not be considered a resource to individual beneficiaries of the pooled trust, since the individual cannot direct the trustees to make payments on their behalf for their support and maintenance, cannot sell their beneficial interests in the trusts, and cannot revoke or terminate the trust and obtain the assets. See Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, SSI-Illinois-Review of The Illinois Disability Association's Pooled Trust Drafted by the Office of the Cook County Public Guardian (July 13, 1998). We reasoned, in particular, that the trust was not unilaterally revocable because the anti-lapse provision establishes a contingent, but irrevocable beneficial interest in the trust itself. Id.
Under the statutory amendments that took effect on January 1, 2000, even an irrevocable trust will be considered a resource “if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual . . . .” 42 U.S.C. § 1382b(e)(3)(B); see also POMS SI 01120.201(D)(2). Since this trust allows the trustee to use the assets in the sub-account for the benefit of the individual beneficiary, the sub-account would be a resource under this provision if the individual signed a joinder agreement after the effective date of the statute, January 1, 2000. See POMS SI 01120.201(C)(1).
Certain pooled trusts are excepted from this provision if they qualify as a Medicaid payback trust under the provisions of Section 1917(d)(4)(C) of the Social Security Act, 42 U.S.C. § 1396p(d)(4)(C). See POMS SI 01120.203(B)(2). To qualify for this exception, the trust must contain assets belonging to a disabled individual and must satisfy the following conditions:
* It must be established and managed by a nonprofit association.
* A separate account must be maintained for each beneficiary of the trust; but, for purposes of investment and management of funds, the trust pools these accounts.
* Accounts in the trust must be established solely for the benefit of the disabled individual by the individual, or parent, grandparent, legal guardian, or court.
* The trust must provide that 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 must pay to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary.
POMS SI 01120.203(B)(2). Prior to the April 30, 2002 amendment, the trust met all of these conditions except for the last. The trust did not meet the last condition because it provided for the payment of funeral expenses before the State would be reimbursed for Medicaid payments. See EM-01085(B)(3). As of April 30, 2002, however, the trust was amended to reimburse the state for Medicaid payments prior to paying any funeral expenses.
When a trust qualifies for the Medicaid trust exception to the statute, the trust must be analyzed under the regular resource rules, which were the same rules we applied to trusts prior to the statutory amendments. See POMS SI 01120.201(D) (Note). As explained above and in our prior memorandum, the trust would not be a resource under those rules. Therefore, effective April 30, 2002, the sub-accounts in the trusts would no longer be a resource.
CONCLUSION
In sum, we conclude that, for those who joined the trust before January 1, 2000, the trust sub-account would not be a resource. For those who joined the trust on or after January 1, 2000 and before April 30, 2002, the trust would be a resource until April 30, 2002, but not thereafter. And for those who joined the trust on or after April 30, 2002, the sub account would not be a resource at any time.
Thomas W. C~ Regional Chief Counsel, Region V
By: Suzanne D~ Supervisory Attorney
~~AA. PS 03-011 SSI-Illinois-Review of the Illinois Disability Pooled Trust and Amendment Action Your Ref: S2D5G6; SI 2-1-3 IL~~
BB. PS 03-011 SSI-Illinois-Review of the Illinois Disability Pooled Trust and Amendment Action Your Ref: S2D5G6; SI 2-1-3 IL
DATE: September 20, 2002
1. SYLLABUS
This opinion concerns the Illinois Disability Pooled Trust which was established by the Illinois Disability Association on July 17, 1998. For a beneficiary who joined the trust before January 1, 2000, a trust sub-account would not be a resource for SSI purposes. For those beneficiaries who joined the trust between January 1, 2000 and April 30, 2002, the trust sub-account would be a resource until April 30, 2002 but not thereafter. For those who joined the trust on or after April 30, 2002, the trust sub-account would not be a resource at any time.
2. OPINION
You asked whether the Illinois Disability Association's Pooled Trust (Trust) would constitute a resource for SSI purposes. For the reasons discussed below, it is our opinion that if an individual joined the pooled trust between January 1, 2000 and April 30, 2002, the trust assets would be a resource until April 30, 2002. However, the trust would not be a resource to those who joined the trust before that time period; nor would it be a resource for any member of the trust on or after April 30, 2002.
BACKGROUND
On July 17, 1998, the Illinois Disability Association, an Illinois not-for-profit corporation, established the Illinois Disability Pooled Trust. See Trust at 3, 22. The purpose of the trust is to provide for each beneficiary's supplemental care, and not to provide for a “disabled” beneficiary's basic support and maintenance. See Trust at 3-4. The trust identifies the beneficiaries as disabled person as defined by Section 1614(a)(3) of the Social Security Act, 42 U.S.C. § 1382c(a)(3). See Trust at 3.
Within the pooled trust, individual trust accounts, called sub-accounts, are created and maintained for each beneficiary, but the funds from each sub-account are pooled for investment and management of funds. See Trust at 9. The trust is activated for an individual Beneficiary when a Joinder Agreement is signed by a grantor (defined under the trust as a parent, grandparent, guardian, the beneficiary himself, any court, or any person that establishes a sub-account for the benefit of a beneficiary or contributes assets to an existing sub-account) and a trustee. See Trust 2, 8. Upon acceptance of the Joinder Agreement, the sub-account is established and the trustee has sole discretion to handle all funding matters. See Trust at 8. The pooled trust states that the trust and each sub-account are irrevocable, and a spendthrift provision provides that, to the extent permitted by law, a beneficiary cannot assign or transfer his or her interest in the trust. See Trust at 7-8.
At the time of the original signing, July 1, 1998, the trust provided that upon the death of a beneficiary, any amounts remaining in the beneficiary's trust sub-account, would be distributed first to pay the beneficiary's funeral and estate administration expenses; then to the trust, to the extent the beneficiary authorized in the Joinder Agreement that funds be retained by the trust to be used for the benefit of other trust beneficiaries who are indigent; then, to the extent that the deceased beneficiary's sub-account was funded with his or her own money, to reimburse the state for any benefits provided under the Medicaid program. See Trust at 18. Any funds remaining after this would be paid to remainder beneficiaries as named in the Joinder Agreement. See Trust at 18-19. The Joinder Agreement further provides, in an anti-lapse clause, that “if a lapse occurs in distribution, all remaining funds shall be retained as part of the Trust's Remainder Share.” Joinder Agreement at 19.
On April 30, 2002, the trust was amended. See Trust at 17 (permitting amendments by trustee). The amendment revised the payment of any monies that had been authorized by the Grantor upon the death of the Beneficiary. See Trust Amendment. In particular, the amendment deletes the language that would require or allow payment of funeral expenses before any amounts are retained by the trust or used to reimburse Medicaid.
DISCUSSION
Assets generally are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for his or her support and maintenance. See 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate the property, it is a resource. See 20 C.F.R. § 416.1201(a)(1). For trusts established on or after January 1, 2000, statutory provisions also may affect the status of a trust as a resource. See POMS SI 01120.201A.
We previously advised that, under the laws and rules in effect prior to the statutory amendments regarding trusts, a sub-account in this trust should not be considered a resource to individual beneficiaries of the pooled trust, since the individual cannot direct the trustees to make payments on their behalf for their support and maintenance, cannot sell their beneficial interests in the trusts, and cannot revoke or terminate the trust and obtain the assets. See Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, SSI-Illinois-Review of The Illinois Disability Association's Pooled Trust Drafted by the Office of the Cook County Public Guardian (July 13, 1998). We reasoned, in particular, that the trust was not unilaterally revocable because the anti-lapse provision establishes a contingent, but irrevocable beneficial interest in the trust itself. Id.
Under the statutory amendments that took effect on January 1, 2000, even an irrevocable trust will be considered a resource “if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual . . . .” 42 U.S.C. § 1382b(e)(3)(B); see also POMS SI 01120.201D.2. Since this trust allows the trustee to use the assets in the sub-account for the benefit of the individual beneficiary, the sub-account would be a resource under this provision if the individual signed a joinder agreement after the effective date of the statute, January 1, 2000. See POMS SI 01120.201C.1.
Certain pooled trusts are excepted from this provision if they qualify as a Medicaid payback trust under the provisions of Section 1917(d)(4)(C) of the Social Security Act, 42 U.S.C. § 1396p(d)(4)(C). See POMS SI 01120.203B.2. To qualify for this exception, the trust must contain assets belonging to a disabled individual and must satisfy the following conditions:
* It must be established and managed by a nonprofit association.
* A separate account must be maintained for each beneficiary of the trust; but, for purposes of investment and management of funds, the trust pools these accounts.
* Accounts in the trust must be established solely for the benefit of the disabled individual by the individual, or parent, grandparent, legal guardian, or court.
* The trust must provide that 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 must pay to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary.
POMS SI 01120.203B.2. Prior to the April 30, 2002 amendment, the trust met all of these conditions except for the last. The trust did not meet the last condition because it provided for the payment of funeral expenses before the State would be reimbursed for Medicaid payments. See EM-01085(B)(3). As of April 30, 2002, however, the trust was amended to reimburse the state for Medicaid payments prior to paying any funeral expenses.
When a trust qualifies for the Medicaid trust exception to the statute, the trust must be analyzed under the regular resource rules, which were the same rules we applied to trusts prior to the statutory amendments. See POMS SI 01120.201D. (Note). As explained above and in our prior memorandum, the trust would not be a resource under those rules. Therefore, effective April 30, 2002, the sub-accounts in the trusts would no longer be a resource.
CONCLUSION
In sum, we conclude that, for those who joined the trust before January 1, 2000, the trust sub-account would not be a resource. For those who joined the trust on or after January 1, 2000 and before April 30, 2002, the trust would be a resource until April 30, 2002, but not thereafter. And for those who joined the trust on or after April 30, 2002, the sub account would not be a resource at any time.
Thomas W. C~ Regional Chief Counsel, Region V
By: Suzanne D~ Supervisory Attorney
~~BB. PS 02-133 SSI-Illinois-Review of the Illinois Disability Pooled Trust and Amendment Action, Your Ref: S2D5G6; SI 2-1-3 IL~~
CC. PS 02-133 SSI-Illinois-Review of the Illinois Disability Pooled Trust and Amendment Action, Your Ref: S2D5G6; SI 2-1-3 IL
DATE: September 10, 2002
1. SYLLABUS
Depending on the date of execution of the Joinder Agreement, the Illinois Disability Pooled Trust discussed below may or may not be considered a resource for SSI purposes. Assets generally are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for his or her support or maintenance. In this case, for those individuals who signed the Joinder Agreement between January 1, 2000 and April, 29, 2002, the trust assets would be considered a resource until April 30, 2002, because the Trustee had the discretion to expend the trust assets for the benefit of the beneficiary.
2. OPINION
You asked whether the Illinois Disability Association's Pooled Trust (Trust) would constitute a resource for SSI purposes. For the reasons discussed below, it is our opinion that depending of the date of execution of the Joinder Agreement, the Illinois Disability Pooled Trust may or may not be considered a resource for SSI purposes. If the Joinder Agreement is executed between July 17, 1998 and December 31, 1999, or after April 30, 2002, the trust assets would not be a resource for SSI purposes if the individual has irrevocally named a beneficiary to the Trust (including naming the Trust itself as a beneficiary). However, for those individuals signing a Joinder Agreement between January 1, 2000 and April 29, 2002, the trust assets would be a resource for SSI purposes until April 30, 2002, regardless of whether the Trust is irrevocable, because the Trustee has discretion to expend the trust assets for the benefit of a beneficiary, and because the Trust does not qualify for the Medicaid pooled trust exception to the statute.
BACKGROUND
On July 17, 1998, the Illinois Disability Association, an Illinois not-for-profit corporation, established the Illinois Disability Pooled Trust with LaSalle National of Chicago, Illinois as the corporate Co-Trustee. See Trust at 3, 22.
The purpose of the Trust is to provide for each Beneficiary's supplemental care, and not to provide for a “disabled” Beneficiary's basic support and maintenance. See Trust at 3-4. The Trust identifies the beneficiaries as disabled person as defined by Section 1614(a)(3) of the Social Security Act, 42 U.S.C. § 1382c(a)(3). See Trust at 3.
Within the pooled Trust, individual trust accounts, called sub-accounts, are created and maintained for each Beneficiary, but the funds from each sub-account will be pooled for investment and management of funds. See Trust at 9. The Trust is activated for an individual Beneficiary when a Joinder Agreement is signed by a Grantor (defined under the Trust as a parent, grandparent, guardian, the beneficiary himself, any court, or any person that establishes a sub-account for the benefit of a Beneficiary or contributes assets to an existing sub-account) and a Trustee. See Trust 2, 8. Upon acceptance of the Joinder Agreement, the sub-account is established and the Trustee has sole discretion to handle all funding matters. See Trust at 8. The pooled Trust states that the Trust and each sub-account are irrevocable, and a Spendthrift provision provides that, to the extent permitted by law, a Beneficiary cannot assign or transfer his or her interest in the Trust. See Trust at 7-8.
The Trust also states that its purpose is not intended to disqualify a Beneficiary from qualifying for federal, state, or local government benefits which he or she may be entitled to receive, unless it is determined by the Trustee to be necessary and advisable. See Trust at 5, ¶ 4.1A. The Trust provides that:
[I]f the mere existence of this authority to make distributions will result in a reduction or loss of the Beneficiaries's entitlement to benefits, regardless of whether the Trustee actually exercises that discretion, the preceding paragraph [4.1 A] shall be null and void and the Trustee's authority to make these distributions shall terminate and the Trustee's authority to make distributions shall be limited to purchasing supplemental goods and services that will not adversely affect the Beneficiary's government benefits.
A sub-account terminates upon either: (1) an unpredicted future development in the law affects the Trust or any sub-account, or (2) the death of the primary Beneficiary. See Trust at 17-18.
At the time of the original signing, July 1, 1998, the Trust provided that upon the death of a Beneficiary, any amounts remaining in the Beneficiary's trust sub-account (remainder), would be distributed depending on the original funding into the Trust. First, after the payment of the Beneficiary's funeral and estate administration expenses (including taxes and attorney's fees and reimbursement for income taxes), any amount authorized in the Joinder Agreement to be retained by the Trust would be used for the benefit of other beneficiaries who are indigent. See Trust at 18-19. Second, to the extent that the deceased Beneficiary's sub-account was funded with his or her own money, claims for reimbursement for services by the State of Illinois or such other state that provides Medicaid or other government benefits shall be satisfied. See Trust at 18. Third, all remaining funds existing after payments are made under the first and second levels shall be paid. See Trust at 18. The Trust provides that only the Trustee, in his or her own sole discretion, can terminate the Trust or sub-account during the Beneficiary's lifetime. See Trust at 18-19.
On April 29, 2002 (signed April 30, 2002), an amendment was made to the Trust, which was permitted under Article X. See Trust at 17. The amendment revised the payment of any monies that had been authorized by the Grantor upon the death of the Beneficiary. See Trust Amendment. In particular, the Amendment specifies that any assets remaining in the sub-account, would be used first to satisfy a Beneficiary's estate administration expenses (including taxes and attorney's fees) and reimbursement for income taxes (if any). See Trust Amendment. The amendment deletes the language that would require or allow payment of funeral expenses before any amounts are retained by the Trust or used to reimburse Medicaid.
DISCUSSION
Assets generally are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for his or her support and maintenance. See 20 C.F.R. § 41.2101(a). If the individual has the right, authority, or power to liquidate the property, it is a resource. See 20 C.F.R. § 41.2101(a)(1). For trusts established on or after January 1, 2000, statutory provisions also may affect the status of a trust as a resource. See POMS SI 01120.201A. An analysis of whether the Trust would constitute a resource for SSI purposes depends upon when the Trust was activated for an individual Beneficiary by the signing of a Joinder Agreement is signed by a Grantor and a Trustee. See Trust 2, 8; see also POMS SI 01120.201C.1.
A. Joinder Agreements executed from inception of the Trust, July 17, 1998, to December 31, 1999
For those who sighed Joinder Agreements prior to January 1, 2000, the effective date of the new legislation, the trust assets are a resource if (1) the individual can revoke the trust and use the assets to meet his or her needs for food, clothing, and shelter, or (2) if the individual can direct the use of the trust assets to be used for his or her support and maintenance. See POMS SI 01120.200D. An individual's beneficial interest in a trust also may be a resource if (3) the individual can sell that interest. See Memorandum from Regional Chief Counsel, Chicago, to Assistant Regional Commissioner- MOS, Chicago, Z~ Trust as an SSI Resource-Wisconsin, Bernard W~ (~), (Feb. XX, 1993) at 5. Here, for those who joined the Trust prior to January 1, 2000, the trust assets will be a resource under the first rule if the Beneficiary has not named any other beneficiaries to the Trust sub-account.
1. The Beneficiary cannot revoke the Trust if Residual Beneficiaries are named in the Joinder Agreement.
Illinois follows the general rule that, even if a trust purports to be irrevocable, it nevertheless may be revoked if the settlor and all beneficiaries consent. Stewart v. Merchants Nat'l , 3 Ill.App.3d 337, 339, 278 N.E.2d 10, 13 (1972); Vlahos v. Andrews, 362 Ill. 593, 599, 1 N.E.2d 59, 61-62 (1936). SSA does not consider a trust fund to be a resource, however, if the settlor would be required to obtain the consent of another beneficiary in order to revoke the trust and obtain the funds. See Memorandum from SSD, Chief, SSI Branch (K~), to Director, Division of Program Requirements Policy, Trusts Established as the Result of Z~ Underpayments, (Aug. 28 1991). Therefore, a beneficiary's sub-account would be a resource if he or she were the grantor and sole beneficiary of the sub-account/trust. Here, the Trust allows each person who joins the Trust the option to name residual beneficiaries to the Trust. See Trust at 18. If the person does name other individual beneficiaries (including any amounts designated to be retained by the Trust itself), this would be sufficient to render the Trust irrevocable unilaterally. If the SSI Beneficiary names no other beneficiaries to the Trust, however, or retains the right to revoke the beneficiary designations, he could revoke the Trust, and the Trust would be a resource.
In another legal opinion request, SSI-Illinois-Review of the Joinder Agreement for the Illinois Disability Pooled Trust for James C. B~, ~, your reference S2D5G6, SI 2-1-3-IL, we were provided a copy of a Joinder Agreement. Assuming Ms. B~' Joinder Agreement is the standard agreement signed by beneficiaries, Section L addresses distributions of the remaining assets upon a Beneficiary's death.
As discussed above, Section 11.2 of the Trust states that when the pooled trust sub-account is funded with the Grantor/Beneficiary's own money, the Grantor/Beneficiary may elect to have the Trust distribute the sub-accounts remaining assets. See Trust at 18 & Joinder Agreement, Section L(A) at 14. The Grantor/Beneficiary must determine how the remaining assets are to be distributed. See Joinder Agreement, Section L(A)(1-2) at 14-15.
Section L(A)(1) states that if the sub-accounts remaining assets are insufficient to satisfy the State's Reimbursement Claim, the Grantor/Beneficiary must decide on one of the following options for the distribution of assets which remain in the sub-account at the time of the Beneficiary's death:
a. The Grantor/Beneficiary elects to have the assets utilized to reimburse the State's Reimbursement Claim.
b. The Grantor/Beneficiary elects to have the assets retained by the Trust as the Trust's Remainder Share.
c. The Grantor/Beneficiary elects to have ___ [Beneficiary determines] percentage retained by the Trust as the Trust's Remainder Share and the remaining percentage to be paid to the State's Reimbursement Claim.
Joinder Agreement, Section L(A)(1) at 14-15.
If the Beneficiary irrevocably elects either option L(A)(1)(b) or (c) (with a designation of some percentage greater than zero be retained by the Trust), the Beneficiary designates that remaining amounts shall be retained by the Trust itself. This designation is sufficient to render the Trust itself a beneficiary of the Trust sub-account. Therefore, the Trust would be irrevocable unilaterally, and thus, would not be considered a resource. Although it may not be clear at the time the Trust is created, or when SSA makes its eligibility determination whether the funds will be insufficient to reimburse Medicaid, this nevertheless would be sufficient to create a contingent remainder interest in the Trust.
Section L(A)(2) states that if the sub-accounts remaining assets are sufficient to satisfy the State's Reimbursement Claim, the Grantor/Beneficiary must decide on one of the following options for the distribution of assets which remain in the sub-account at the time of the Beneficiary's death:
d. The Grantor/Beneficiary elects to have the assets retained by the Trust as the Trust's Remainder Share.
e. The Grantor/Beneficiary elects to have ___ [Beneficiary determines] percentage retained by the Trust as the Trust's Remainder Share and the remaining percentage to be paid to the State's Reimbursement Claim.
f. The Beneficiary/Grantor elects to satisfy the State's Remainder Claim and have the remaining amount paid to the Final Remainder Beneficiaries.
Joinder Agreement, Section L(A)(2) at 15.
Similarly, if the Beneficiary irrevocably elects either option L(A)(2)(a) or (b)(with a designation of a percentage of greater than zero to be retained by the Trust), the Beneficiary designates that remaining amounts shall be retained by the Trust itself. This designation is sufficient to render the Trust irrevocable unilaterally, and thus, would not be considered a resource, regardless of whether the sub-account actually contains sufficient assets to repay Medicaid.
Section L(C) provides for final remainder beneficiaries. See Joinder Agreement at 16. Under this Section, the Grantor/Beneficiary may list persons or entities that he would like to receive the remaining funds. If the Grantor/Beneficiary names remainder beneficiaries and does not to reserve the authority to amend the designation of the remainder beneficiaries, the Trust is irrevocable unilaterally, and thus, would not be considered a resource. See Joinder Agreement, Section C, I-II at 16. If, however, the Grantor/Beneficiary either (1) reserves the right to amend the Remainder Beneficiaries of a sub-account or (2) names himself (or his estate or heirs at law or the like) as the sole beneficiary of the sub-account/trust, it would be considered a resource.
2. The Beneficiary cannot direct the Trustee to use the Assets for his or her support and maintenance.
Under the terms of the Trust, the Beneficiary cannot direct the Trustee to use the assets in the sub-account for his or her support and maintenance. Rather, the Trustee has sole discretion to disburse such funds, and disbursements are to be made only for the Beneficiary's supplemental care, not for basic support and maintenance. See Trust at 8.
3. The Beneficiary cannot liquidate his or her interest in the Trust.
Although the spend thrift provisions in the Trust would not be effective with respect to any trust assets that originated from the SSI Beneficiary, the Agency generally assumes that the individual would be unable to sell his beneficial interest in this type of discretionary trust. See Trust at 7-8. See Restatement (Third) of Trusts §60 (Tentative Draft No. 2, Mar. 10, 1999).
B. Joinder Agreements executed on or after January 1, 2000
Effective January 1, 2000, amendments to the Social Security Act provide that even an irrevocable trust created by an individual is a resource if the trust allows for payment to or for the benefit of the individual. 42 U.S.C. § 1382b(e)(3). According to the Act as amended, most assets held in trust for individual generally are going to be resources if any portion of the trust property could be used for the benefits of the eligible individual or his or her spouse. 42 U.S.C. § 1382b(e)(3). Here, the Trust provides that the Trustee has the sole discretion to make supplemental distributions that are appropriate to or for the Beneficiary. Since the Trust specifically allows for payment to or for the benefit of the individual, it may be a resource under the Act if the individual joined the trust on or after January 1, 2000. See 42 U.S.C. § 1382b(e)(3); POMS SI 01120.201D.2.a.
Certain trusts may be excluded from this provision of the Act under the Medicaid payback trust exception of 42 U.S.C. § 1382b(e). This exception under the amended Act provides that property held in trust which meets the requirements described in Section 1917(d)(4)(C) of the Social Security Act, 42 U.S.C. § 1396p(d)(4), is not subject to the statutory provisions for counting trusts as resources. In order to be excluded from consideration under the Act, the trust must contain assets belonging to a disabled individual, and must satisfy the following conditions:
a. It must be established and managed by a nonprofit association.
b. A separate account must be maintained for each beneficiary of the trust; but, for purposes of investment and management of funds, the trust pools these accounts.
c. Accounts in the trust must be established solely for the benefit of the disabled individual by the individual, or parent, grandparent, legal guardian, or court.
d. The trust must provide that 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 must pay to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary.
Prior to the April 30, 2002 amendment to the Trust, the Trust would not qualify for the Medicaid payback trust exception because it did not meet all of the above-referenced criteria. Specifically, the initial Trust gave priority to payment of funeral expenses before the State was reimbursed for Medicaid benefits. See Trust at 18, ¶ 11.2A, B. The POMS instruct that to qualify for the pooled trust exception, the trust must contain specific language which provides that amounts remaining in the individual's account upon the death of the individual are not retained by the trust, the trust reimburses the State for medical assistance paid on behalf of the individual under Medicaid. See POMS SI 011020.203B.2.g. To the extent the trust does not retain the funds in the account, the State must be listed as the first payee and have priority over payment of other debts and administrative expenses. Id. The Agency interpreted this to mean that to qualify for the Medicaid pooled trust exception, administrative expenses were permitted prior to reimbursement to the state for medical expenses, but not funeral expense payments. See EM-01085(B)(3). As such, the Trust did not meet the exception for counting as a resource under 42 U.S.C. § 1382b(e). Thus, any Joinder Agreements executed between January 1, 2000 (the Act Amendment) and the eve of the Trust Amendment (April 29, 2002), the trust assets would constitute a resource for SSI purposes until at least April 30, 2002.
