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PS 01825.026: Minnesota

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  • Effective Dates: 03/06/2018 - Present
  • Effective Dates: 05/18/2018 - Present
  • TN 97 (03-18)
  • TN 112 (05-18)
  • PS 01825.026 Minnesota
  • A. PS 17-021 Is the Mille Lacs Band of Ojibwe Indians Minors’ Trust a Countable Resource for SSI?
  • 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 17-021 Is the Mille Lacs Band of Ojibwe Indians Minors’ Trust a Countable Resource for SSI?
  • Date: November 16, 2016
  • 1. Syllabus
  • Pursuant to POMS SI 01120.195I, the Regional Chief Counsel (RCC) Opinion examines whether A~’s assets in the Mille Lacs Band of Ojibwe Minors’ Trust are a countable resource for SSI purposes from September 2014 to the present. A~’s tribe established a trust account in her name in the Mille Lacs Band of Ojibwe Minors’ Trust, and at the age of 21, A~ applied to receive payments from her trust, and began receiving money in April 2015. The RCC concluded that A~’s trust was not a resource for purposes of SSI during the period at issue and going forward.
  • 2. Opinion
  • When A~ (“A~”) was a minor, her tribe established a trust account in her name in the Mille Lacs Band of Ojibwe Minors’ Trust. At the age of 21, A~ applied to receive payments from her trust, and began receiving money in April 2015. Pursuant to POMS SI 01120.195I, you have asked whether A~’s assets in the Mille Lacs Band of Ojibwe Minors’ Trust are a countable resource for SSI purposes from September 2014 to the present. For the reasons discussed below, we believe that A~’s trust was not a resource for purposes of SSI during the period at issue and going forward.
  • FACTS
  • Born on November XX, 1993, A~ is currently 22 years old. A~ has received SSI continuously since February 1994 when she was 1 year old. She suffers from cerebral palsy, periventricular leukomalacia, developmental delay, and she is wheelchair bound due to being paraplegic. However, A~ has not been declared incompetent and collects her own SSI funds.
  • A~ is a member of the Mille Lacs Band of Ojibwe Indians (the “Band”). The Band makes per capita distributions of the revenues from its gaming activities to minor children and incompetent adults separately from the rest of its gaming revenues, which are deposited in the Band’s general treasury. See 15 Mille Lacs Band Statutes Annotated § 202, found at http://www.millelacsband.com/pdf/StatutesTitle15New.pdf. The Band’s Gaming Revenue Allocation Plan governs the distribution of net revenues from its gaming activities, including monies set aside in trust for minor children. The trust for minors is administered pursuant to the terms of the Mille Lacs Band of Ojibwe Indians Minors’ Trust Agreement (the “Agreement”). The legislative branch of the tribal government adopted the Agreement in Joint Resolution 15-01-130-12 on June 14, 2012.
  • Accordingly, the Band established a minor trust account for A~ in the Mille Lacs Band of Ojibwe Minors’ Trust (the “Trust”) beginning April 1, 1998. Disbursement of funds for minors is controlled by § 5.3 of the Agreement. It appears that A~ did not attain a GED, and was thus eligible for the 10-year distribution schedule explained in § 5.3.1.2 of the Agreement. In February 2015, when A~ was 21 years old, she applied to receive distributions from her minor trust account. She collected her first payment in April 2015 and has been collecting ever since. A~ continues to have a balance in her trust account.
  • DISCUSSION
  • Under the Indian Gaming Regulatory Act (IGRA), 25 U.S.C. § 2701 et seq., an Indian tribe can issue a portion of its gaming revenues to individual tribal members in the form of per capita payments. See 25 U.S.C. § 2710(b)(3). The IGRA also requires a tribe to protect and preserve the interests of minor children and incompetent adults who are entitled to receive any of the per capita payments by disbursing the payments to the parents or legal guardians of such individuals. See id. § 2710(b)(3)(C); 25 C.F.R. § 290.12(b)(3). Because of the IGRA, some tribes have established trusts for their tribal members who are minor children and incompetent adults.
  • Based on the information provided to us, the Band established A~’s trust before January 1, 2000. Although per capita payments were added to A~’s trust after January 1, 2000, it is still considered to be established before January 1, 2000, and is evaluated under the regular resource rules in POMS SI 01120.200. See POMS SI 01120.201C.1. Under the regular resource rules, the trust principal is a resource if an individual can: (1) revoke or terminate the trust and use the assets to meet her needs for food or shelter; or (2) direct the use of the trust assets for her 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.
  • Period from September 1, 2014 to November 30, 2014
  • Although the Agreement identifies the Band as the grantor, under SSA rules A~ was the actual grantor of her trust from September 1, 2014 to November 30, 2014. The POMS instructs that, for determinations made for any months prior to December 1, 2014, the agency continues to apply its prior policy that the minor child is the grantor of an IGRA trust. See POMS SI 01120.195E. We interpret this provision to mean that, where the period at issue is before December 1, 2014, the agency’s prior policy applies. Here, part of the period at issue is September to November 2014. Accordingly, the agency’s prior policy applies to A~’s trust during these months, and therefore, SSA considers A~ the grantor for this period.
  • Applying the regular resource rules, we believe that A~’s trust was not a resource for these months. First, A~ did not have the legal authority to revoke or terminate her trust. Whether a trust can be revoked depends on the terms of the trust and the applicable state (and in this case, tribal) law. See POMS SI 01120.200D.2. The Agreement states that the trust is irrevocable. See Agreement § 2.2. However, generally, an irrevocable trust may be modified or terminated if the grantor and all beneficiaries agree. See Restatement (Third) of Trusts § 65 & cmt. a & reporter’s notes (2003). This is consistent with Minnesota law. See Minn. Stat. § 501C.0411(a) ; Matter of Schroll, 297 N.W.2d 282, 284 (Minn. 1980). In this case, the trust names residual beneficiaries. Agreement § 5.4. The Agreement states that, upon the death of a beneficiary, any funds held for his or her benefit will be disbursed according to Minnesota’s Probate law. See Agreement § 5.4; Minn. Stat. § 524.2-101 et seq.; see also POMS SI CHI01120.200D.4. Thus, A~ could not unilaterally revoke the trust, but needed the consent of all the residual beneficiaries. As such, the first prong of the regular resource rules is not met. POMS SI 01120.200D.1.a.
  • In addition, the Agreement does not contain any provision allowing A~ to direct the use of the trust principal, either by ordering actions by the trustee or acting on her own behalf. Further, § 2.3 of the Agreement establishes that a beneficiary of the trust has only unsecured contractual rights in his or her trust account, § 5.3 provides for final disbursements to beneficiaries only after reaching age 18 or older, and § 5.5 creates sole discretion in the trustee to give early disbursements only for unforeseen emergencies or for the health, education, or welfare of the beneficiary. Thus, A~ was not able to direct the use of her trust assets for her support and maintenance under the terms of the trust. See Minn. Stat. § 501C.0105 (the terms of a trust prevail over any provision of their default trust rules absent an enumerated exception). As a result, there is legal support for a decision that A~’s trust principal was not a resource for SSI purposes during this three-month period.
  • Finally, with respect to A~’s power to sell her beneficial interest in the trust, the Agreement contains a spendthrift provision in which the beneficiary’s interest in the trust assets is not subject to alienation. See Agreement § 16.2. However, such provisions are generally not valid with respect to grantor trusts. Restatement (Third) of Trusts § 58(2) & cmt. e (2003) (stating general trust principal that a grantor is not permitted to create a spendthrift trust for her own benefit); POMS SI 01120.200B.16. But even if A~ could sell her beneficial interest in the trust, that interest would have no significant market value since the trust is discretionary and the Trustee cannot be compelled to make any distributions. See Restatement (Third) of Trusts § 60 & cmt. e, f (2003). Accordingly, A~’s interest in the trust should be considered a resource with no market value.
  • Period from December 1, 2014 to the Present
  • For determinations made for any month beginning December 2014, SSA determines that the Indian tribe is the grantor of an IGRA trust for a minor child or incompetent adult, for resource counting purposes, if the trust meets the requirements set forth in POMS SI 01120.195F. See POMS SI 01120.195E. Here, we believe that A~’s trust meets each of the Section F requirements (the Agreement provisions addressing each requirement are listed in bold):
  • * The Indian tribe establishes the trust for the benefit of tribe members who are minors and legally incompetent adults and it funds the trust using only per capita payments from gaming revenues. See Agreement Preamble, §§ 1.12, 2.1, 3.2.
  • * The trust beneficiary is a minor or legally incompetent adult at the time the trust (or trust account) is established. See “Facts” section supra.
  • * The trust only allows contributions while the beneficiary is still a minor or legally incompetent. See Agreement §§ 1.7, 3.2.
  • * The trust instrument states that it is a grantor trust and the Indian tribe is the grantor of the trust, and grants to the Indian tribe a power or interest in the trust assets, such as the ability to vote any shares held in trust. See Agreement Preamble, §§ 2.2, 4.1, 8.1, 8.2.
  • * The Indian tribe is the owner of the trust for tax purposes and all the trust assets and the trust principal and income are subject to claims of general creditors of the Indian tribe under applicable federal, state, local, and tribal law. See Agreement §§ 2.3, 6.2, 8.1.
  • * At all times while the trust is in effect, the principal and income of the trust must be subject to claims of general creditors under applicable law. In addition, the trust documents must require the trustee to cease payments to or for the benefit of the beneficiary, and must require that the trustee hold trust assets for the benefit of the Indian tribe’s general creditors throughout any period during which the trustee believes or has reason to believe that the Indian tribe is unable to pay its debts as they become due, or is subject to a pending insolvency or bankruptcy proceeding. See Agreement § 6.2.3.
  • * The trust beneficiary does not have any preferred claim or beneficial ownership interest in any assets of the trust, and any rights created under the trust documents must be unsecured rights. In addition, amounts payable to, or for his or her benefit, cannot be anticipated, assigned (either at law or at equity), alienated, pledged, encumbered or subjected to garnishment, levy, or other legal or equitable process. See Agreement §§ 2.3, 16.2.
  • * Trust assets are not available to or for the benefit of the beneficiary until the beneficiary ceases to be a minor or legal incompetent, except for the distributions for the beneficiary’s health, education, or welfare made at the discretion of the trustee and pursuant to the trust instrument. See Agreement §§ 5.1, 5.3, 5.5.
  • * Upon the beneficiary’s death, the beneficiary’s share must be paid to the Indian tribe, unless the trust document provides for payment either:
  • * to persons who may inherit from the beneficiary under applicable state or tribal inheritance laws; or
  • * based on the terms of a valid will or trust of the beneficiary. See Agreement § 5.4.
  • Since the trust meets all of the requirements of POMS SI 01120.195F, the Band is considered the grantor of the trust beginning December 2014, and the agency evaluates the trust under the regular resource rules set forth in POMS SI 01120.200. Here, the Agreement states that the trust is irrevocable, see Agreement § 2.2, and it does not give a beneficiary the authority to unilaterally terminate the trust. See Agreement § 14.3 (Band may terminate trust upon written approval of beneficiaries). In addition, as discussed above, A~ is not able to direct the use of her trust assets for her support and maintenance under the terms of the trust. Thus, there is legal support for a decision that A~’s trust principal was not a resource for SSI purposes beginning December 2014.
  • With respect to A~’s power to sell her beneficial interest in her trust, the Agreement contains a spendthrift provision in which the beneficiary’s interest in the trust assets is not subject to alienation. See Agreement § 16.2; POMS SI 01120.200B.16. Minnesota allows spendthrift provisions in third party trusts. See Minn. Stat. § 501C.0502. Accordingly, A~’s interest in the trust should not be considered a resource.
  • Lastly, SSA considers the annual distributions from A~’s trust beginning in April 2015 as unearned income in the month of receipt and a countable resource in subsequent months if the payments are retained. See 20 C.F.R. §§ 416.1102, 416.1120-1123, 416.1201; POMS SI 00810.030, 01110.600, 01120.200E.1.a.
  • CONCLUSION
  • For the reasons discussed above, we believe that the assets in A~’s minor trust account were not a countable resource for SSI purposes during the relevant period and going forward.
  • Kathryn Caldwell
  • Acting Regional Chief Counsel, Region V
  • By: Hannah Tuber
  • Assistant Regional Counsel
  • 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 09-107 SSI - Minnesota: Review of the Nathan A~ Special Needs Trust, ~ Reply Your Reference: S2D5G6 SI 2-1-3 MN (A~)Our Reference: 08-0224-NC
  • D. PS 09-107 SSI - Minnesota: Review of the Nathan A~ Special Needs Trust, ~ Reply Your Reference: S2D5G6 SI 2-1-3 MN (A~)Our Reference: 08-0224-NC
  • DATE: May 27, 2009
  • 1. SYLLABUS
  • This opinion evaluates whether an "Amendment and Complete Restatement" of a trust formed in 1991 is permissible under Minnesota law, and whether the resultant trust is a countable resource for SSI purposes. The opinion concludes that Minnesota law concerning trust amendments is intended to give courts the authority to make substantive alterations in the terms of a trust, in addition to authorizing interpretation and construction of a trust. In pertinent case, the court, in 2008, made certain changes in the distributive provisions of the trust. Because the amendments were valid under Minnesota law, the revised trust was then evaluated under the applicable SSI resource provisions in place for trusts formed prior to 1/1/00. The opinion considers those resource policies and concludes that the amended trust is not a resource for SSI purposes.
  • 2. OPINION
  • You asked whether Nathan A~ 2008 "Amendment and Complete Restatement" of his 1991 Trust is a resource for SSI purposes. For the following reasons, we conclude that the amended trust was a modification of Nathan's 1991 trust, and that the amended trust is not a resource.
  • BACKGROUND
  • In 1991, pursuant to a state court order, a trust was established for Nathan's benefit. The trust was funded with a court settlement on Nathan's behalf and provided that the trustee shall pay to Nathan all or such part of the trust's net income as the trustee determined was necessary for Nathan's support, maintenance, education and health. The trustee was also authorized to invade the principal of the trust if the trustee determined that the principal was needed to provide for Nathan's support, maintenance, education and health. The trustee had the power to terminate the trust at any time if the trustee determined that the trust was no longer in Nathan's best interests. In the event of such a termination, trust proceeds would be distributed to Nathan. Upon Nathan's death, the trust provided that the residuary would be distributed as directed by Nathan in a testamentary power of appointment, or, in default of such appointment, to Nathan's heirs at law.
  • On July 21, 2008, Nathan applied for SSI.
  • Two days later, upon petition by the trustee and Nathan's parents as guardians, the state court entered an order finding that, due to Nathan's increasing medical needs, the corpus of the trust was rapidly depleting. As a consequence, pursuant to Minnesota Statutes § 501B.16(4), the court further ordered that the trust should be reformed in accordance with the "amended trust" attached to the court petitions. The court stated that the amended trust would qualify as a special needs trust under Minnesota law and 42 U.S.C. § 1396p(d).
  • Under the amended trust, the trustee is authorized to make discretionary disbursements for Nathan's "reasonable expenses and needs when benefits from publicly funded benefit programs are not sufficient to provide adequately for those expenses and needs." The trustee has the power to terminate the trust at any time if the trustee determines that the trust is no longer in Nathan's best interests. In the event of such a termination, trust proceeds would first be used to reimburse Minnesota's Medical Assistance Program for benefits provided to Nathan, and the balance would then be distributed to Nathan. Upon Nathan's death, the trustee is instructed to pay administrative expenses, Nathan's funeral expenses, and taxes. After these payments, the trustee is instructed to reimburse Minnesota's Medical Assistance Program for benefits provided to Nathan during his lifetime. Any residuary is to be distributed as Nathan designates in his will, and, in default of such appointment, to Nathan's heirs in accordance with the laws of intestate succession.
  • DISCUSSION
  • As an initial matter, we must address whether the state court had authority to amend the trust pursuant to Minn. Stat. Ann. § 501B.16(4) (2009). This section provides that a trustee or other interested person may petition a court "to construe, interpret, or reform the terms of a trust, or authorize a deviation from the terms of a trust, including a proceeding under section 501B.31."
  • Prior to the enactment of this provision, Minnesota's common law was clear in providing that a court could authorize a trustee to deviate from the investment provisions of a trust if necessary to prevent substantial impairment of the purposes of the trust in light of changed economic circumstances. In re Trusteeship under Agreement with Mayo, 105 N.W.2d 900 (Minn. 1960). However, the Minnesota Supreme Court was unwilling to extend this line of law to permit the alteration of beneficial rights within a trust, even in the face of changed economic circumstances. In re Trusteeship under Will of Whelan, 116 N.W.2d 811 (Minn. 1962). The court's holding in Whelan is to be contrasted with the contrary position taken by the Restatement (Third) of Trusts, which is intended to reflect the collective current common law, and which would permit court alterations of distributive provisions, as well as administrative provisions, "if, because of circumstances not anticipated by the settlor, the modification or deviation will further the purposes of the trust." Restatement (Third) of Trusts § 66(1) (2003). In a comment, the Restatement explains that "[t]he objective of the rule allowing judicial modification (or deviation) and the intended consequences of its application are not to disregard the intention of a settlor. The objective is to give effect to what the settlor's intent probably would have been had the circumstances in question been anticipated."
  • Section 501B.16(4), in its current form, was enacted in 1989. However, there is very little case law interpreting the scope of this provision, and we were unable to find any legislative history. In In the Matter of the Foley Trust, 671 N.W.2d 206 (Minn. App. 2003), an A late court found that, pursuant to a section 501B.16(4) petition, a district court could decline to void certain trust distributions to beneficiaries that were not authorized by the trust. Id. at 211-12. The unauthorized trust distributions were made by the trustee to minimize taxes that would otherwise be incurred if the distributions were not made. Id. at 208. The Foley court also found that, pursuant to a section 501B.16(4) petition, a district court was authorized to deviate from the terms of the trust in calculating the effect of a distribution on a subsequent distribution so as to avoid unfairness to the distributee as compared to the other trust distributees. Id. at 212. Although the Foley court did not explicitly say so, it appears that the foregoing findings were based on an implicit consideration of the settlor's intent under circumstances not contemplated by the settlor, since the court disallowed a different modification of a distribution because it was inconsistent with the settlor's clearly expressed intent. Id. at 212-13.
  • Based on the foregoing, our best understanding of section 501B.16(4) is that it is intended to give courts the authority to make substantive alterations in the terms of a trust, in addition to authorizing interpretation and construction of a trust. Certainly, the section 501B.16(4) language ("reform the terms of a trust, or authorize a deviation from the terms of a trust") is not as expansive as the language used to permit alteration of charitable trusts. See Minn. Stat. Ann. § 501B.31(2) (court may order that charitable trust be administered or expended in manner that will accomplish general purposes of instrument and intention of the donor "without regard to, and free from any specific restriction, limitation, or direction [the trust] contains"). But, in enacting section 501B.16(4), the Minnesota legislature presumably intended that there would be some departure from the common law principle expressed in In re Trusteeship under Will of Whelan, which did not permit courts to make any substantive alterations to a trust's distributive provisions. And, the Foley court clearly permitted a district court to make substantive alterations in distributive provisions under section 501B.16(4).
  • In the case at hand, pursuant to a section 501B.16(4) petition, the court made certain changes in the distributive provisions of the trust. In contrast to the original trust, the amended trust has a discretionary lifetime distribution to Nathan, rather than a mandatory support distribution; the amended trust has different distributive provisions upon Nathan's death, including reimbursement to Minnesota's Medical Assistance Program; and the amended trust has an altered (pre-death) termination provision. Because we conclude that a court is probably authorized to a make changes to the distributive provisions of a trust under section 501B.16(4), we believe the court's action probably effected a valid amendment to the trust.
  • Turning then to a consideration of SSA's resource rules, even though the trust was amended after January 1, 2000, the trust is still considered to have been established (for purposes of applying SSA's resource rules) in 1991. Cf. POMS PS 01825.055 Wisconsin, 05-228 ("We have recently opined that a trustee-to-trustee transfer, such as occurred here, does not constitute the "establishment" of a new trust for purposes of applying the statutory trust resource rules . . . ."). Thus, the regular trust resource rules in POMS SI 01120.200 apply. POMS SI 01120.200(A)(2)(a). Under these rules, the amended trust will be a resource to Nathan if he (through his guardians) can revoke or terminate the amended trust and use the proceeds for his food or shelter, or if he (through his guardians) can direct the use of the amended trust's principal to meet his needs for food or shelter. POMS SI 01120.200(D)(1)(a). The amended trust will also be a resource to Nathan if he (through his guardians) can sell his beneficial interest.
  • As to revocability, Minnesota follows the rule that even an irrevocable trust can be revoked or modified if the grantor and all beneficiaries agree. In re Scholl, 297 N.W.2d 282, 284 (Minn. 1980). Therefore, if Nathan is the grantor and sole beneficiary, he can revoke the trust unilaterally. However, he is not the sole beneficiary here because his heirs will receive any remaining property upon Nathan's death if he does not exercise his testamentary power of appointment. POMS SI CHI01120.200(D)(4) ("For trusts created after 1939, in the absence of a contrary intent, you may assume that the grantor intended to name residual beneficiaries by naming his . . . heirs."). Thus, the amended trust is not revocable as to Nathan. Nathan also lacks the ability to direct the use of the amended trust's principal to meet his food or shelter needs. Finally, even if Nathan could sell his beneficial interest in the trust, that interest would have little or no value because the trustee is not required to make any payments for his benefit. See Restatement (Third) of Trusts § 60 & comments e, f. Therefore, the amended trust is not a resource to Nathan.
  • Conclusion
  • We conclude that Nathan's amended trust is not a resource for SSI purposes.
  • Donna L. C~ Regional Chief Counsel, Region V By: Kyle K~ Assistant Regional Counsel
  • 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
  • E. 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,
  • * All states in the Chicago region would recognize the validity of a spendthrift provision in a third party trust.
  • * 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.
  • * 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.
  • * 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 VBy: 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).
  • E. PS 09-021 SSI-Review of the Request for Reconsideration on the Judith C~ Trust, ~ ACTION Your Reference: SI 2-1-4 MN (C~) Our Reference: 08-128
  • F. PS 09-021 SSI-Review of the Request for Reconsideration on the Judith C~ Trust, ~ ACTION Your Reference: SI 2-1-4 MN (C~) Our Reference: 08-128
  • DATE: November 6, 2008
  • 1. SYLLABUS
  • The opinion in this case examines whether or not the special needs trust in question is a countable resource for SSI purposes. There is an exception to counting a special needs trust as a resource if certain criteria are met. One of the criteria is that the trust be established for the sole benefit of the individual by a parent, grandparent, legal guardian, or court. This trust does not satisfy this criterion because the adult claimant's funds were used to establish the trust and the trust contains an early termination provision that could allow a third party to benefit from the trust during the claimant's lifetime. In addition, the trust does not comply with the Medicaid payback requirement as it allows for the payment of prohibited expenses and limits the amount and state jurisdictions that can be reimbursed. For the reasons outlined above, the trust is a countable resource for SSI purposes.
  • 2. OPINION
  • BACKGROUND
  • On August XX, 2006, Robert S~, Judith's father, established The Judith C~ Trust for the benefit of Judith (an adult). Claimant's Memorandum (Memorandum) at 1. The trust was created because Judith expected to receive funds in connection with a settlement in a class action lawsuit. Id.
  • The trust is intended to qualify as a supplemental needs trust or special needs trust under 42 U.S.C. § 1396p(d)(4)(A) and Minn. Stat. § 501B.89. See Trust Recitals. When Judith received her first check from the settlement in January 2007, the trustee opened an account for the trust and deposited the funds. See Memorandum at 1.
  • The purpose of the trust is to provide for Judith's "reasonable living expenses and other needs when benefits from publicly funded benefit programs are not sufficient to provide adequately for those needs." Article II, § 2.02. However, disbursement that would have the effect of replacing, reducing, or substituting publicly funded benefits available to Judith or rendering Judith ineligible for publicly funded benefits are prohibited. Id.
  • The trustee has sole discretion to use sums from the income and principal for expenditures, which may include entertainment, education, travel, comfort, convenience and reasonable luxuries, home maintenance, improvements or remodeling, purchase of a new home, and special medical care not covered by publicly funded benefit programs. Article II, § 2.02A.
  • The trust provides that, upon Judith's death,
  • 1) The trustee shall pay the reasonable administrative expenses (including attorney's fees and trustee's fees), funeral expenses, last bills and valid debts of JUDITH, as approved by the Minnesota Department of Human Services or by the District Court with advance notice to Department of Human Services, if required by law. Further, and only if required by applicable state or federal law at that time, the trustee shall reimburse the State of Minnesota for whatever sums of medical assistance paid for JUDITH's benefit that the law requires to be reimbursed, but no more.
  • 2) The remainder of the trust share shall be distributed to JUDITH's descendants, per stirpes.
  • Article II, § 2.02F.
  • The trust also provides that it may be terminated for reasons other than death of the beneficiary, only if continued administration is contrary to the best interests of the beneficiary because of state or federal legislation or unforeseen changes or conditions or circumstances, or because the value of the assets makes administration unduly burdensome or uneconomical for the beneficiary. Article VI, § 6.02. Court approval for termination must be obtained and distribution is made pursuant to the provision of Article II, § 2.02F. Article VI, § 6.02.
  • The trust states that it is irrevocable, except as may be ordered by a Court in the beneficiary's best interest or if a Court determines the trust is not a supplemental needs trust or special needs trust as defined by applicable law. Article III, § 3.01.
  • The trust contains a spendthrift provision which provides that "no right, title, or interest in any of the property of this Trust or income accruing therefrom or in the accumulations of such income payable or distributable under the provisions of this instrument shall vest in the beneficiary, nor shall the principal or interest of the Trust be liable for the debts of the beneficiary, nor shall the beneficiary (except as may be expressly provided herein) have the right or power to sell, transfer, assign, pledge, encumber or in any other manner dissipate or dispose of her interest in this Trust prior to the actual distribution, in fact, by the trustee to the beneficiary off property or income of this Trust, until such time of actual distribution, all rights and interest of the beneficiary herein shall not subject to any judicial process of levy upon attachment for or on behalf of such beneficiary's creditors or other claimant."
  • DISCUSSION
  • Generally, trusts established with the assets of the individual are considered a resource for SSI purposes, even if the trust is irrevocable, unless the trust meets one of the Medicaid payback exceptions under 42 U.S.C. § 1396p(d)(4)(A) (commonly referred to as the special needs trust exception). See 42 U.S.C. § 1382b(e); POMS SI 01120.201, 01120.203. For this exception to apply, the trust must be:
  • (1) established with the assets of a disabled individual under age 65;
  • (2) established for the benefit of the individual by a parent, grandparent, legal guardian, or court; and
  • (3) provide that the state will receive all amounts remaining in the trust upon the death of the 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)(a). In addition, even if a trust satisfies the Medicaid payback trust exception to counting it as a resource under the statutory trust rules, the trust will still be a resource, under the regular resource rules if: (1) the beneficiary can revoke the trust; (2) the beneficiary can compel the trustee to provide for his support and maintenance; or (3) the beneficiary is entitled to mandatory disbursements and the beneficiary is not prohibited from anticipating, assigning or selling the right to future payments. POMS SI 01120.200(D).
  • The Social Security Administration (Agency) previously determined that the trust in question did not satisfy all of the Medicaid payback trust requirements. Specifically, the Agency determined that the trust did not satisfy the second requirement that the trust be established for the sole benefit of Judith by a parent, grandparent, legal guardian or court for two reasons: 1) it did not comply with Agency policy that requires a parent to first create a "seed trust" prior to transferring a competent adult's funds to the trust; and 2) the early termination clause created contingent interests that could benefit third parties during the lifetime of the claimant.
  • In addition, the Agency determined that the trust did not satisfy the third requirement that the state receive all amounts remaining in the trust upon the death of the individual up to an amount equal to the total medical assistance paid on behalf of the individual under a state Medicaid plan because: 1) the trust permits payment of prohibited expenses prior to reimbursing the state for medical assistance; 2) the trust does not provide that the state will receive all amounts remaining in the trust upon the death of Judith up to an amount equal to the total medical assistance; rather, it would reimburse the State of Minnesota only if required by applicable state or federal law at the time; and 3) the trust provides only that the State of Minnesota will be reimbursed.
  • On March 25, 2008, the Judith's attorney filed a request for reconsideration. Notably, the attorney did not raise any concerns regarding the issue of whether the trust was established for the sole benefit of Judith by a parent. For the reasons discussed below, we agree that the trust does not meet the requirements for the special needs trust exception to counting it as a resource under the statutory trust rules. However, we note that, if the deficiencies were remedied, such that the trust was not considered a resource under 42 U.S.C. § 1382b(e), the trust as written would not be a resource under the regular resource rules.
  • The Trust Was Not Established For The Sole Benefit Of Judith By A Parent, Grandparent, Legal Guardian, Or Court
  • Under Agency policy, where a parent creates a trust with a competent adult's funds to satisfy the Medicaid Payback exception, the parent must create a "seed trust." POMS PS 01205.026. This would require that some amount of funds not belonging to Judith would have to initially fund the trust prior to transferring Judith's assets to the trust.
  • In addition, the early termination provision in Article VI creates contingent interest that could benefit third parties during Judith's lifetime. Thus, the trust was not established for the "sole benefit" of Judith.
  • The Trust Allows The Trustee To Make Prohibited Payments Prior to Reimbursing The State
  • According to the trust, the trustee shall pay the reasonable administrative expenses (including attorney's fees and trustee's fees), funeral expenses, last bills and valid debts of JUDITH, as approved by the Minnesota Department of Human Services or by the District Court with advance notice to Department of Human Services, if required by law.
  • Article II, § 2.02F. Judith's attorney recognizes that, although the POMS does not carry the weight of law, it does provide additional guidance on how to qualify for a Medicaid payback trust. Memorandum at 2. Indeed, courts have recognized that the POMS are entitled to deference. See Washington Dept. of Social Servs. v. Keffeler, 537 U.S. 371, 385 (2003) ("While these administrative interpretations [POMS] are not products of formal rulemaking, they nevertheless warrant respect . . . ."); Martin v. OSHRC, 111 S. Ct. 1171, 1179 (1991) ("In addition, the Secretary regularly employs less formal means of interpreting regulations . . . . Although not entitled to the same deference as norms that derive from the exercise of the Secretary's delegated lawmaking powers, these informal interpretations are still entitled to some weight on judicial review.") (citing Batterton v. Francis, 432 U.S. 416, 425-26 & n.9 (1977); Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944); Whirlpool Corp. v. Marshall, 445 U.S. 1, 11 (1980)); Hartfield v. Barnhart, 384 F.3d 986, 988 (8th Cir. 2004) ("While these internal rules [POMS] do not have legal force and do not bind the Commissioner, courts should consider them in their findings.").
  • According to POMS SI 01120.203(B)(1)(f):
  • To 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. The State must be listed as the first payee and have priority over payment of other debts and administrative expenses except as listed in SI 01120.203(B)(3)(a).
  • NOTE: Labeling the trust as a Medicaid pay-back trust, OBRA 1993 pay-back trust, trust established in accordance with 42 U.S.C. 1396, or as an MQT, etc. is not sufficient to meet the requirement for this exception. The trust must contain language substantially similar to the language above. An oral trust cannot meet this requirement.
  • POMS SI 01120.203(B)(3)(a) sets forth that only taxes due from the trust to the State or Federal government because of the beneficiary's death and reasonable fees for administration of the trust estate may be paid prior to reimbursement of the state.