C. The April 30, 2002 Trust Amendments
The Trust Amendment was effective April 30, 2002. Under the Amendment, the Trust revised priority payment of estate administration expenses before the State was reimbursed for Medicaid benefits upon the death of a Beneficiary. See Trust Amendment. As discussed above, the POMS instruct that to qualify for the pooled trust exception, a trust must contain specific language which provides that amounts remaining in the individual's account upon the death of the individual are not retained by the trust, and the trust reimburses the State for medical assistance paid on behalf of the individual under Medicaid. See POMS SI 011020.203B.2.g. To the extent the trust does not retain the funds in the account, the State must be listed as the first payee and have priority over payment of other debts and administrative expenses. Id. Here, the Trust, as amended, complies with EM-01085(B)(3) in specifically stating that priority to payment of estate administration expenses, but not funeral expenses, will be made before the State was reimbursed for Medicaid benefits. Therefore, after April 30, 2002, the Trust qualifies for the Medicaid payback exception to the statute.
The remaining issue is whether the Trust as amended, qualifies as a resource under the agency regulations. With the amendment, the Trust now requires an analysis under POMS SI 01120.201 (Trusts established after January 1, 2000). See POMS SI 01120.201D. (Note). In analyzing the Amended Trust under POMS SI 01120.200, the same analysis discussed above in Section A applies, and the Trust will not be a resource if the individual irrevocably names a residual beneficiary to the Trust (including a gift to the Trust itself). If, however, the individual does not irrevocably name another beneficiary to the Trust, the Trust would be revocable, and therefore a resource.
CONCLUSION
In sum, we conclude that depending of the date of execution of the Joinder Agreement, the Illinois Disability Pooled Trust may or may not be considered a resource for SSI purposes. Specifically, if the Joinder Agreement is executed between July 17, 1998 and December 31, 1999, or after April 30, 2002, the trust assets would not count as a resource for SSI purposes if the individual irrevocably names a residual beneficiary to the Trust (including an irrevocable gift to the Trust itself). If the individual has not named an irrevocable residual beneficiary, the Trust is revocable, and therefore a resource. However, for those individuals signing a Joinder Agreement between January 1, 2000 and April 29, 2002, the trust assets would count as a resource for SSI purposes under statutory provisions from the time the individual joined the Trust, until April 30, 2002, even if the Trust was irrevocable. This is because the Trustee has discretion to expend the trust assets for the benefit of a Beneficiary, and the Trust did not qualify under the Medicaid pooled trust exception during that time because it provided for the payment of funeral expenses before reimbursing the state for Medicaid paid for the individual. After April 30, 2002, the Trust would no longer be a resource if the individual has named irrevocable residual beneficiaries to the Trust, since the Trust would qualify for the Medicaid payback exception to the statute after that date
Thomas W. C~ Regional Chief Counsel, Region V
By: Kimberly S. C~ Assistant Regional Counsel
~~CC. PS 01-189 SSI-Illinois-Review of Proposed Irrevocable Special Needs Trust for Joyce H~; SSN: ~; Your Reference: S2D5G3~~
DD. PS 01-189 SSI-Illinois-Review of Proposed Irrevocable Special Needs Trust for Joyce H~; SSN: ~; Your Reference: S2D5G3
DATE: July 30, 2001
1. SYLLABUS
A trust is revocable if the grantor is also the sole beneficiary, even if the trust purports to be irrevocable. A trust that provides for payment of the beneficiary's funeral expenses prior to reimbursement of Medicaid expenditures to the State does not qualify for the Medicaid payback trust exception to counting as a resource under section 1613(e) of the SSAct.
Payments to the trust from the Illinois Fireman's Pension are income to the individual entitled to the payment (the beneficiary) because those payments cannot be irrevocably assigned to the trust under Illinois State law.
2. OPINION
You have asked whether the proposed trust for Joyce H~ is a countable resource for the purposes of determining Ms. H~'s eligibility for Supplemental Security Income (SSI). You have also asked whether the payments being made to the trust from the Arlington Heights, Illinois, Fireman's Pension may be legally assigned to the trust, so that they would not be considered income to her. For the reasons stated below, we conclude that the trust would be a resource, and the payments from the pension fund would be considered income when determining Ms. H~'s eligibility for SSI.
FACTS
In January 2001, Joyce H~ submitted a proposed trust agreement. The "Joyce H~ Special Needs Irrevocable Pay Back Trust" ("Trust" or "the trust") is being created for the benefit of Joyce H~, who is disabled and who will receive the funds that create the trust apparently as the result of a settlement in a divorce proceeding.
The trust is to be funded by (a) future discovered assets of Joyce H~; (b) future receipts from Dennis H~, being payments from her husband's pension fund Arlington Heights, Illinois, Fireman's Pension per a Qualified Illinois Domestic Relations Order (QILDRO); and (c) funds in excess of the Illinois Department of Public Aid cash asset limit which accumulate in Joyce H~'s account. The Circuit Court of Cook County is named as the settlor of the trust, Trust 1.1, and Antoinette B~ is named as trustee (Trust 6.1).
The stated purpose of the trust is to "supplement, but not to supplant, whatever benefits and services [Ms. H~] may from time to time be eligible to receive by reason of age, disability, or other factors, from federal, state and local governmental and charitable sources." Trust 2.1. The trust states that it is irrevocable, Trust 1.4, and that it is intended that Ms. H~ qualify for SSI. Trust 2.1. The Trustee is to use the trust principal and income to provide Ms. H~ with "those benefits and services, and only those benefits and services, that, in the Trustee's judgment, are not otherwise available to [Ms. H~] from other sources as or when needed for her welfare." Trust 2.1. The making and the amount of any payment from the trust is subject to court order. Trust 3.
The trust may be amended by the trustee "so that it conforms with any regulations that are approved by any governing body or agency relating to 42 U.S.C. 1396p or related statutes, including state statutes that are consistent with the provisions and purposes of the Revenue Reconciliation Act of 1993 and amendments to such Act." Trust 1.4.
The trust terminates upon Ms. H~'s death, or at such time as Ms. H~ is no longer disabled under the Social Security Act, and either a guardian or Ms. H~ petitions a court to have the trust terminated. Trust 4.1 Upon termination of the trust, the trustee is directed to distribute the trust estate in the following order:
* In the event that the trust terminates upon the death of Ms. H~, the trustee shall "pay directly or indirectly from the Trust Estate (i) Joyce H~'s funeral expenses, (ii) any and all death taxes imposed on Joyce H~'s estate, (iii) court fees of a probate, administration or estate proceeding relating to Joyce H~'s estate, and (iv) any and all legal, guardian, trustee and accounting fees related to Joyce H~'s estate."
* In the event that the trust terminates upon the death of Ms. H~, or, if required by law, if the trust terminates because Ms. H~ is no longer disabled, funds remaining in the trust are to be used to reimburse governmental agencies for benefits provided to Ms. H~ if such benefits have not been reimbursed from any other source.
* If the trust terminates because Ms. H~ is no longer disabled, the remaining trust estate is to be distributed to Joyce H~ or her guardianship estate.
* In the event that the trust terminates upon the death of Ms. H~, the remaining trust estate is to be distributed "in the alternative to Joyce H~'s decedent estate, as she may appoint in her last will," with the remaining trust estate to be paid "pursuant to the relevant portions of the Illinois Probate Code."
Trust 4.2.
DISCUSSION
1. The Trust, as Written, Would Be a Resource
Under federal law, a trust established by an individual after January 2000 generally will be considered a resource to him if the trust is revocable. 42 U.S.C. § 1382b(e)(3)(A); POMS SI 01120 TN 35 [hereinafter POMS TN 35] at SI 01120.201(D)(1). If the trust is irrevocable, the trust is still a resource if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual. In that case, the value of the resource is the portion of the trust corpus which could be made to or for the benefit of the individual. 42 U.S.C. § 1382b(e)(3)(B); POMS TN 35 at SI 01120.201(D)(2)(a).
Certain Medicaid payback trusts are excluded from these statutory provisions. 42 U.S.C. § 1382b(e)(1), (5); POMS TN 35 at SI 01120.203(B)(1)(a). If the trust falls within this exception, the Agency applies regular resource rules, and the trust may still be considered a resource if it is revocable. See POMS TN 35 at SI 01120.203(B)(3)(b); see also generally 20 C.F.R. § 416.1201(a) (A resource, for the purpose of SSI eligibility, is "cash or other liquid assets or any real or personal property that an individual . . . owns and could convert to cash to be used for his or her support and maintenance.").
a. The Trust is Revocable
Thus, regardless of whether the statute applies, or whether the trust qualifies for the Medicaid payback trust exception, the trust must be irrevocable or it will be considered a resource. Here, the trust is not irrevocable because even a trust, like this one, that purports to be irrevocable can be revoked if the settlor (grantor) of the trust is also the sole beneficiary. S~ v. Merchants National of Aurora, 278 N.E.2d 10, 12 (Ill. App. 1972); Restatement (Second) of Trusts § 339, comment a.
Although the trust identifies the Circuit Court of Cook County as the "settlor," Trust 1.1, Ms. H~ is the true settlor of the trust because the trust was formed with her assets. See In re Estate of H~, 635 N.E.2d 853, 855 (Ill. App. 1994); POMS SI 01120.200(L)(3). Ms. H~ is also the sole beneficiary of the trust. She is the only named beneficiary of the trust during her lifetime, and on termination of the trust (if she is no longer disabled or if she dies), the remainder of the trust estate (after reimbursement of government agencies for benefits received) is to be distributed to her (if she is living) or to her whomever she names in her will, or (if there is no will provision) to her heirs (if the trust terminates on her death). Trust 4.2. This does not indicate an intent to create additional beneficiaries in those Ms. H~ may appoint in her will or in her heirs. See S~, 278 N.E.2d at 14 (statement that, if trust property does not pass by will, it will pass to heirs does not create additional beneficiaries who must consent to revocation or amendment of trust); Restatement (Second) of Trusts § 127, comment b. Nor is the state a beneficiary of the trust merely because the trust will reimburse the state for Medicaid benefits paid to Ms. H~ during her lifetime. Any money paid to the state is for the benefit of Ms. H~, not the state. See Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, States Named as Beneficiary to a Trust, at 2 (June 24, 1997); Memorandum from Reg. Chief Counsel, Chicago, to Center Director, Chicago, Illinois OBRA '93 Trust for Dominick J. G~, at 4 (Apr. 17, 1997).
b. Even if the Trust Were Made Irrevocable, It Would Be a Resource.
Even if the trust were irrevocable, however, it still would be a resource. The Medicaid payback exception does not apply, and under federal law the entire trust is a resource because the trustee can make payments from the trust for Ms. H~'s benefit.
(1) The Trust Does Not Qualify for the Medicaid Payback Exception.
The trust would not qualify for the Medicaid payback trust exception because, to be exempt, the trust must provide that, on the death of the individual, any remaining trust assets will be used first to reimburse the state for Medicaid assistance paid on behalf of the individual, even before the trust pays any funeral expenses. See POMS SI 01120.203(B)(1)(f); EM-01085 (May 14, 2001). Here, the trust provides for payment of funeral expenses before the state is reimbursed. See Trust 4.2. Thus, the federal statute would apply.
(2) The Trust Is A Resource Under Federal Law Because the Trustee Can Make Payments for Ms. H~'s Benefit
Under the federal statute, the entire trust would be a resource to Ms. H~. Even if the trust were irrevocable, "there are circumstances under which payment from the trust could be made to or for the benefit of" Ms. H~. See Trust at 2.1. See 42 U.S.C. § 1382b(e)(3)(B). Indeed, both the income and the principal of the trust are available for Ms. H~'s benefit.
2. The Pension Payments Would Be Income
It appears that payments from Dennis H~'s Fireman's Pension, which may be added to the trust, should be considered income to Ms. H~. Such payments are considered income to the individual, even where it appears that they are paid to the trust, if: (1) the payments are non-assignable by law; or (2) the payments are legally assignable, but the assignment to the trust is revocable.
See POMS SI 01120.200(G)(1)(c)-(d).
Here, since the assignment is made as part of the trust, see Trust at 1.2, and since the trust is revocable, we assume that the assignment would be revocable, as well. But even if the trust were made irrevocable, the payments from the pension fund still should be considered income because state law requires that any assignment of such pension funds to a trust be revocable.
Ms. H~ would be legally entitled to these pension payments pursuant to a QILDRO, 40 ILL. COMP. STAT. 5/1-119, which is issued by a court because such funds are marital property earned during the marriage. Thus, Ms. H~ would have an ownership interest in the pension fund, and would be an alternate payee who would receive a portion of the benefits payable. See 40 ILL. COMP. STAT. 5/1-119; 750 ILL. COMP. STAT. 5/503(b); In re B~, 722 N.E.2d 287, 295-96 (Ill. App. 1999). State law provides that:
The board of trustees of any retirement fund or system operating under this Code may, at the written direction and request of any annuitant, solely as an accommodation to the annuitant, pay the annuity due the annuitant . . . to a , savings and loan association, or trust company for deposit in a trust established by the annuitant for his or her benefit with that , savings and loan association, or trust company. The annuitant may withdraw the direction at any time.
40 ILL. COMP. STAT. 5/1-106(a) (Supp. 2001). Thus, although state law allows assignment of monthly pension benefits to a trust under certain circumstances, any such assignment must, by law, be revocable, since the annuitant "may withdraw the direction at any time." Since the pension cannot be irrevocably assigned, it would still be considered income under the POMS.
CONCLUSION
In summary, we conclude that the Trust in its current form is a resource to Ms. H~ because it is revocable. Furthermore, even if the trust were made irrevocable, it still would be a resource because the trust does not qualify for the Medicaid payback trust exception to the federal statute, and under the federal statute, the trust would be a resource (even if the trust were irrevocable) because payments from the principal and interest of the trust can be made for Ms. H~'s benefit.
Furthermore, regardless of whether the trust is revocable or irrevocable, and regardless of whether the assets in the trust would be considered a resource, payments into the trust from Dennis H~'s Fireman's Pension would be income to Ms. H~ because, under state law, those payments cannot be irrevocably assigned to trust.
~~DD. PS 01-107 SSI-Illinois-Review of Options for Living Pooled OBRA Pay Back Trust~~
EE. PS 01-107 SSI-Illinois-Review of Options for Living Pooled OBRA Pay Back Trust
DATE: February 5, 2001
1. SYLLABUS
The regional attorney was asked to review the Options for Living Pooled OBRA Pay Back Trust under the newly enacted trust provisions effective January 2000.
It is the opinion of the regional attorney that the trust qualifies for the Medicaid trust exception (SI 01120.203) and would not be considered a resource to an SSI beneficiary.
2. OPINION
We were asked to determine whether the Options for Living Pooled OBRA Pay Back Trust satisfies the newly enacted provisions that provide certain exceptions for the consideration of trusts as resources. We have concluded that this trust qualifies for the exception stated in section 1917(d)(4)(C). Therefore, this trust should not be considered as a resource to its beneficiaries.
BACKGROUND
On November 3, 2000, Surrogate Guardian Services established an Options for Living Pooled OBRA Pay Back Trust with Old Kent of Elmhurst Illinois as the co-trustee. Surrogate Guardian Services stated in the trust agreement that it is an Illinois not-for profit corporation.
The trust states that its purpose is to supplement, but not supplant, whatever benefits and services the beneficiaries of the trust may be eligible to receive from federal, state, and local governmental and charitable sources. It identifies the beneficiaries as disabled persons and it defines a "disabled person" as one so defined by Section 1614(a)(3) of the Social Security Act, 42 U.S.C. § 1382c(a)(3). The trust agreement also states that the individual whose assets were used to establish the trust is disabled according to the Social Security Administration's definition of disability.
The trust is designed to set up sub-accounts for each individual beneficiary. Those sub-accounts are to be maintained by the trustee in trust for the benefit of the beneficiary.
DISCUSSION
On December 4, 1999, the president signed into law the Foster Care Act of 1999 (P.L. 106-169). This law includes an exception for counting, as a resource, certain trusts established on or after January 1, 2000, by an individual, with his or her own funds. The exception applies to any trust described in sections 1917(d)(4)(A) and (C) of the Social Security Act. The significant provision in these trusts provides that upon the individual's death, the state will be repaid from the trust, for Medicaid expenditures made on behalf of the individual.
Such trusts are commonly referred to as "Medicaid pooled trusts" and are usually administered by a non-profit association (organization). Such trusts may contain the assets of a large number of individuals, with separate accounts for each individual beneficiary. To qualify for the exception or exemption, the trust must reimburse the state, upon the individual's death, for Medicaid expenditures made on behalf of the individual from the balance of the trust that is not returned by the trust itself.
Thus, the question raised by the document at issue, is whether or not it qualifies for the exception. The applicable statute, 42 U.S.C. § 1917(d)(4)(C) states that a trust will qualify if it is established and maintained by a not for profit association. Surrogate Guardian Services has identified itself in the trust document as an Illinois not-for-profit corporation. (See first paragraph under the heading of title "Trust Agreement Establishing Options For Living Pooled OBRA Pay Back Trust".)
In addition, to qualify for the exception, separate accounts must be maintained for each beneficiary. Section 2, Page 2 of the "Joinder Agreement includes a heading, "Creation of Sub-account." That section states that the Trustee agrees to create a sub-account for the benefit of each beneficiary and to manage the assets for the beneficiary's benefit. Section 1.6 of the Agreement that establishes the trust also contains a heading entitled Sub-account (Section 1.6). This section defines a sub-account as an individual share maintained by the Trustee in trust for the benefit of the beneficiary. This trust, therefore has set up separate accounts that are to be maintained for each beneficiary.
To qualify under the exception, these separate or sub-accounts must be established solely for the benefit of a disabled individual. This agreement or trust appears to qualify under this requirement as well. On page one of the "Joinder Agreement," there is a statement that the donor desires to transfer, assign, and/or transfer such assets to the trust for the benefit of the beneficiary and the beneficiary is defined as "A disabled person according to 1614(a)(3) of the Act."
To qualify for the exception, these (sub) accounts must be established by: the individual; a parent; grandparent; legal guardian; or a court. If the Surrogate Guardian Services is acting as a guardian on behalf of the beneficiaries of the trusts, this requirement would be met. Otherwise, it would generally be acceptable to assume that the individual or someone acting on his or her behalf, as a parent, grandparent, guardian, or court established the trust account.
The trust also has to provide that any remaining amounts after the beneficiary's death are paid to the state to cover any expenditures that the state made to the individual under a State Medicaid plan to the extent that any amounts remaining in the trust are not returned by the trust. Article III of the trust deals with "Distribution" in general. Section 3.5 specifically talks about reimbursing a state agency and refers the reader to Section 4.2 "Reimbursement to State." Although § 4.2 does not specifically mention Medicaid, it discusses repayment to state agencies of — an amount equal to the total amount of assistance paid by such agency on that beneficiary's behalf during his or her lifetime. We feel that this language is sufficient to qualify this trust for the exception.
Finally, this trust qualifies for the exception because the individual whose assets were used to establish the trust was a disabled individual according to SSA's definition of "disability." Page three of the Trust Agreement defines the donor as a disabled person.
CONCLUSION
In sum, we conclude that the trust agreement in question qualifies for the exception set forth in section 1917(d)(4)(C). Thus, Social Security approves of the trust and does not anticipate that any amendments to this trust will be required.
~~EE. PS 01-105 SSI-Illinois-Review of Stacy A. A~ 1973 Trust, Mother of Alicia A~, SSN: ~~~
FF. PS 01-105 SSI-Illinois-Review of Stacy A. A~ 1973 Trust, Mother of Alicia A~, SSN: ~
DATE: February 5, 2001
1. SYLLABUS
A third party established an irrevocable trust for the benefit of the SSI recipient in 1973. The trust is not a resource. Although the trust provides that the trustee is required to distribute the income of the trust to the beneficiary "at convenient intervals," a spendthrift clause in the trust prevents the beneficiary from selling or anticipating these distributions. Therefore, any distributions from the trust are subject to regular income counting rules.
2. OPINION
You asked for a legal opinion concerning whether the subject trust is a countable resource to Stacy D~ (formerly A~) ("Stacy"), who is the mother of Alicia A~ ("Alicia"), an SSI claimant. Based on the facts as we understand them, we conclude that the trust assets should not be treated as a countable resource to Stacy. However, payments from the trust would constitute income.
Background
On October 31, 1973, Sam L~ ("Sam") created a trust with property described in a document (referred to in the trust as "Schedule A"), that was not attached to the copy of the trust that we received. The trust is called the "Stacy A. A~ 1973 Trust." The trust is intended for Stacy's benefit during her lifetime. Para. 1. The expressed intent of the trust is that it provide for "the suitable care, maintenance, support, education, or medical attention of the Principal Beneficiary and any of her issue." Section V (b). The trust requires the trustee to distribute the net income of the trust to Stacy at regular intervals and gives the trustee discretion to use the principal for anything consistent with the trust purpose. Section V (b).
The trust continues until Stacy dies; upon her death, the trust terminates. Section VI. Upon termination, the trustee is directed to distribute the trust principal and income to Stacy's "issue per stirpes," and if none, to the issue of Sam's son, William, and if none, to the issue of Sam. Section V (c). The trust further has a spendthrift clause, which prevents the beneficiaries from assigning their interest in the trust. Section I (q).
Discussion
Both income and resources of an ineligible parent can be deemed income or resources to a child who applies for SSI. 20 C.F.R §§ 416.1165, 416.1202. Assets are a resource for SSI purposes if the individual owns them and can convert them to cash that can be used for his or her support and maintenance. See C.F.R. 416.1201(a). If the individual has the right, authority, or power to liquidate the property, it is a resource. See id. Assets in trust are a resource to the beneficiary of the trust if he or she can terminate or revoke the trust and use the assets to meet his or her needs for food, clothing, and shelter. See POMS SI 01120(D)(1)-(3). The trust is also a resource if the individual can direct the funds to be used for her support and maintenance, or if the individual can sell her beneficial interest in the trust.
Here, Sam is the grantor of the trust property. The trust does not give Stacy the power or authority to terminate the trust or obtain the assets. Nor does Stacy have the power or authority to direct the trustee to use the trust assets for her support and maintenance. The trustee "may" in his "sole discretion" use the principal of the trust for Stacy's support and maintenance. Stacy cannot force him to exercise that discretion, but if the trustee makes any discretionary disbursements to her (or Alicia), this would be income to her, and if the trustee uses the funds to furnish Stacy (or Alicia) with food, clothing, or shelter, this would constitute in-kind support and maintenance.
The trustee is required to distribute the income of the trust to Stacy at "convenient intervals." Because of the spendthrift provision, Stacy cannot sell her beneficial interest in the trust. Therefore, the trust is not a resource to her. However, the distributions from the trust are income to her.
CONCLUSION
For these reasons, we believe that the trust is not a resource for Stacy or Alicia. However, distributions from the trust would be income.
~~FF. PS 00-495 Michael R~ Trust, SSN: ~ - Effect of Nunc Pro Tunc Order, Your Reference: S2D5G3~~
GG. PS 00-495 Michael R~ Trust, SSN: ~ - Effect of Nunc Pro Tunc Order, Your Reference: S2D5G3
DATE: June 8, 2000
1. SYLLABUS
This opinion concerns a trust that was amended by an Illinois court under a nunc pro tunc order. The opinion explains that a nunc pro tunc order may be used to make clerical changes to an existing legal document, but not substantive changes. These changes are retroactive to the date of the original document. Prior to the order, this trust was considered a resource for SSI purposes because it was a grantor trust without a named residual beneficiary. However, the Illinois court determined that the original trust sufficiently indicated its intent concerning residual beneficiaries, in this case "heirs at law." The court allowed the trust to be amended by a nunc pro tunc order which added the names of the heirs at law to the trust. The regional counsel determined that this change in the trust was not substantive, so it was appropriate for the court to use a nunc pro tunc order to change the trust. Since the amended trust now identifies residual beneficiaries, it is not a resource for SSI purposes.
2. OPINION
BACKGROUND
The "Michael R~ Supplemental Care Trust" ("the trust") was created for the benefit of Michael R~ ("Michael"), who is disabled and who apparently received the funds that make up the trust as the result of a judgment or settlement in a personal injury action. The First National of Chicago is named as the guardian of Michael's estate and as the grantor of the trust, and Michael's parents, Mary R~ and Robert R~, are named as trustees.
In February 2000, the Agency found that the trust was a resource to Michael for SSI purposes because, although the language of the trust indicated that the trust was irrevocable, Michael could nevertheless revoke it because he was the grantor and sole beneficiary.
On March 31, 2000, the Circuit Court of the Nineteenth Judicial Circuit, Lake County, Illinois, entered an order approving an amendment to the trust "nunc pro tunc," effective July 3, 1997. The March 2000 amendment, if valid retroactively, would make the trust irrevocable because, as amended, the trust names residual beneficiaries. The trust would therefore not be a resource.
You asked whether, in light of the amendment, the trust is still a resource and, if not, on what date it ceased being a resource. For the following reasons, we believe that the trust is not a resource and that in this particular case the nunc pro tunc order is valid; therefore, the property in the trust should not be considered a resource at any time.
DISCUSSION
Our review of Illinois case law suggests that the nunc pro tunc order was valid. The change ordered by the Lake County court would apply retroactively. Therefore, the property in trust was not a resource for SSI purposes as of July 3, 1997, when the trust was first funded.
The general rule in Illinois is that a nunc pro tunc order is "an entry now for something previously done, made to make the record speak now what was actually done then." In re Bird's Estate, 102 N.E.2d 329, 333 (Ill. 1951) (citing 28 Words and Phrases, 982 et seq.). "It is a device to supply an omission to enter of record an order actually made, but omitted from the record by the clerk." Id. (citing Sherman v. Green, 152 Ill. App. 166). The function of a nunc pro tunc order "is not to create something in the record, or supply an omission to make an order, but only an omission in the record of the order." Id. (citing Briggs v. Briggs 20 N.E.2d 908). Nunc pro tunc orders may be entered to correct clerical, not judicial errors. Krilick v. Plencer, 713 N.E.2d 231, 234 (Ill. App. Ct. 1999). A court cannot, therefore, make a substantive change nunc pro tunc.
Here, the change ordered by the Lake County court was essentially a clarification of the intent manifested in the original trust instrument, and the order was therefore properly entered nunc pro tunc. The original trust provided that upon Michael's death, any trust assets remaining after reimbursements to the appropriate State agencies would be distributed to Michael's "Heirs at Law," with the provision that Patrick R~ and Kathleen R~ were to be considered Michael's only brother and sister; subject to that provision, the heirs and the proportions that they would take were to be determined according to the laws of descent and distribution then in effect in Illinois. Ordinarily, when a grantor uses language leaving the remainder of a trust to his heirs or next of kin, "[i]n the absence of a manifestation of a contrary intention, the inference is that he is the sole beneficiary of the trust, and that he does not intend to create any interest in the persons who may become his heirs or next of kin." Restatement (Second) of Trusts § 127, cmt. b. (1959).
In this case, a "contrary intention" in the original trust was suggested, even if it was not established, by the stipulation that Patrick R~ and Kathleen R~ were to be considered Michael's only siblings. This provision may have shown an intent to exclude potential beneficiaries-specifically, children born later to Mary R~ and Robert R~, as well as any half brothers or sisters, all of whom would be entitled to shares of the trust property under the rules of descent and distribution in Illinois.
755 ILCS 5 §§ 2-1(d), (h).
The implied "contrary intention" in the original trust is clarified in the amended trust, which provides that that any remainder be paid in equal shares to such of KATHLEEN R~ (sister of MICHAEL R~), PATRICK R~ (brother of MICHAEL R~), MARY R~ (Parent of MICHAEL R~), and ROBERT R~ (Parent of MICHAEL R~) as survive MICHAEL R~, except allowing to the surviving Parent if one is dead a double portion and to the descendants of a deceased brother or sister per stirpes the portion which the deceased brother or sister would have taken if living.
The amended trust also stipulates, as did the original, that, for purposes of the instrument, Kathleen R~ and Patrick R~ are to be considered the only brother and sister of Michael R~.
Significantly, the amendment to the trust does not create any new beneficiaries, nor does it materially alter the interest of the beneficiaries identified in the initial trust. Under the Illinois statute governing the rules of descent and distribution,-i.e., the provision governing the original trust-if an individual dies intestate without a surviving spouse or descendant, the estate is distributed to the parents, brothers and sisters of the decedent in equal parts, allowing to the surviving parent, if one is dead, a double portion and to the descendants of a deceased brother or sister per stirpes the portion which the deceased brother or sister would have taken if living. 755 ILCS 5 § 2-1(d). Because the amended trust is essentially identical in effect to the original, the addition of named beneficiaries did not constitute a substantive change, and the order amending the trust could therefore properly be entered nunc pro tunc. Moreover, because the trust identifies residual beneficiaries, and because Michael cannot revoke the trust or direct its expenditures, the trust should not be considered a countable resource when determining Michael's eligibility for SSI. See Restatement (Second) of Trusts § 127(b) (addition of residual beneficiaries generally makes a trust irrevocable by the grantor).
CONCLUSION
For the foregoing reasons, we believe that the trust as amended would be found by Illinois courts to be amended nunc pro tunc, and the trust should not be considered a resource to Michael R~ as of July 3, 1997.
~~GG. PS 00-493 SSI-Illinois-Review of The Lambs Care Trust, Inc., OBRA '93 Pooled Trust~~
HH. PS 00-493 SSI-Illinois-Review of The Lambs Care Trust, Inc., OBRA '93 Pooled Trust
DATE: June 6, 2000
1. SYLLABUS
The Lambs Farm, a not-for-profit corporation, proposes to form The Lambs Care Trust, Inc. This is a pooled trust wherein individual trust accounts will be maintained for each disabled beneficiary who chooses to adopt the trust, but the funds from each trust account will be pooled for investment and management.
Funds in the Lambs Care Trust will not count as a resource under the new rules in effect for trusts created after 1/1/00.
2. OPINION
You asked that we review a draft "OBRA '93 Pooled Trust" to be established by "The Lambs Care Trust" to determine whether it would be a resource to disabled residents of the Lambs Farm and other disabled individuals who place funds in it. The pooled trust would likely not have been a resource under our general trust rules. See Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, SSI Illinois-Review of the Illinois Disability Assn's Pooled Trust Drafted by the Office of the County Public Guardian-Action (July 13, 1998). We believe that the trust will still be excluded from resources under the new rules that went into effect for trusts created after January 1, 2000.
Background
The Lambs Farm, a not-for-profit corporation, proposes to form The Lambs Care Trust, Inc. Within the pooled trust, individual trust accounts, called sub-accounts, will be maintained for each disabled beneficiary who chooses to adopt the trust, but the funds from each sub-account will be pooled for investment and management.
An individual establishes a sub-account and becomes a "Primary Beneficiary" by entering into an "Adoption Agreement," whereby the individual enrolls in and adopts the Pooled Trust Agreement. A disabled individual can use his or her own funds to establish a sub-account for him or herself. Other individuals could also place funds or assets into trust for the disabled beneficiary.
The purpose of the trust is to provide for each beneficiary's supplemental care, and not to provide for a beneficiary's basic support and maintenance. The trustee has sole discretion to make any payments or distributions to or for the benefit of a beneficiary. The trust documents state that the pooled trust and each sub-account are irrevocable, and a spendthrift provision provides that, to the extent permitted by law, a beneficiary cannot assign or transfer his or her interest in the trust. The trust may be terminated by the trustee if it becomes impossible or impracticable to carry out the trust's purposes.
The sub-account will terminate upon the death of the Primary Beneficiary. Any assets remaining in the sub-account after payment of certain expenses shall remain part of the Master Trust to be used for the benefit of the primary beneficiaries of other sub-accounts that are established under the Pooled Trust Agreement. To the extent that any funds remain in the sub-account, they would be available to repay the state for any assistance that had been provided to the Primary Beneficiary.
The Pooled Trust Agreement provides that the grantors or other contributors to the trust cannot revoke any trust established by virtue of the Adoption Agreement. Nor may the Grantor have the right or power to amend, reform, or revoke the Pooled Trust or any sub-account.
Discussion
Until January 1, 2000, the Social Security Act itself did not separately describe the resource treatment for SSI purposes of property held in trust. Therefore, we applied our general resource rules, see 20 C.F.R. § 416.1201(a), to determine whether the property counted as a resource. Property is a resource if the individual owns it and can convert it to cash to be used for support and maintenance. Id. Property that could not be liquidated was not a resource. 20 C.F.R. § 4116.1201(a)(1). We look to state property law to decide whether the individual owns the property and whether he or she has the "right, authority, or power to liquidate" the property. See POMS SI 01110.500, SI 01120.010.
Effective January 1, 2000, the Social Security Act as amended expressly directs how to count property held in trust as a resource for SSI purposes. According to the Act as amended, most assets held in trust for individuals are generally going to be countable resources, even if state property law might otherwise exclude them, if any portion of the trust property could be used for the benefit of the eligible individual or his or her spouse. Pub. L. No. 106-169 § 205, 113 Stat. 1822, 1833 (to be codified at 42 U.S.C. § 1382b(e)). The amended Act, however, further provides that property held in trust does not count as a resource if it is excluded from being a countable resource for Medicaid purposes. Paragraph 1 of amended section 1382(b)(e) provides that "[i]n determining the resources of an individual, paragraph (3) shall apply to a trust (other than a trust described in paragraph (5)) established by the individual." Paragraph 3 provides that a revocable trust shall be a resource to the individual and an irrevocable trust will be a resource to the extent that a portion of the corpus could be used for the benefit of the individual. Paragraph 5 states that "this subsection shall not apply to a trust described in subparagraph (A) or (C) of section 1917(d)(4)(A) or (C)," that is, to trusts that are excluded from being counted as resources for the Medicaid program. Thus, trusts satisfying the requirements of section 1917(d)(4) (42 U.S.C. § 1396p(d)(4)) are excluded as SSI resources to the individual. These amendments apply "to trusts established on or after" January 1, 2000. This pooled trust is excluded from being a countable resource for the Medicaid program under 1396p(d)(4)(C); therefore, it is excluded from being counted as a resource for SSI.
Section 1917(d)(4)(C) of the Act, 42 U.S.C. § 1396p(d)(4)(C), excludes certain pooled trusts from being counted as a resource to a Medicaid recipient. In order to be excluded, the trust must contain assets belonging to a disabled individual and must satisfy certain conditions. It must be established and managed by a nonprofit association. A separate account must be maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts. Accounts in the trust must be established solely for the benefit of the disabled individual by the individual or a parent, grandparent, legal guardian or court. Finally, the trust must provide that 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 must pay to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary.
The Lambs Care Pooled Trust Agreement satisfies the foregoing criteria. The trust is being established and managed by a nonprofit organization. The trust provides for separate sub-accounts for each disabled beneficiary of the trust, but for purposes of investment and management of funds, the trust pools these accounts. The trust provides that sub-accounts will be established by the primary beneficiary or a parent, grandparent, legal guardian or court. The trust is established solely for the benefit of the disabled individual. Finally, the trust provides that amounts remaining in the beneficiary's account at death will be retained by the trust, and to the extent there is any amount left, it will be used to reimburse the State for expenditures made during the beneficiary's lifetime.
Accordingly, under the new amendments to 42 U.S.C. § 1382b, funds in the Lambs Care Trust will not count as a resource to the disabled beneficiaries who adopt the trust agreement.
Conclusion
In summary, we conclude that the sub-account/trust assets should not be considered a resource to individual beneficiaries of the Lambs Care Trust. The trust satisfies the conditions of 42 U.S.C. § 1396p(d)(4)(C), and recent amendments to Title XVI indicate that such trusts are exempt from being counted as resources to SSI recipients.
~~HH. PS 00-491 SSI-Illinois-Review of a Trust for Jo L. A~~~
II. PS 00-491 SSI-Illinois-Review of a Trust for Jo L. A~
DATE: June 5, 2000
1. SYLLABUS
The trust in this opinion is titled a "revocable living trust" as the settlor intended for the trust to be revocable. All of the funds are available to the SSI recipient for her support and maintenance. Therefore, the trust is a countable resource.
CAUTION: Because of a change in the Social Security Act, this opinion may only apply to trusts established before 1/1/00.
2. OPINION
I. INTRODUCTION
You asked us whether the "Spanky Y~ Revocable Living Trust" established with retroactive SSI payments for Jo L. A~, a disabled child, should be counted as a resource in determining her eligibility for SSI. For the reasons stated below, we believe that the trust should be considered a countable resource.
II. FACTS
Jo L. A~ is a disabled child who has been entitled to SSI since January 1986. In May 1992, she received "Zebley" payments totaling $21,445.42. Her mother, LuAnn A~, is her representative payee.
On November 20, 1992, LuAnn A~ created the "Spanky Y~ Revocable Living Trust" for the benefit of Jo L. A~. Our understanding is that the trust was funded with the Zebley funds.
The trust lists LuAnn A~ as both the settlor and the trustee. It expressly reserves to the settlor the exclusive right to receive income and manage the trust property. It seems to limit the trustee's duties to "safekeep the trust assets until such time as the SETTLOR shall otherwise direct." Trust, First para. Somewhat inconsistently, the trust further provides that "[d]uring the lifetime of the SETTLOR, the TRUSTEE shall hold manage, invest, and reinvest the property of the estate subject to the provisions" of the trust agreement. Trust, Second para.
The trust, as noted above, is titled a "revocable" trust. The first paragraph expresses the intent of the settlor to create a revocable trust. The eleventh paragraph expressly retains to the settlor the right at any time to "alter, amend, or revoke" the trust.
III. DISCUSSION
It is our understanding that the trust was disclosed to SSA when it was first established and that the claims representative at that time determined that it was not a countable resource to Jo L. A~. Later, on a redetermination, another claims representative determined that it was a countable resource, and found Jo L. A~ ineligible due to excess resources for the period from March 1996 through September 1998. At some point, the claimant's disability was found to have ceased, and in September 1998, the trust was cashed in. The cessation was reversed, and the current question appears to be whether the trust property was a countable resource between March 1996 and September 1998.
As a matter of policy, SSA allows a representative payee to place retroactive SSI payments into trust for the benefit of an SSI eligible individual so long as (1) the trust is in the individual's best interest; (2) the trust is exclusively for the use and benefit of the individual and can be used to meet the individual's current or reasonably foreseeable needs, ad (3) the individual is the sole beneficiary during his or her lifetime. See Representative Payment, Use of Benefits and Assignment of Benefits into a Trust, Memo. from Acting Assoc. Gen'l Counsel for Policy and Legis. to Assoc. Comm'r of Program Benefits Policy (May 3, 1995). Therefore, it was not inappropriate for LuAnn A~ to establish this trust for the benefit of Jo L. A~. The question is whether the trust was an available resource.
We believe that the trust in question was an available resource to Jo L. A~. The trust is titled as a "revocable living trust." The first paragraph of the trust makes it clear that LuAnn A~ intended to create a revocable trust. And the eleventh paragraph establishes the requirements for revocation of the trust. As a result, LuAnn A~, at all relevant times, had the legal authority to revoke the trust and access the funds.
The POMS explains the general rules applicable to determine whether a trust is a resource to an SSI recipient. POMS SI 01120.200. According to the POMS, a trust is a resource when the grantor has the authority to revoke the trust and obtain the funds to use for support and maintenance. See POMSI 01120.200(D)(1). Here, LuAnn A~ created the trust using the SSI benefits of Jo L. A~. Jo L. A~ is, therefore, the grantor, because she provided the trust principal. See POMS SI 01120.200(B)(2). LuAnn, on behalf of Jo L., could at any time revoke the trust, obtain the trust assets, and use those for Jo L.'s support and maintenance. Therefore, at all relevant times, the trust was a resource to Jo L. A~.
IV. CONCLUSION
The trust was created with retroactive SSI payments issued for the benefit of Jo L. A~. At all times, the trust was revocable, and the funds could be used for the support and maintenance of Jo L. Therefore, at all relevant times, the trust was a countable resource to Jo L.
~~II. PS 00-479 SSI-Illinois-Review of a Land Trust for Rita P~ (parent-deemor of Carly P~), ~ (your reference number S2D5G3)~~
JJ. PS 00-479 SSI-Illinois-Review of a Land Trust for Rita P~ (parent-deemor of Carly P~), ~ (your reference number S2D5G3)
DATE: May 30, 2000
1. SYLLABUS
If an individual can sell his/her interest in a land trust, it is a countable resource for SSI purposes.
CAUTION: Because of a change in the Social Security Act, this precedent may only be applicable to trusts established before 1/1/00.
2. OPINION
You asked whether the land trust at issue would be a countable resource for Rita P~, parent-deemor of Carly P~, an SSI claimant.
Because Rita P~ can sell her interest in the land trust, as more fully discussed below, we conclude that her share of the trust should be considered a countable resource for the purposes of determining SSI eligibility of Carly P~.
FACTS
In 1967, a land trust was formed comprising a commercial building located at 8110-14 North Lincoln Avenue, Skokie, Illinois. American National and Trust Company of Chicago was named as trustee. In the early 1990s, Sam B~ assigned to Rita P~ a 2.5% interest in this land trust, which also constituted a partnership referred to as the 8110 N. Lincoln Building. Tax returns from 1997 established that Rita P~'s capital share in this land trust was $110,678. In 1997, she received income of $1,287 from the trust from rental and interest income. This income, however, was re-invested in the property, rather than given to her as cash.
The trust directs that the right to receive the proceeds from rentals and from mortgages, sales, or other disposition of the real estate is deemed personal property and may be "assigned and transferred as such." (Trust, paragraph 1). The trust further states that no beneficiary has a legal or equitable right in the representative portion of the actual land; rather, the beneficiary has an interest in the aforementioned proceeds. (Trust, paragraph 1).
DISCUSSION
Resources, for SSI purposes, include assets that a person owns and can convert to cash to be used for the person's support or maintenance. See 20 C.F.R. § 416.1201(a). If the person has the right or power to liquidate property, or his share of the property, it is a resource, whether or not he does so. Id. Consequently, trust principal is a resource to the individual if (1) he has the legal power to revoke the trust and use the trust assets to meet his needs for food, clothing, shelter; (2) if he can direct use of the trust assets for such purposes; or (3) he can sell his beneficial interest in the trust. See POMS SI 01120.200(D)(1)(a); Zebley Trust as an SSI Resource-Wisconsin, Bernard W~; OGC V (M~) to M~, acting ARC-POS (Feb. 23, 1993) at 5.
Under the terms of this land trust, the right to receive the proceeds from rentals and from mortgages, sales or other disposition of the real estate is deemed personal property and may be "assigned and transferred as such." Although the assignment of interest must be lodged with the trustee and the trustee must indicate acceptance, this appears to only be a pro forma provision, and there is no indication that the trustee would not accept any assignment. Indeed, Rita P~ initially gained her interest in the trust through a transfer from Sam B~. Hence, Rita P~ could sell her 2.5% interest in the land trust. Since she can sell her interest in the trust, 2.5% of the trust principal should be considered a countable resource to her for SSI eligibility purposes.
As noted above, 1997 tax returns established that Rita P~'s capital share in the land trust was $110,678. There may be some question whether the equity value of her interest in the trust is actually $110,678, especially since her share of annual income is invested back in the property, she is a limited partner, and she lacks control over decision-making. See 20 C.F.R. § 416.1201(c) (resources evaluated according to equity value). Nonetheless, in a property whose total value is over four million dollars, the likely equity value of a right to a 2.5% share in the proceeds would probably exceed $2,000. Because Rita is Carly P~'s parent, Rita's resources might be deemed to Carly. See 20 C.F.R. § 416.1202(b).
CONCLUSION
In sum, we conclude that 2.5% of the trust assets at issue could be considered a resource to Rita P~ since she can sell her interest.
~~JJ. PS 00-383 Illinois Trust for Lorraine S~~~
KK. PS 00-383 Illinois Trust for Lorraine S~
DATE: July 17, 1997
1. SYLLABUS
Under Missouri law, a party cannot, by contract or agreement, alter his obligation to pay future child support without judicial modification of the support decree. Therefore, payments made by one parent to a trust in lieu of court ordered support payments are considered the child's income, available for the child's support and maintenance.
CAUTION: Because of a change in the Social Security Act, this precedent may only be applicable to trusts established before 1/1/00.
2. OPINION
You requested a legal opinion regarding a document creating a discretionary supplemental trust with SSI recipient Lorraine S~ (Lorraine) as beneficiary. You inquired whether Lorraine has unrestricted access to the trust principal for her support and maintenance, i.e., whether the trust principal is a resource for SSI purposes. You also inquired as to the validity of the Statement of Intent by which Lorraine's father agreed that support payments would be paid into the trust.
We conclude that the Statement of Intent, which sought to modify the court order of support, would be held invalid under applicable state law, and that the trust assets should be considered Lorraine's income or resources for SSI purposes, at least to the extent that the assets were derived from payments made pursuant to the Statement of Intent or from other property which had been owned by Lorraine or by her guardian on Lorraine's behalf.
Background
Pertinent Documents Other than the Declaration of Trust
Lorraine, currently twenty-one years old, is the disabled daughter of Deborah S~ (Deborah) and David S~ (David). Deborah and David were divorced in Missouri in 1995. The Judgment/Decree of Dissolution (divorce decree), entered on November 1, 1995, states that there were two children of the marriage: Lorraine, born March XX, 1976, and Lynne, born October XX, 1978. Divorce Decree at 2. The divorce decree awards child support "for the parties' minor children" in the amount of $566 per month per child to be paid by David to Deborah. It further states, "The Court hereby finds that the child LORRAINE is incapacitated and in need of parental support past the age of emancipation." Divorce Decree at 3. It incorporates all terms of a Marital Settlement Agreement (settlement agreement). Divorce Decree at 2. It also permits Deborah to remove the residency of the children to Illinois. Divorce Decree at 4.
The notarized settlement agreement, signed by David on August 15, 1995, in Missouri, and by Deborah on October 25, 1995, in Illinois, requires David to pay to Deborah $566 per month, per child "for the parties' children as and for child support for the care, support and education of the parties' minor children." Settlement agreement at 6. It further states: The parties agree and stipulate that the child LORRAINE S~ is incapacitated and is in need of parental support past the age of emancipation, and said support shall continue until her death, the death of the Respondent, or further Order of the Court. Settlement agreement at 6. Paragraph 15 provides that no modification or waiver of any of the terms will be valid unless it is made in writing and executed with the same formality as the settlement agreement. Settlement Agreement at 10.
On October 24, 1995, one day before the settlement agreement was finally executed, David signed a notarized Statement of Intent agreeing to contribute monthly to a trust to be created for Lorraine's benefit, in lieu of the court ordered child support payments.
On January 26, 1996, the Circuit Court of Kane County, Illinois appointed Deborah as Lorraine's guardian.
Declaration of Trust
On January 30, 1996, Deborah executed, in Illinois, a declaration of trust (declaration), as "Settlor and Trustee," creating the "Lorraine S~ Discretionary Supplemental Trust." The declaration recites that Deborah transferred $10.00 to the trustee which, along with any additional property received from her or any other person and all investments and reinvestments, was to constitute the trust estate. Declaration at 1.
The declaration makes clear that Deborah's intent as settlor is to provide supplemental support beyond any support which can be provided by any governmental, public, or private agency. To this end, it states that no part of the trust is to be considered owned by Lorraine, that Lorraine has no vested right or interest in the income or principal, and that no property, goods or services purchased or owned by the trust for Lorraine's use is to be considered as under Lorraine's control. 1. The declaration prohibits any expenditure for "basic food, clothing and shelter" or making any trust income or principal available to Lorraine for conversion into such items, unless all governmental and private agency benefits for which Lorraine may be eligible because of her disability have been fully exhausted. 3, § 4. The declaration also prohibits any direct payment to Lorraine and prohibits the trustee from making any distribution for Lorraine's support if such support is otherwise available through a governmental agency. 1,3.
Within this framework, the Trustee has sole discretion to distribute principal or income for Lorraine's exclusive benefit to provide for her supplemental support and maintenance, but only to the extent that such items are not otherwise available through any governmental entity or private agency. 2; 3, §§ 5-9. The declaration also contains spendthrift provisions, protecting the trust estate from the creditors' claims and prohibiting assignment of a beneficiary's interest. 3, § 3; 5, § 2.
Deborah is Trustee. If her acting as Trustee in any way jeopardizes Lorraine's entitlement to government benefits or subjects the trust to claims of reimbursement by any private or governmental body, successor trustees are named. 5.
Deborah, as settlor, has reserved the right to amend the trust "in whole or in part for whatever reason" and has given the Trustee the right to amend or reform the trust provisions the Trustee deems it necessary, due to changes in law, in order to preserve the stated intent of the trust. 3, § 10. In the event of a court determination that reimbursement is required or disqualification from, or reduction, in governmental benefits, the declaration directs the Trustee to amend or reform the trust to effect the Settlor's purpose and, if that cannot be done, to terminate the trust and distribute the trust principal and income to Deborah, "not in any fiduciary capacity, but as [Deborah's] sole and exclusive property without any preconditions or requirements on the use or application of those funds." 3, § 11. If Deborah is deceased at the termination of the trust, distribution is to be made to Lorraine's guardians, also as their sole and exclusive property and not in any fiduciary capacity, or, if no guardian to the Trustees as their sole and exclusive property and not in any fiduciary capacity. Id. If the trust is still in existence at Lorraine's death, the trust estate is to be distributed to Deborah or to her heirs, per stirpes. 4.
DISCUSSION
Resources, for SSI purposes, include assets that a person owns and can convert to cash to be used for the person's support and maintenance. See 20 C.F.R. § 416.1201(a). If the person has the right or power to liquidate property, or her share of the property, it is a resource. Id. Trust assets are considered an SSI recipient's resource if the SSI recipient has the power to revoke the trust and use the trust assets to meet his needs for food, clothing, or shelter, or if he can direct use of the trust assets for such purposes. See POMS SI 01120.200(D)(1)(a). Whether the person can revoke the trust or direct use of the trust assets depends on the terms of the declaration of trust and on applicable State law. POMS SI 01120.200(D)(2).
We deal first with the additions to the trust made pursuant to the Statement of Intent signed by Lorraine's father, David. If the support payments had been made by Lorraine's father to Deborah in compliance with the settlement agreement that the Missouri court incorporated into the divorce decree, the payments would have been considered Lorraine's income for SSI purposes. See 20 C.F.R. 416.1121(b). The Statement of Intent seeks to modify the court's support order in two ways. First, instead of making support payments directly to Deborah for Lorraine's benefit, in accordance with divorce decree, the Statement of Intent contemplates payment of the same amount to Deborah as Trustee of the discretionary trust. Second, the divorce decree required that the payments be used for Lorraine's "support." As Lorraine's guardian, Deborah has a duty to use the funds for Lorraine's support. Under the terms of the discretionary trust, however, Deborah could use the funds for supplemental costs, but she would be precluded from making disbursements for basic food, clothing and shelter, and she would have no obligation to make any disbursements at all.
The question is whether Lorraine's parents can enter into an agreement which affects Lorraine's rights and effectively modifies the order of the Missouri court. The duty of support which is applicable is that of the law of the state where the obligor is present, in this case the father's domiciliary state of Missouri. See 750 ILCS 20/7. Illinois law also recognizes a child support order issued in another state, if it is the only such order. 750 ILCS 22/207. In addition, a post-majority child support obligation entered into pursuant to a divorce settlement agreement will be recognized by Illinois courts. See In re Marriage of Leming, 590 N.E.2d 1027, 1028 (Ill. App. 1992). Thus, the support order encompassed by the Missouri court's divorce decree is controlling and would be recognized by an Illinois court.