  • Judith's attorney contends that, upon Judith's death, no expenses, administrative or otherwise, can be paid from the trust without first obtaining approval of the Minnesota Department of Human Services or a Court, pursuant to Minnesota law. Memorandum at 3 (citing. § 19.25.35.20 of the Minnesota Health Care Programs Manual). She argues that, because neither the Minnesota Department of Human Services or a Court will violate federal or state law, if the law prohibits payment of any expenses listed in Article II, § 2.02F, such expenses will not be paid by the trustee. Id. at 3-4. Judith's attorney explains that the provision was written in order to provide flexibility; thus, if the federal law changes and permits payment of funeral expenses, then the trust can provide for these. Id. at 4. Judith's attorney also maintains that the trust at hand substantially complies with the statutory language (of the Medicaid payback trust). Memorandum at 4.
  • However, the trust requires the approval of the Minnesota Department of Human Services or a Court only "if required by law." Furthermore, the expenses which are listed in Article II, § 2.02F, namely funeral expenses and last bills and valid debts, are not legally impermissible expenses, and therefore, the Minnesota Department of Human Services or a Court would not be required by law to disallow such expenses. Although these are considered "prohibited" expenses for purposes of meeting the Medicaid Payback trust exception, the attorney identified no legal prohibition on paying such expenses in general before reimbursing the state. See POMS SI 01120.203(B)(3)(b).
  • Further, the "substantially similar" provision that Judith's attorney refers to in the POMS is designed to address situations that are not specifically addressed by the POMS. Here, the Agency has interpreted 42 U.S.C. § 1396p(d)(4)(A) through its POMS, and has expressly stated that the only expenses that may be paid prior to payment to the state include taxes due from the trust to the State or Federal government because of the beneficiary's death and reasonable fees for administration of the trust estate. See POMS SI 01120.203(B)(3)(a). Thus, the provision is not substantially similar to the language that would be sufficient under the statute.
  • The Trust Does Not Provide That The State Will Receive All Amounts Remaining In The Trust Upon Judith's Death
  • The trust provides:
  • Further, and only if required by applicable state or federal law at that time, the trustee shall reimburse the State of Minnesota for whatever sums of medical assistance paid for JUDITH's benefit that the law requires to be reimbursed, but no more.
  • Article II, § 2.02F.
  • Judith's attorney argues that the fact that the trust states that Medicaid will be reimbursed "only if required by applicable state or federal law at the time" should not disqualify the trust from the Medicaid payback trust exception because the trust language "simply provides for the possibility that state or federal law could change sometime in the future." Memorandum at 4. The Office of Income Security Programs has advised, however, that SSA considers this trust provision to frustrate the Medicaid Payback provisions of the statute. The statute excepts trusts from counting as resources under the statutory trust provisions only "if the state will receive all amounts remaining in the trust on the death of such individual up to an amount equal to the total medical assistance paid." 42 U.S.C. §1396p(d)(4)(A). There is no language in the statute that permits the limitation on the obligation to repay that is reflected in this trust's language.
  • The Trust Does Not Provide for Reimbursement to All States that Have Provided Medical Assistance For Judith's Benefit
  • Finally, the Agency has previously determined that a trust that provides for reimbursement to only one state does not meet the Medicaid payback trust exception to counting it as a resource under the statute because, if the individual were to move to another state at any time during her lifetime, the trust provisions would frustrate the other state's ability to receive reimbursement for any medical assistance paid to the individual during his lifetime. See POMS PS 01825.016 Illinois (PS 07-153 SSI-Illinois-review of the David C f/k/a K-- Supplemental Care and Needs Trust).
  • According to the terms of the trust, any funds remaining at Judith's death, "shall reimburse the State of Minnesota for whatever sums of medical assistance paid for JUDITH's benefit that the law requires be reimbursed, but no more." Article II, § 2.02F (emphasis added). The trust does not provide for reimbursement to any other state that may provide medical assistance.
  • Judith's attorney argues that nothing in the federal law or the POMS that requires that a Medicaid payback trust must reference that reimbursement be made to any and all states. Memorandum at 4. However, the statute does require that a Medicaid payback trust must provide for reimbursement of "the total medical assistance paid on behalf of the individual under a State plan . . . ." 42 U.S.C. § 1396p(d)(4)(a). Thus, a fair reading of the statute suggests total repayment to any state from which an individual receives Medicaid. Indeed, the Center for Medicaid has also interpreted the statutory provisions to require that the trust provide for reimbursement to every state where the individual may have lived. See The State Medicaid Manual § 3259.7 ("When an individual has lived in more than one State, the trust must provide that the funds remaining in the trust are distributed to each State in which the individual received Medicaid, based on the State's proportionate share of the total amount of Medicaid benefits paid by all of the States on the individual's behalf."). There is no indication in the statute that reimbursement can be limited to only one individual state. In addition, the POMS at PS 01825.016 recognizes that all states must be reimbursed, as well. Judith's attorney seems to concede that, if Judith received Medicaid from other states, then repayment to those state's Medicaid plans would be required.
  • Judith's attorney states "it goes without saying that if [Judith] moved out of the State of Minnesota and obtained Medicaid benefits from another state, that such state would also be entitled to reimbursement upon [Judith's] death." Thus, she does not seem to be arguing that reimbursement to any and all states would not be required. The plain language of the trust, however, does not require the trustee to reimburse any other state. Indeed, there is no language permitting the trustee to reimburse any other state besides Minnesota. Thus, the plain, unambiguous language of the trust appears to limit reimbursement only to the State of Minnesota. We do not believe the trust language is substantially similar to that required by the Act. The substantially similar requirement only allows for slightly dissimilar language which still meets the substantive provisions of the exception. See POMS PS 01825.039 (PS 07-024 SSI-Ohio-Review of Request for Reconsideration on the James J. S-- Trust Agreement).
  • CONCLUSION
  • For the reasons discussed above, we agree that this trust should be considered a resource.
  • Donna L. C~Regional Chief Counsel, Region VBy:__Shefali B~Assistant Regional Counsel
  • F. PS 07-125 SSI-Minnesota-Review of 3 versions of the David L. H~ Special Needs Trust SSN: ~ -REPLY Your Reference: S2D5G6, SI-2-1-3 MN (H~) Our Reference: 07-0117-NC
  • G. PS 07-125 SSI-Minnesota-Review of 3 versions of the David L. H~ Special Needs Trust SSN: ~ -REPLY Your Reference: S2D5G6, SI-2-1-3 MN (H~) Our Reference: 07-0117-NC
  • Date: April 30, 2007
  • 1. SYLLABUS
  • This opinion evaluates whether a father's use of a minor's UTMA account to establish a trust satisfies the requirements to meet the Medicaid Trust Exception found in Section 1917(d)(4)(A) of the Act. The trust states that the minor beneficiary established the trust with his own funds. However, since the funds originated from an UTMA account to which the minor had ownership, but not legal access, his father is determined to have established the trust for the beneficiary's benefit in his capacity as UTMA custodian. Since an UTMA custodian is analogous to a guardian acting in a financial capacity, there is no requirement to establish a "seed" trust when the beneficiary of the UTMA has no legal right to access the funds. Moreover, the trust meets all other requirements for exclusion under the Medicaid trust exception. As such, the trust is an excluded resource for SSI purposes.
  • 2. OPINION
  • You have asked us to review and determine whether any of the three trusts entitled "The David L. H~ Special Needs Trust," which were all established for the benefit of David L. H~ (David), were resources for purposes of determining David's eligibility for SSI. For the reasons explained below, we conclude none of the trusts were resources to David.
  • BACKGROUND
  • On October 24, 2005, "The David L. H~ Special Needs Trust" was created for the benefit of David. After reviewing this trust, on September 25, 2006, the Agency concluded that the trust was a resource to David because it did not meet one of the Medicaid Trust Exceptions. After the H~'s attorney was advised that the trust was a resource, on November 3, 2006, a revised trust named "The David L. H~ Special Needs Trust" was created for the benefit of David. And less than two weeks later, on November 16, 2006, the H~'s attorney submitted what appears to be a third version of the trust named "The David L. H~ Special Needs Trust." We describe all three trusts, in turn.
  • I. Initial October 24, 2005 Trust
  • On October 24, 2005, "The David L. H~ Special Needs Trust" (trust) was established. David was named the settlor while his father, Lee H. H~, was named as the trustee. See Art. I, § 1. This special needs trust was funded solely by David's assets, which amounted to $4,000.00 in cash. See Schedule A of the October 24, 2005 trust. Thereafter, you advised us that Claims Representative Mary P~ spoke to David's father, Lee H. H~, to clarify how the trust was funded. Mr. H~ stated that the trust was "entirely funded from UTMA accounts." He explained that the UTMA accounts were converted to checks payable to Lee H~, Custodian for David L. H~, and then directly deposited into the trust. For purposes of our analysis, we presume that the information Mr. H~ gave Ms. P~ is accurate.
  • The trust stated that its purpose was to supplement, but not to supplant, whatever benefits and services David might receive as a result of his disability from any local, state, or federal government or any other private agency. Trust Art. 2 § 7.
  • The trust provided that it was irrevocable, except upon approval by the District Court specifically authorized by the trust (in Hennepin County, Minnesota). Trust Art. 7 § 1. The trust also provided that the trustee had sole and absolute discretion to make distributions from the trust. Trust Art. 2 § 1. The trust did not provide for any mandatory periodic payments; rather, the trust indicated that it would be used for David's special needs, from time to time. Trust Art. 2 § 1. The special needs were described as referring to David's reasonable living expenses for maintaining his good health, safety, and welfare when such requisites were not being provided by any governmental agency. Trust Art. 2 § 1.
  • The trust provided that it would terminate upon David's death. Trust Art. 3 § 1. Upon the trust's termination, the assets would be used to repay the Minnesota Department of Human Services in an amount equal to the total medical assistance paid on behalf of David. Trust Art. 3 § 1 A. If any assets remained after reimbursement to the state of Minnesota, the assets would then be used to pay reasonable administrative expenses, attorney's fees, and trustee's fees, with a provision that administrative expenses, attorney's fees, and trustee's fees could be paid prior to reimbursing the state if approved by the Department of Human Services or a probate court (with advance notice to the Department of Human Services). Trust Art. 3 § 1 B & C. Any remaining assets would be used to pay for David's funeral expenses, last bills, taxes, and valid debts and then to David's heirs (as determined by Minnesota state law). Trust Art. 3 § 1 D & E.
  • The trust indicated that its terms were to be construed under Minnesota law. Trust Art. 2 § 2; Art 3 § 1 E; Art 4 § 8.
  • After reviewing this trust, on September 25, 2006, the Agency concluded that the trust was a resource to David because the trust did not meet one of the Medicaid Trust Exceptions, namely, the trust was established by David, himself, and not by a parent, grandparent, legal guardian, or court-as required by the Social Security Act. See 42 U.S.C. § 1396p(d)(4)(A), POMS SI 01120.203.
  • II. Revised November 3, 2006 Trust
  • On November 3, 2006, David's father Lee H. H~ created a second version of "The David L. H~ Special Needs Trust." This November 3, 2006 trust differed from the October 24, 2005 trust of the same name in only one way. In the November 3, 2006 trust, David's father was named the sole settlor (instead of only David). See Art. I, § 1 of November 3, 2006 trust. All other provisions of the November 3, 2006 were identical to the October 24, 2005 trust. Mr. H~ submitted this revised November 3, 2006 trust to the Agency for approval, but before obtaining any opinion as to the validity of the November 3, 2006 trust, he created and submitted to the Agency another revised trust in its place: the trust dated November 16, 2006.
  • III. Revised November 16, 2006 Trust
  • On November 16, 2006, David's father, Lee H. H~, created a third version of "The David L. H~ Special Needs Trust." This November 16, 2006 trust differed from the October 24, 2005 trust in two ways. Like the November 3, 2006 trust, the November 16, 2006 trust named David's father as the sole settlor. See Art. I, § 1 of November 16, 2006 trust. The second difference between the trusts was that the November 16, 2006 trust was no longer funded solely by David's assets. In this trust, David's father had added $100.00 of his own funds into the trust. See Schedule A of the November 16, 2006. All other provisions of the November 16, 2006 were identical to the October 24, 2005 trust.
  • DISCUSSION
  • Here, the trust funds for all three trusts came from David's UTMA account. The records you provided us show that David had not yet reached the age of majority pursuant to the Minnesota UTMA statute; he would turn 21 on November 30, 2007. See MN UTMA § 527.21. However, even though David had not yet reached the age of majority when David's father transferred his UTMA funds into the three trusts, the portion of the trust corpus (of each trust) stemming from David's UTMA account should nevertheless be considered as established with David's assets since the UTMA account was held by a custodian-his father-with legal authority to act on David's behalf with regard to the money. See POMS SI 01120.201B.2 ("asset" includes "any other payment or property to which the individual . . . is entitled, but does not receive or have access to because of action by . . . a person or entity (including a court) with legal authority to act in place of, or on behalf of, the individual or spouse . . ..)." As such, the trusts, which originated from David's UTMA account, were established with David's assets. See POMS SI 01120.201B.7.
  • I. October 24, 2005 Trust
  • As explained below, we believe that the October 24, 2005 trust should not be considered a resource to David under the Medicaid Trust exception. POMS SI 01120.203.
  • Specifically, the Medicaid trust exception for irrevocable individual trusts applies where the trust is:
  • (1) established with the assets of an individual under age 65 who is disabled;
  • (2) established for the sole 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.
  • POMS SI 01120.203(B)(1).
  • As an initial matter, for the Medicaid trust exception to apply, the trust must be irrevocable. POMS SI 01120.203(B)(1)(a). Here, the trust states that it is irrevocable. Trust Art. 7 § 1. Notwithstanding the language that indicates the trust is irrevocable, another provision of the trust further establishes that the trust is indeed irrevocable. Specifically, despite David being named as the settlor of the trust, he is not the sole beneficiary of the trust; rather, the trust named residual beneficiaries-his heirs per Minnesota statute-to receive the remaining trust assets after David's death. Trust Art. 3 § 1 (E); POMS SI CHI 01120.200 (C) & (D)(4). Accordingly, the trust is irrevocable.
  • Next, regarding the three core requirements of the Medicaid Trust exception, we find that the trust meets all three requirements. The trust meets the first requirement as David is under age 65 (born November 30, 1986) and is disabled. The trust meets the third requirement as the trust provides that, upon David's death, any remaining funds would be used to reimburse the State for medical assistance paid on his behalf during his lifetime. Trust Art. 3 § 1(A).
  • Regarding the second requirement-that the trust be established for the benefit of David by a parent, grandparent, legal guardian or a court, we believe that although the trust states that David created this trust, David could not have legally established the trust himself. Since the trust funds originated from David's UTMA account and he had not attained the age of majority when this trust was created, David would not legally be able to access the UTMA funds. Only the account custodian, David's father, had access to David's UTMA account. Our interpretation is supported by David's father's statements and documents submitted to CR Mary P~. Specifically, after submitting this October 24, 2005 trust for the Agency's approval, David's father advised the CR that he had converted the funds from David's UTMA account into checks payable to Lee H~, Custodian for David H~ pursuant the Minnesota UTMA statute and then deposited those checks directly into the trust. As such, David's father, as his UTMA custodian, established the trust for the benefit of David.
  • Next, we do not believe it was necessary for David's father to "seed" the trust with his own money. Here, David's father transferred David's UTMA funds in his capacity as custodian of David's UTMA funds. And while pursuant to the UTMA, the account belonged to David, since he had not reached the age of majority, he had no legal right to access or transfer those funds. Thus, David's father did not merely transfer assets which David could have transferred himself. See POMS SI 01120.010 referring to: SI 01110.100 (Despite having an ownership interest, property cannot be a resource if the owner lacks the legal ability to access funds for spending or to convert noncash property into cash). Accordingly, we believe that this situation is akin to a situation where a legal guardian establishes a trust on behalf of an incompetent adult or child. Both a legal guardian and an UTMA custodian are entrusted with the possession and management of the minor or incompetent adult's assets, which the minor or incompetent adult have no legal right to access or transfer. Since we believe that an UTMA custodian is akin to a guardian and since we do not require a guardian to "seed" a trust, an UTMA custodian should also not be required to "seed" a trust when the beneficiary of the UTMA funds has not reached the age of majority and has no legal right to access those funds. Accordingly, we believe that the October 24, 2005 trust met the Medicaid Trust exceptions pursuant to POMS SI 01120.203, and thus the Trust should not be considered David's resource under the statutory trust rules.
  • Finally, the trust would not be a resource under the regular resource rules because, as noted above, David cannot revoke the trust, and David has no right to direct principal or receive mandatory payments from the trust. POMS SI 01120.200(D).
  • II. November 3, 2006 Trust
  • The only difference between the October 24, 2005 trust and the November 3, 2006 trust that replaced it is that the November 3, 2006 trust named David's father, Lee H~ as the settlor of the trust instead of David - as provided by the October 24, 2005 trust. See Art. I, § 1 of November 3, 2006 trust. This change in naming the settlor was of no consequence. While David was no longer named the settlor, he should still be considered the true settlor of the trust since the trust was established with funds that legally belonged to him even though he did not have a legal right to access the funds. Thus, for the same reasons the October 24, 2005 trust should not be considered a resource, the November 3, 2006 trust also should not be considered a resource for purposes of David's SSI eligibility.
  • III. November 16, 2006 Trust
  • This November 16, 2006 trust differed from the October 24, 2005 trust in only two ways. Like the November 3, 2006 trust, the November 16, 2006 trust named David's father as the sole settlor. See Art. I, § 1 of the November 16, 2006 trust. However, as we indicated regarding the November 3, 2006 trust, this change in naming the settlor to someone other than David was of no consequence, as David was the true settlor since the trust was established with funds that legally belonged to David.
  • The second difference was that the November 16, 2006 trust was no longer funded solely by David's assets; in this trust, David's father had added $100.00 of his own funds into the trust. See Schedule A of the November 16, 2006. However, it would not be a resource whether it was seeded or not. For the reasons we stated regarding the October 24, 2005 trust, we do not believe it was necessary for the father to "seed" the trust.
  • CONCLUSION
  • For the reasons discussed above, we conclude that all three versions of the David L. H~ trust should not be considered David's resources.
  • G. PS 07-102 Opinion Request Transfer; Treatment of Trust for SSI Resource Purposes (James S~) - REPLY Our Ref: 07-0169
  • H. PS 07-102 Opinion Request Transfer; Treatment of Trust for SSI Resource Purposes (James S~) - REPLY Our Ref: 07-0169
  • DATE: March 26, 2007
  • 1. SYLLABUS
  • NOTE: This trust was established in 1998 and thus was evaluated under the trust rules in place prior to 1/1/00. This precedent may not apply to trusts established after 1/1/00.
  • This opinion provides an analysis of a special needs trust established for an SSI beneficiary with the proceeds of a court-approved personal injury settlement. Because the trust was established prior to January 1, 2000, the regular trust resource rules found at POMS SI 01120.200 govern the determination of whether the trust is a resource to the SSI beneficiary. The trust principal would be a countable resource if the SSI beneficiary: (1) has legal authority to revoke or terminate the trust and use the funds to meet food or shelter needs; (2) can direct use of the trust principal for support and maintenance; or (3) can sell beneficial interest in the trust, and the trust provides for mandatory disbursements. Under the provisions of the trust, the SSI beneficiary does not have the authority to effectuate any of the disqualifying provisions listed above and thus the trust is not a countable resource for SSI purposes.
  • 2. OPINION
  • You asked whether a supplemental needs trust established for the benefit of SSI beneficiary James S~ (“James”) is a resource to James, a disabled individual, for SSI purposes. For the reasons discussed below, we conclude that the Trust is not a resource.
  • Facts
  • On July XX, 1998, when James was 10 years old, Michael S~, the father of James S~, established the James S~ Irrevocable Supplemental Trust (hereinafter "Trust"). Prior to this, on July XX, 1998, a Minnesota state court apparently "approved" the establishment of the Trust. Trust, at 1, introductory paragraph. According to the information provided by you, it was funded pursuant to a personal injury settlement James received as a minor. Michael S~ was named as Trustee. Trust, at 5, Par. 4.1. The Trustee holds the Trust estate "solely for the benefit" of James to provide reasonable expenses and needs that are not covered by benefits from publicly funded programs. Id. at 3, 3.1. But, the Trustee is under no obligation to make any such expenditures. Id. at 4, Par. 3.4. Further, the Trustee cannot make distributions for James' food, shelter, clothing, medical care, or other basic necessities that are provided by, or would be provided by, any governmental unit, to the extent that such distributions would supplant publicly funded benefits or render James ineligible for publicly-funded benefits. Id. at 4, Par. 3.8. In addition, the Trustee is forbidden from making distributions directly to James, or to any person with legal authority to act on James' behalf with respect to financial matters. Id. at 3.5. The Trustee is also required to obtain court permission prior to spending more than $1,000 on a single item or group of related items. Id. at 4, Par. 3.4.
  • Upon James's death, the Trustee shall first pay, subject to approval by the Minnesota Department of Human Services, administrative expenses, attorney fees, and trustee fees related to the administration and termination of the trust. Id. at 3, Par. 3.9.1. The Trustee is then required to pay the State of Minnesota a sum equal to the total Medicaid benefits paid on James's behalf. Id. at 5, Par. 3.9.2. The Trustee may then pay James's funeral expenses, last bills, taxes, and valid debts. Id. at 5, Par. 3.9.3. After paying the above-mentioned expenses and reimbursements, the Trust Agreement terminates, and the residue of the Trust corpus is distributed according to the last will of James, if any; if no will exists, the remainder is distributed according to the laws of intestacy of the State of Minnesota in effect at that time. Id. at 5, Par. 3.9.4.
  • The purpose of the Trust is to supplement all financial and service benefits to which James might become eligible as a result of his disability from any local, county, state or federal agency, or through any corporations, entities or agencies. Trust, at 1, Par. 1.1. The Trust Agreement states that it is "irrevocable" and that James does not have the right, either alone or in conjunction with anyone else, to alter, amend, revoke or terminate the Trust Agreement. Id. at 2, Par. 1.3. The Trust Agreement provides that at no time will the estate of the Trust become available to James, or be placed in his possession. Id. at 2, Par. 2.1. The Trustee's ability to amend the Trust Agreement is limited to making changes, with approval of a court of competent jurisdiction, in order to conform to any changes in law or regulation "relating to 42 U.S.C. § 1396, Minn. Stat. § 501B.89, or related statutes, including state and federal statutes that are consistent with the provisions and purposes of the Omnibus Budget Reconciliation Act of 1993 and amendments of such Act, and so that it conforms with any amendment to relevant state or federal laws." Id. at 2, Par. 1.4.
  • Discussion
  • Because the Trust was established prior to January 1, 2000, the regular trust resource rules found at POMS SI 01120.200 govern the determination of whether the Trust is a resource to James. Specifically, the Trust principal would constitute a resource if James: (1) has legal authority to revoke or terminate the trust and then use the funds to meet his food or shelter needs; (2) can direct the use of the trust principal for his support and maintenance under the terms of the trust; or (3) can sell his beneficial interest in the trust, and the Trust provides for mandatory disbursements. POMS SI 01120.200(D)(1)(a).
  • A. James cannot revoke or terminate the Trust.
  • The Trust Agreement expressly provides that James does not have the right, either alone or in conjunction with anyone else, to alter, amend, revoke or terminate the Trust Agreement. Id. at 2, Par. 1.3. However, although James' father, Michael, is named as the Settlor in the Trust Agreement, James is in fact the settlor (or grantor) of the trust, since it is his personal injury settlement award that comprises the trust fund. POMS SI 01120.200(B)(2); SI CHI01120.200(B). And, if James were both the grantor of the trust and its sole beneficiary, the trust would be revocable even if it states otherwise. POMS SI CHI01120.200(C).
  • However, James is not the sole beneficiary of the Trust. The Trust Agreement provides that, upon James's death, after payment of various debts and expenses, the Trust terminates. Trust at 3, Par. 3.9.1; 3.9.2; 3.9.3. The remainder of the Trust corpus is then distributed according to the last will of James, and if no will exists, according to the laws of intestacy of the State of Minnesota in effect at that time. Id. at 5, Par. 3.9.4. The act of naming heirs at law or persons who would be entitled to inherit via intestacy or through a statute of descent and distribution is sufficient to create residual beneficiaries, and thus the grantor (James) could not unilaterally revoke the Trust. POMS SI CHI01120.200(D)(4); RESTATEMENT (THIRD) OF TRUSTS § 49, comment a(1) (2003) ("[t]here remains only a question of construction, with the presumption that language expressing an apparent intention to create a remainder in someone's heirs is so intended and is to be given that effect.").
  • B. James cannot direct the use of the Trust assets.
  • The Trust Agreement expressly provides that at no time will the estate of the Trust become available to James, or be placed in his possession. Trust at 2, Par. 2.1. In addition, the Trustee is forbidden from making distributions directly to James, or to any person with legal authority to act on James' behalf with respect to financial matters. Id. at 3.5. Most significantly, the Trustee has complete discretion and is not required to make any particular expenditures. Id. at 3, Par. 3.4. Thus, James is unable to direct the use of the Trust assets. See POMS SI 01120.200(D)(1)(a).
  • C. James cannot sell his beneficial interest in the trust.
  • As noted above, the Trust could also be a resource to James, if the Trust provided for mandatory disbursements to James, and if he were able to sell his beneficial interest in the trust. See POMS SI 01120.200(D)(1)(a). Here, however, the Trustee's ability to expend sums from the Trust principal is entirely discretionary; therefore, the trustee has no obligation to make any payments to James. Trust at 3, Par. 3.4. In fact, as outlined above, the Trustee is prohibited from making distributions of any kind directly to James or any person with the authority to act on his behalf in financial matters. Id. at 3.5. Accordingly, there are no mandatory disbursements, even if James has an alienable interest in the Trust which could be sold.
  • Conclusion
  • The principal of James S~ Special Needs Trust should not be considered a resource. Because this self-settled trust was established before January 2000, the regular trust resource rules apply. Under these rules, James cannot terminate or revoke the trust and gain access to the trust property. He cannot direct the use of the assets for his food or shelter needs. Finally, he cannot sell his beneficial interest in the trust. Therefore, the property held in the trust is not a resource for SSI purposes.
  • H. PS 07-045 SSI-Minnesota-Review of the Jennifer T~ Special Needs Trust, ~, - REPLY Your Ref: SI 2-1-3 MN Our Ref: 06-0056
  • I. PS 07-045 SSI-Minnesota-Review of the Jennifer T~ Special Needs Trust, ~, - REPLY Your Ref: SI 2-1-3 MN Our Ref: 06-0056
  • DATE: January 11, 2007
  • 1. SYLLABUS
  • This opinion provides detailed analysis of a special needs trust established for an SSI beneficiary with the proceeds of a court-approved personal injury settlement. While the trust purports itself to be irrevocable, the SSI beneficiary is both the settler (grantor) and sole beneficiary of the trust. Since the settler of the trust is also the sole beneficiary, the trust is revocable and, thus, a countable resource for SSI purposes. This remains true despite that fact that the trust otherwise meets the requirements to be excluded under the special needs trust provisions. Naming a residual beneficiary would likely have the effect of making the trust irrevocable, but the deemed death provision would then allow for the residual beneficiary to potentially benefit from the trust during the lifetime of the beneficiary. In that instance, the trust no longer meets the special needs trust requirement dictating that the trust must be for the sole benefit of the beneficiary during their lifetime.
  • 2. OPINION
  • You asked whether a supplemental needs trust established for the benefit of SSI beneficiary Jennifer ~ (Jennifer) is a resource to Jennifer, a disabled individual, for SSI purposes. For the reasons discussed below, we conclude that the Trust is a resource for purposes of SSI eligibility.
  • Background
  • The Jennifer T~ Special Needs Trust was established on June 7, 2004. Trust, at 1, paragraph 1. It was funded with $6,233,872.31, which constitutes the proceeds of a court-approved settlement of a personal injury lawsuit filed on Jennifer's behalf. Trust, at 1, paragraphs 3- 4; Trust, at Appendix A. The named settlors of the Trust are Jennifer's parents, Kyle and Lori T~, and the trustees are Lee H~ and Comerica Bank and Trust, National Association. Trust, at 1, paragraph 1.
  • The stated purpose of the Trust is to provide for Jennifer's supplemental needs and supplement all financial and service benefits to which Jennifer might become eligible to receive as a result of her disability from any local, county, state or federal agency, or through any corporations, entities or agencies. Trust, at 1, paragraph 6; Article Three, Paragraph 3.1. The Trust Agreement states that it is "irrevocable" and that neither Jennifer nor her parents have the right to alter, amend, revoke or terminate the Trust Agreement. Trust, Article Two, paragraph 2.1. The trustees retain the right to amend the Trust Agreement, with approval of the court, in order to conform to any rule or regulation "relating to 42 U.S.C. § 1396 or related statues, including state statutes which are consistent with the provisions and purposes of the Omnibus Budget Reconciliation Action of 1993 and any amendments of such Act, so that this Trust Agreement conforms with any amendments to relevant state or federal laws." Trust, Article Two, paragraph 2.1. The Trust incorporates, by reference, the provisions of 42 U.S.C. §1396p(c)(2)(B) and "the United States Department of Health and Human Services, Health Care Financing Administration, State Medicaid Manual, Part 3, § 3257.6" (hereafter the Medicaid Manual) "regarding required language or any other requirement for 'special needs trusts.'" Trust, Article Two, paragraph 2.2.1. The Trust Agreement further states:
  • If this Trust Agreement is deficient in any regard or if any provision in the Trust Agreement is inconsistent with any provision of those sections or any other provision of federal law that establishes requirements for 'special needs' trusts, the required language or other requirement of § 1396p(c)(2)(B) or Section 3257.6 or other applicable federal law shall be deemed to be included in this Trust Agreement and shall prevail to the extent necessary to conform this Trust Agreement to the requirements for 'special needs' trusts, and this Trust Agreement shall be deemed to be amended accordingly, without need for court approval of an amendment pursuant to Article Two of this Trust Agreement
  • Trust, Article Two, paragraph 2.2.1 The Trust Agreement also contains a similar paragraph, purporting to allow for a deemed amendment of the Trust Agreement so as to conform the Trust Agreement to Chapter 256B, Section 501B.89 of the Minnesota Statutes. Trust, Article Two, paragraph 2.2.2.
  • The trustees have "sole and absolute discretion" to make distributions from the Trust principal to pay for Jennifer's supplemental needs. Trust, Article Three, paragraphs 3.1, 3.2.2. The trustees shall not make distributions for Jennifer's food, shelter, medical care or other basic necessities that are provided by, or to be provided by, any governmental unit, to the extent that such distributions would replace, reduce or substitute for publicly-funded benefits available to Jennifer or render her ineligible for publicly-funded benefits. Trust, Article Three, paragraph 3.2.3. The trustees may, in their sole and absolute discretion, provide in-kind support and maintenance to her as long as Jennifer remains eligible to receive SSI, Medicaid or other government benefits and her monthly SSI benefit amount is not reduced below $1.00. Trust, Article Three, paragraph 3.2.5. The Trust assets cannot be assigned or alienated by Jennifer, are not subject to garnishment, attachment, levy or other legal process by Jennifer's creditors, and are not considered an asset of Jennifer's in a bankruptcy proceeding. Trust, Article Three, paragraph 3.2.4.