Under Missouri law, a party cannot, by contract or agreement, alter his obligation to pay future child support. Because child support payments are for the benefit of the child, the parties cannot settle or compromise future payments without judicial modification of the support decree. Only a court has the power to alter future child support payments. Mora v. Mora, 861 S.W.2d 226, 227 (Mo. App. 1993); see also, Boland v. State of Missouri, Dept. of Social Services, 910 S.W.2d 754, 758 (Mo. App. 1995), McLaughlin v. Horrocks, 883 S.W.2d 95, 97 (Mo. App. 1994).
Illinois case law is in accord. See Blisset v. Blisset, 526 N.E.2d 125, 127 (Ill. 1988) (parents may modify an agreement for child support only by petitioning the court for modification); Miller v. Miller, 516 N.E.2d 837 (Ill. App. 1987)(mother could not consent to modification of settlement, incorporated into divorce decree, which provided that father would pay college expenses for child, even after age 18).
Although David signed the Statement of Intent prior to the date of the divorce decree, in the divorce decree the court refers only to the settlement agreement. There is no indication that the court was aware at that time, or was subsequently informed, of the Statement of Intent or the plans to create a discretionary trust. Since payment of the support into the discretionary trust amounts to a modification of the court's support order, we conclude that such modification would not be valid without court approval. Therefore, the payments made by David to the trust in lieu of the court ordered support payments should be considered Lorraine's income, available for her support and maintenance, the purpose apparently intended by the Missouri court's divorce decree.
Even if the Statement of Intent were found to be valid, we believe that the portion of the trust assets derived from the payments made pursuant to the Statement of Intent should, nevertheless, be treated as Lorraine's income for SSI purposes. We also think it reasonable to conclude, in the absence of any indication that the rest of the trust assets were derived from property belonging to someone other Lorraine, that all of the trust assets should be considered Lorraine's resource. This is especially true since the Declaration of Trust suggests that Deborah, as settlor, contributed only $10.00 to the trust.
Under Illinois law, a discretionary trust for the benefit of a disabled person is not liable to pay or reimburse the State or any public agency for financial aid or services to the disabled person, except to the extent that the trust was created by the disabled person or the trust assets are distributed to, or under the control of, the disabled person. 760 ILCS 5/15.1 (1996 Supp.). Although the exception is not applicable where the trust complies with federal Medicaid reimbursement requirements, id., the declaration in this case, while referring to the applicable Illinois statute, see 1, does not provide for Medicaid reimbursement. See POMS SI 01730.048.
Under the terms of the declaration of trust, Lorraine does not, herself, have any right to revoke the trust or direct use of the trust assets for her support. Nor is Lorraine named as the person who created the trust (settlor). However, Lorraine's mother and guardian, Deborah, has virtually total control over use of the trust assets. As settlor, Deborah retained the right to amend the trust, in whole or in part, for any reason, which amounts to the power to revoke. See Bogert, Trusts 516 (6th ed. 1987)(under a power to amend, an irrevocable trust may be made revocable).
Deborah is also Lorraine's guardian. Where a guardian holds legal title, on behalf of a sole beneficiary of a trust, to assets which are subsequently transferred into a trust, the trust beneficiary is, in effect, the settlor of the trust. , 635 N.E.2d 853, 855 (Ill. App. 1994), cert. denied, 642 N.E.2d 1281 (one who furnishes consideration is the settlor of the trust). Therefore, if Lorraine is the sole beneficiary of the trust, she is the settlor, at least with regard to whatever portion of the trust res was derived from assets which were hers or which her guardian held for her benefit. As we discuss below, contributions of the support payments to the trust should be considered contributions from Lorraine.
In this case, it is not clear from the documents submitted whether Deborah created the trust in her own right or in her capacity as Lorraine's guardian; nor is it clear what portion of the trust assets were derived from property which had been owned by Lorraine or which Deborah held on Lorraine's behalf. The declaration does not indicate whether even the $10.00 that initially funded the trust was Deborah's money or Lorraine's money. Nor is there any information about additions to the trust other than the payments made by David pursuant to the Statement of Intent. If Deborah created the trust as Lorraine's guardian, or if all of the assets of the trust derived from property previously held by Lorraine or by Deborah on Lorraine's behalf as guardian, then Lorraine is the true settlor of the trust and can revoke the entire trust, or amend it to allow access for her support and maintenance. Thus, all of the trust assets would be her resources for SSI purposes.
Under the agreement between Lorraine's parents, Deborah receives the "support" payments as trustee for Lorraine. Nevertheless, those support payments are, in effect, Lorraine's income. Thus, as to the portion of the trust res traceable to those "support" payments, Lorraine is actually the settlor of the trust. Through her guardian, she has the power to revoke the trust by virtue of Deborah's retention of the unconditional power to amend the trust. If she is the sole beneficiary of the trust, Lorraine also has the power to revoke any portion of the trust for which she can be considered the settlor. , 278 N.E.2d 10, 12 (Ill. App. 1972) (trust settlor who is also the sole beneficiary can revoke the trust without the trustee's consent, even though no power of revocation was reserved when the trust was created). Thus, the portion of the trust which is derived from the "support" payments should be considered Lorraine's resource for SSI purposes.
That the declaration calls for disbursement, upon termination of the trust, to Deborah in her own right, rather than on Lorraine's behalf does not change the result. Since Deborah retained the unconditional right to amend the trust, including the right to amend the provisions for disbursement upon termination of the trust, no intent to create a remainder interest in someone other than Lorraine can be implied. Thus, Lorraine is the sole beneficiary of the trust and has the power to revoke the portion of the trust as to which she is the settlor. Furthermore, as Lorraine's guardian, Deborah would have a fiduciary duty to use that portion of the trust assets which derived from Lorraine's assets not for her own benefit, but for Lorraine's benefit. To receive the assets of the trust in her own right would be a violation of Deborah's fiduciary duty as Lorraine's guardian.
While the declaration recites that Deborah paid $10.00 into the trust at its creation, there is no clear indication whose funds were used to create the trust, nor is there any indication as to whether there were any subsequent additions to the trust res. We think it unlikely that Deborah, who would have to provide an accounting as guardian, would combine Lorraine's property with another person's property in forming the trust res. Deborah is receiving additions to the trust from David in lieu of the court ordered support payments, additions which are actually Lorraine's property. This implies that the trust was created by Deborah as Lorraine's guardian with Lorraine's assets and that Lorraine is, therefore, the true settlor. As settlor, Lorraine would have the power, through her guardian, to revoke the trust or to compel payments from the trust for her support and maintenance. We conclude that, unless Deborah can show that she did not create the trust in her capacity as guardian and that certain trust assets were derived from sources other than Lorraine's property, all of the assets of the trust should be considered Lorraine's resources for SSI purposes.
~~KK. PS 00-379 SSI-Illinois-Review of the Caitlin N. S~ Supplemental Care Trust, SSN ~; (your reference number S2D5G3)~~
LL. PS 00-379 SSI-Illinois-Review of the Caitlin N. S~ Supplemental Care Trust, SSN ~; (your reference number S2D5G3)
DATE: March 9, 1999
1. SYLLABUS
An otherwise irrevocable trust may be revocable if the actual grantor is also the sole beneficiary. However, naming a residual beneficiary to the trust will result in the trust being considered irrevocable. Providing for reimbursement to the State for payment of medical expenses does not create a residual beneficiary.
2. OPINION
This is in response to your inquiry asking whether the trust agreement for Caitlin N. S~ (Caitlin) would be a countable resource to either Caitlin or her mother, Patricia D~ (Ms. D~), who are both Supplemental Security Income (SSI) recipients. For the reasons stated below, we conclude that the trust should not be considered a countable resource for the purposes of determining SSI eligibility for either Caitlin or Ms. D~.
FACTS
On November 23, 1993, the "Caitlin N. S~ Discretionary Trust," was executed with the proceeds from a personal injury settlement. To comply with changes in Illinois law, the trust was reformed in August 1998. Ms. D~, Caitlin's mother, is named as both Grantor and Trustee. Trust Declaration at 1. The trust states that it shall be governed by Illinois law. Id. at 7.
The stated purpose of the Trust is to provide for Caitlin's supplemental needs beyond what is available from government or private programs and to "maximize the benefits and/or funds available to and received by CAITLIN." Trust Declaration at 6. Distributions for Caitlin's benefit can be made only to supplement, and not supplant, benefits available through government or private programs. Id. at 4-6. Funds are to be paid at the trustee's discretion, and Caitlin has no right to demand income or principal from the trust. Id. at 4-7. The trustee can amend and/or reform the Trust provisions, if necessary due to judicial interpretations or changes in the law; however, the changes must conform with the intentions, purposes, and goals established in the Trust. Id. at 6.
The trust purports to be irrevocable and to terminate upon Caitlin's death. Trust Declaration at 8, 18. The trust declaration provides that, upon Caitlin's death, the residue of the trust is to be used first to reimburse any state for medical assistance payments and to pay taxes, burial expenses, and any enforceable debts. Id. at 8. Any remaining trust property is to be distributed to Ms. D~.
If Ms. D~ is not living, three percent of the remaining residue is to be distributed to not-for-profit residential facilities where Caitlin lived. Id. at 8. If there are no such qualifying organizations, a not-for profit charity should be substituted. Id. at 9-10. The remainder of the assets are to go to Ms. D~'s then living heirs at law, as though she had died intestate under the laws of Illinois. Id. at 10.
DISCUSSION
Resources, for SSI purposes, include assets that a person owns and can convert to cash to be used for the person's support or maintenance. See 20 C.F.R. § 416.1201(a). If the person has the right or power to liquidate property, or her share of the property, it is a resource, whether or not she does so. Id. Consequently, trust principal is a resource to the individual if (1) she has the legal power to revoke the trust and use the trust assets to meet her needs for food, clothing, shelter, or (2) if she can direct use of the trust assets for such purposes. See POMS SI 01120.200(D)(1)(a).
A. Trust Assets Are Not A Resource to Caitlin.
As discussed above, the trustee has sole discretion over fund direction to supplement benefit programs; Caitlin does not have power to direct the use of trust assets. See Stein v. Scott, 625 N.E. 2d 713, 716 (Ill. App. 1993). Therefore, the trust would be a resource to Caitlin only if she has the legal power to revoke the trust.
Whether Caitlin can revoke the trust depends on both the terms of the trust and on Illinois law. The trust declaration in the present case explicitly states that the trust is irrevocable. Nevertheless, under general trust law, an "irrevocable" trust can be revoked if the grantor is also the sole beneficiary of the trust. In such instances, the trust is presumed revocable regardless of the language found in the document. Restatement (Second) of Trusts, § 339. As we have previously advised, Illinois appears to follow the rule that even if a trust purports to be irrevocable, it can nonetheless be revoked if the individual (or subject of the trust - Caitlin) is both the settlor or grantor and the sole beneficiary of the trust. Trust as Resource - Illinois - Theresa M~, SSN: ~, OGC-V (P~) to G~, Acting ARC-POS (Aug. 4, 1993) at 3; Request to Review Illinois Trust for Cynthia L~ M~, ~, OGC-V (M~) to M~, ARC-MOS (Nov. 30, 1998) at 3.
Since the corpus of the trust in this case is the proceeds of a settlement reached as a result of a lawsuit brought on Caitlin's behalf, Caitlin must be considered to be the settlor of the trust. See In , 635 N.E.2d 853, 855 (Ill. Ct. App. 1994) (citing , 278 N.E.2d 10, 12 (Ill. Ct. App. 1972) ("'the person who furnishes the consideration for the trust is the settlor, even though, in form the trust is created by another'")).
As discussed above, Caitlin is the only beneficiary of the trust during her lifetime. The only issue, therefore, is whether the trust creates any interest in any residual beneficiaries if the trust terminates at the time of Caitlin's death.
Although the trust provides that, upon Caitlin's death, any amount remaining in the trust shall be paid to the appropriate state agencies as reimbursement to the state for benefits paid during her lifetime, this does not make the State of Illinois, or any other state, a beneficiary of the trust. This provision (which apparently is required by the Medicaid statute, 42 U.S.C. § 1396p(d)) merely requires that the trust reimburse the state for benefits already conferred on Caitlin during her lifetime. Therefore, the money paid is for the benefit of Caitlin, not the state. See States Named as Beneficiary to a Trust, OGC-V (D~) to Gloria J. P~, ARC-MOS (June 24, 1997) at 2 (finding that no residual beneficiary is created merely because the OBRA 1993 trust requires that, on the death of the individual, the state be reimbursed for Medicaid assistance paid on behalf of the individual); see also Supplemental Security Income - Wisconsin Trust- Michele J. L~, ~, OGC-V (M~) to Gloria J. P~, ARC-MOS (June 9, 1997) at 3; Illinois OBRA '93 Trust for Dominick J. G~, ~, OGC-V (D~) to Gerald K~, Center Director (Apr. 17, 1997) at 4.
Similarly, no additional beneficiaries are established by provisions allowing any payments made for maintaining the existence of the trust, paying any final bills, debts, expenses, taxes, fees, funeral-related items, and/or other items. All of these payments would relate to the running of the trust itself or providing goods or services for Caitlin's benefit (including funeral-related expenses). See Stewart, 278 N.E. 2d at 13; see also Supplemental Security Income - Wisconsin Trust- Michele J. L~, supra; Illinois OBRA '93 Trust for Dominick J. G~, ~, supra.
Any amounts remaining after these payments are to be distributed to Ms. D~ if she is alive. We have previously advised in Clarification of Regional SSA Program Circular 94-05 Concerning Trusts, Memorandum from OGC-V (K~) to L~, Acting ARC-Programs of 5/24/95, that where a trust names either specific individuals as residual beneficiaries or a class of specific residual beneficiaries, such as descendants, their consent would be required for termination of the trust. Here, the amended trust agreement provides for distribution to Ms. D~, and, if she is not living, to various classes of charities and then Ms. D~'s heirs. At the time of trust execution, Ms. D~ is in existence. As we have previously advised, this provision is sufficient to create a potential residual beneficiary, and the consent of residual contingent beneficiaries would be required to revoke the trust. See SSI-Illinois-Review of Trust for Phillip P~, SSN: ~, OGC-V (M~) to Donna Y. M~, ARC-MOS (Apr. 2, 1998) at 3.
We do not assume that residual contingent beneficiaries will consent to revoke the trust. Therefore, Caitlin does not have authority to revoke the trust and gain access to the trust assets. The assets, therefore, are not a resource to Caitlin. 20 C.F.R. § 416.1201; POMS SI 01120.200(d)(1).
B. Trust Assets Are Not A Resource to Ms. D~.
As discussed above, although Ms. D~ is the trustee, she is constrained by the Trust Declaration to administer the trust only to supplement Caitlin's needs. She cannot direct that the funds be used for her own needs. Thus, the trust principal would only be a resource to her if she had the legal power to revoke the trust. However, as discussed in the preceding section, that power would only exist if Ms. D~ were both the grantor and sole beneficiary; she is neither. Therefore, she cannot revoke the trust, and the trust principal is not a resource to her.
CONCLUSION
In sum, we conclude that the trust assets at issue should not be considered a resource to either Caitlin or Ms. D~ for SSI purposes.
~~LL. PS 00-364 SSI-Illinois-Review of The Laura P~ Trust~~
MM. PS 00-364 SSI-Illinois-Review of The Laura P~ Trust
DATE: October 30, 2000
1. SYLLABUS
This opinion involves a discretionary trust established in Illinois. The trust is not a resource for SSI purposes as the SSI recipient is not the grantor or the sole beneficiary. In addition, the terms of the trust indicate that the funds are not available for her support and maintenance.
CAUTION: Because of a change in the Social Security Act, this precedent may only be applicable to trusts established before 1/1/00.
2. OPINION
You have asked for an opinion on whether The Laura P~ Trust (Trust), established for the benefit of Laura P~ (Laura), is a countable resource for Supplemental Security Income (SSI) purposes. We have concluded that the Trust assets should not be considered a resource to Laura because she does not have the legal authority to revoke the Trust and use the funds to meet her food, clothing, or shelter needs, and she cannot direct the use of the Trust principal for her support and maintenance.
FACTS
At issue is a discretionary trust entitled "The Laura P~ Trust" (Trust) created for the benefit of Laura P~, who receives SSI. The Trust states that Schedule "A," attached to the Trust, lists the property which will fund the Trust. However, the copy of Schedule "A" included in OGC's file is blank. Marilyn Z~ contacted the attorney who drafted the Trust for Edward G. P~, Sr. and Nancy J. P~, Laura's parents, to inquire about what property should be listed in Schedule "A." The attorney advised her that the Trust assets will initially consist of a small amount of property or money in Edward, Sr. and/or Nancy P~'s name. Laura's parents intend that upon their deaths, their property will go into the Trust. Ms. Z~ stated that the attorney informed her that the property going into the Trust will not be in Laura's name and specifically, it will not consist of payments from any insurance policies where Laura is the beneficiary. Thus, Edward, Sr. and Nancy P~ are the settlors of the Trust.
Edward P~, Jr., Laura's brother, is designated as the trustee. The trustee, in his sole discretion, is instructed to purchase goods and services on Laura's behalf. The stated purpose of the Trust is to provide for Laura's extra and supplemental needs, over and above those benefits she otherwise receives from public funds or insurance as a result of her disability.
The Trust will dissolve on Laura's death. After paying any and all funeral and burial expenses, as well as any outstanding medical or support expenses, administrative expenses, and taxes, the remaining Trust assets will be paid to Edward, Jr. and Cheryl P~, Laura's sister, if living, and if not, per stirpes to their then living descendants. If Edward, Jr. or Cheryl die having no descendants, then his or her share shall be distributed to the other living at the time. If both Edward, Jr. and Cheryl predecease Laura and leave no descendants, the assets of the Trust shall be distributed under the laws for intestate distribution.
DISCUSSION
Assets are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for her support and maintenance. 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate the property or her share of the property, it is considered a resource. 20 C.F.R. § 416.1201(a)(1); see also POMS SI 01110.100(B). Trust property can be a resource for SSI purposes. POMS SI 01120.200(A). The trust principal is a resource to the individual if she (1) has the authority to revoke the trust and then use the funds to meet her food, clothing, or shelter needs or (2) can direct the use of the trust principal for her support and maintenance. See POMS SI 01120.200(D)(1)(a). Whether Laura can revoke the Trust and use to funds to meet her food, clothing, or shelter needs or direct the use of Trust assets for her support depends on both the terms of the Trust and on Illinois law. POMS SI 01120.200(D)(2).
A. Laura Has No Authority To Revoke The Trust And Even If She Did, She Would Not Have Access To The Principal.
In this case, although the Trust does not specifically purport to be irrevocable, a beneficiary generally does not have power to revoke a trust. POMS SI 01120.200(D)(1)(b). Pursuant to Illinois law, a trust can be terminated if the purpose of the trust is substantially accomplished and all the interests created by it have vested, there are no unascertainable contingent interests, there are no pending spendthrift provisions, the settlors and beneficiaries are in agreement, and none of the beneficiaries is under a legal disability. , 187 N.E.2d 315, 319 (Ill. Ct. App. 1963).
The trust does not meet the conditions for trust revocation set forth in Illinois law. Revocation would require consent of Laura's parents as well as all the beneficiaries. It is unlikely that the parents would consent to revocation of the trust, because they created the trust for Laura's benefit. Further, in addition to Laura, Edward, Jr. and Cheryl or their respective descendants would have to consent to revocation. It is unclear whether Edward, Jr. and Cheryl have any children at present, and pursuant to Illinois law, any unascertainable contingent interests preclude distribution of the trust. See Illinois Trust for Madhu S. M~, SSN: ~, OGC-V (Beverly) to Gloria J. P~, ARC-MOS (December 1, 1997), at 3. Therefore, Laura does not have the sole authority to revoke the trust.
Even if Laura was able to revoke the Trust, the assets are those of her parents. Upon revocation, therefore, she would not be entitled to the trust assets. Thus, she is not able to use the trust assets for her food, clothing, and shelter needs.
B. Laura Cannot Direct The Use Of The Trust Principal For Her Support And Maintenance
Even where a beneficiary does not have the power to revoke a trust and use the trust assets, the trust may still be counted as a resource if the beneficiary has the authority to direct the use of the trust principal for her support and maintenance. POMS SI 01120.200(D)(1)(b). The authority to control the trust principal may be found in specific trust provisions allowing the beneficiary to act on her own or allowing the beneficiary to order actions by the trustee. Id.
No such provisions exist in this Trust. The Trust gives the trustee, Edward, Jr., sole and absolute discretion to fulfill the purposes of the Trust. If a trustee has discretion to use the trust principal for the beneficiary's benefit, the trustee is considered a third party rather than the beneficiary's agent, so that "the actions of the trustee are not the actions of the beneficiary, unless the trust specifically so provides." POMS SI 01120.200 (D)(1)(b). Moreover, the Trust has been tailored to preclude the trustee from using the assets to pay for Laura's primary needs. The Trust provides for supplemental goods or services, which the trustee is reasonably satisfied cannot be made available to Laura from public funds. Thus, even if Laura could direct the use of the Trust principal, by the terms of the Trust, the funds would not be available to pay for her support and maintenance. See POMS SI 01120.010(B)(3) ("a legal restriction against the property's use for the owner's own support and maintenance means the property is not a resource").
CONCLUSION
For the above-stated reasons, we conclude that the Trust assets should not be considered a resource to Laura P~ for SSI purposes. We are also assuming that there is no "market value" for Laura's interest in this discretionary trust.
~~MM. PS 00-363 SSI-Illinois-Review of Trust for Phillip P~, SSN: ~; Your Ref. S2D5G3~~
NN. PS 00-363 SSI-Illinois-Review of Trust for Phillip P~, SSN: ~; Your Ref. S2D5G3
DATE: April 2, 1998
1. SYLLABUS
The original trust established on September 11, 1996 was revocable and a countable resource since the SSI recipient was both the grantor and the sole beneficiary of the trust.
However, the trust was amended to provide for contingent residual beneficiaries in the event of the SSI recipient's death, and on November 24, 1997 the court entered an order allowing the trust to be amended. Therefore, as of 12/1/97, the trust is irrevocable and not a countable resource since the SSI recipient is no longer the sole beneficiary of the trust.
CAUTION: Because of a change in the Social Security Act, this precedent may only be applicable to a trust established by an individual before 1/1/00.
2. OPINION
You have asked us to review revisions to the trust document created for Phillip P~, an SSI applicant. We have previously advised that a prior version of the trust was legally revocable and, therefore, the trust assets counted as a resource in determining Mr. P~'s entitlement to SSI. (SSI-Illinois-Review of a Special Needs Pay Back Trust for Phillip P~, SSN: ~, Memorandum from OGC-V (M~) to P, ARC-MOS of 7/25/97.) As a result of SSA's decision, Mr. P~'s guardian, the Office of the Cook County Public Guardian, petitioned the Illinois probate court to amend the trust document. On November 24, 1997, the Circuit Court of Cook County, Probate Division, entered an order allowing the trust to be amended. For the following reasons, we believe that the trust as amended is irrevocable and, therefore, not a resource for purposes of determining SSI entitlement.
The original trust document, purportedly irrevocable, provided that it would terminate upon Mr. P~'s death or by order of the court if Mr. P~ is restored to legal capacity and petitions to terminate the trust. Trust 4. Upon Mr. P~'s death, the trustee was directed to pay any otherwise undistributed trust property to Mr. P~'s estate. We advised that this provision established that Mr. P~ was the sole beneficiary of the trust. Therefore, under Illinois and general trust law, we advised that Mr. P~ presumably retained the power to terminate the trust and gain access to the trust assets.
The amended trust provides that on Mr. P~'s death, the remaining trust estate will be distributed either as Mr. P~ appoints in his last will or, in the alternative, as follows:
(d) If Phillip P~ fails to exercise the aforesaid power of appointment, then the Trustee shall pay the remaining trust estate, including undistributed income to his decedent estate and shall be distributed as follows:
(1) If there is a surviving spouse and also a descendant of the decedent, of the entire estate to the surviving spouse and to the decedents descendants per stirpes.
(2) If there is no surviving spouse but a descendant of the decedent: the entire estate to the decedent's descendants per stirpes.
(3) If there is a surviving spouse but no descendant of the decedent,: "the entire estate to the surviving spouse.
(4) If there is no surviving spouse or descendant but a parent, brother, sister or descendant of a brother or sister of the decedent: the entire estate to the parents, brothers and sisters of the decedent in equal parts, The Guardian of the Estate asserts that the only known living family member of Phillip P~'s, at the time of the creation of this provision is Phillip P~'s sister, Jenny P~ of Evanston, Illinois, allowing to the surviving parent if one is dead a double portion and to the descendants of a deceased brother or sister per stirpes the portion which the deceased brother or sister would have taken if living.
(5) If the above provisions fail to vest, then the remaining trust estate shall pay to the relevant portion of the Illinois Probate Act.
Amended Trust 4 (c), (d) (emphasis in original). We agree that these provisions create contingent residual beneficiaries to the trust, thus rendering it irrevocable.
We have previously advised in Clarification of Regional SSA Program Circular 94-05 Concerning Trusts, Memorandum from OGC-V (K~) to L~, Acting ARC-Programs of 5/24/95, that where a trust names either specific individuals as residual beneficiaries or a class of specific residual beneficiaries, such as descendants, their consent would be required for termination of the trust. Here, the amended trust agreement provides for distribution to various such classes, including Mr. P~'s siblings. The amended trust agreement further specifies that one member of this class, Mr. P~'s sister, is in existence. This provision is sufficient to create potential residual beneficiaries in addition to Mr. P~. The consent of these residual contingent beneficiaries would be required to revoke the trust. We do not assume that residual contingent beneficiaries will consent. Therefore, Mr. P~ no longer has the sole authority to revoke the trust and gain access to the trust assets. The assets, therefore, are not a resource to Mr. P~. 20 C.F.R. § 416.1201; POMS SI 01120.200(d)(1).