  • The Trust shall terminate upon Jennifer's death, or upon the first of the following to occur: (1) a court finds that the Trust renders Jennifer ineligible for benefits from any governmental unit or agency; or (2) the trustees determine that the Trust is or may be subject to garnishment, attachment, execution or bankruptcy proceedings by a creditor of Jennifer. Trust, Article Three, paragraphs 3.2.7, 3.3. If the Trust is terminated prior to Jennifer's death, the Trust assets shall be distributed as if Jennifer were deceased. Trust, Article Three, paragraph 3.2.7. Upon Jennifer's death, the trustees shall pay to the State of Minnesota or other State sums equal to the total Medicaid benefits paid on Jennifer's behalf. If Trust assets remain, the trustees may then pay expenses of Jennifer's funeral and last illness. The trustees shall also pay all reasonable and necessary administrative expenses relating to the termination of the Trust, and these may be paid prior to the sums paid to the State of Minnesota or other State. Trust, Article Three, paragraphs 3.3-3.3.1. After paying the above-mentioned expenses and reimbursements, any assets remaining in the Trust shall be distributed to Jennifer's estate. Trust, Article Three, paragraph 3.3.2.
  • If any provision of the Trust Agreement is invalid or unenforceable, the remaining provisions shall continue to be fully effective. Trust, Article 5, paragraph 5.2.3. In addition, a court may "modify any provision of this trust to the extent necessary to maintain the eligibility of Jennifer T~ for Medical Assistance or other public benefits." Trust, Article 5, paragraph 6.34.
  • Discussion
  • The Trust is Revocable
  • A trust established by an individual after January 1, 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). Although a trust agreement may contain language stating that the trust is irrevocable, see Trust, Article Two, paragraph 2.1, a trust is revocable where the grantor or settlor of the trust is also the sole beneficiary. Restatement (Second) of Trusts § 339, comment a (1959); Restatement (Third) of Trusts § 65 and comment a and Reporter's Note (2003). Here, the Trust Agreement identifies Kyle and Lori T~ as the settlors, but Jennifer is the true settlor of the Trust because the Trust was formed with her assets. POMS SI 1120.200(L)(3).
  • Jennifer is also the sole beneficiary of the Trust. Jennifer is the only named beneficiary of the Trust during and after her lifetime. On termination of the Trust, and after the State is reimbursed for Medicaid benefits paid to Jennifer, administrative expenses for terminating the Trust are paid, and Jennifer's funeral and last illness expenses are paid, any remaining Trust assets are to be distributed to Jennifer's estate. Trust, Article Three, paragraphs 3.2.7, 3.3.1, 3.3.2. Under Scott on Trusts, a settlor is the sole beneficiary when she conveys property in trust to pay the income to her for life, and on her death the trust property is conveyed to her estate. William F. F~, Scott on Trusts, § 127.1 (1987). Likewise, under the Restatement (Second) of Trusts, a settlor is the sole beneficiary when she transfers the property in the trust to pay the income to herself for life and on her death the trust principal is transferred to her estate. See Restatement (Second) of Trusts, § 127, comment b. Here, the assets are distributed to Jennifer's estate (after the Medicaid benefits are reimbursed and administrative, funeral and last illness expenses are paid) upon the Trust's termination. Thus, Jennifer is the sole beneficiary of the Trust. Because Jennifer is both the sole beneficiary and the settlor of the Trust, the Trust is revocable and should be considered a resource.
  • The Trust Modification Provisions Do Not Render The Trust Irrevocable.
  • The Trust Agreement purports to self-correct certain deficiencies. The Trust provides that, if any provision of the Trust Agreement is inconsistent with the provisions of 42 U.S.C. §1396p(c)(2) (B) or Part 3 § 3257.6 of the Medicaid Manual regarding required language "and any other requirement for special needs trusts," the Trust Agreement "shall be deemed to be amended accordingly, without need for court approval" to "conform this Trust to the requirements for 'special needs' trusts." Trust, Article Two, paragraph 2.2.1 (emphasis added). The Trust also allows court-ordered modifications "to the extent necessary" to maintain Jennifer's eligibility for "Medical Assistance or other public benefits." Trust, Article 5, paragraph 6.34. Based on our review, we do not believe that either of these modification provisions can be invoked to make the Trust irrevocable.
  • As an initial matter, we note that the Trust Agreement is consistent with 42 U.S.C. § 1396p(c)(2) (B) and Part 3, § 3257.6 of the Medicaid Manual. More specifically, 42 U.S.C. § 1396p(c)(2)(B) provides, in pertinent part, that "[a]n individual shall not be ineligible for medical assistance … to the extent that … assets were transferred to a trust established solely for the benefit of an individual under 65 years of age who is disabled." See 42 U.S.C. § 1396p(c)(2)(B). Because the Trust was established for Jennifer's sole benefit, the Trust Agreement is consistent with this provision. Part 3, § 3257.6 of the Medicaid Manual provides that, "[i]n order for a trust to be considered for the sole benefit of a disabled individual, the trust instrument must provide that any funds remaining in the trust upon the death of the individual must go to the State, up to the amount of Medicaid benefits paid on the individual's behalf." See U.S. Dept. of Health and Human Servs., Health Care Financing Administration State Medicaid Manual, Part 3, § 3257.6. The Manual further states that the trust may provide for disbursal of funds to other beneficiaries, so long as the trust does not permit such disbursals until the State's claim is satisfied. Id. Here, the Trust Agreement states that the trustees shall pay the State "sums equal to the total Medicaid benefits paid on Jennifer's behalf" before paying administrative, funeral and last illness expenses and distributing any remaining assets to Jennifer's estate. Trust Article Three, paragraphs 3.3.1, 3.3.2. Consequently, the Trust Agreement is consistent with Part 3, § 3257.6 of the Medicaid Manual and includes the "required language" for special needs trusts. See POMS SI 01120.203.
  • This Trust Would Not Be Considered A Resource If A Residual Beneficiary Were Added.
  • This Trust is currently revocable. Although the Trust could be made irrevocable by adding a residual beneficiary, this has not yet occurred. Moreover, we do not believe that this task could be accomplished under the Trust Agreement's "self-correction" provisions. The provisions relate to the requirements for special needs trusts and Medicaid benefits. They do not concern irrevocability or residual beneficiaries. Furthermore, we could find no legal authority that would allow a "self-correcting" trust provision to substitute for the settlor's intent to name beneficiaries to the trust. See Restatement (Third) of Trusts § 48 ("A person is a beneficiary of a trust if the settler manifests an intention to give the person a beneficial interest…"); see also Id. § 44, comment a ("The interests of some beneficiaries may be valid although the intended interests of others are not, including invalidity for indefiniteness…."). Until a residual beneficiary is added, the Trust remains a resource to Jennifer. I
  • We caution, however, that if additional residual beneficiaries are added to the Trust, the Trust would not satisfy the Medicaid payback provisions of the statutes, due to the inclusion of the deemed death provision of the Trust in Section 3.2.7. The statute provides that a trust will qualify for the Medicaid payback exception only if it is established for the benefit of the individual. 42 U.S.C. § 1396p(d)(4)(A). The Agency has reasonably interpreted 42 U.S.C. § 1396p(d)(4)(A) to require that the trust be established for the sole benefit of the individual during her lifetime. See POMS SI 01120.201(F)(2) (defining established for the sole benefit of the individual); Memorandum from Reg. Chief Counsel, Chicago, to Asst. Reg. Comm'r. - MOS, Chicago, SSI-Illinois-Michigan-Review of the Brian V~ Irrevocable OBRA Pay Back Trust, (Nov. 22, 2004). Under paragraph 3.2.7 of the Trust Agreement, Trust assets may, under some circumstances, be distributed to residual beneficiaries of the Trust during Jennifer's lifetime as if she had died. Thus, if residual beneficiaries were added to the Trust, the Trust would not longer be for Jennifer's sole benefit during her lifetime, as required to meet the Medicaid payback provisions of the statute.
  • Conclusion
  • Jennifer is the settler and sole beneficiary of the Trust, rendering the Trust revocable and making it a resource to Jennifer, even though it complies with the requirements of special needs trusts. The self-correction provision cannot be used to add a residual beneficiary. Until such time as a residual beneficiary is named, this Trust will constitute a resource to Jennifer. Furthermore, even if a residual beneficiary is named, the Trust will still be a resource unless Paragraph 3.2.7 is removed from the Trust Agreement or otherwise modified so that no other beneficiary could benefit from the Trust during Jennifer's lifetime.
  • I. PS 06-091 Opinion Request Transfer; Treatment of Trust for SSI Resource Purposes (Ryan A. S~)-Reply Your Reference: S2D8B51:RLM Our Reference: 06-0012
  • J. PS 06-091 Opinion Request Transfer; Treatment of Trust for SSI Resource Purposes (Ryan A. S~)-Reply Your Reference: S2D8B51:RLM Our Reference: 06-0012
  • DATE: March 9, 2006
  • 1. SYLLABUS
  • This opinion involves a transfer by a beneficiary's parents of Uniform Transfer to Minors Act (UTMA) funds to newly established trusts for the beneficiary prior to his attainment of the age of majority. Two issues arose. First, does State law permit the transfer of UTMA funds into a trust and, second, are the trusts resources for SSI purposes? Regional counsel determined that Minnesota law did permit the parents to transfer the UTMA funds and that such action was not a breach of their fiduciary responsibilities. However, because each trust contained a discretionary termination clause in the event of the beneficiary's noneligibility for public assistance (e.g., SSI), the trusts created a contingent interest in third parties. Because neither trusts would be for the sole benefit of the beneficiary during his lifetime, the statutory trust exceptions discussed at POMS SI 00120.203B.1.d. would not apply and the trusts would be resources for SSI purposes (also see SI 01120.201F.2. for a discussion of sole lifetime beneficiary).
  • 2. OPINION
  • You have asked whether Minnesota state law allows the custodian of a Uniform Transfers to Minors Act (UTMA) account to transfer the funds into a trust, and whether the custodian had legal authority to make the transaction. If so, you have further asked whether the resulting trusts are a resource for the purposes of determining Ryan S~'s (Ryan's) eligibility for Supplemental Security Income. We believe, for the reasons stated below, that the custodians had authority to transfer the UTMA funds, but that the trusts are a resource to Ryan.
  • FACTS
  • Ryan, born October 17, 1986, is a resident of Minnesota. According to the information provided, when he was a minor, he received an inheritance from his grandparents, which was placed in a Uniform Transfers to Minors Act (UTMA) account governed by Minnesota law. On October 8, 2004, prior to Ryan's eighteenth birthday, his parents established the “Ryan A. S~ Irrevocable Special Needs Trust” (“Trust”) with $5,980.35 in UTMA funds.
  • Ryan, born October XX, 1986, is a resident of Minnesota. According to the information provided, when he was a minor, he received an inheritance from his grandparents, which was placed in a Uniform Transfers to Minors Act (UTMA) account governed by Minnesota law. On October XX, 2004, prior to Ryan's eighteenth birthday, his parents established the “Ryan A. S~ Irrevocable Special Needs Trust” (“Trust”) with $5,980.35 in UTMA funds.
  • The Trust states that it is irrevocable. Trust, Article One. The Trust's purpose is to supplement Ryan's care which is provided by public assistance. Trust, Article Three. The Trust provides that the Trust shall terminate upon Ryan's death. Trust, Article Three, subsection 7. When Ryan dies, all amounts remaining in the Trust are to be distributed to the State up to the amount of medical assistance paid by the State on his behalf. Trust, Article Three, subsection 8(a). The Trustee may then use the remaining Trust assets for funeral expenses, applicable taxes, and certain fees. Trust, Article Three, subsection 8(b). After these payments, the Trustee is directed to pay the remaining undistributed principal equally to Ryan's issue. Trust, Article Three, subsection 8(c).
  • The Trust also contains provisions for terminating the Trust prior to Ryan's death. The Trust provides that the Trust shall be terminated “if as a matter of law or regulation, the principal of this trust would ever be deemed to be an available asset for the purpose of determining eligibility for any publicly funded program which our Trustee deems essential to Ryan's well being.” Trust, Article Three, subsection 7(a). In addition, “if a federal, state, county or local administrative or legislative body or court shall determine that this trust disqualifies Ryan from receiving benefits from any publicly funded benefit program which our Trustee deems essential to his well being,” the Trust is terminated. Trust, Article Three, subsection 7(b). Upon such termination, the Trust is to be distributed in the same manner as though Ryan died. Trust, Article Three, subsection 7.
  • In addition to this main Trust, Ryan's parents also established a second trust with UTMA funds in the amount of $100.01, called the “Ryan A. S~ Irrevocable Supplemental Needs Trust” (“Supplemental Trust”). The provisions of the Supplemental Trust largely mirror the main Trust except that, upon termination of the trust, after the State is reimbursed for medical assistance, and funeral expenses, applicable taxes and other fees are paid, the remainder will go to the Special Olympics, Saint Paul's Lutheran Church of Perham, and the Boy Scouts of America, in equal amounts. Supplemental Trust, Article Three, subsection 8.
  • DISCUSSION
  • 1. Transfer of Funds from the UTMA Account to the Trusts Was Proper.
  • Under Minnesota law, the custodian of an UTMA account “has all the rights, powers, and authority over custodial property that unmarried adult owners have over their own property. . . .” Minn. Stat. Ann. § 527.33. However, that power is subject to the limitation that “a custodian shall observe the standard of care that would be observed by a prudent person dealing with property of another . . . .” Minn. Stat. Ann § 527.32. The statute further empowers the custodian to “deliver or pay to the minor or expend for the minor's benefit so much of the custodial property as the custodian considers advisable for the use and benefit of the minor. . . .” Minn. Stat. Ann § 527.34.
  • These statutory provisions allow the custodian of an UTMA account to transfer funds into a trust account so long as it is not a breach of fiduciary duty. Here, it appears that Ryan's parents, the custodians with the legal authority to act on his behalf, were acting consistent with these statutory provisions and did not breach their fiduciary duty when they transferred the UTMA funds to an irrevocable trust. If Ryan's parents had not so acted, the UTMA funds would have been available to Ryan when he reached the age of majority, which would have affected his eligibility for public assistance programs, including Supplemental Security Income. POMS SI CHI01120.205(A). By placing the UTMA funds in a trust that they anticipated would not count as a resource, Ryan's parents were attempting to maintain his eligibility for public assistance programs and thereby conserve his funds. Although, as discussed below, it appears that their attempt failed, there does not appear to be any indication that they were not observing a reasonable standard of care in creating the trusts. See In re Estate of King, 668 N.W.2d 6, 9 (Minn. App. 2003) (no breach of fiduciary duty as long as acting in good faith, from proper motives, and within the bounds of reasonable judgment); see also Matter of Irrevocable Inter Vivos Trust Established by R.R. Kemske by Trust Agreement Dated October 24, 1969, 305 N.W.2d 755, 761 (Minn. 1981) (quoting Restatement (Second) of Trusts and noting that whether fiduciary acted prudently depends upon circumstances as they reasonably appeared to him at the time he acted and not at some subsequent time when the conduct may be questioned). Thus, we conclude that Minnesota law allows the transfer of UTMA funds into a trust and that Ryan's parents acted with proper legal authority in making this transfer.
  • Trusts Are Resources Under Statutory Resource Rules.
  • Under SSA's statutory trust resource rules, an irrevocable special needs trust established by an individual after January 2000 generally will be considered a resource to him, unless it meets certain exceptions. 42 U.S.C. § 1382b(e)(3)(B); POMS SI 01120.201(D)(2). 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. 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, Article One. Moreover, even though Ryan 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 or the Supplemental 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, both trusts create contingent remainder interests in third parties (Ryan's issue and various charitable groups). POMS SI CHI01120.200(D)(4). Accordingly, the trusts are 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 Ryan 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 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 PS 01825.016(D), 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). Here, however, the Termination provision in Article Three creates contingent interests that could benefit third parties during the lifetime of the claimant. Specifically, if the trustee decides to terminate the Trust because it disqualifies Ryan from public benefits, the trust assets might go to Ryan's issue. Because of this contingent interests in third parties, the Trust would not be considered for the sole benefit of Ryan 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. Therefore, the Trust should be considered a resource to Ryan under POMS SI 01120.201(D)(2). For the same reason, the Supplemental Trust would also be considered a resource.
  • CONCLUSION
  • We conclude that Minnesota law allows the transfer of UTMA funds into a trust and that Ryan's parents acted with proper legal authority in making this transfer. However, the discretionary termination provisions of the Trusts create contingent interests in third parties. Accordingly, the Trusts would not be for the sole benefit of Ryan 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. Therefore, we believe that the trusts are a resource to Ryan.
  • J. PS 05-121 SSI-Minnesota-Review of the Annuity Funded Burial Trust of Dorothy S~, REPLY Your Ref: S2D5G6, SI 2-1-4 MN (S~)Our Ref: 04P103
  • K. PS 05-121 SSI-Minnesota-Review of the Annuity Funded Burial Trust of Dorothy S~, REPLY Your Ref: S2D5G6, SI 2-1-4 MN (S~)Our Ref: 04P103
  • DATE: March 29, 2005
  • 1. SYLLABUS
  • On March 27, 2004 an annuity policy was purchased by an SSI beneficiary from the Funeral Directors Life Insurance Company. The annuity was purchased with a single premium of $7000, and provided that the proceeds of the policy could be assigned. An irrevocable assignment of ownership was made to N~-D~ funeral home effective March 27, 2004 (the "Assignment"). The Assignment was made as consideration for performing the terms of the Funeral Pre-Arrangement Agreement (the "Agreement"), but could be cancelled without penalty within three days of that date. The Agreement authorized N~-D~ to transfer ownership of the Annuity to a trustee and to apply the proceeds in accordance with the Pre-Arrangement Agreement. The assignment of the annuity and the terms of the Agreement established an annuity funded burial trust. Standard post-January 1, 2000 trust rules do not apply to burial trusts where the individual irrevocably contracts with a provider of funeral goods/services; the individual pre-pays for the goods and services; and the funeral provider places the funds in a trust. When these conditions are met it is determined that that funeral home has "established" the trust. Since the Assignment and Agreement establish that the conditions are met, the annuity funded burial trust is determined to be an excludable resource after the initial 3 day cancellation period. Additionally, the SSI beneficiary's equitable interest in the resulting trust is determined to have no discernable market value.
  • 2. OPINION
  • You have asked whether an annuity funded burial trust is a resource for purposes of SSI for Dorothy J. S~. As discussed below, we conclude that the trust is a resource for the first three days after its creation (March 27, 2004), but thereafter is not a resource.
  • BACKGROUND
  • The relevant information that we have consists of a completed application for an annuity policy, the terms of the annuity policy, a statement for burial goods and services from N~-D~ funeral home, an irrevocable assignment of ownership of the annuity to N~-D~, and a funeral pre-arrangement agreement.
  • On March 27, 2004, Ms. D~ A. C~, acting under a power of attorney for Dorothy S~, purchased an annuity policy ("Annuity"), policy number MN0473919, from the Funeral Directors Life Insurance Company, for a single premium of $7000, which was paid for with a check written by Ms. S~. The policy became effective on March 27, 2004. The Annuity named Dorothy J. S~ as the proposed insured/annuitant, with the Estate of Dorothy J. S~ named as a contingent beneficiary. The policy will mature on March 27, 2021, when Ms. S~ will be 88 years old. The Annuity provided that it would make monthly payments to Ms. S~ beginning on the maturity date. The policy also provided that it could be cancelled within 30 days after the effective date of the policy (the "free look" period). Prior to the maturity date, the Annuity could be surrendered for the $7000 premium payment, minus certain fees from the insurance company. The Annuity also provided that the proceeds of the policy could be assigned.
  • On March XX, 2004, Ms. D~ A. C~, acting under a power of attorney for Dorothy S~, purchased an annuity policy ("Annuity"), policy number MN0473919, from the Funeral Directors Life Insurance Company, for a single premium of $7000, which was paid for with a check written by Ms. S~. The policy became effective on March XX, 2004. The Annuity named Dorothy J. S~ as the proposed insured/annuitant, with the Estate of Dorothy J. S~ named as a contingent beneficiary. The policy will mature on March XX, 2021, when Ms. S~ will be 88 years old. The Annuity provided that it would make monthly payments to Ms. S~ beginning on the maturity date. The policy also provided that it could be cancelled within 30 days after the effective date of the policy (the "free look" period). Prior to the maturity date, the Annuity could be surrendered for the $7000 premium payment, minus certain fees from the insurance company. The Annuity also provided that the proceeds of the policy could be assigned.
  • The documents also included an irrevocable assignment of ownership of the Annuity from Ms. S~ to N~-D~ (the "Assignment"). The Assignment was made as consideration for performing the terms of the Funeral Pre-Arrangement Agreement ("Agreement"). The Assignment came into effect on March 27, 2004, and could be cancelled without penalty within three days of that date. Under the Assignment, Ms. S~ waived the right to surrender the Annuity for cash, to obtain a loan, or to change the owner (Assignment III). The Assignment did not affect the right to cancel the Annuity under the 30-day "free look" period or the Agreement's 3-day right to cancel period. Ms. S~, however, agreed to waive the "free look" period, if she was qualifying for public assistance, although she apparently did not waive the 3-day right to cancel (Assignment IX).
  • The Funeral Pre-Arrangement Agreement authorized the Funeral Home to transfer ownership of the Annuity to a trustee, to hold the policy and apply the proceeds in accordance with the Agreement. The Agreement provided that N~-D~ agreed to provide the funeral services provided for in the statement of goods and services in consideration for an assignment of the death benefits of the annuity. (The statement for funeral goods and services with the N~-D~ Funeral Home listed various funeral services and merchandise, and was for a total amount of $7000.) The Agreement also provided that Ms. S~ (or her next of kin or legal representative) could choose an alternate provider for her funeral goods and services.
  • DISCUSSION
  • Ms. S~, through the N~-D~ funeral home, has created an annuity funded burial trust. A trust "established" by an individual on or after January 1, 2000, generally will be considered a resource under federal law, even if it is irrevocable, to the extent that payments from the trust could be made to or for the benefit of the individual, unless the trust provides for Medicaid reimbursement. 42 U.S.C. §§ 1382b(e), 1396p(d)(4)(A); POMS SI 01120.201(D)(2)(a), SI 01120.203(B)(1). This statutory rule applies if payments can be made for the benefit of the individual "under any circumstance, no matter how unlikely or distant in the future." POMS SI 01120.201(D)(2)(b). This is the case here, since the annuity funded burial trust clearly benefits Ms. S~ by providing her with funeral services and goods, if she has a funeral.
  • However, these resource provisions do not apply to burial trusts where the individual irrevocably contracts with a provider of funeral good and/or services; the individual pre-pays for the goods and services; and the funeral provider subsequently places the funds in a trust. POMS SI 01120.201(H)(1). Under these circumstances, the funeral home is considered to have "established" the trust for purposes of 42 U.S.C. § 1382b(e). Memorandum from Associate General Counsel Office of Program Law to Associate Commissioner for Legislative Development, Exclusion of Certain Burial Trusts from Section 205 of Public Law Number (Pub. L. No. 106-169) (August 29, 2000). In such a case, the Agency applies only the regular resource rules, and thus the trust will be a resource if it is revocable; if the individual can direct the trustee to use the trust principal for her support and maintenance; or if the individual can sell her beneficial interest in the trust. POMS SI 01120.200(A)(1), (D); SI 01120.201(H)(1).
  • The statutory trust resource provisions would not apply here because Ms. S~ has irrevocably contracted with a provider of funeral goods and/or services, she pre-paid for the goods and/or services; and the funeral provider, N~-D~ subsequently placed the funds in a trust. Specifically, Ms. S~ entered into an irrevocable contract with N~-D~, in that N~-D~ agreed to provide certain specified funeral goods and/or services in exchange for the annuity's death benefit, assuming Ms. S~ did not decide to change to a different provider. Ms. S~ pre-paid for the goods and/or services by irrevocably assigning ownership of her annuity, which we have previously indicated is valid in Minnesota. Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Minnesota-Review of Minnesota Life Insurance Contract from CNA and American Memorial Life Insurance Companies (March 21, 2000); Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Minnesota-Request for Review of OGC Opinion on Life Insurance Funded Burial Agreements (December 15, 1999). Lastly, N~-D~ agreed to subsequently transfer ownership of the annuity to a trust.
  • Turning to the regular resource rules, the trust principal will be a resource if (1) the claimant can revoke the trust and use the assets for his support and maintenance, or (2) the claimant 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, the claimant's interest in the Trust is a resource if it can be sold. POMS SI 01120.200(D).
  • With respect to revocability, Ms. S~ should be considered the true settlor of the burial trust (since the trust was established with funds that belonged to her), but she 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(C). Specifically, the trust creates a contingent remainder interest in the N~-D~ funeral home. Restatement (Second) of Trusts § 330 comment h (4th ed. 1987) (where transfer to a trust is made pursuant to an agreement with the creditor, the creditor will be considered a beneficiary of the trust). However, Ms. S~ also had the right to cancel her annuity under the 30-day "free look" provision, and apparently under the 3-day right to cancel as well. If either provision was exercised, the creation of the burial trust and the associated contract with N~-D~ would become void, under the Funeral Pre-Arrangement Agreement. Ms. S~ agreed to waive the 30-day "free look" period, but the burial trust would be considered revocable for the first three days after it was created (March 27, 2004) during the 3-day right to cancel period, and thereafter became 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").
  • Ms. S~ is also unable to direct that the trust be used to pay for her support and maintenance, since the sole purpose of the trust is to pay for her funeral expenses, assuming she has a funeral. Legally, Ms. S~ could sell her interest in the trust, but, because the trust is funded with an annuity policy based on Ms. S~'s life, such that the funds can only become available on her death, Ms. S~'s equitable interest in the trust has no discernable market value. Cf. POMS SI 01130.425(B)(1) (interests in pre-need burial arrangements that are funded by life insurance are assumed not to be salable). Thus, if Ms. S~'s interest in the trust is a resource ,it has no market value. POMS SI 01140.044.
  • CONCLUSION
  • For the reasons discussed above, the annuity funded burial trust created by Ms. S~ is a resource for the first three days after its creation (March 27, 2004), but thereafter is not a resource.
  • For the reasons discussed above, the annuity funded burial trust created by Ms. S~ is a resource for the first three days after its creation (March XX, 2004), but thereafter is not a resource.
  • K. PS 04-296 (Minnesota ) SSI--Review of the Scott E. N~ Irrevocable Special Needs Trust, SSN: ~ --ACTION
  • L. PS 04-296 (Minnesota ) SSI--Review of the Scott E. N~ Irrevocable Special Needs Trust, SSN: ~ --ACTION
  • 1. SYLLABUS
  • NOTE: This trust was established in 1992 and thus will be evaluated under the trust rules in place prior to 1/1/00. This precedent may not apply to trusts established after 1/1/00.
  • This case examines whether or not the special needs trust in question is a resource for SSI purposes. For SSI purposes, trusts assets are a resource if 1) the individual can revoke the trust and use the assets to meet their food, clothing or shelter needs; 2) the individual can direct use of the trust principal for their support and maintenance under the terms of the trust; or 3) if beneficial interest in the trust can be sold. In this case the individual does not have the ability to do any of the three actions listed above thus the trust is not a countable resource for SSI purposes.
  • 2. OPINION
  • You asked for our assistance in determining whether the trust agreement in question is a resource to Scott E. N~, a Supplemental Security Income ("SSI") claimant. For the following reasons, it is our opinion that the trust is not a countable resource for Scott.
  • FACTS
  • On January 30, 1992, Elynn N~ and David N~, parents of Scott N~, established a supplemental needs trust for Scott's benefit. Scott N~'s parents nominate themselves as trustees. Scott N~ Trust Agreement 1. The trust property appears to be the proceeds of a personal injury case brought on Scott's behalf.
  • The Trust Agreement provides that the Trustee may distribute the income and/or principal of the trust to, or for the benefit of, Scott E. N~ for the sole purpose of providing goods and services which are not provided by medical assistance or other governmental programs. Article 2, § 3. It also provides that the discretion of the Trustee as to distribution shall be binding on all persons. Article 2, § 3. The trust is irrevocable on its face. Article 2, §
  • 2. The Trust provides that, upon the death of Scott N~, the Trust shall terminate, with the remainder being distributed to the state of Minnesota. Article 2, § 4.
  • DISCUSSION
  • 1. Introduction
  • Under the applicable regulation, "resources" are 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. 20 C.F.R. § 416.1201(a) (1999). Therefore, if an individual is able to obtain funds or convert property to cash to be used towards his or her support and maintenance, such funds or property are resources for purposes of determining SSI ligibility. Trust assets are a resource if (1) the individual has access to the trust assets and can direct the use of the assets to meet his or her need for food, clothing, and shelter; (2) if he or she can revoke or terminate the trust and obtain unrestricted access to the trust assets; or (3) if beneficial interest in the trust can be sold. See POMS SI 01120.200(D).
  • Based on the documents you provided, we conclude that the assets held in trust should not be considered a countable resource under 20 C.F.R. § 416.1201.
  • 2. Scott E. N~ does not have authority to direct the use of the trust assets.
  • The trust agreement expressly provides that the trustee (Scott E. N~'s parents) have discretion to direct the use of the assets for the satisfaction of Scott's supplemental needs, and that this discretion is binding on all parties. Art II, § 3. Thus, Scott cannot "direct the use of the assets." See POMS SI01120.200(D)(1)(a), (b).
  • 3. Scott E. N~ cannot revoke or terminate the trust.
  • Scott is the grantor and the primary beneficiary of this trust. The grantor or settlor of a trust is generally the person who provides the consideration for the trust, even if another entity nominally creates the trust. 76 Am. Jur. 2d § 55; see In re Johannes Trust, 479 N.W. 2d 25, 29 (Mich. App. 1991). We generally regard trusts that have been established from personal injury settlements as being established by the person who received the awards. POMS SI 01120.200(B)(2). Hence, although Elynn and David N~, Scott's parents (his conservators), are named as the grantor in the trust agreement, Scott is, in fact, the grantor of the trust, since it is his personal injury settlement award that comprises the trust fund.
  • Although Scott E. N~ is the grantor, he cannot revoke or terminate the trust and obtain unrestricted access to the trust assets because the trust is irrevocable on its face. Art II, § 2. Although the general law of trusts recognizes an exception to the irrevocability of a trust where the grantor is also the sole beneficiary, Scott is not the sole beneficiary of the trust assets. Upon Scott's death, the trust agreement provides for distribution of the remaining trust principal and trust estate to the state of Minnesota. Art II, § 4. Thus, he cannot revoke or terminate the trust without the consent of the state of Minnesota, and we do not assume that he can obtain the state's consent.
  • 4. Scott E. N~ cannot sell his beneficial interest in the trust.
  • The trust could be a resource if Scott could sell his beneficial interest in the trust. See POMS SI 01120.200(D)(1)(b). Here, the trust is discretionary; therefore, the trustee has no obligation to make any payments to Scott. Art II, § 3. Additionally, the trust provides that "no beneficiary shall have any power to sell, assign, or transfer...any interest in any trust property...." Art. III, § 4. Therefore, Scott cannot sell his interest in trust payments.
  • CONCLUSION
  • The trust includes assets set aside for Scott's supplemental needs. Scott cannot direct the use of the assets for his food, clothing, or shelter needs. He cannot terminate or revoke the trust and gain access to the trust property. And he cannot sell his beneficial interest in the trust. Therefore, the property held in the trust is not a countable resource for SSI purposes. We note that the state district court's September 30, 1991 "Amended Order" allocates $100,000 to the trust. but mentions other assets of Scott N~'s estate, including $50,000 to be invested in stock mutual funds and a $375,000 certificate of deposit. We do not have any information regarding whether those assets are a convertible resource.