The next question is the effective date that the funds now held in trust ceased being a resource to Mr. P~. Mr. Berk, an attorney with the Office of the Cook County Public Guardian, suggested that "it is anticipated the Phillip P~ will be receiving his SSI benefits starting December 1, 1997." (Letter from Berk to Zavoskey Davis of 12/16/97.) We agree with Mr. Berk's assumption.
Generally, resource determinations are made as of the first moment of the month. 20 C.F.R. § 416.1207(a). Further, the regulations provide that "[if] during a month, a resource decreases in value, . . . the decrease in the value of the resource is counted as of the first moment of the next month. 20 C.F.R. § 416.1207(c). Here, until the probate court approved the amendment on November 24, 1997, the assets now in trust were available resources to Mr. P~. Therefore, the assets were countable as a resource for November 1997, and prior months. Effective with the amendment, the assets were no longer available to him. Therefore, assuming that the funds now in trust for Mr. P~ were the only factor limiting his eligibility for SSI, we agree with the Office of the Public Guardian that Mr. P~ can be eligible as of December 1, 1997.
~~NN. PS 00-328 Illinois Trust for Madhu S. M~~~
OO. PS 00-328 Illinois Trust for Madhu S. M~
DATE: December 1, 1997
1. SYLLABUS
Under Illinois law, if an individual has no authority to revoke a trust and cannot direct the use of the trust principal for his/her support and maintenance, the trust assets are not a resource for SSI purposes.
CAUTION: Because of a change in the Social Security Act, this precedent may only be applicable to trusts established before 1/1/00.
2. OPINION
You have asked for an opinion on whether the trust established for the benefit of Madhu S. M~ is a countable resource for Supplemental Security Income (SSI) purposes. Because Mr. M~ does not have the legal authority to revoke the trust, and because he cannot direct the use of the trust principal for his support and maintenance, we have concluded that the assets should not be considered a resource to him.
FACTS
At issue is a discretionary trust entitled "Madhu S. M~ OBRA '93 Trust" [hereafter "Trust Agreement"] created for the benefit of Madhu M~ who is developmentally disabled. His parents, P. Subraya M~ and Nalini S. M~, are named as settlors and co-trustees, and Madhu's brother, Arun S. M~, is designated as successor trustee. The stated purpose of the trust is to provide for Madhu's extra and supplemental needs, over and above those benefits he otherwise receives from the federal, state, and local governments as a result of his disability. Because Madhu is disabled, the trustees are instructed not to distribute cash or securities to him directly, but rather are directed to purchase goods and services on his behalf. At no time can Madhu demand income or principal from the trust.
The trust is said to be created pursuant to 42 U.S.C. § 1396p(d)(4)(A) (1997). This statute exempts certain trusts from the general provision that counts as an available Medicaid resource any corpus or income from the trust which could be made as payment to or for the benefit of the disabled individual. Id. at § 1396p(3)(B)(i). The trust agreement further states that it is irrevocable, and that it is intended for Madhu to qualify for Supplemental Security Income.
According to the terms of the agreement, the trust will terminate on Madhu's death. After paying any outstanding expenses for maintaining the existence of the trust, the trustee is directed to reimburse the State for any amounts which were expended on Madhu's behalf. If thereafter any assets remain in the trust, the remaining balance will be paid to Arun S. M~, if then living, and if not, per stirpes to Arun's then living descendants.
DISCUSSION
The Social Security Act provides that an unmarried individual is not eligible for SSI if his countable resources exceed $2000. 42 U.S.C. § 1382(a)(1)(B)(ii) (1997). A resource is defined as cash or other liquid assets, or any real or personal property that an individual owns and could convert to cash to use for his support and maintenance. 20 C.F.R. § 416.1201(a) (1997). Thus, if Madhu (1) has the authority to revoke the trust and then use the funds to meet his food, clothing, or shelter needs, or (2) if he can direct the use of the trust principal for his support and maintenance, the trust principal is a resource for SSI purposes. See POMS SI 01120.200(D)(1)(a); see also memo from OGC-V (M~) to Kaiser, Director, POS-RSI/SSIB, SSA-V, Joseph A~, ~, at 1 (restricted access to the trust principal means it cannot be used for support and maintenance); memo from OGC-V (M~) to P~, ARC-MOS, SSA-V, Rita F~, ~, at 5 (same). Whether Madhu can revoke the trust or direct the use of trust assets depends on both the terms of the trust and on Illinois law.
A. Madhu Has No Authority To Revoke The Trust
In this case, the trust agreement purports to be irrevocable, and states that it may only be altered to conform with changes in the law or regulations concerning 42 U.S.C. § 1396p. But even when a trust expressly declares that it is irrevocable, it may still be terminated if the parties are not under any legal disability, and if the settlor and all beneficiaries agree. , 187 N.E.2d 315, 319 (Ill. Ct. App. 1963) ("'Where all parties interested in the trust fund are sui juris they may consent to a termination of the trust and distribution of the fund...'" (quoting , 104 N.E. 659, 661 (Ill. 1914)). This rule does not apply where there are unascertainable contingent beneficiaries, or where the purpose of the trust has not been substantially accomplished. See id; Fenske v. Equitable Life Assurance Society, 91 N.E.2d 465, 467 (Ill. Ct. App. 1950) (stating that a trust may only be set aside where the parties in interest are ascertained, under no legal incapacity, and consent to the revocation, and where the object of the trust has been practically accomplished) (citations omitted); Pernod v. American Nat'l Bank & Trust Co., 132 N.E.2d 540, 542 (Ill. 1956); k, 12 N.E.2d 203, 205 (Ill. 1937).
As discussed above, a trust can typically be revoked with the consent of the settlors and all beneficiaries. Here, Madhu's parents are the settlors of the trust, and they would not likely consent to revocation. Revocation would also require consent of his brother, or of his brother's descendants. It is not clear whether Arun M~ has any children at present, but as we discussed above, under Illinois law, any unascertainable contingent interests will preclude distribution of the trust. SSA policy would therefore prohibit the trust principal from being counted as a resource to Madhu as he does not have the legal authority to revoke the trust.
B. Madhu Cannot Direct The Use Of The Trust Principal For His Support And Maintenance
Even where a beneficiary does not have the power to revoke a trust, it may still be counted as a resource if he has the authority to direct the use of the trust principal. See POMS SI 01120.200(D)(1)(b). This may be accomplished through either specific trust provisions allowing the beneficiary to act on his own, or by ordering actions through his trustee. See id.
No such conditions exist in this agreement. Madhu is specifically prohibited from demanding income or principal from the trust, and the trustees may not distribute cash or securities to him directly. See "Trust Agreement", Article I, Subsection 1.03(b), (c). The trust has also been tailored to preclude the trustee from using the assets to pay for Madhu's primary needs. Id. at Subsection 1.03(a) (..."this trust is to provide for Madhu's extra and supplemental needs, over and above the benefits he otherwise receives as a result of his disability..."). So even if Madhu could direct the use of the trust principal, by the terms of the agreement, these funds would not be available to pay for his support and maintenance. See POMS SI 01120.010(B)(3) ("... a legal restriction against the property's use for the owner's own support and maintenance means the property is not a resource.").
CONCLUSION
For the above-stated reasons, we conclude that the trust assets should not be considered a resource to Madhu S. M~ for SSI purposes.
~~OO. PS 00-275 Trust Document - Terry K~~~
PP. PS 00-275 Trust Document - Terry K~
DATE: July 22, 1991
1. SYLLABUS
When the trustee has total discretion as to if and when any distributions from the trust corpus or income will be made, and the sole discretion to withhold any distributions, the beneficiary has no access to the trust. The trust is not a resource and earnings are not income. Because of a change in the Social Security Act, this precedent may only be applicable to a trust established by an individual before 01/01/00.
2. OPINION
This is with reference to your memorandum inquiring whether a trust established for the benefit of Terry K~ constitutes a resource for SSI purposes and whether the trust principal counts as income.
The facts are as follows. In September 1990, Terry K~ received workers' compensation benefits totaling $47,500. With the proceeds from this settlement, a trust was created for the benefit of Mr. K~. The trust contained, inter alia, the following provision:
Under no circumstance shall Terry L. K~ have the power or authority to demand any distribution from the Trustee who is under no obligation, implied or otherwise, to make any distributions to him. ...The Trustee shall use his best efforts to avoid distributions which may cause disqualification for any public or private benefits which Terry K~ is or may be eligible to receive during the term of this Trust (emphasis added).
(K~ Trust Agreement, Paragraph 4, p. 5).
A. The K~ Trust Does Not Constitute A Resource.
The first issue raised by your memorandum is whether the trust counts as a resource for SSI purposes. The Program Operations Manual System (POMS) states that if the claimant's access to the trust principal is restricted, the principal is not considered a resource. SI 01120.105A.2. This principle maintains even where the trust arrangement can be revoked by someone other than the beneficiary. Id. Moreover, it remains true where the trust provides a regular and specified payment from the principal to the beneficiary for the beneficiary's use. Id. Lastly, the trust principal is not a resource even where the trust designates a representative payee or legal guardian as trustee for treatment of accounts which use the form of "in trust for." Id.
The foregoing leads us to conclude that the K~ trust does not constitute a resource for SSI purposes. As quoted in part above, the Trustee is "under no obligation, implied or otherwise, to make distributions to [Mr. K~]. Further, the Trustee may withhold distributions to him if, in the Trustee's sole discretion, such amounts would not be consistent with the intentions expressed in this agreement." (K~ Trust Agreement, Paragraph 4, p. 5). This passage suggests rather strongly that Mr. K~'s access to the trust principal is restricted. Under this Trust Agreement, Mr. K~ has no power to invade the trust principal, and as a result, the trust should not be considered a resource.
B. The Trust Principal Does Not Count As Income.
The second issue raised by your memorandum is whether the trust principal counts as income. The discussion in this section of the memorandum is quite similar to the foregoing. The POMS provisions states that "[i]f the claimant/beneficiary has a right to the income from the principal of the trust as it becomes available..., it is income to him as it becomes available." SI 01120.105B.1. This provision states further, "If the claimant/beneficiary has no right to the income from the trust principal and the income is added to the principal, then the earnings from the trust principal are not income to the claimant for SSI purposes." SI 01120.105B.2. Here, the Trust Agreement does not give Mr. K~ a right to receive income from the trust principal. "Under no circumstance shall [Mr.] K~ have the power or authority to demand any distribution from the Trustee." (K~ Trust Agreement, Paragraph 4, p. 5). This language is clear and unambiguous. Because Mr. K~ has no right to the income from the principal of the trust principal, the trust principal does not count as income for SSI purposes.
Accordingly, we are of the opinion that Mr. K~ does not have unrestricted access to the principal, and that he has no right to receive income from the trust principal.
~~PP. PS 00-273 Illinois Trust - Countable Resource - Christine K~, ~~~
QQ. PS 00-273 Illinois Trust - Countable Resource - Christine K~, ~
DATE: February 3, 1993
1. SYLLABUS
A account trust is a valid trust in Illinois. If the beneficiary cannot revoke the trust or has no access to it or cannot direct the use of trust funds, it is not a resource. Because of a change in the Social Security Act, this precedent may only be applicable to a trust established by an individual before 1/1/00.
2. OPINION
ISSUE
This is with reference to your memorandum inquiring whether the account trust is a countable resource to Christine K~. We conclude that this trust is not a countable resource to Christine under 20 C.F.R. § 416.1201 (1992).
FACTS
The facts may be briefly summarized: Christine has been severely mentally disabled since birth and unable to care for herself. On January XX, 1992, Christine's mother died, entitling her to $2,000 from a life insurance policy. On June 12, 1992, Leila K~ and Minnie B~ S~, Christine's aunts, assumed legal guardianship of Christine. One month later on July 6, 1992, Leila and Minnie with the money from the insurance policy opened a savings account trust in their names and designated Christine as beneficiary of this trust. As a result of an earlier court order, this money was to be withdrawn only upon order of the Circuit Court of Cook County.
DISCUSSION
A "resource," for the purpose of being eligible for SSI benefits, is defined as property that the beneficiary owns and could convert to cash, or property over which the beneficiary has the right, authority, or power to liquidate. Section 1613 of the Social Security Act, 42 U.S.C. § 1382b; 20 C.F.R. § 416.1201 (1992). In applying this definition to trusts, the Programs Operation Manual System ("POMS") states that if the claimant is a beneficiary of a trust and the beneficiary's access to the trust principal is restricted, then the principal is not a resource for the claimant. POMS § 01120.105(A)(2).
Illinois law recognizes the validity of a account trust created by deposits made in trust for a named beneficiary. The statute states in part:
If one or more persons opening or holding an account sign an agreement with the institution providing that the account shall be held in the name of a person or persons designated as trustee or trustees for one or more persons designated as a beneficiary or beneficiaries, the account and any balance therein which exists from time to time shall be held as a trust account. . .
(c) Any trustee may make additional deposits to and withdraw any part or all of the account at any time without the knowledge or consent of the other trustees, or the beneficiaries. . .
Ill. Ann. Stat. ch. 17 2133 (S~-H~ 1992). Here, Leila and Minnie signed an agreement with Cosmopolitan and opened a account as trustees for Christine. As a result, according to Illinois law, each has a right individually to deposit or withdraw funds from this account. Christine possesses no right, authority, or power to access the funds of this account. Accordingly, the account trust is not a countable resource to Christine.*/
~~QQ. PS 00-272 Supplemental Security Income - Wisconsin Trust - Lauren M. J~, SSN ~; Your Reference: S2D5G3~~
RR. PS 00-272 Supplemental Security Income - Wisconsin Trust - Lauren M. J~, SSN ~; Your Reference: S2D5G3
DATE: July 10, 1998
1. SYLLABUS
Under Illinois law, because the purpose of the trust is for the individual's support, the discretionary authority given to the trustee on how to apply the trust funds does not permit him/her to avoid contributing to the individual's support and maintenance. Thus, the individual can direct the use of the funds for his/her support and maintenance. Therefore, the funds in the trust are a resource to the individual. CAUTION: Because of a change in the Social Security Act, this precedent may only be applicable to trusts established before 1/1/00.
2. OPINION
This is with reference to your request that we review the "Lauren M. J~ Trust" to determine whether it is a countable resource for Lauren M. J~ (Lauren), a Supplemental Security Income (SSI) applicant. Although the Trustee has discretion on how to apply the funds, the express terms of the trust direct its use for Lauren's support and maintenance. The funds in the trust, therefore, should be considered a resource to her.
FACTS
This trust appears to have been funded with $10.00 in cash that was provided by Lauren. We do not know whether other property has been added to the trust. The trust names Lauren as Grantor, and Charles P. J~ and Marion A. J~, Lauren's parents, and American National and Trust Company of Chicago as the Trustees. Under this trust, the Trustee may in its discretion distribute so much or all of the trust income and principal as the Trustee determines to be required or desirable for the support, medical needs, education, welfare, and best interests of Lauren. In addition, during Lauren's lifetime, the Trustee may distribute to any child of Lauren who under age twenty-five so much or all of the trust income and principal as the Trustee determines to be required. The trust provides that it is irrevocable and not amendable.
The trust also provides that on Lauren's death, the Trustee shall pay her funeral expenses, reasonable expenses of administration of her estate, and any death taxes. The Trustee shall distribute the balance of the trust as appointed and directed by Lauren by will. If Lauren does not exercise this power of appointment, the Trustee shall distribute the trust property to her living descendants, per stirpes, or if there are none, equally to Charles P. J~, her father, Marion A. J~, her mother, and Charles P. J~, Jr., her brother.
DISCUSSION
To qualify for SSI benefits, a claimant must show that his or her resources are below a statutory maximum. 20 C.F.R. §§ 416.202, 416.1205; 42 U.S.C. § 1382(a). Under the applicable regulation, "resources" are defined as:
cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance.
20 C.F.R. § 416.1201(a).
If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource.
20 C.F.R. § 416.1201(a)(1).
A trust can be a resource. The Program Operations Manual System (POMS) specifies that if an individual has the authority to direct the use of the trust principal for her support and maintenance, the trust principal is a resource to the individual for SSI purposes. POMS SI 01120.200(D)(1). In this case, the trust is a countable resource for determining Lauren's SSI eligibility because she can direct the use of the trust income and principle for her support and maintenance under the terms of the trust. POMS SI 01120.200(D)(1)(a).
The grantor of a trust is the person who provides the consideration for the trust. 76 Am. Jur. 2d § 55; POMS SI 01120.200(B)(2). In this case, Lauren is the grantor of the trust because she provided funds to establish the trust and is named as "Grantor" in the trust instrument. Furthermore, Lauren is a beneficiary of the trust because the trust property is held for her benefit. 76 Am. Jur. 2d § 59; POMS SI 01120.200(B)(4).
The terms of the trust instrument provide that the primary purpose of the trust is for Lauren's support. The trust contains explicit instructions that the trustee may in its discretion pay to Lauren, or use for her benefit, so much or all of the income and principal of the trust as the trustee determines to be required or desirable for her support, medical needs, education, welfare, and best interests.
Because the primary purpose of the trust is for Lauren's support, the discretionary authority given to the trustee does not insulate the trust from being a resource. Illinois case law provides that such discretion does not permit the trustee to provide no support for the beneficiary. See Estate of McInerny, 682 N.E.2d 284, 291 (1997)(citing , 432 N.E.2d. 1086, 1088 (1982)). The trustee may not avoid paying for or contributing to Lauren's support and maintenance simply because the terms of the trust give the trustee discretion in distributing the income and principal of the trust. Because the trustee would, therefore, be abusing its discretion if it did not use the trust for Lauren's support, she can direct the use of the funds.
Thus, we conclude that the trust income and principal at issue should be considered a resource to Lauren for SSI purposes because the terms of the trust direct the use of the trust income and principal for her support and maintenance.
~~RR. PS 00-269 Illinois Trust For Joseph A. A~, SSN: ~~~
SS. PS 00-269 Illinois Trust For Joseph A. A~, SSN: ~
DATE: June 3, 1997
1. SYLLABUS
At issue is whether the beneficiary has unrestricted access to the trust principal and can therefore use it for his support and maintenance. Even though there is general language in this trust and others similarly set up by the grantor that allows the beneficiary access to the trust principal, this trust contains specific language that it be a discretionary trust for a disabled beneficiary with the trustee having sole and absolute discretion as to the control of the assets in the trust. Therefore, the trust is not a resource for SSI purposes.
2. OPINION
This is in response to your inquiry concerning a trust fund established for Joseph A. A~. You asked us whether Joseph had unrestricted access to the trust principal, and if he could use the principal for his support and maintenance. For the following reasons, it would appear that Joseph does not have unrestricted access to the trust principal and therefore, it cannot be used for his support and maintenance.
FACTS
Jack K~, Joseph A~'s grandfather, established an irrevocable and unamendable trust for the benefit of his grandson, Joseph A~, and Helene A~ was named trustee. The trust was entitled Helene A~ Irrevocable Trust Number 2. The trust included apparently conflicting provisions. Section 2.2 stated generally that "a beneficiary for whom a trust is named shall have the right to withdraw from any contribution to the trust estate . . . .".
However, section III specifically provided that:
3.1. The following shall apply to the trust for the benefit of Joseph:
(a) During the lifetime of Joseph, the trustee shall distribute any part or all of the income and principal of the trust estate to Joseph as the trustee deems desirable in the trustee's sole and absolute discretion for his best interests. Any excess income shall be added to principal. It is the grantor's desire that the trust established hereunder for the benefit of Joseph qualify as a trust for a disabled beneficiary pursuant to the provisions of Section 15.1 of the Illinois Trust and Trustees Act.
DISCUSSION
A resource, for SSI purposes, includes assets that the individual owns and could convert to cash to be used for his own support and maintenance. See 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate the property, it is a resource. Id. Trust assets are a resource if the individual can revoke the trust and use the assets to meet his needs for food, clothing, and shelter. POMS SI 01120.105.A.1, 01120.200(D)(1)-(3). Consistent with SSI's trust policy, if an individual neither owns nor has the legal right to direct the use of trust assets to meet his or her support and maintenance needs, then the trust assets are not considered a resource.
In the instant case, the claimant's grandfather, Jack K~, appears to have created a number of grantor trusts and used the same general language in all the trusts including the trust established on behalf of Joseph. This is evidenced by the title of Joseph's trust agreement, "Trust Number 2", and the repeated general references in the agreement to "each trust", "each separate trust hereunder," "a beneficiary for whom a trust is named" and "Each trust named for a beneficiary . . . shall be distributed to the beneficiary for whom the trust is named."
As pointed out in your memorandum, Section 2.2 of the trust does provide "a beneficiary for whom a trust is named . . . the right to withdraw from any contribution to the trust estate." Since this section is a part of Joseph's trust agreement it would appear to allow Joseph the right to direct the use of the trust assets. However, this language is consistent with the general language used throughout the trust and was presumably applied generally to all beneficiaries, particularly since Joseph was not specifically named.
On the other hand, Section III specifically names Joseph, indicates that Joseph's trust assets are under the sole and absolute discretion of his trustee, and notes that the grantor desired that the trust qualify as a trust for a disabled beneficiary pursuant to the provisions of Section 15.1 of the Illinois Trust and Trustees Act. That section states:
§ 15.1. Trust for disabled beneficiary. A discretionary trust for the benefit of an individual who has a disability that substantially impairs the individual's ability to provide for his or her own care or custody and constitutes a substantial handicap shall not be liable to pay or reimburse the State or any public agency for financial aid or services to the individual except to the extent the trust was created by the individual or trust property has been distributed directly to or is otherwise under the control of the individual. Property, goods, and services purchased or owned by a trust for and used or consumed by a disabled beneficiary shall not be considered trust property distributed to or under the control of the beneficiary. A discretionary trust is one in which the trustee has discretionary power to determine distributions to be made under the trust.
In Illinois, when an apparent ambiguity or conflict exists in a trust, the primary concern is ascertaining the intent of the donor. Estate of Dawson, 522 N.E. 2d 770 (1988). In determining the donor's intent, consideration of the entire instrument, and not a single portion, should be the procedure. , 658 F.2d 487 (7th Cir. 1981). Furthermore, in considering all of the provisions of the trust, the sections dealing with subject matter in detail take precedence over sections which contain general provision on the same subject. 2416 , 415 N.E. 2d 420 (1980).
The specific intent of section III with regard to distribution of Joseph's assets, which complies with the requirements of Section 15.1 of the Illinois Trust and Trustees Act, would therefore appear to override the general provisions of the agreement as to distribution of assets as it pertains to the other trusts and beneficiaries. It appears that it is the intent of the grantor, due to his express language in regards to Joseph, to establish a discretionary trust rather than allow Joseph the right to withdraw from the trust estate as the other beneficiaries are capable of doing.
For these reasons, we believe that in all likelihood, a number of trust estates were created and all used the same general language which permitted the beneficiaries to withdraw assets from the trust estate. Joseph's trust agreement, however, exempted him from this provision due to the grantor's explicit provision that Joseph have a discretionary trust for a disabled beneficiary with sole and absolute discretion as to the control of the assets vested with the trustee.
~~SS. PS 00-268 Illinois OBRA '93 Trust for J~, SSN: ~, Your Reference: S2D5G3~~
TT. PS 00-268 Illinois OBRA '93 Trust for J~, SSN: ~, Your Reference: S2D5G3
DATE: February 18, 1999
1. SYLLABUS
The opinion concerns a trust created for the benefit of the SSI recipient with funds awarded the SSI recipient as a result of a settlement in a malpractice action.
The trust is not a resource for SSI purposes because the grantor (the SSI recipient) does not have the legal authority to revoke the trust or direct the use of its assets for her own support and maintenance. A trust can be revoked if the grantor of the trust is the sole beneficiary. However, under the terms of this trust the grantor cannot revoke the trust as she is not the sole beneficiary since the trust provides for residual beneficiaries in the event of her death.
CAUTION: Because of a change in the Social Security Act, this precedent may only be applicable to trusts established before 1/1/00.
2. OPINION
You have asked whether the trust established for J~ is a countable resource for the purposes of determining Ms. J~' eligibility for Supplemental Security Income (SSI) and whether any of its disbursements would be countable income. We believe, for the reasons stated below, that the trust itself should not be considered a countable resource when determining Ms. J~' eligibility for SSI but that certain disbursements might be considered income.
FACTS
The " D. J~ OBRA '93 Trust" ("the J~ Trust" or "the trust") was created for the benefit of J~, who is disabled and who apparently received the funds that make up the trust as the result of a judgment or settlement in a medical malpractice action. Ms. J~' mother, Loretta J~, is named as the settlor of the trust, and both of her parents, Loretta J~ and Dennis J~, are named as trustees.
The stated purpose of the trust is to provide for J~' "extra and supplemental needs, over and above the benefits she otherwise receives as a result of her handicap or disability from any local, state or federal governmental source or from private agencies any of which provide services or benefits to disabled persons." The trust states that it is irrevocable and that it is intended that Ms. J~ qualify for SSI. No funds from the trust are to be expended for the benefit of Ms. J~ "so long as there are sufficient services, funds and benefits available to her for her care, comfort, and welfare from governmental sources." Although the trustees are to be "liberal in utilizing the trust income and principal to augment that which is provided for by governmental sources," they are to "use trust assets to supplement but never to substitute for governmental funds and benefits." The trustees are directed to purchase supplemental goods and services-and, in doing so, to "avoid duplication of benefits provided . . . by or from governmental sources"-for Ms. J~, but they may not distribute cash or securities to her.
The trust may be amended by the trustees, and then only when the trustees determine that amendment is necessary to ensure that the purposes and intentions of the trust are furthered by conforming to "changes in any laws or rules" that affect the trust.
Upon Ms. J~' death (or when the corpus is exhausted), the trust terminates, and, after administrative costs are paid, funds remaining in the trust are to be used to reimburse governmental agencies for benefits provided to Ms. J~, pursuant to 42 U.S.C. § 1396p, and any funds that then remain are to be distributed to Loretta and Dennis J~, or to whichever of them survives; or, if neither survives, to their then living descendents.
DISCUSSION
A resource, for the purpose of SSI eligibility, is "cash or other liquid assets or any real or personal property that an individual . . . owns and could convert to cash to be used for his or her support and maintenance." 20 C.F.R. § 416.1201(a). The J~ Trust is thus not a resource, for SSI purposes, unless Ms. J~ has legal authority to revoke the trust and then use the funds to meet her needs for food, clothing, or shelter; or unless she can direct the use of the trust principal for her support and maintenance under the terms of the trust. POMS SI 01120.200(D)(1)(a).
The trust in this case explicitly states that it is irrevocable. Even when a trust includes such language, however, it is deemed revocable if the settlor is also the sole beneficiary. Under those circumstances, the settlor/beneficiary can compel termination of the trust despite explicit language to the contrary. , 278 N.E. 2d 10, 12 (Ill. App. 1972); Restatement (Second) of Trusts § 339, comment a. Trusts that have been established from personal injury judgments are considered to be established by the person who received the award. POMS SI 01120.200(J)(3). Thus, although the trust identifies Ms. J~' mother, Loretta J~, as the "settlor," Ms. J~ herself is to be regarded as the settlor, as she was the one who provided the consideration. , 635 N.E.2d 853, 855 (Ill. App. 1994).
The central question regarding the revocability of the J~ Trust is therefore whether Ms. J~ is the sole beneficiary. The language of the trust makes it clear that while Ms. J~ is intended to be the sole primary beneficiary, the amount left in the trust upon Ms. J~' death is to be distributed first to state agencies, as reimbursement for benefits given to Ms. J~ during her lifetime, and then to "Loretta and Dennis J~, or all to the survivor of them; otherwise, to their then living descendants" (J~ Trust, Article 1.03(d)). While no state is considered a beneficiary under these terms, it is clear that Loretta and Dennis J~, and their descendants, are residual beneficiaries. The addition of residual beneficiaries generally makes a trust irrevocable. See Restatement (Second) of Trusts, § 127, comment b. Illinois follows this rule. Clarification of Regional SSA Program Circular 95-05 Concerning Trust, OGC-V (K~) to L~, Acting ARC (5/24/95).
The fact that the J~ Trust provides for "liberal" expenditures by the trustees on behalf of the beneficiary should not affect the analysis of whether the beneficiary can revoke the trust. The central question, again, is whether Ms. J~ can either revoke the trust or direct, under the terms of the trust, that the trustees provide for her support and maintenance. As explained above, the existence of residual beneficiaries precludes Ms. J~ from revoking the trust.
Similarly, the language of the trust does not appear to reserve any power to Ms. J~ to direct how the principal or income are to be expended. Rather, the trustees appear to have unfettered discretion to decide which goods and services are to be purchased for Ms. J~: "By way of illustration, the Trustees may purchase those goods or services which shall enhance and maximize 's development and happiness . . ." (J~ Trust, Article 1.03(a)) (emphasis added); the trustees are to be liberal in their expenditures on Ms. J~ when they determine, "in their sole discretion, that such additional expenditures are in 's best interest" (id.) (emphasis added); the trustees shall expend the income and principal of the trust "as the Trustees determine from time to time to be necessary" (J~ Trust, Article 1.03(c)) (emphasis added). Furthermore, the trust explicitly provides that "[a]t no time and under no circumstance shall have the right to demand income or principal from this trust" (id.).
Our analysis of whether the trust is revocable by the beneficiary is not affected by the provision in the trust that allows the trustees to modify its provisions as a result of "judicial decisions or interpretations or other changes in any laws or rules, to conform the Trust provisions to operate and to fully comply with the expressly stated intentions, purposes and goals in establishing this Trust" (J~ Trust, Article 1.02). This power to modify is restricted to the trustees and to situations in which changes in the law operate to defeat the intentions of the settlor in creating the trust. Generally, whether the power to modify includes the power to revoke "is a question of interpretation to be determined in view of the language used and all the circumstances whether and to what extent the power is subject to restrictions." Restatement (Second) of Trusts § 331, comment h. In the J~ Trust, the power to modify does not appear to encompass the power to revoke the trust. Furthermore, even if the power to modify could include termination, that power, in this case, resides in the trustees, not in the settlor/beneficiary. It does not confer on Ms. J~ herself any power to revoke the trust or direct expenditures of its principal or income.
Finally, it is a question of fact whether certain disbursements distributed from the trust for the benefit of Ms. J~ are countable income. Under Illinois law, "[p]roperty, goods and services purchased or owned by a trust for and used or consumed by a disabled beneficiary shall not be considered trust property distributed to or under the control of the beneficiary." 760 ILCS 5/15.1. Thus, if the trust distributes to Ms. J~ property that she can then convert into cash to be used for her own support and maintenance, then that property is countable income; if the trust retains title to the property, or if the distribution is of a sort that cannot be converted to cash, then the property is not income. Of the illustrations of goods or services listed in Article 1.03(a) of the J~ Trust, "entertainment items (such as a television, VCR, or the like)" might be considered income if they can be converted to cash, unless the trust specifically retains ownership of those items; on the other hand, "evaluations or training and educational programs" and "transportation and related costs to visit relatives and friends" would not be resources under Illinois law.
CONCLUSION
Because the J~ Trust identifies residual beneficiaries, and because Ms. J~ cannot revoke the trust or direct its expenditures, we believe that the trust should not be considered a countable resource when determining Ms. J~' eligibility for SSI. Further, we believe that only those distributions from the trust which confer a benefit on Ms. J~ that she can convert to use for her support and maintenance should be considered income to her.
~~TT. PS 00-262 SSI-Illinois - Review of the John E. H~ OBRA '93 Trust, SSN: ~~~
UU. PS 00-262 SSI-Illinois - Review of the John E. H~ OBRA '93 Trust, SSN: ~
DATE: May 19, 1999
1. SYLLABUS
This trust, created in 1995, is not a countable resource as the SSI recipient cannot direct payment of the trust principal for his support and maintenance or revoke or terminate the trust to obtain the assets.
Because of a change in the Social Security Act, this precedent may only be applicable to a trust established by an individual before 1/01/00.
2. OPINION
You have asked us to review the trust established for John H~, a disabled adult. You have asked us to determine whether the trust constitutes a countable resource to John H~ for the purpose of determining his eligibility for SSI.
We conclude that the trust assets would not be a resource because Mr. H~ cannot direct that the Trustee use the trust assets for his support and maintenance; sell, or otherwise transfer his interest in the trust; or revoke or terminate the trust to obtain the assets.
FACTS
Mr. H~ is an adult who is a "disabled person" as defined in the Social Security Act § 1614(a)(3) (42 U.S.C. § 1382(a)(3)). The trust was created on October 24, 1995, by Mr. H~'s mother, Bennie H~. The trust was initially funded with $20.00 (see "Ex. A, Schedule of Assets"), and this amount was increased by $360,000, deposited by Chubb Insurance Company in a guardianship account at First Chicago NBD. These funds were proceeds from a medical malpractice settlement. We have not been advised whether other assets have since been added to the trust.
The trust states that its express purpose is to "provide for John's extra and supplemental needs, over and above the benefits he otherwise receives as a result of his handicap or disability from any local, state or federal governmental source or from private agencies any of which provide services or benefits to disabled persons." Trust 1.03(a). The trust further provides that: "Because of [Mr. H~'s] disabilities, the Trustee is directed to purchase goods and services on [Mr. H~'s] behalf, and not to distribute cash or securities to [Mr. H~.]" Trust 1.03(b). In addition, it states that: "at no time and under no circumstances shall [Mr. H~] have the right to demand income or principal from this trust." Trust 1.03(c). It has a "spendthrift" provision, precluding the beneficiary from assigning his rights. Trust 2.02.
The trust provides that Mr. H~'s mother, Bennie H~, is the guardian of his estate, and the "settlor." It specifically states that it is irrevocable, and provides that the settlor "does not reserve any right to later amend, revoke or terminate this Trust in whole or in part at any time." Trust 1.02. However, that same provision also authorizes the Trustee to "amend and/or reform" the trust to conform with "judicial decisions or interpretations or other changes in any laws or rules," and to conform with "any regulations that are approved by any governing body or agency relating to 42 U.S.C. 1396p or related statutes, including state statutes that are consistent with the provisions and purposes of the Revenue Reconciliation Act of 1994 and amendments to such act." Trust 1.02.
The trust also provides that "unless sooner terminated by exhaustion of corpus, this trust shall terminate upon [Mr. H~'s] death." Trust 1.03(d). After Mr. H~'s death, the trustee will first pay "any outstanding, reasonable expenses for maintaining the trust; any final bills, debts, expenses, taxes, fees, funeral-related items, and/or such other items which may be paid." Id. Any amount remaining in the trust after the above-mentioned expenses have been paid will be paid to the appropriate state agencies as reimbursement for benefits provided to Mr. H~ during his lifetime. Id. In the event that any trust assets remain after these payments have been made, the balance is to be distributed per stirpes to Mr. H~'s descendents. If there are no descendents, the balance will be distributed to Mr. H~'s mother, Bennie H~ or, if she does not survive, to Mr. H~'s father, John T. H~. If Mr. H~'s father does not survive, the balance will be allocated and distributed equally to Mr. H~'s sisters, Shaun R. H~ and Antonia M. H~, or, if either is then deceased, to her descendents, per stirpes. Id.
DISCUSSION
A "resource" is cash, other liquid assets, or any real or personal property that an individual owns and could convert to cash to be used for his or her support and maintenance. 20 C.F.R. § 416.1201(a) (1998). If the individual has the right, authority, or power to liquidate the property, it is a resource. Id. Trust assets are a resource if the individual can direct the use of the assets to meet his need for food, clothing, and shelter, or if he can terminate or revoke the trust and obtain unrestricted access to the trust assets. See Program Operations Manual System (POMS) SI 01120.105 (A)(1), 01120,200(D)(1)-(3). Whether the claimant can terminate the trust or direct use of the trust assets depends on the terms of the trust declaration and applicable state law. POMS SI 01120.200(D)(2). An individual's beneficial interest in a trust also may be a resource if the individual can sell that interest. See Zebley Trust as an SSI Resource-Wisconsin, Bernard W~ (~), RA V (M~) to M~, Acting ARC-POS (Feb. 23, 1993) at 5.
For the following reasons, the trust assets would not be a countable resource for SSI purposes:
1. Mr. H~ Cannot Direct the Trustee to Use the Assets for His Support and Maintenance.
Under the terms of the trust, the Trustee has sole discretion to disburse assets in the trust, and the disbursements are to be made only for Mr. H~'s supplemental care. In addition, the Trustee is directed to purchase goods and services on Mr. H~'s behalf, and is not to distribute funds directly to Mr. H~. Trust 1.03(b). Furthermore, under no circumstances will Mr. H~ have the right to demand income or principal from the Trust. Trust 1.03(c). Accordingly, Mr. H~ cannot direct the Trustee to use the assets in the Trust for his support and maintenance.
2. The Trust Interest Would Have Little Or No Fair Market Value.
As stated above, the trust authorizes the Trustee to make disbursements in his or her sole discretion for Mr. H~'s benefit, and prohibits the Trustee from making any disbursements directly to Mr. H~. Trust 1.03(b). Additionally, the trust includes a "spendthrift" provision precluding Mr. H~ from assigning his rights. Trust 2.02. For these reasons, Mr. H~'s interest in the Trust would have little or no fair market value. See 20 C.F.R. § 416.1201(a)(1) (resources evaluated according to market value).
3. Mr. H~ Cannot Revoke Or Terminate the Trust.
The first issue in determining whether the trust is revocable is whether Mr. H~ or his mother, Bennie H~, is the settlor or grantor of the trust. The general rule, and the rule in Illinois, is that the grantor of the trust is the individual who actually furnishes the consideration that establishes the trust, even if another person or entity nominally creates the trust. 76 Am. Jur. 2d § 55; In re Estate of H~, 635 N.E.2d 853, 855 (Ill. App. 1994), appeal denied, 642 N.E.2d 1281, cert. denied, 115 S. Ct. 1101. The primary contribution to the trust was funded with proceeds from a medical malpractice settlement in an action brought on Mr. H~'s behalf. Therefore, the funds belonged to the beneficiary, Mr. H~, and this indicates that he is the settlor or grantor of the trust.
Even though the trust document indicates that Mr. H~'s mother, Bennie H~, is the settlor/grantor of the trust, she was acting on Mr. H~'s behalf. The Program Operations Manual System explains that an individual can be the grantor when the trust is established by an "other individual legally empowered to act on [his] behalf (e.g., a legal guardian, representative payee ...), [who] establishes the trust with funds or property that belong to the individual." POMS SI 01120.200(B)(2). The trust provides that Mr. H~'s mother is the guardian of his estate. Trust 1.01. As Mr. H~'s guardian, Bennie H~ was legally empowered to act on his behalf. She established the trust with funds that belonged to Mr. H~. Mr. H~ is, therefore, the actual grantor of the trust because he furnished the consideration and his mother acted on his behalf.
As a general rule, where the settlor and the sole beneficiary are the same, the trust can be revoked even if it purports to be irrevocable. See Restatement (Second) of Trusts § 339 (1959). As stated above, Mr. H~ is the settlor or grantor of the trust. We must determine whether he is also the sole beneficiary in order to determine whether the trust can be revoked.
The trust lists Mr. H~ as the only beneficiary during his lifetime. Trust 1.03. It also provides that, upon termination by Mr. H~'s death, the residue will be used to pay his final bills and then to reimburse Illinois or any other state for benefits provided to Mr. H~ during his lifetime. Trust 1.03(d). This provision does not create additional beneficiaries. See States Named as Beneficiary to a Trust, OGC-V (D~) to P~, ARC-MOS (June 24, 1997). However, the trust further provides that any balance shall be distributed to Mr. H~'s descendents and, if there are none, to his mother, and if she does not survive, to his father, and if he does not survive, to his sisters, and if one of the sisters does not survive, to her descendents. Trust 1.03(d). This provision, which designates persons to receive the trust property in the event of Mr. H~'s death, creates "residual" or "contingent" beneficiaries whose consent must be obtained in order for the trust to be revoked. See Clarification of Regional SSA Program Circular 94-05, OGC-V (K~) to L~, Acting ARC-POS (May 24, 1995), at 1. We do not assume that they will consent to terminate the trust. Therefore, Mr. H~ cannot revoke or terminate the trust at will, and the trust is irrevocable. Finally, Mr. H~ also cannot terminate the trust and obtain the assets. It specifically states that "unless sooner terminated by exhaustion of corpus, this trust shall terminate upon [Mr. H~'s] death." Trust 1.03(d).
CONCLUSION
In summary, the assets of the John H~ trust are not countable resources because Mr. H~ cannot direct that the Trustee use the trust assets for his support and maintenance; sell or otherwise transfer his interest in the trust; or revoke or terminate the trust to obtain the assets.
~~UU. PS 00-259 Supplemental Security Income - Illinois Trust - Anna M~ H~ a/k/a Alice C~, SSN ~, Your Reference: S2D5G3~~
VV. PS 00-259 Supplemental Security Income - Illinois Trust - Anna M~ H~ a/k/a Alice C~, SSN ~, Your Reference: S2D5G3
DATE: August 13, 1998
1. SYLLABUS
At issue is whether or not the trust is a resource for SSI purposes. The beneficiary does not have the authority to direct the payment of the trust principal for his/her support and maintenance or revoke the trust and use the trust principal for his/her support and maintenance. The trust also provides for contingent beneficiaries. Therefore, the trust is not a resource for SSI purposes.
2. OPINION
You inquired whether the funds held pursuant to the terms of a trust agreement should be considered a countable resource for purposes of SSI eligibility for Anna M~ H~, the beneficiary of the trust.
The pertinent SSI regulation provides that:
[R]esources means cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance. (1) If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual (or spouse).
20 C.F.R. § 416.1201(a). Thus, if an individual is able to obtain funds or convert property to cash to be used toward his or her support and maintenance, such funds or property are to be included as resources for purposes of SSI eligibility. Trust assets are a resource to the individual if he or she "has legal authority to revoke the trust and then use the funds to meet his or her food, clothing or shelter needs, or if the individual can direct the use of the trust principal for his or her support and maintenance under the terms of the trust." POMS SI 01120.200(D)(1)(a). We have reviewed the documents presented to us and, for the reasons discussed below, we conclude that this trust should not be a countable resource under 20 C.F.R. § 416.1201(a)(1).
FACTS
Ms. Anne M~ H~ is an SSI recipient. The trust in question purports to be written pursuant to 42 U.S.C. § 1396p, as amended, and is entitled: "TRUST AGREEMENT ANNE M~ H~ OBRA '93 TRUST." ("H~ Trust" or "Trust"). The court-approved Trust is funded by a $20,000 inheritance, bequeathed by Anthony Angarole by testamentary trust to Anne M~ H~. Dathene Angarole, who had been a trustee of the testamentary trust and was personal representative of the estate, signed as grantor, and Lynda K. Given, an attorney, is named as trustee. Anne M~ H~ is the primary beneficiary of the Trust.
The H~ Trust states that the funds are to be used for Ms. H~'s "extra and supplemental needs, over and above the benefits she otherwise receives as a result of her handicap or disability from any local, state or federal governmental source." H~ Trust, article one, section 1.03(a). Funds are to be paid at the trustee's discretion, and Ms. H~ has no right to demand income or principal from, or to serve as trustee of, the Trust. Id. at section 1.03(a) & (c). The Trust purports to be irrevocable and terminates upon Ms. H~'s death. Id. at section 103(d). The Trust provides:
Specifically in accordance with 42 U.S.C. 1396p(d)(4)(A), any amount remaining in the Trust at Anne M~ [H~]'s death (up to the amount expended by the State of Illinois, or any other state, for medical assistance) shall be paid to the appropriate State agencies, as reimbursement to the State of Illinois or such other state as has provided benefits to Anne M~ [H~] during her lifetime, except that the Trustee may first pay any outstanding, reasonable expenses for maintaining the existence of the Trust, any of Anne M~ [H~]'s final bills, debts, expenses, taxes, fees, funeral related items, and/or such other items which may be paid, prior to reimbursement to the State, pursuant to statute or regulation now in existence or hereafter enacted or issued. ... In the event that any Trust assets are remaining after payment of the reasonable expenses and the reimbursement to the State of Illinois or other state(s) as set forth above, the remaining balance shall be distributed equally to MICHELE C~, NICOLE C~ and NICHOLAS C~, if then living, with the share of any of them, if then deceased, to be distributed, per stirpes, to such beneficiary's then living descendants.
H~ Trust, article one, section 1.03(d).
DISCUSSION
A trust consistent with the provisions of the Omnibus Reconciliation Act of 1993, as amended, may still be a countable resource for SSI purposes. See Revocability of Wisconsin Trust for Clayton D. B~, ~, OGC-V (D~) to Gloria J. P~, ARC-POS (10/28/94) at 4, n.7. A trust may be a countable resource if the beneficiary can either: (1) direct the trustee to pay over trust principal for her support and maintenance; or, (2) revoke the trust and then use the funds for her support or maintenance.
First, a trust may be a resource "in the rare instance, where [the beneficiary] has the authority under the trust to direct the use of the trust principal." POMS SI 01120.200(D)(1)(b). The H~ Trust is not one of these "rare instances." The trustee has "sole discretion" to distribute trust income or principal, and may "purchase goods and services on [Ms. H~'s] behalf" but may not "distribute cash or securities" to her. H~ Trust, article one, section 1.03(a),(b). The Trust also provides that the beneficiary does not have "the right to demand income or principal from this trust." H~ Trust, article one, section 1.03(c); article two, section 2.03. Therefore, Ms. H~ does not have the authority to direct the payment of trust principal for her support and maintenance, because the trustee has exclusive authority over distribution of trust income and principal.
Furthermore, the trustee's power to distribute the Trust is limited. The Trust requires the trustee to consider the effect of any distribution on the beneficiary's entitlement to government resources. Article one, section 1.03(a),(c). Therefore, Ms. H~'s access to the trust principal is restricted, and the trust principal should not be considered a countable resource for this reason.
Second, a trust may be a countable resource if the beneficiary may revoke it and use trust proceeds for her support and maintenance. POMS SI 01120.200(D)(1)(a). A trust may be revocable either through the language of the trust itself or by operation of state trust law.
The Trust expressly states that the Trust is irrevocable. H~ Trust, article one, section 1.01. Therefore, the terms of the Trust do not allow it to be revoked. Additionally, upon Ms. H~'s death, the trustee is directed to pay all amounts remaining in the Trust up to the total amount of medical assistance paid to the beneficiary by any state plan. H~ Trust, article one, section 1.03(d). After payment to any state agency providing medical assistance, any remainder of the trust principal is to be paid to Michele C~, Nicole C~, and Nicholas C~, if then living, or, if deceased, to their then living descendants, per stirpes. Article one, section 1.03(d). Thus, no provision empowers Ms. H~ to revoke the Trust and use the trust principal for her support and maintenance.
The next question, then, is whether Ms. H~ can revoke the Trust pursuant to state trust law. As a general rule, funds in irrevocable trusts are not countable assets. POMS SI 01120.200(D)(2)(b). The general law of trusts recognizes an exception to this rule — when the grantor is the sole beneficiary of the trust arrangement, then the trust is revocable regardless of the language in the trust document to the contrary.
See Restatement (Second) of Trusts, § 339 (1959); 76 Am. Jur. 2d Trusts 91 (1975); see also POMS SI 01120.200(B)(8),(D)(3). We previously advised that Illinois appears to follow this rule. Trust as Resource - Illinois -Theresa M~, SSN: ~, OGC-V (P~) to Armando A. G~, Acting ARC-POS (8/4/93), at 3.
To determine whether the trust is revocable under this provision, the relevant inquiry is who is the grantor and who are the beneficiaries. The grantor of the H~ Trust cannot be ascertained from the information available to us. The H~ Trust is funded from Ms. H~'s inheritance bequeathed to testamentary trust. Ms. Dathene Angarole signed the H~ Trust as grantor; however, a grantor of a trust is the individual who actually furnishes the consideration that establishes the trust. See e.g., in re Estate of John , 635 N.E.2d 853, 855 (Ill. Ct. App. 1994) (citing , 278 N.E.2d 10. 12 (Ill. Ct. App. 1972) ("the person who furnishes the consideration for the trust is the settlor, even though, in form the trust is created by another"). If Ms. H~'s inheritance vested, even if she never actually received her inheritance, she may be the true grantor. If it was a valid testamentary trust, she may or may not be the true grantor. This issue, however, does not affect our ultimate opinion, for reasons explained below.
If Ms. H~ was the sole grantor and also the sole beneficiary, she could revoke the trust. A beneficiary is any person with a beneficial, or equitable ownership, interest in the trust. POMS SI 01120.200(B)(4). The addition of residual contingent beneficiaries generally makes a trust irrevocable. See Restatement (Second) of Trusts, § 127, comment b (1959). Illinois follows this rule. Clarification of Regional SSA Program Circular 95-05 Concerning Trust, OGC-V (K~) to L~, Acting ARC (5/24/95).
The H~ Trust states that, upon Ms. H~'s death all funds remaining in the trust at the beneficiary's death will be distributed first to reimburse the State of Illinois up to an amount equal to the total medical assistance paid by the State of Illinois on Ms. H~'s behalf. H~ Trust, article one section 1.03(d). We have recently advised that no residual beneficiary is created merely because the trust requires that any sums remaining in the trust at the death of the individual be paid first to the state to reimburse it for benefits paid on that person's behalf. See States Named as Beneficiary to a Trust, OGC-V (D~) to P~, ARC, SSA-V (6/24/97), at 2. The State of Illinois, therefore, is not a residual beneficiary of the Trust.
The H~ Trust also specifies that, if any balance remains after the State of Illinois has been reimbursed, that balance is to be distributed equally to Michele C~, Nicole C~ and Nicholas C~, or their living issue, per stirpes. H~ Trust, article one, section 1.03(d). Thus, the H~ Trust provides contingent beneficiaries, and therefore, cannot be revoked by Ms. H~. See Restatement (Second) of Trusts, § 127, comment b (1959).
CONCLUSION
For the above reasons, we believe the trust principal should not be considered a countable resource when determining Ms. H~'s eligibility for SSI.
~~VV. PS 00-250 SSI-Illinois-Petition to Amend Trust for Joyce G~, SSN: ~~~
WW. PS 00-250 SSI-Illinois-Petition to Amend Trust for Joyce G~, SSN: ~
DATE: December 17, 1999
1. SYLLABUS
The opinion involves a grantor trust which names contingent identifiable beneficiaries. The presence of these beneficiaries shows that the grantor is not the sole beneficiary of the trust. Thus, the trust is not a resource.
2. OPINION
You asked that we review the petition to amend the "Special Needs Irrevocable Pay Back Trust" established by the Office of the Public Guardian for Joyce G~, a disabled person. The original trust had been a "grantor trust" that Ms. G~ (or her guardian on her behalf) could revoke. The trust as amended is intended to create additional contingent beneficiaries, and thus avoid implied revocability. Based on our review of the documents, we conclude that the amended trust is not a resource.