  • Thomas W. C~ Regional Chief Counsel,
  • Region V By: ___________________ Yusef D~ Assistant Regional Counsel
  • L. PS 04-205 Minnesota Trust for Bradley T~ SSN ~ Your File No. S2D5B51
  • M. PS 04-205 Minnesota Trust for Bradley T~ SSN ~ Your File No. S2D5B51
  • DATE: November 18, 1996
  • 1. SYLLABUS
  • SI 01120.200 states that a trust is a resource if the beneficiary has the right to revoke the trust and use it to meet food, shelter, or clothing needs or can direct the use of the trust principal to meet these needs. The trust, in this case, is revocable, but is not revocable and available for the beneficiary to meet food, shelter, and clothing needs until he is 18 years of age or until further order of the court. Minnesota courts have established that a minor's proceeds from a settlement may not be used to meet support and maintenance needs for the minor child. Based on the Minnesota laws outlined in the opinion, the trust is not a resource to the beneficiary until he reaches age 18.
  • 2. OPINION
  • This is in reply to your August 8, 1996 inquiry concerning a trust fund established for Bradley T~ with funds from the settlement of a law suit. You asked us to review the Bradley T~ Trust Agreement to determine whether it is a countable resource for SSI purposes. For the following reasons, we believe that the Trust is not a countable resource until Bradley T~ eighteenth birthday, but that it will become one on that day.
  • In September 1993, a Wisconsin court authorized settlement of a law suit brought on Bradley T~ behalf by his parents. The court ordered the settlement award be deposited in a trust fund in an account bearing Bradley T~ parents' name. The court order provided that the award and any accumulation thereon were to remain on deposit until Bradley T~ reached eighteen,or until further order of the court.
  • Ronald and Kathleen T~, as Bradley's parents, duly signed a trust agreement with the Norwest Bank Minnesota North, establishing a trust fund for the award settlement.
  • SUMMARY
  • You asked whether the subject trust agreement would result in an irrevocable trust. The trust agreement does not create an irrevocable trust. On the contrary, the trust is revocable. Upon reaching his majority, Bradley will have unrestricted access to the trust principal.
  • You ask whether the court retains some degree of jurisdiction which would restrict revocability even if the trust is a revocable grantor trust. Minnesota law and the terms of the court order superceed the terms of the trust agreement. Minnesota law provides that a minor's settlement proceeds are not available until released by the court. Minn. Rev. Stat. § 540.08. The court order specifies that all funds are to remain on deposit until Bradley T~ attains the age of eighteen years or until further order of the court. We believe that Minnesota courts are not likely to order release of the funds until Bradley T~ majority. Therefore, we believe that the subject trust is not an available resource for SSI purposes until Bradley T~ reaches the age of eighteen.
  • 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 her needs for food, clothing, and shelter. POMS SI 01120.105.A.1, 01120.200(D)(1)-(3).
  • This trust agreement establishes a grantor trust, where the grantor, Bradley T~, through his guardians and parents, is also the sole beneficiary of the trust. As Bradley T~ parents, Ronald and Kathleen T~ were acting on his behalf, Bradley is considered the actual settlor of the trust. See Minn. Rev. Stat. §§ 527.21-527.44. Furthermore, trusts established from personal injury settlements are established by the person who received the award. POMS SI 01120.200J.3.a. Thus, Bradley T~ is the grantor and sole beneficiary of this trust.
  • A grantor generally may be the sole beneficiary of a trust, and in such a case, may compel the termination of the trust. Restatement (Second) of Trusts, § 339 (1959). This principle applies even if the terms of the trust indicate that the trust is irrevocable. Comment a to § 339. We have previously advised that because of the absence of any statutory law in Minnesota prohibiting the grantor from being sole beneficiary, this general trust principle applies in Minnesota. See Six-State Synopsis of Trust Laws, OGC-V (P~) to P~-W~, ARC, SSA-V (2/26/92).
  • Moreover, this trust agreement explicitly states that the grantor reserved the right to amend or revoke the agreement. Thus the trust agreement, standing alone, creates a revocable grantor trust that would, in most circumstances, be considered a resource for SSI purposes. Nonetheless, despite the revocable trust agreement, the trust cannot be a resource for SSI purposes until Bradley reaches his majority.
  • Minnesota law provides that a minor's settlement proceeds in a court-ordered trust are not available until released by the court. Minn. Rev. Stat. § 540.08. We have previously advised that section 540.08 precludes considering a minor's funds in an account established under this section as a resource, because Minnesota courts apparently would not release these funds for the minor's support and maintenance. Trust Accessibility--Minnesota-Nathan Landis Trust, OGC-V (Goldstein) to Battistelli, ARC, SSA-VIII, at 3 (5/7/96); Blocked Account in Minnesota as SSI Resource--Minnesota--Joseph Carl Thompson, OGC-V (M~) to P~-W~, ARC, SSA-V, at 3 (5/29/91); Trust For Minor As A Resource Where Termination Authorized At Age 18--Minnesota--Pao G. Y~, OGC-V (M~) to P~, ARC, SSA-V, at 3 (6/17/92).
  • In Kahle v. Archambeault, Court File No. 86-19270 (Minn., Dist. Ct. 2/4/91) (copy attached), a Minnesota district court denied a mother's petition to release funds in an account established for the minor pursuant to a personal injury lawsuit. The court stated that such settlement proceeds are owned by the injured child. They are intended to provide compensation for the disability, disfigurement, pain and suffering sustained by the child. The funds are not assets which are available in order to satisfy day to day living expenses which are the responsibility of the child's parents. Indeed, Minn. Stat. § 540.08 mandates court supervision over the settlement proceeds in order to guarantee their availability when the child reaches the age of majority. Blocked Account in Minnesota as SSI Resource--Minnesota--Joseph Carl Thompson, OGC-V (M~) to P~-W~, ARC, SSA-V, at 3 (5/29/91).
  • Therefore, although the trust agreement establishes a revocable grantor trust, the trust funds are not available as a resource until Bradley reaches eighteen. Until that time, section 540.08 provides that these funds are not available unless released by the court. The court order also specifies that the funds are not accessible without court approval until Bradley's majority. Given that Minnesota courts are not likely to release the funds, any presumed access to the fund based on the provisions of the trust agreement is nullified by Minnesota law as well as the actual terms of the court order.
  • Once Bradley reaches eighteen, however, he will have access to the trust fund, without court supervision, since he is both the grantor and sole beneficiary of this revocable trust. At this point, because the trust fund is a revocable grantor trust, the fund should be considered a resource for SSI purposes. If upon further inquiry into the matter you have additional questions, please let us know if we can be of assistance.
  • Sincerely,
  • Thomas W. C~ Acting Regional Chief Counsel, Region VSocial Security Administration
  • By: Myriam M~Assistant Regional Counsel
  • M. PS 04-158 Minnesota Trust for Sandra W~; SSN: ~ Your Reference No.: S2D5G3
  • N. PS 04-158 Minnesota Trust for Sandra W~; SSN: ~ Your Reference No.: S2D5G3
  • DATE: June 25, 1997
  • 1. SYLLABUS
  • The trust assets in "The New Hope Trust" and "The W~ Family Supplemental Needs Trust" were funded with a Disability Insurance Benefits back payment received by the claimant who is also the beneficiary of the trust during her lifetime. However, the trust agreement states that any residual trust assets left after the claimant's death are to be held in a charitable trust for "persons with disabilities in Cass County." Since the claimant is not the sole, identifiable beneficiary of the trust agreements, the trust is irrevocable and should not be considered a resource to the claimant.
  • 2. OPINION
  • You have asked for our assistance in determining whether the trust agreements in question are revocable and would permit Sandra W~ (Ms. W~), a Supplemental Security Income (SSI) claimant, unrestricted access to the trust principal, which she could use for her support and maintenance. For the following reasons, it is our opinion that the trust agreements are irrevocable and that the trust funds are not a countable resource.
  • FACTS
  • On December XX, 1995, Ms. W~ brother, Robert L. W~, Jr. (Mr. W~) executed two trust agreements, "The New Hope Trust" and "The W~ Family Supplemental Needs Trust," in which he described himself as both settlor and trustee, for the sole benefit of Ms. W~ and for the purpose of establishing a "supplemental needs trust" which would provide "reasonable living expenses for maintaining [Ms. W~] good health, safety and welfare when, in the discretion of the trustee, such requisites are not being provided by any federal, state, county or local public agency, office or department of the State of Minnesota, or of any other state, or of the United States." Article 2 § 1 in both trust agreements. By their terms, the trust agreements are irrevocable. Article 7 of both trust agreements.
  • The trust agreements further provide that, upon the death of Ms. W~, the trustee may use the trust to pay "final bills" to cover the expenses of her last illness and funeral, administrative expenses related to the trust, and reasonable attorney's and accountant's fees. Article 3 § 1 of both trust agreements. Also upon Ms. W~ death, the trust agreements direct the trustee to distribute the trust funds first, to pay any reimbursement claims made by Minnesota Medical Assistance and/or by any other governmental agencies, and then, any "residue" of the trust shall continue to be held pursuant to the terms of this trust and distributed in accordance with the purposes and limitations stated in Article 2, Sections 1, 2, 6, 7, and 8 to persons with disabilities residing in Cass County. The trustee shall rely upon the input and advice of Cass County Social Services in determining to whom and for what purposes the distributions should be made.
  • Article 3 § 2 of both trust agreements. The trust agreements direct that upon final distribution of the trust funds, the trust shall terminate. Id.
  • A report of contact indicates that the trusts were funded with a Disability Insurance Benefits back payment, which Ms. W~ received in July, 1995. The report of contact further indicates that the amount placed in trust totaled $23,133.06, although copies of a bank statement and certificate of deposit attached to the trust agreements do not comport with that figure. The information that you have provided also does not indicate whether additional assets have been included in the trusts; therefore, no such additional funds will be assumed.
  • DISCUSSION
  • Under the applicable regulation, "resources" are:
  • 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....
  • 20 C.F.R. § 416.1201(a) (1996). Therefore, 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 determining SSI eligibility. Trust assets are a resource if the individual has access to the trust assets and can direct the use of the assets to meet her needs for food, clothing, and shelter, or if she can revoke the trust and obtain unrestricted access to the trust assets. See Programs Operation Manual System (POMS) SI 01120.105.A.1, 01120.200.D.1-3. We have reviewed the documents you have provided and, for the following reasons, we conclude that the trust agreements in question should not be considered a countable resource under 20 C.F.R. § 416.1201.
  • The grantor or settlor of a trust is generally the person who provides the consideration for the trust, even if another entity nominally creates the trust. 76 Am. Jur. 2d § 55. Therefore, although Mr. W~ named himself as "settlor" in the trust agreements, it is Ms. W~, who is, in fact, the settlor of these trust agreements since it is her money that comprises the trust fund. Assuming that Ms. W~ is the sole settlor of the trust, the next consideration is whether she is the sole, identifiable beneficiary of the trust, in which case, she would have the power to revoke the trust, even if, by their terms, the trust agreements are irrevocable. Restatement (Second) of Trusts, § 339 and comment (1959). However, if the trust specifies that any trust assets remaining at the time of the primary beneficiary's death are to be distributed to certain other individuals, then those residual beneficiaries would render the trust irrevocable. See "Zebley Trust as an SSI Resource-Wisconsin, Shannon O~ (~)," RA V (M~) to G~, Acting Assistant Regional Counsel-POS, Social Security Administration V (07/09/93); see also In re Schroll, 297 N.W.2d 282 (1980) (Minnesota court held that an "irrevocable" trust could not be revoked without consent of the guardian ad litem appointed to represent the interests of residual unborn beneficiaries); see also Restatement (Second) of Trusts § 127 and comment (b), § 339 and comment (b) (1959); 76 Am. Jur. 2d § 95 ("a trust cannot be terminated by the consent or acts of beneficiaries where there are contingent interests in the trust which cannot be determined until the happening of certain events").
  • Ms. W~ is the only beneficiary of the trust during her lifetime. See Article 2 § 1 of both trust agreements. However, the trust agreements in question specify that, upon the death of Ms. W~, and after paying state reimbursement claims, if any, and covering expenses related to Ms. W~ last illness and funeral and costs attendant to administering the trust, if needed, any "residue" of the trust will be held in trust and distributed to "persons with disabilities residing in Cass County." Article 3 § 2.
  • As a preliminary matter, that the trust agreements direct the trustee to repay any Minnesota Medical Assistance or other governmental claims does not render such programs residual "beneficiaries." Instead, the Medical Assistance and other governmental programs must merely be repaid because of statutorily-imposed reimbursement requirements. See 42 U.S.C. 1396p(4)(B); see also Article 3 § 2 of both trust agreements. In other words, the trust agreements in question merely require that the trust reimburse the State for benefits already conferred on Ms. W~ during her lifetime. The money repaid is for the benefit of Ms. W~, not the State. See Illinois OBRA '93 Trust for Dominick J. G~, ~, OGC-V (D~) to Gerald K~, Center Director (Apr. 17, 1997) at 4 (finding that required reimbursement of State of Illinois agencies does not render these agencies to be beneficiaries).
  • Nor are additional beneficiaries established by the trust provisions which allow payments to be made to cover the expenses of Ms. W~ last illness and funeral, administrative expenses related to the trust, and reasonable attorney's and accountant's fees. These payments relate either to running the trust itself or again to providing goods or services for Ms. W~ benefit (including her funeral-related expenses).
  • The trust agreements, however, do direct that the "residue" trust assets be held in a charitable trust for the benefit of a class of residual beneficiaries, namely, "persons with disabilities residing in Cass County." Article 3 § 2 of both trust agreements. The terms of the trust agreements comply with Minnesota law, which defines a "charitable trust" as:
  • a fiduciary relationship with respect to property that arises as a result of a manifestation of an intention to create it, and that subjects the person by whom the property is held to equitable duties to deal with the property for a charitable purpose.
  • Minn. Stat. Ann. § 501B.35 (1990); see also Schaeffer v. Newberry, 50 N.W.2d 477, 480 (1951). The trust agreements clearly establish the requisite intent to create a charitable trust for a "charitable purpose" by directing the trustee to hold the residue trust funds "pursuant to the terms of this trust and distributed in accordance with purposes and limitations stated in Article 2, Sections 1, 2, 6, 7, and 8..., provisions which, for the most part, require the trustee to pay or apply for the benefit of the disabled beneficiary any necessary supplemental or special needs. The residual class of beneficiaries, i.e., "persons with disabilities residing in Cass County," is sufficiently identifiable and has a reasonable relationship to the objectives referred to in the trust agreement. City of Longcor v. City of Red Wing, 289 N.W. 570, 574 (1940) (beneficiaries of a charitable trust are a "large shifting class of the public."); see also Ida Koran Trust v. Commissioner, Internal Revenue Service, 1976 W.L 887 (Minn. Tax).
  • That the trustee must rely on Cass County Social Services to determine "for what purposes the distributions should be made," see Article 3 § 2, does not mean that the residual distribution lacks a "charitable purpose" necessary for a charitable trust. To the contrary, regardless of what Cass County Social Services may ultimately deem to be the purpose of the distribution, the residual distribution must still be subject to, and consistent with, the general purposes of the trust, which is to provide a disabled beneficiary with supplemental or special needs. See Article 2 §§ 1, 6, 7 and 8.
  • Because Ms. W~, is not the sole beneficiary of the irrevocable trust agreements in question, she lacks the power or authority to revoke the trust agreements
  • CONCLUSION
  • Accordingly, we conclude that the trust assets at issue should not be considered a resource to Ms. W~ for SSI purposes because she is not the sole, identifiable beneficiary of the trust agreements.