Background
On July 25, 1997, the Office of the Public Guardian executed a trust called the "Joyce G~ Special Needs Irrevocable Pay Back Trust" and funded it with $239,000 of Ms. G~'s assets. In April 1999, we concluded that the trust was a revocable "grantor" trust because Ms. G~ was the grantor (source of the funds) and the sole beneficiary.
We concluded that Ms. G~ was the sole beneficiary because the trust provided that she was the sole beneficiary during her lifetime and would terminate if either Ms. G~ died or if she was no longer a "disabled person" as defined under the Social Security Act. Trust 4.1. If Ms. G~ was found to be no longer a disabled person, the funds would be paid to Ms. G~ or her guardianship estate. Trust 4.2(c). If she died, the trustee was directed to pay any remaining trust property to Ms. G~'s decedents' estate. Trust 4.2(d).
In April 1999, the Public Guardian petitioned the Illinois probate court for leave to amend the trust insofar as it described distributions on the death of Ms. G~. The probate court granted the petition on April 13, 1999. The trustee consented to the amendment on May 11, 1999.
As amended, the trust provides for the payment of remaining trust property to:
(1) If there is a surviving spouse and also a descendent of the decedent: 1/2 of the entire estate to the surviving spouse and 1/2 to the decedent's descendents per stirpes (2) If there is no surviving spouse but a descendent of the decedent: the entire estate to the decedent's descendents per stirpes. (3) If there is a surviving spouse but no descendent of the decedent: the entire estate to the surviving spouse. (4) If there is no surviving spouse or descendent but a parent, brother, sister or descendent of a brother or sister of the decedent: the entire estate to the parents, brothers and sisters of the decedent in equal parts, The Guardian of the Estate Asserts that the only known living family members of Joyce G~'s, at the time of the creation of this provision, are Joyce G~'s first cousins, Thea H~ of Evanston, Illinois, Joseph S~ of North Muskegan, Michigan, Mae C~ of Lemont, Illinois and Joseph H~ of Wilmette, Illinois, allowing to the surviving parent if one is dead a double portion and to the descendents of a deceased brother or sister per stirpes the portion which the deceased brother or sister would take if living. (5) If the above provisions fail to vest, then the remaining trust estate shall pay to the relevant portion of the Illinois Probate Act.
Amended Trust 4.2.
Discussion
We have previously advised that a grantor trust is presumed revocable. See POMS SI 01120.200(D)(3); Memo. from OGC-V to ARC-POS, Six State Synopsis of Trust Laws (Feb. 26, 1992). We have also advised that a trust is not a grantor trust to the extent that it has named a class of contingent identifiable beneficiaries. See Memo. from OGC-V to ARC-Programs, Clarification of Regional SSA Program Circular 94-05 Concerning Trusts (May 24, 1995). In light of these authorities, we believe that the amended trust is not a resource.
The general rule is that when a trust names no residual beneficiary, the grantor intends that he or she is the sole beneficiary. Restatement (Second) of Trusts § 127 cmt. b (1957).
Where, however, the grantor expresses his or her intent that the remainder of the trust property be paid to a specific identifiable class, such as descendents, then the members of that class are considered contingent remainder beneficiaries. Id.
Here, as amended, the trust makes clear that Ms. G~ intended specific individuals-her spouse (if any), parents, siblings, or descendents-would obtain the remainder interest in her trust property. This is sufficient to show Ms. G~'s intent that she is not the sole beneficiary of the trust. Therefore, the trust, as amended is not a resource.
We note that the probate court approved the amendment in April 1999, and the trustee accepted the amended trust in May 1999. Therefore, the property would cease to be a resource effective June 1999. See 20 C.F.R. § 416.1207(a) (first moment of month rule).
Conclusion
For the foregoing reasons, we believe that the trust as amended is no longer a resource to Ms. G~ as of the time the amendment was accepted by the trustee. Therefore, the trust would not be a resource effective June 1999.
~~WW. PS 00-241 Illinois OBRA 93 Trust for Dominick J. G~, SSN: ~ Your Reference: SI-2-1-3~~
XX. PS 00-241 Illinois OBRA 93 Trust for Dominick J. G~, SSN: ~ Your Reference: SI-2-1-3
DATE: April 17, 1997
1. SYLLABUS
The funds in the trust are a countable resource as the SSI recipient is the grantor and sole beneficiary of the trust and can revoke the trust and use the funds for his support and maintenance.
2. OPINION
This is in response to your inquiry asking whether the trust agreement for Dominick J. G~ would be a countable resource to Mr. G~, a Supplemental Security Income (SSI) claimant. We conclude that Mr. G~, as the settlor and sole beneficiary of the trust, could revoke the trust and use the trust funds for his support and maintenance. The assets in the trust, therefore, should be considered a resource to him.
Background
Mr. G~ is an adult claimant for SSI benefits. He apparently had some assets, which the guardian of his estate placed in a court-approved trust. The trust purports to be written pursuant to 42 U.S.C. § 1396p, as amended, and is entitled: "TRUST AGREEMENT: DOMINICK G~ OBRA 93." That statute governs eligibility for Medicaid. You submitted letters in which officials from the state Medicaid agency apparently conclude that the trust complies with the statutory Medicaid trust provisions and with state rules implementing that law.
The settlor (grantor) of the trust is named as Trust and Savings , as guardian of Mr. G~ s estate. The trust states that the trust funds are to be used solely for the benefit of Mr. G~ for his "extra and supplemental needs, over and above the benefits he otherwise receives as a result of his handicap or disability" from governmental benefits. Funds are to be paid at the trustee s discretion, and Mr. G~ has no right to demand income or principal from the trust. All expenditures are to be approved in advance by the Probate Court.
The trust purports to be irrevocable and is to terminate on Mr. G~ s death. The trust provides that:
Specifically in accordance with 42 U.S.C. 1396p(d)(4)(A), any amount remaining in the Trust at [Mr. G~ s] death (up to the amount expended by the State of Illinois, or any other state, for medical assistance) shall be paid to the appropriate State agencies, as reimbursement to the State of Illinois or such other state as has provided benefits to [Mr. G~] during his lifetime, except that the Trustee may first pay any outstanding, reasonable expenses for maintaining the existence of the Trust, any final bills, debts, expenses, taxes, fees, funeral-related items, and/or such other items which may be paid, prior to reimbursement to the State, pursuant to statute or regulation now in existence or hereafter enacted or issued. In the event that any Trust assets are remaining after payment of the reasonable expenses and the reimbursement to the State of Illinois or other state(s) as set forth above, then the balance shall be allocated and distributed to the decedent s estate, if any, otherwise pursuant to a small estate s affidavit.
Article 1.03(d).
The trust also provides that it will terminate in the event that Mr. G~ is no longer a disabled person under the Social Security Act. In that event, the trust estate will be distributed outright to Mr. G~, after reimbursement to the State of Illinois or any other state that has provided him benefits. The trust also provides that the trust may be subject to further court order.
Discussion
As we previously advised, the rules governing when trust assets affect eligibility for Medicaid are quite different from the SSI rules for determining when assets are a countable resource. Even if a trust is consistent with the provisions of the Omnibus Reconciliation Act of 1993, as amended, it still may be a countable resource for SSI purposes. See Revocability of Wisconsin Trust for Clayton D. B~, ~, OGC-V (D~) to Gloria J. P~, ARC-POS (Oct. 28, 1994) at 4, n.7.
Assets are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for his or her support and maintenance. See 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate the property, it is a resource. See id. Trust assets are a resource to the individual if he or she can revoke the trust and use the assets to meet his or her needs for food, clothing, and shelter. See POMS SI 01120.200(D)(1)-(3). We previously advised that Illinois appears to follow the general rule that, even if a trust purports to be irrevocable, it nevertheless may be revoked if the individual is both the settlor and sole beneficiary of the trust. Trust as Resource - Illinois - Theresa M~, SSN: ~, OGC-V (P~) to Armando A. G~, Acting ARC-POS (Aug. 4, 1993), at 3.
Here, Mr. G~, acting through his guardian, is the settlor (grantor) of the trust at issue. See POMS SI 01120.020(B)(1), (C)(1). For reasons explained more fully below, he also is the only beneficiary of the trust. Therefore, he can revoke the trust at any time and use the assets for his support and maintenance, although his guardian may have to obtain court approval to revoke the trust on his behalf.
Clearly, Mr. G~ is the only beneficiary of the trust during his lifetime. The trust assets also would revert back to him if the trust is terminated because he is restored to competency. The only issue, therefore, is whether the trust creates any interest in any residual beneficiaries if the trust terminates at the time of Mr. G~ s death.
Although the trust provides that, upon Mr. G~ s death, any amount remaining in the trust shall be paid to the appropriate state agencies as reimbursement to the state for benefits paid to Mr. G~ during his lifetime, this does not make the State of Illinois, or any other state entitled to such reimbursement, a beneficiary of the trust. This provision (which apparently is required by the Medicaid provisions cited above) merely requires that the trust reimburse the state for benefits already conferred on Mr. G~ during his lifetime. Therefore, the money paid is for the benefit of Mr. G~, not the state.
Similarly, no additional beneficiaries are established by provisions allowing any payments made for maintaining the existence of the trust, paying any final bills, debts, expenses, taxes, fees, funeral-related items, and/or other items which may be paid by law prior to reimbursement to the state. All of these payments would relate to running the trust itself or providing goods or services for Mr. G~ s benefit (including his funeral-related expenses). These provisions also do not create any additional beneficiaries. See Stewart, 3 Ill. App. 3d at 339, 278 N.E.2d at 12.
Any amounts remaining after these payments are to be distributed to Mr. G~ s estate, if any, and otherwise pursuant to a small estate s affidavit. As we have previously advised, a remainder interest in the settlor s estate does not establish any additional beneficiaries. See Theresa M~, supra, memorandum at 4; see also Restatement (Second) of Trusts § 127, comment b; cf. Botzum, 367 Ill. at 542-43, 12 N.E.2d at 204-05 (trust provision that life beneficiary shall by her last will and testament appoint residual beneficiary did not create any title or interest in the possible appointees such that their permission would be required to terminate the trust); Stewart, 3 Ill. App. 3d at 337, 339, 278 N.E.2d at 12 (no additional beneficiaries created by provision that, on beneficiary s death, trustee shall pay remainder as the will of the beneficiary may provide, or if there is no will to beneficiary s heirs at law).
Because Mr. G~ is the settlor and sole beneficiary of the trust, he should have the power to revoke the trust, even if the trust purports to be irrevocable. Because he is under a legal disability, however, his guardian would revoke the trust on his behalf.
Illinois case law provides that the settlor and beneficiaries can agree to revoke the trust where they are not under a legal disability. See Botzum, 367 Ill. at 542-43, 12 N.E.2d at 205; Vlahos, 362 Ill. at 599, 1 N.E.2d at 61-62; see also Restatement (Second) of Trusts § 339. The cases, however, do not address the situation in which the trust was established by a guardian on behalf of one under a legal disability. Presumably, if an individual under a disability can create a trust through his guardian, he should be able to revoke the same trust through his guardian.
Illinois statutory law provides that:
Adjudication of disability shall not revoke or otherwise terminate a trust which is revocable by the ward. A guardian of the estate shall have no authority to revoke or amend a trust that is revocable or amendable by the ward, except that a court may authorize a guardian to revoke a Totten trust or similar deposit or withdrawable capital account in trust to the extent necessary to provide funds for the purposes specified in paragraph (a) of this Section [i.e., for suitable support and education of the ward].
755 Ill. Comp. Stat. Ann. § 5/11a-18(d). This provision is designed to prevent a guardian from undoing a trust that the ward established prior to his disability. Here, however, the guardian (not the ward) created the trust while the ward was under a disability. Therefore, there is no danger of thwarting the ward s pre-disability intentions. However, since the ward is under a disability, and especially since the trust was authorized by a court and is subject to further court order, the guardian may be required to obtain court approval prior to revoking the trust on Mr. G~ s behalf. Even if this is the case, however, we see no reason to assume that a court might deny such a request, especially since Illinois law requires guardians to use the ward s assets to provide for the suitable support and education of the ward. See 755 Ill. Comp. Stat. Ann. § 5/11a-18(a).
Conclusion
In sum, we conclude that the trust assets at issue should be considered a resource to Mr. G~ for SSI purposes since, as settlor and sole beneficiary of the trust, he can revoke the trust and use the trust assets for his support and maintenance.
~~XX. PS 00-236 SSI Illinois Review of Trust for William N. G~~~
YY. PS 00-236 SSI Illinois Review of Trust for William N. G~
DATE: December 14, 1998
1. SYLLABUS
A general rule of trust law asserts that a trust is not a countable resource for SSI purposes if the recipient can not revoke or direct use of the trust for his/her support and maintenance. The Trust principal therefore is not a countable resource. However, although the Trust principal is not a countable resource, disbursements from the Trust under certain circumstances would be countable income for determining SSI eligibility.
2. OPINION
This is in response to your request for an opinion regarding whether, for Supplemental Security Income ("SSI") purposes, (1) the trust established for the benefit of William N. G~ is a countable resource and (2) distributions from the trust are countable income. Because William N. G~ ("William") does not have legal authority to revoke the trust or to direct the use of the trust assets for his own support and maintenance, we have concluded that the trust principal is not a countable resource. However, distributions from the trust that are used for William s support and maintenance and cash distributions paid directly to William are countable income for SSI purposes.
FACTS
In July 1998, Barbara A. F~ ("Grantor") established the William N. G~ Trust Agreement ("Trust Agreement" or "Trust") for the benefit of her physically disabled son, William. The Trust Agreement names Janet A. F~ as Trustee and states that it consists of the property listed on "Schedule A." Although "Schedule A" is currently blank, the file also contains a receipt for $61,000 from the Grantor to fund the Trust. We assume that the $61,000 was actually the Grantor s.
The purpose of the Trust is to maximize all available resources and apply them so that William has the best possible chance of becoming self-sufficient. Accordingly, the Trust is for "extras" to enhance William s quality of life and provide special medical care and treatment that may not otherwise be available. The Trust funds are only to be used to supplement, but never to supplant public funds, so that William can obtain the greatest amount of funds and services available to him from all federal, state, and local governmental sources.
Under the terms of the Trust Agreement the Trustee can use Trust assets for anything consistent with the Trust s purpose that cannot be provided from public funds at a given time, including special education and therapy; job training; medical care; entertainment; travel; pocket money; clothing; and any other type of supplemental needs, goods or services, including special housing or custodial or medical care. The Trust Agreement provides that the Trustee has "sole and absolute discretion" in determining whether to use part or all of the net income and principal of the Trust to benefit William, but forbids the Trustee from paying Trust income or principal "in such a way as to make [William] or any other beneficiary ineligible for public funds that would otherwise be available . . . ."
In addition to William, the Trust Agreement also establishes other potential beneficiaries. If the Trustee determines that the income from the Trust is ever in excess of that required for William, the Trustee may distribute all or a part of the excess to one of more of the Grantor s living descendants (currently, only William s sister, Andrea). Furthermore, at the time of William s death, or "if the principal or income become counted as a resource for SSI purposes or other public benefit purposes, or if the income is counted to reduce or eliminate any public benefits for William, so that the Trust purpose fails," the Trust principal and income are to be distributed to the Grantor, or if she is deceased, to her descendants, or to other identified beneficiaries depending upon the circumstances.
DISCUSSION
A resource, for determining whether an individual is entitled to SSI, includes cash or other liquid assets, or any real or personal property that an individual owns and could convert to cash to use for his support and maintenance 20 C.F.R. § 416.1201(a) (1998). Trust property may be such a resource for SSI purposes. Program Operations Manual Systems ("POMS") SI 01120.200(A). Specifically, trust principal constitutes a resource if an individual (1) has legal authority to revoke the trust and then use the funds to meet his food, clothing, or shelter needs, or (2) can direct the use of the trust principal for his support and maintenance under the terms of the trust. POMS SI 01120.200(D)(1)(a).
Whether the Trust is revocable depends on the terms of the Trust and/or Illinois law. POMS SI 01120.200(D)(2). Article XIII of the Trust Agreement specifically states that it is irrevocable and may not be amended. Nevertheless, under Illinois law, a trust may be terminated if: the purpose of the trust is substantially accomplished and all of the interests created by the trust are vested; there are no unascertainable contingent interests; there are no pending spendthrift provisions; the beneficiaries are in agreement; and none of the beneficiaries is under a legal disability. , 187 N.E.2d 315, 319 (Ill. App. Ct. 1963). See also Altemeier v. , 86 N.E.2d 229, 234 (Ill. 1949); , 12 N.E.2d 203, 205 (Ill. 1937). In light of these factors the Trust Agreement remains irrevocable. At Article III, the Trust Agreement states that if at any time the Trustee determines that the Trust resources are in excess of what is needed for William, the Trustee may distribute the excess income to the Grantor s living descendants (presently, William s sister, Andrea). Furthermore, under Article IV the Trust principal and net income are to be distributed to the Grantor or other identified beneficiaries depending upon the circumstances, at the time of William s death or if the Trust purpose fails. Thus, because the Trust Agreement creates contingent beneficiaries, William lacks legal authority to revoke the Trust and use the Trust property for his food, clothing, and shelter. See Altemeier, 86 N.E.2d at 234 ("where the trust makes provision for distribution to contingent beneficiaries, or upon uncertain contingencies, the trust may not be terminated even by the unanimous consent of all of the beneficiaries, or the prospective beneficiaries, before the time fixed by the terms of the trust.").
Although William does not have the legal authority to revoke the Trust Agreement, the Trust may still be counted as a resource in determining SSI eligibility if William has the ability to direct the use of the Trust principal. POMS SI 01120.200(D)(1)(a). Such authority may be included specifically in a trust provision allowing the beneficiary to act on his own or in a provision allowing him to order actions by the trustee. POMS SI 01120.200(D)(1)(b). The Trust Agreement includes no such provision. Rather, Article III of the Trust Agreement provides that the Trustee has "sole and absolute discretion" to determine whether to disburse part or all of the Trust income and principal to fulfill the Trust purposes. See also Article VII ("The Trustee, in making distributions of income or principal in the Trustee s absolute and sole discretion . . ."). Thus, William does not have the ability to direct the use of Trust assets for his support and maintenance under the terms of the Trust Agreement. See Stein v. Scott, 625 N.E.2d 713, 716 (Ill. App. Ct. 1993) (under trust provision that disbursements were to be paid at "trustee s discretion," trustee had unfettered discretion to determine if and when beneficiary should receive trust funds).
Finally, although the Trust principal is not a countable resource, disbursements from the Trust under certain circumstances would be countable income for determining William s SSI eligibility. If the Trustee were to authorize disbursements from the Trust consisting of cash paid directly to William, or payments to a third party for food, clothing, or shelter received by William, such disbursements would constitute income for SSI purposes. POMS SI 01120.200(E)(1)(a) & (b). If, however, such disbursements resulted in William s receipt of goods or services other than food, clothing, or shelter such as medical care the Trust disbursements would not constitute countable income for SSI purposes. POMS SI 01120.200(E)(1)(c).
CONCLUSION
For the foregoing reasons, we conclude that the Trust principle is not a countable resource, but that Trust disbursements under some circumstances would constitute countable income.
~~YY. PS 00-235 Illinois Trust for Theodore F~ SSN: ~~~
ZZ. PS 00-235 Illinois Trust for Theodore F~ SSN: ~
DATE: July 6, 1998
1. SYLLABUS
As a general rule, funds in a trust that is irrevocable by its terms and under State law are not countable resources. However, when the grantor of the trust is also the sole beneficiary of the trust arrangement, the trust is revocable regardless of language in the trust document to the contrary. Since the individual is the sole beneficiary of the trust, he/she can revoke the trust at any time and use the assets for his/her support and maintenance, even though his/her guardian may have to obtain court approval to revoke the trust on his/her behalf. Thus, the trust is a countable resource for SSI purposes.
2. OPINION
You have asked for an opinion on whether the trust established for the benefit of Theodore F~ is a countable resource for Supplemental Security Income (SSI) purposes. We have reviewed the trust documents and have concluded that Theodore has the legal authority to revoke the trust and then use the assets for his support and maintenance. Therefore, the assets in the trust should be considered a resource to him.
FACTS
At issue is a discretionary trust entitled "Theodore F~ OBRA '93 Trust" ("Trust Agreement") created for the benefit of Theodore F~, who is disabled. His mother, Angela G. P~, is named as the grantor and the trustee. Theodore s step-father and brother, Thomas J. P~ and George F~, respectively, are named as successor trustees. The stated purpose of the Trust is to provide for Theodore's extra and supplemental needs, over and above those benefits he otherwise receives from the federal, state, and local governments as a result of his disability. Because Theodore is disabled, the trustees are instructed not to distribute cash or securities to him directly, but rather are directed to purchase goods and services on his behalf. Theodore has no right to demand income or principal from the Trust.
The Trust Agreement states that it is irrevocable and that it is intended that Theodore still qualify for government assistance. The Trust Agreement may be amended to comply with judicial decisions or other interpretations or changes in the laws and rules, including regulations under 42 U.S.C. 1396p or related state statutes that are consistent with the Revenue Reconciliation Act of 1993 as amended, to conform the Trust provisions to operate and comply with the stated goals of the Trust.
According to the terms of the Trust Agreement, the Trust will terminate on Theodore's death. After paying any outstanding expenses for maintaining the existence of the trust and all reasonable expenses such as debts and funeral costs, the trustee is directed to reimburse the State for any amounts which were expended on Theodore's behalf. If thereafter any assets remain in the Trust, the remaining balance will distributed to Theodore s decedent s estate, if any, otherwise pursuant to a small estate s affidavit.
The Trust Agreement also provides that it will terminate in the event that Theodore is no longer a disabled person under the Social Security Act. In that event, the trust estate will be distributed to Theodore outright, after reimbursement to the State of Illinois or any other state that has provided him benefits.
DISCUSSION
The Social Security Act provides that an unmarried individual is not eligible for SSI if his countable resources exceed $2000. 42 U.S.C. § 1382(a)(1)(B)(ii). A resource is defined as cash or other liquid assets or any real or personal property that an individual owns and can convert to cash to use for his support and maintenance. 20 C.F.R. § 416.1201(a). Thus, if Theodore (1) has the authority to revoke the Trust and then use the funds to meet his food, clothing, or shelter needs, or (2) if he can direct the use of the trust principal for his support and maintenance, the trust principal is considered a resource for SSI purposes. See POMS SI 01120.200(D)(1)(a). Consistent with SSI s trust policy, if an individual neither owns nor has the legal right to direct the use of trust assets to meet his or her support and maintenance needs, then the trust assets are not considered a resource. See Memo from OGC-V (Beverly) to P~, ARC-MOS (Dec. 1, 1997) , at 3-4 (inability to revoke the trust or direct the trust principal for support and maintenance render the trust not a resource); see also Memo from OGC-V (M~) to Kaiser, Director, POS-RSI/SSIB, SSA-V (June 3, 1997), at 2. Whether Theodore can revoke the Trust or direct the use of Trust assets depends on both the terms of the Trust Agreement and on Illinois law.
As a general rule, funds in a trust that is irrevocable by its terms and under state law are not countable resources. POMS SI 01120.200(D)(2)(b). But even a trust that expressly declares itself irrevocable, may still be terminated if the parties are not under any legal disability, and if the settlor and all beneficiaries agree. See v. , 187 N.E.2d 315, 319 (Ill. App. Ct. 1963) ("'Where all parties interested in the trust fund are sui juris they may consent to a termination of the trust and distribution of the fund. '" (quoting Anderson v. , 104 N.E. 659, 661 (Ill. 1914) (footnote added)). As a consequence of this rule, when the grantor is the sole beneficiary of the trust arrangement, the trust is revocable regardless of language in the trust document to the contrary. See POMS SI 01120.200; , 187 N.E.2d at 319. We have previously advised that Illinois appears to follow this general rule. See Memo from OGC-V (M~) to P~, ARC-MOS, SSA-V (July 28, 1997), In re Rita M. F~, ~, at 2-3 . Even if he did not reserve the power of revocation, if the grantor is the sole beneficiary of a trust and is not under an incapacity, he can compel the termination of the trust, although the purposes of the trust have not been accomplished. Vlahos v. Andrews, 1 N.E.2d 59, 61-62 (Ill. 1936).
A grantor or settlor of a trust is the individual who actually furnishes the consideration that establishes the trust, even if another entity nominally creates the trust. , 635 N.E.2d 853, 855 (Ill. App. Ct. 1994). When the sole beneficiary, acting through his guardian, conservator, legal representative, or other individual legally empowered to act on his behalf establishes the trust with funds that actually belong to the sole beneficiary, the sole beneficiary can legally be considered the grantor of the trust. POMS SI 01120.200(B)(2).
Here, Theodore is the grantor of the Trust because he furnished the consideration for its creation, acting through his legal guardian, Angela P~. The property that was used to start the Trust (stock in 3M, cash, and a savings bond) came from Theodore s estate. (See Inventory.) Therefore, it was his property. Thus, even though the Trust was set up by Angela P~, she was acting as Theodore s agent; he supplied the consideration and is considered to be the grantor. , 635 N.E.2d at 855. For reasons explained more fully below, he also is the only beneficiary of the trust. Therefore, he can revoke the Trust at any time and use the assets for his support and maintenance, although his guardian may have to obtain court approval to revoke the trust on his behalf.
Clearly, while Theodore is alive, he is the only beneficiary of the Trust, as the trust can only be used for his benefit. Other than the exhaustion of corpus, the only way the Trust would be distributed before Theodore s death is if he were restored to competency, in which case any amount remaining in the Trust would go to Theodore, after reimbursement to the State of Illinois or any other state that provided benefits to Theodore prior to that time (Trust Agreement at 4).
Although the Trust Agreement provides that, upon Theodore s death, any amount remaining in the Trust shall be paid to the appropriate state agencies as reimbursement to the state for benefits paid to Theodore during his lifetime, this does not make the State of Illinois, or any other state entitled to such reimbursement, a beneficiary of the Trust. See Memo from OGC-V (M~) to P~, ARC-MOS, SSA-V (June 27, 1997) , ~, at 4. This provision merely requires that the Trust reimburse the state for benefits already conferred on Theodore during his lifetime. Therefore, the money is for the benefit of Theodore, not the state.
Similarly, no additional beneficiaries are established by provisions allowing any payments made for maintaining the existence of the Trust, paying any final bills, debts, expenses, taxes, fees, funeral-related items, and/or other items which may be paid by law prior to reimbursement to the state. All of these payments would relate to running the Trust itself or providing goods or services for Theodore s benefit (including his funeral-related expenses). These provisions also do not create any additional beneficiaries. See Memo from OGC-V (D~) to K~, Center Director, SSA-V (April 17, 1997) In re Dominick J. G~, ~, at 4.
Any amounts remaining after these payments are to be distributed to Theodore s estate, if any, and otherwise pursuant to a small estate s affidavit. As we have previously advised, a remainder interest in the grantor s estate does not establish any additional beneficiaries. See Dominick G~, supra, memo at 4; see also Restatement (Second) of Trusts § 127, comment b; , 278 N.E.2d 10, 12 (Ill. App. Ct. 1972) (no additional beneficiaries created by provision that, on beneficiary s death, trustee shall pay remainder as the will of the beneficiary may provide, or if there is no will to beneficiary s heirs-at-law); , supra, memo at 4 ("upon Rita's death, the residual estate is to be distributed to those individuals who are entitled to receive Rita's property as determined in accordance with the laws of the State of Illinois. The use of such terms, however, does not create residual beneficiaries of the Trust, because there are no identifiable residual beneficiaries, either by name or by class"). If the Trust included no information about what to do upon the death of the beneficiary, the money would be put into the beneficiary s estate. See Memo from OGC-V (K~) to L~, Acting ARC, SSA-V, (May 24, 1995) Clarification of Regional SSA Program Circular 94-05 Concerning Trusts, at 3. Accordingly, a trust agreement containing language specifying that the trust will pass to the grantor-beneficiary's estate upon his or her death is legally equivalent to a trust instrument where there is no further provision regarding the disposition of the trust. Id. Since the latter creates a revocable trust, the former does as well and language referring to the trust passing to the beneficiary's estate upon the beneficiary's death does not create a residual or contingent beneficiary that would make the trust irrevocable. See id.; Restatement (Second) of Trusts, § 127, comment b, p. 273 (1959).
Because Theodore is the grantor and sole beneficiary of the Trust, he has the power to revoke the Trust, even though the Trust purports to be irrevocable. Because he is under a legal disability, however, his guardian would have to revoke the Trust on his behalf. Presumably, if an individual under a disability can create a trust through his guardian, he should be able to revoke the same trust through his guardian. See Dominick G~, supra, memo at 5.
CONCLUSION
For these reasons, the Trust in this case is a revocable grantor's trust, as the grantor and sole beneficiary are the same. Because the Trust is a revocable grantor s trust, it can be counted as a resource for SSI purposes. Theodore can, through a guardian, revoke the Trust under Illinois law and obtain either the principal or the interest of the trust to use for his own maintenance and support. POMS SI 01120.200(D)(2); 20 C.F.R. § 416.1201(a).
~~ZZ. PS 00-227 Illinois Trust for Rita M. F~, SSN: ~~~
AAA. PS 00-227 Illinois Trust for Rita M. F~, SSN: ~
DATE: July 28, 1997
1. SYLLABUS
The trust in this case is a countable resource as the SSI recipient is the grantor and the sole beneficiary of the trust and can revoke the trust and use the principal for her own support and maintenance.
2. OPINION
You have requested an opinion as to whether the "Rita M. F~ Supplemental Needs Trust Agreement" (the Trust) is a revocable grantor's trust, whether Rita F~ (Rita), a supplemental security income recipient, would have unrestricted access to the trust principal which she could use for her support and maintenance. For the following reasons, we believe that, despite the language in the Trust to the contrary, the actual grantor of the Trust is Rita, the sole beneficiary, and that therefore, the Trust is a revocable grantor's trust and a countable resource under 20 C.F.R. § 416.1201.
FACTS
Heinrich F~, the guardian of the estate and person of Rita F~, a disabled person, filed a counterclaim on her behalf against two health insurance companies. A settlement was reached and submitted for approval by an Illinois circuit court judge in December 1996. It provided that $498,388.94 be distributed to Heinrich F~, as Trustee of the Trust that was established for the benefit of Rita F~ for her lifetime. Rita is the sole beneficiary.
DISCUSSION
A resource, for SSI purposes, includes cash or other liquid assets or any real or personal property that the individual owns and could convert to cash to be used for her own support and maintenance. 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate the property or her share of the property, it is considered a resource. 20 C.F.R. § 416.1201(a)(1); see also POMS SI 01110.100(B). Based on the regulations, trust property may be a resource. If an individual has the ability to revoke the trust and then use the funds to meet food, clothing or shelter needs, or if the individual can direct the use of the trust principal for her support and maintenance under the terms of the trust, then that property will be counted as a resource. POMS SI 01120.200(D)(1)(a). Conversely, if the individual has no power to access the principal or direct the use of the trust principal, then it will not be considered a resource. POMS SI 01120.200(D)(2)(b). Even if the trust property is not a resource, however, the funds paid from the trust may be income to the SSI recipient.
Here, the Trust states that it is irrevocable and may only be altered, amended, restated revoked or terminated by order of the Circuit Court of Peoria County. Article II § 1.1. It is a discretionary trust because the trustee has full discretion as to the time, purpose and amount, if any, of all distributions paid to or for the benefit of Rita's special needs. Article II § 2. see also POMS SI 01120.200(B)(10) (defining discretionary trust). The stated purpose of the Trust is to supplement Rita's needs, and it further provides that no income or principal will be distributed if the distribution would result in the denial, discontinuance or reduction of any governmental funds. Article I(E); Article II § 2. Upon Rita's death, the Trustee is to distribute all amounts remaining in the Trust to the State of Illinois up to an amount equal to the total medical assistance paid by the State of Illinois on Rita's behalf and to distribute any remaining amounts to those individuals who are entitled to receive Rita's property as determined in accordance with the laws of the State of Illinois. Article II § 3.
As a general rule, funds in irrevocable trusts are not countable assets. POMS SI 01120.200(D)(2)(b). The general law of trusts, however, recognizes an exception to this rule — when the grantor is the sole beneficiary of the trust arrangement, the trust is revocable regardless of the language in the trust document to the contrary. Restatement (Second) of Trusts, § 339 (1959); 76 Am. Jur. 2d Trusts 91 (1975); see also POMS SI 01120.200(B)(8),(D)(3). We have previously advised that Illinois appears to follow this general rule. Trust as Resource - Illinois -Theresa M~, SSN: ~, OGC-V (P~) to Armando A. G~, Acting ARC-POS (Aug. 4, 1993)(citing , 3 Ill. App. 3d 337, 339, 278 N.E.2d 10, 13 (1972) (expressly "irrevocable" trust could be revoked by agreement of settlors who also were sole beneficiaries of trust)); see also Six-State Synopsis of Trust Laws, OGC-V (P~) to P~, ARC, SSA-V (2/26/92) (advising that, in the absence of statutory or case law to the contrary, all six states in our region can be presumed to apply this principle). Thus, under the law in Illinois, a person may not set up an irrevocable trust for himself or herself as sole beneficiary.
A grantor or settlor of a trust is the individual who actually furnishes the consideration that establishes the trust, even if another entity nominally creates the trust. 76 Am. Jur.2d §55; , 635 N.E.2d 853, 855 (Ill. App. 1994) (holding that the language in the trust identifying defendant's insurer as settlor "was nothing more than an attempt to disguise the actual settlor" who was the beneficiary because he furnished the consideration for the creation of the trust when he exchanged his claim against the doctor for the settlement funds deposited in the trust).
Here, Rita furnished the consideration for the creation of the Trust when she, acting through her legal guardian, exchanged her claim against the health insurance companies for the settlement funds deposited in the Trust. Therefore, Rita was the grantor of the Trust as she provided the consideration for the Trust, even though her guardian nominally created it. When the sole beneficiary, acting through her guardian, conservator, legal representative, or other individual legally empowered to act on her behalf establishes the trust with funds that actually belong to the sole beneficiary, the sole beneficiary can legally be considered the grantor of the trust. POMS SI 01120.200(B).
The next question, then, is whether Rita, as grantor of the trust, is also its sole beneficiary. The addition of residual or contingent beneficiaries generally make the trust irrevocable. Restatement (Second) of Trusts, § 127, comment b (1959). Here, the Trust provides that upon Rita's death, the residual estate is to be distributed to those individuals who are entitled to receive Rita's property as determined in accordance with the laws of the State of Illinois. Article II, 3. The use of such terms, however, does not create residual beneficiaries of the Trust, because there are no identifiable residual beneficiaries, either by name or by class. See Restatement (Second) of Trusts, § 127, comment b (1959); see also Clarification of Regional SSA Program Circular 94-05 Concerning Trusts, OGC-V (K~) to L~, Acting ARC, SSA-V, at 2 (5/24/95) (hereinafter Clarification).
Where a trust specifies only that the trust will pass to grantor-beneficiary's estate (or to whom he or she may appoint by will), the trust is legally equivalent to a trust instrument where there is no further provision regarding the disposition of the trust. Id. at 4. Since the latter creates a revocable trust, the former does as well, and such language does not create a residual or contingent beneficiary that would make the trust irrevocable. Id. (citing Restatement (Second) of Trusts, § 127, comment b (1959); Theresa L. D~ G~, OGC-V (S~) to L~, Acting ARC, SSA-V, at 2-3 (3/29/95).
Where a trust purports to create an interest in favor of the grantor-beneficiary's "heirs at law", or to her next of kin or persons entitled to inherit on her death intestate (such as the Trust in this case), the general rule is that in the absence of a manifestation of a contrary intention, the inference is that [the grantor-beneficiary] is the sole beneficiary of the trust. Restatement (Second) of Trusts, § 127, comment b (1959); see also Clarification, at 4-6.
Here, because the term used by the Trust for distribution upon Rita's death refers solely to those entitled to inherit on her death under the laws of Illinois, we believe such language fails to create additional beneficiaries. Consequently, Rita is the sole beneficiary of the Trust.
For these reasons, we believe that the Trust in this case is a grantor's trust as the grantor and sole beneficiary are the same. Because the Trust is a revocable grantor trust, it can be counted as a resource for SSI purposes. Rita, through her legal guardian, can revoke the trust under Illinois law and obtain unrestricted access to its principal or interest to use for her own maintenance and support. 20 C.F.R. § 416.1201(a); POMS SI 01120.200(D)(2).
AAA. PS 00-180 Blocked Account in Illinois as SSI Resource: Duane P. C~, Jr., ~ (Your Ref: S2D5B2, SI-2-1)
BBB. PS 00-180 Blocked Account in Illinois as SSI Resource: Duane P. C~, Jr., ~ (Your Ref: S2D5B2, SI-2-1)
DATE: December 7, 1990
1. SYLLABUS
This opinion concerns whether funds held in a blocked account for a minor SSI recipient are countable resources.
An account is considered "blocked" where a State permits a guardian or payee to access funds held on behalf of another only with the permission of the court. Such funds are generally presumed to be available under Illinois law unless there is a legal restriction on the use of the funds that nullifies the presumption of availability. Not every court order denying a request for expenditures constitutes a legal restriction that nullifies the presumption that the funds are available for the beneficiary's support and maintenance. Under Illinois law, a guardian of a minor's estate is required to expend the minor's funds for his/her support and maintenance. Thus, as long as the funds are available for the minor's support and maintenance, they are considered a resource.
2. OPINION
By memorandum dated July 27, 1990, you asked us for an opinion on whether funds held in an account for a minor SSI beneficiary, Duane P. C~, Jr., ~, are countable resources for SSI purposes. Such funds are generally presumed to be available under Illinois law unless there is a legal restriction on the use of the funds that nullifies the presumption of availability. Here, there is a court order that finds that the funds "are not excess countable resources for SSI payment purposes" and denies the request for withdrawal of funds.
In our opinion, however, there is insufficient basis to conclude that the court order is a legal restriction on the use of the funds that nullifies the presumption that the funds are available for the beneficiary's support and maintenance. We therefore conclude that the funds are available for the beneficiary's support and maintenance and should be counted as resources for SSI purposes.
BACKGROUND FACTS
Here, in early 1985 an account of some $11,000.00 was established at the Northern Trust Company in the name of the minor, Duane C~, Jr. The funds apparently resulted from the settlement of a lawsuit. According to the January 1985 "Order to Settle Cause of Action - Minor's Estate" entered by the Circuit Court of Cook County, Illinois, the funds were to be held:
in an account in the name of the minor to be held subject to further order of court or to be released to the minor without further order upon the attainment of majority on December 5, 1992.
The Northern Trust account is held in the name of "Duane P. C~, Jr., a Minor." Neither the account itself, nor the account statements, indicate that the account is held in trust or under any other restriction(s). The beneficiary's mother, Mrs. Shirley C~, appears to have been the guardian of the minor's estate. She stated in the September 1989 Request for Reconsideration that "the funds withdrawn from the account [were] used to support Duane and other needs regarding to shelter, food, clothing, etc." It does not appear that she sought permission from the court before withdrawing funds. In the May 24, 1990 Request for Reconsideration, Mrs. C~ stated that "I was not aware that I should have not been removing funds out of Duane Jr.'s account." In September 1989 the account had a balance of some $4756.54. Following occasional withdrawals, by the end of 1989 the account had a balance of some $4292.49.
By early 1990, Mrs. C~ appears to have been represented by counsel. It is not clear if she remains the guardian of her minor son's estate. In May 1990, the Circuit Court of Cook County, Illinois, appointed a guardian at litem "to seek SSI benefits and any assets of minor" and continued all pending matters to June 22, 1990. On June 22, 1990, Judge W~ of the Circuit Court of Cook County, Illinois, issued an Order that stated:
This matter coming in for withdrawal of funds. The court being advised in the premises,
It is hereby ordered that:
* the funds in the minor's account at Northern Trust Company are not excess countable resources for Supplemental Security Income payment purposes of the Social Security Administration;
* the request for withdrawal of funds is denied.
DISCUSSION
Citing POMS SI 01120.110, we have previously advised you that where a fiduciary manages and controls funds owned by an SSI recipient, those funds are still considered available to the recipient for his support and maintenance absent a legal restriction on the use of or access to the funds by the payee or guardian. OGC-V (L~) to SSA-V, ARC-POS (W~), "Blocked Accounts as SSI Resources — Action," August 3, 1989; OGC-V (M~) to SSA-V, ARC-POS (P~-W~), "Blocked Account in Michigan as SSI Resource: Richard B~, ~," December 4, 1990. An account is considered "blocked" where a state permits a guardian or payee to access funds held on behalf of another only with the permission of the court. Since under Illinois law a minor's funds are to be used for his support and maintenance, the funds in a "blocked" account are presumed to be accessible by petition and are resources. OGC-V (L~), supra; POMS 01120.210D.1 (Feb. 1989); and the regional POMS supplement at SI R01120.210.
However, we have also previously advised you that the presumption of availability can be nullified in several circumstances. For example, we have advised that there may be a court order disapproving all or part of the expenditures made by the guardian on behalf of the ward, thereby constituting a legal restriction on the use of the funds expended that would nullify the presumption of availability. We further advised that the order establishing a guardianship may have to be reviewed to determine whether the court has imposed any restrictions on the guardian or minor's access to funds in a "blocked" account. OGC-V (L~), supra; OGC-V (M~), supra; and the regional POMS supplement at SI R01120.210. Accord, POMS 01120.210D.2 (Feb. 1989), which states that "The assumption of an owner's access to funds is nullified by evidence of a legal restriction against such access." /
As the following discussion makes clear, in our opinion not every court order disapproving expenditures made by the guardian constitutes a legal restriction that nullifies the presumption that the funds are available for the beneficiary's support and maintenance. Our previous opinions are limited to the extent they may have suggested otherwise.
We previously suggested that the order establishing the guardianship may be relevant to the question of availability of funds. For example, as in the December 4, 1990 OGC-V opinion involving a Michigan beneficiary, the order establishing the guardianship may itself preclude the use of the funds for the support or maintenance of the minor. OGC-V (M~), supra. Similar examples are contained in the previously-cited POMS sections whereby by operation of a court order, State law, or the terms of the account involved, the particular funds are in fact not available for the beneficiary's support and maintenance.
In addition, there may be other relevant considerations affecting whether SSA will conclude that a court order that disapproves expenditures made by the guardian constitutes a legal restriction that nullifies the presumption that the funds are available for the beneficiary's support and maintenance. These considerations may include, but are not necessarily limited to, such factors as whether the court's order actually addresses the availability of the funds for the beneficiary's support and maintenance; the jurisdiction of the court to enter the order restricting availability; whether there is an adequate factual basis for the court's order; the consistency of the court order with State law requirements; or the consistency of the court's order with previous actions by the involved parties or by the court itself. Social Security Ruling 83-37c, which adopts the decision in Gray v. , 474 F.2d 1370 at 1373 (6th Cir. 1973). There, the court described the following four prerequisites to the Secretary's acceptance of a State court determination as conclusive:
1) An issue in a claim for social security benefits previously has been determined by a State court of competent jurisdiction; 2) this issue was genuinely contested before the State court by parties with opposing interests; 3) the issue falls within the general category of domestic relations law; and 4) the resolution by the State trial court is consistent with the law enunciated by the highest court in the State.
One of the four factors described in the Gray case and Social Security Ruling 83-37c requires that the issue resolved by the State court fall within the general category of domestic relations law. / Although the court order herein does not clearly arise within the general category of domestic relations law, in our opinion the remaining three principles may well provide guidance in other types of cases as well. While not having the force and effect of the law or regulations, Social Security Rulings are binding on all components of the Social Security Administration as precedents in determining other related cases. Therefore, we recommend consideration of the remaining three factors herein, along with all other relevant factors, to the extent they are applicable. In short, a court order that disapproves all expenditures for support or maintenance generally constitutes a legal restriction that nullifies the presumption of availability, especially where that court order is not prohibited by State law and reflects a restriction on the face of the order establishing the guardianship or reflects a restriction on the face of the account in question. In certain circumstances, however, where there is a legitimate question as to whether or not the court has actually disapproved expenditures for support or maintenance, it may be appropriate for SSA to continue to develop the matter. This is such a case.
Here, in June 1990 the Circuit Court of Cook County, Illinois ordered that the funds "are not excess countable resources for SSI payment purposes" and denied the request for withdrawal of funds. In our opinion, however, there is insufficient basis to conclude that the court order is a legal restriction on the use of the funds that nullifies the presumption that the funds are available for the beneficiary's support and maintenance.
The record you have provided us does not show who sought the withdrawal of funds in 1990 or for what purpose they were sought. Based on the evidence we have, it appears likely that either the beneficiary's mother, or an attorney acting on behalf of the beneficiary, his mother or his estate, was seeking to withdraw the funds in response to an SSA determination of overpayment or ineligibility, rather than for the minor beneficiary's support and maintenance. Had the funds instead been sought for the support or maintenance of the beneficiary, we do not know what the court would have ruled. Under Illinois law, a guardian of a minor's estate is required to expend the minor's funds for his or her support or maintenance. Ill. Ann. Stat. ch. 110 1/2, paras. 11-13(b) and 11a-18(a) (S~-H~ Supp. 1989); , 520 N.E.2d 690 (1st Dist. Ill. 1987), appeal denied Goodman v. Berger, 530 N.E.2d 244 (1988). Although in 1985 the State court herein ordered that funds should not be withdrawn from the minor SSI beneficiary's account without "further order or court," the account established pursuant to that court order showed no restrictions. In fact the claimant's mother withdrew over $6000.00 during 1985 through 1989 for the minor's support and maintenance without seeking permission from the court and the court does not appear to have questioned any of the mother's withdrawals.
Under 20 CFR 416.1201(a), resources are defined as "cash or other liquid assets ... that an individual ... owns and could convert to cash to be used for his or her support and maintenance." Thus, the answer to the legal conclusion of whether or not the funds are SSI resources turns on the factual question of whether, as a matter of State law or the documents establishing the account or some other consistently-applied restriction, the funds are available for the claimant's support and maintenance. The Secretary would likely defer to a State court's resolution of the factual question, especially if the issue had been genuinely contested by parties with opposing interests, was consistent with prior actions by the parties or with prior court order, or reflected a restriction that appeared on the face of the account. E.g., Social Security Ruling 83-37c and , supra. Here, however, there is no evidence that the State court ever asked or answered the factual question of whether the funds are available for the claimant's support and maintenance, that the parties contested the issue, that the order was consistent with prior actions by the parties or the court, or reflected a restriction on the account. The evidence we have suggests instead that some $6000.00 from the account in question was in fact spent for the beneficiary's support and maintenance over an extended period of years and that the account contained no restrictions on its face. This is therefore a basis for SSA not to defer to the State court's order.
Moreover, the State court's ruling appears to be improper under State law, since under Illinois law such funds are required to be used for the claimant's support and maintenance. Ill. Ann. Stat. ch. 110 1/2, paras. 11-13(b) and 11a-18(a). This is an additional basis for SSA not to defer to the State court's order. E.g., Social Security Ruling 83-37c and , supra.
Finally, SSA generally defers to a State court's order interpreting State law, especially in those areas where a domestic relations or similar question arises under State law and/or the Social Security Act specifically incorporates State law requirements. , supra. The legal conclusion here, however, regarding whether or not the funds constitute resources for SSI purposes, arises under Federal law (i.e., Title XVI of the Social Security Act and 20 CFR 416.1201(a)). Again, this provides an additional basis for SSA, whose position was not represented in the State court proceedings, not to defer to, much less be bound by, the State court's order. At most, there appears to be an unfounded attempt to circumvent the Federal requirements that should not be countenanced by SSA.
In summary, the State court's legal conclusion herein is not factually supported and the necessary factual predicates do not appear to have been considered much less genuinely contested; the State court's order is inconsistent with prior actions (or inactions) by the parties and/or the court; the State court's order is not required by the terms establishing the account in question or reflected on the account's face; and the State court's order appears to be incorrect as a matter of State and Federal law. Moreover, while the State court's order concludes that the funds are "not excess countable resources for Supplemental Security Income payment purposes," the order does not conclude that the funds may not be used for the beneficiary's support and maintenance. There is thus insufficient basis to conclude that the court order is a legal restriction on the use of the funds that nullifies the presumption that the funds are available for the minor's support and maintenance under Illinois law. For the foregoing reasons, in our opinion the Secretary need not defer to the State court's order determining that the funds are not SSI resources. We therefore conclude that the funds are available for the beneficiary's support and maintenance and should be counted as resources for SSI purposes.
Should you have additional evidence available regarding the court proceedings that led to the court's June 22, 1990 Order that undermines our analysis or conclusions, we will be happy to review this matter further.
Footnotes:
[1]
If the grantor of the Trust corpus is a thirdparty, then the Trust would be subject to evaluation only underthe general resources rules, described below.
[2]
Importantly,if any other changes are made to the Trust, we cannot comment onhow it may impact this analysis.
[3]
We note that the Adoption Agreement indicates that it may be amended so long as the grantor and trustee agree and so long as the amendment is consistent with the Master Trust. The grantor/beneficiary could not, however, unilaterally amend even the Adoption Agreement under this provision.
Footnotes:
[1]
~~. According to the introductory paragraph to Article Seven, the Arc of Indiana is an organization that provides services to developmentally disabled individuals.~~
. [1] There is currently proposed legislation in the Illinois General Assembly which would create a new Illinois Trust Code, effective January 1, 2018. See H.B. 2526, 100th Gen. Assemb., 1st Reg. Sess. (Ill. 2017). This legislation contains a provision that would adopt § 401 of the UTC. See id. § 401.
[2]
. POMS SI 01120.199.F.2 permits an exception for transfer of a beneficiary’s trust account from one pooled trust to another. See POMS SI 01120.199.F.2 (the trust need not meet the above criteria to be excepted as a resource if the early termination clause (1) “solely allows for transfer of the beneficiary’s assets from one [pooled] trust to another [pooled] trust,” and (2) contains specific language precluding disbursements other than to the secondary trust (or for the payment of taxes or reasonable administrative expenses). Under this exception, the State(s) need not receive reimbursement prior to transfer of the beneficiary’s trust account. See id. However, no such exception exists for the transfer of a beneficiary’s trust corpus from a special needs trust to a qualifying pooled trust. See id.
. . According to the introductory paragraph to Article Seven, the Arc of Indiana is an organization that provides services to developmentally disabled individuals.
[3]
. . POMS SI 01120.199.F.2 permits an exception for transfer of a beneficiary’s trust account from one pooled trust to another. See POMS SI 01120.199.F.2 (the trust need not meet the above criteria to be excepted as a resource if the early termination clause (1) “solely allows for transfer of the beneficiary’s assets from one [pooled] trust to another [pooled] trust,” and (2) contains specific language precluding disbursements other than to the secondary trust (or for the payment of taxes or reasonable administrative expenses). Under this exception, the State(s) need not receive reimbursement prior to transfer of the beneficiary’s trust account. See id. However, no such exception exists for the transfer of a beneficiary’s trust corpus from a special needs trust to a qualifying pooled trust. See id.

POMS Reference

PS 01825.016: Illinois