  • Sincerely,
  • Thomas W. C~ Acting Regional Chief Counsel, Region VSocial Security Administration
  • By: Elizabeth F~Assistant Regional Counsel
  • N. PS 03-056 SSI - Minnesota - Review of the Life Insurance Funded Burial Contract for Marville E. P~, ~
  • O. PS 03-056 SSI - Minnesota - Review of the Life Insurance Funded Burial Contract for Marville E. P~, ~
  • DATE: December 9, 2002
  • 1. SYLLABUS
  • In this Minnesota opinion, ownership of a life insurance policy was irrevocably assigned to a funeral home. The life insurance policy was not a resource to the individual because ownership of the policy, including the right to obtain the cash surrender value, was irrevocably assigned to a person or entity other than a trust or trustee. In Minnesota, an irrevocably assigned life insurance policy is not a resource for SSI purposes if: (1) the individual did not previously name an irrevocable beneficiary of the policy; (2) the individual did not previously irrevocably assign the policy; (3) the policy permits the assignment; and (4) the individual names a particular funeral home or funeral provider in the assignment, even though he or she retains the right to change the funeral home or funeral provider.
  • NOTE: Minnesota law addresses revocability and sets monetary limits relative to trust-funded preneed arrangements. However, the statute [Minn. Stat. § 149A.97] did not apply in this case because the preneed arrangement was funded by a life insurance policy.
  • 2. OPINION
  • You have asked us whether Marville E. P~'s life insurance policy irrevocably assigned to a funeral home is a countable resource for the purposes of SSI. We conclude that because Ms. P~ irrevocably assigned the life insurance policy to a funeral provider and waived her right to obtain any cash or income from the $5,100.00 life insurance policy, it is not a resource.
  • FACTS
  • The file contains an application for an Individual Deferred Annuity Contract from CNA Life Insurance Company (CNA) signed by Ms. P~ on April 17, 2000. The application indicates that the contribution submitted with the application was $5,100.00. The beneficiary is listed as “any funeral home as its interest may appear.” The file also contains an “Irrevocable Assignment of Life Insurance/Annuity Policy Death Benefits” also from CNA and dated April 17, 2000. The assignment identifies the Foster-Hartquist Funeral Chapel of Jasper Minnesota (Foster-Hartquist) as the assignee. The assignment indicates that its purpose is to fund the Prearranged Funeral Agreement executed on April 17, 2000. It also indicates that Ms. P~ and the funeral firm agree that Minnesota law governing trust-funded preneed burial contracts (Minn. Stat. § 149A.97) does not apply.
  • With the assignment, Ms. P~ expressly agreed that she had irrevocably waived the right to collect from CNA the net proceeds of the policy when it becomes a claim; the right to designate as primary beneficiary anyone other than a funeral home; the right to designate anyone other than her estate as a contingent beneficiary; the right to surrender the policy for cash; the right to obtain a loan or advance on the policy; to pledge or assign the policy as security for a loan or advance; the right to collect or receive distributions or shares of surplus, dividend deposits or additions to the policy; the right to exercise nonforfeiture rights permitted by the terms of the policy; and the right to receive any income from the policy. The assignment indicates that Ms. P~ retained the right to change the assignee to a funeral home other than the named funeral home, but that any change was subject to the current assignment. The assignment provides that it does not restrict Ms. P~, her representative or family from purchasing funeral merchandise or services on the open market or prevent the person making at need arrangements from procuring merchandise and services from another provider at any time before services have been provided by the funeral home. By signing the assignment, Ms. P~ also acknowledged that she had no right to revoke, cancel or otherwise terminate the assignment or the insurance funded Prearranged Funeral Agreement to which it related.
  • Finally, the file contains a “Prearranged Funeral Statement of Merchandise and Funeral Services” dated April 17, 2000. The document specifies the services and merchandise contracted for and indicates that the prices are not guaranteed. The document further indicates that the funeral services and merchandise are funded with the $5,100.00 CNA policy and with a CD at the Jasper Bank totaling $2,085.77.
  • DISCUSSION
  • Assets are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for his/her support and maintenance. 20 C.F.R. § 416.1201(a) (2001). If the individual has the right, authority or power to liquidate the property, it is a resource. Id. A life insurance policy can be a resource if the individual can surrender it for cash or recover the premiums paid. 20 C.F.R. § 416.1230.
  • We have previously advised that in Minnesota, if an individual has irrevocably and currently assigned ownership of a life insurance policy (including the right to obtain the cash surrender value) to a particular individual or entity (other than a trust or trustee), the policy is not a resource. Memorandum from Regional Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Minnesota-Review of Minnesota Life Insurance Contract from CNA and American Memorial Life Insurance Companies, at 2-3 (March 21, 2000) [hereinafter, CNA memo]; referencing Memorandum from Regional Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Minnesota-Request for Review of OGC Opinion on Life Insurance Funded Burial Agreements, at 12 (December 15, 1999). An irrevocable assignment is not invalid if the individual reserves the right to change the assignee from one funeral provider to another funeral provider. CNA memo, supra at 2-3. For an assignment to be valid, “an intent to transfer must be manifested, and the assignor must not retain any control over the fund or power of revocation.” Guaranty State Bank of St. Paul v. Lindquist, 304 N.W. 278, 281 (Minn. 1980) (quoting Springer v. J.R. Clark Co., 46 F. Supp. 54, 58 (D. Minn. 1942) rev'd on other grounds, 138 F.2d 722 (8th Cir. 1943)). Additionally, there must be a present transfer, not an intent to transfer in the future. Minnesota Mutual Life Ins. Co. v. Anderson, 504 N.W.2d 284, 286 (Minn. Ct. App. 1993); Rest. (Second) Contr. § 324 & comment a, § 330 (1981).
  • We have also previously advised that, in Minnesota, an irrevocably assigned life insurance policy would not be a resource for SSI purposes if:
  • (1) the individual has not previously named an irrevocable beneficiary of the life insurance policy;
  • (2) the individual has not previously irrevocably assigned the life insurance policy;
  • (3) the life insurance policy permits the assignment; and
  • (4) the individual names a particular funeral home or funeral provider in the assignment, even though he or she retains the right to change the funeral home or funeral provider.
  • CNA memo, supra at 3.In this case, we do not have the actual insurance policy. The application, however, lists “any funeral home as its interest may appear” as the beneficiary. Thus, it does not appear that Ms. P~ has previously named an irrevocable beneficiary. We have previously cautioned that you should not assume that the actual insurance policy does not name an irrevocable beneficiary despite the irrevocable assignment indicating that Ms. P~ waived her right to name as primary beneficiary anyone other than Foster-Hartquist or another funeral home. Id. Because the Irrevocable Assignment document in the file indicates that the provision limiting the beneficiary designation is not applicable if a funeral firm has not been designated as the primary beneficiary it suggests that Ms. P~ might be able to name a beneficiary that is not a funeral provider. However, it is unlikely in this case that the actual policy does not name a funeral firm as the beneficiary because the insurance policy was sold as part of the same transaction in which the irrevocable assignment of the policy to Foster-Hartquist was executed and the burial contract was established. Additionally, both the application and the assignment were constructed by the same company, CNA.
  • At the same time Ms. P~ applied for the insurance policy, she immediately irrevocably assigned the "Policy" to the Foster-Hartquist Funeral Chapel of Jasper, Minnesota - a particular funeral provider. Thus, her assignment was "current" and not expressed as a future intent. CNA memo, supra at 3 (March 21, 2000), citing, Minnesota Mutual Life Ins. Co. v. Anderson, 504 N.W.2d 284, 286 (Minn. Ct. App. 1993); Rest. (Second) Contr. § 324 & comment a, § 330 (1981). It does not appear that Ms. P~ previously assigned the insurance policy to any other entity. CNA memo, supra at 3. Again, because the policy was purchased and assigned as part of the same transaction, we believe it is unlikely that any prior assignments exist. For the same reason, we believe that the insurance policy most likely allows for the assignment to a particular funeral provider, with the option to change the provider.
  • With the assignment, Ms. P~ waived, inter alia, her right to obtain the cash surrender value of the policy, obtain any loan or advance against it or to collect distributions or shares of surplus, dividend deposits or additions to the policy. Accordingly, because Ms. P~ cannot use the insurance policy in any manner for her maintenance and support, it is not a resource. POMS SI 001130.300B.; see also CNA memo, supra at 2-3; referencing Memorandum from Regional Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Minnesota-Request for Review of OGC Opinion on Life Insurance Funded Burial Agreements, at 12 (December 15, 1999).
  • Ms. P~ did retain the right to change the assignee to another funeral home. As we have previously advised, we believe that an assignment to a specific funeral home would be valid even if the right to reassign the policy to another funeral home has been retained. Under general legal principals, an assignment may be conditional. Memorandum from Regional Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Minnesota-Request for Review of OGC Opinion on Life Insurance Funded Burial Agreements, at 6 (December 15, 1999), citing, Rest. (Second) Contr. § 331 & comment b; see also Rest. (Second) Contr. § 320, comment b. Here, although a different funeral provider may ultimately be the assignee, Ms. P~ cannot assign the policy to any entity other than a funeral provider. Thus, she cannot assign it to herself and use the policy for her support and maintenance. Accordingly, the life insurance policy is not a resource. 20 C.F.R. § 416.1201(a); POMS SI 001130.300B.
  • CONCLUSION
  • In sum, it is our opinion that, Ms. P~ irrevocably assigned her life insurance policy to a funeral provider and consequently, waived her right to obtain the cash surrender value, obtain a loan against or advance against or her right to receive any income from her life insurance policy, the policy, it is not a resource for the purposes of SSI.
  • Sincerely,
  • Donna L. C~Acting Regional Chief Counsel, Region VSocial Security Administration
  • By: /s/Elizabeth F~Assistant Regional Counsel
  • O. PS 01-095 Review of a Supplemental Needs Trust for Xang V~; SSN ~; Your Ref. No. S2D5G3
  • P. PS 01-095 Review of a Supplemental Needs Trust for Xang V~; SSN ~; Your Ref. No. S2D5G3
  • DATE: December 12, 2000
  • 1. SYLLABUS
  • The opinion concerns a Supplemental Needs Trust established in January 1994. The opinion explains that the trust is not a countable resource because the SSI beneficiary does not have the right to revoke the trust, direct the use of the trust assets or sell his interest in the trust.
  • 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 assets of a Supplemental Needs Trust established for the benefit of Xang V~ should be considered a countable resource for purposes of determining his eligibility for SSI. For the reasons set forth below, we conclude that the assets in the trust should not be considered a countable resource.
  • FACTS
  • On or about January 5, 1994, Chue V~ entered into an Irrevocable Trust Agreement creating the "Xang V~ Supplemental Needs Trust." The Supplemental Needs Trust was established to provide for reasonable living expenses and other basic needs of Xang V~ when benefits from publicly funded benefit programs are not sufficient. Trust Agreement, Article 4 4.03. The Trust Agreement provides that Chue V~ shall transfer and assign one dollar to the trustee to constitute the original assets of the trust. Trust Agreement, Article 1. However, other documents provided to us indicate that the trust was primarily funded with proceeds of payments made by the Agency to Xang pursuant to the decision in Sullivan v. Zebley, 493 U.S. 521 (1990).
  • The trustee is authorized to pay to Xang such sums of income and principal as the trustee deems necessary and advisable for Xang's supplemental needs. Trust Agreement, Article 3 3.01. If any assets remain in the trust at Xang's death, the Trust Agreement provides that the trust shall terminate and that the remaining assets shall be distributed to the State of Minnesota up to the total sum of all medical assistance that had been paid on Xang's behalf. Trust Agreement, Article 3 3.02(1). If there is any remaining balance after distribution to the State of Minnesota, the full remaining balance shall be distributed to the issue of Xang who survive Xang. Trust Agreement, Article 3 3.02(2). If Xang is not survived by any issue, the remaining balance shall be distributed to Xang's parents or, if they do not survive Xang, to the other children of Xang's parents who survive Xang. Trust Agreement, Article 3, 3.02(3), (4).
  • The Trust Agreement provides that the trust shall be irrevocable in all respects and that neither Chue V~ nor any other person shall have any power to modify, amend, or revoke the trust except to bring the trust's provision into full compliance as an exempt Supplemental Needs Trust. Trust Agreement, Article 2. The Trust Agreement also provides that neither trust income nor principal nor any beneficiary's interest shall be subject to alienation, assignment, garnishment, attachment, or any other claims of any creditor or other person against the beneficiary. Trust Agreement, Article 4 4.01.
  • DISCUSSION
  • A countable 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. See 20 C.F.R. 416.1201(a); Program Operations Manual System ("POMS") SI 01110.100(B)(1). If the individual has the right, authority, or power to liquidate the property or his share of the property, it is considered a resource. See 20 C.F.R. 416.1201(a)(1); POMS SI 01110.100(B)(1). Trust assets are a resource if (i) the individual can revoke or terminate the trust and obtain unrestricted access to the trust assets; (ii) the individual has access to the trust assets and can direct the use of the trust assets to meet his need for food, clothing, and shelter; (iii) or the individual can sell his beneficial interest in the trust. See POMS SI 01120.105(A)(1), 01120.200(D)(1)-(3). Recent amendments to the Social Security Act change the manner in which we treat trusts created after January 1, 2000. 42 U.S.C. 1382b(e); POMS EM 0067. This trust, however, was created before that date and Xang V~'s funds were added to the trust before that date. Therefore, the new provisions do not apply in determining whether this trust is a resource.
  • Whether the claimant can revoke or terminate the trust or direct use of the trust assets depends upon the terms of the trust agreement and applicable state law. See POMS SI 01120.200(D)(2).
  • We have reviewed the documents you provided and conclude that the trust principal and accumulated income are not countable resources to Xang. Xang does not have the right, under the terms of the Trust Agreement or Minnesota state law, to revoke or terminate the trust and thereafter obtain unrestricted access to the trusts assets or to direct use of the trust's assets to meet his need for food, clothing, and shelter. Nor can he sell his beneficial interest in the trust.
  • Xang Does Not Have the Right to Revoke or Terminate the Trust
  • Whether a trust is revocable or terminable depends on the terms of the trust and applicable state law. See POMS SI 01120.200(D)(2). Here, Xang does not have the right to revoke or terminate the trust under its own terms or Minnesota state law.
  • First, the terms of the Trust Agreement itself do not give Xang or anyone else the right to revoke or modify the trust. To the contrary, the Trust Agreement is titled as an irrevocable trust agreement and provides that neither Chue V~ nor any other person shall have the power to modify, amend, or revoke the trust. Trust Agreement, Article 2. While the Trust Agreement provides that the trust may be modified for purposes of bringing the trust provisions into full compliance as an exempt Supplemental Needs Trust, we do not believe that Xang could revoke or modify the trust in order to gain unrestricted access to the trust's assets under this provision. Trust Agreement, Article 2. Such an action would not be consistent with the purpose of a Supplemental Needs Trust. See MINN. STAT. 501B.89. Thus, the Trust Agreement does not give Xang the right to revoke or modify the trust to gain unrestricted access to its assets.
  • Second, Xang does not have the right to revoke the Trust Agreement or otherwise modify it in order to gain access to the principal under Minnesota state law. In the absence of express language providing a right of revocation or termination, a trust cannot be revoked or modified unless the grantor or settlor and all of the beneficiaries agree. See In the Matter of Schroll, 297 N.W.2d 282, 284-85 (Minn. 1980); In re Warner's Trust, 117 N.W.2d 224, 229-30 (Minn. 1962). Thus, Xang would only be capable of revoking the Trust Agreement if he were the sole beneficiary as well as grantor or settlor of the trust. See RESTATEMENT (SECOND) OF TRUSTS 339 comment a (1959) (grantor or settlor of trust can compel termination of trust irrevocable by its terms if she is the sole beneficiary).
  • We believe that Xang is the actual settlor of the trust, at least with respect to the funds he contributed to the trust. The Trust Agreement provides that the trust was established with a transfer of one dollar from Chue V~, but the documents provided to us indicate that the trust was primarily funded with the proceeds of the past due benefits paid to Xang in connection with the Zebley decision. It is well established under general trust law that the settlor of a trust is generally considered to be the person who provides consideration for the trust, even if another entity nominally creates the trust. 76 Am. Jur. 2d 55. See also POMS SI 01120.200(B)(2); POMS SI 01120.200(J)(3). We believe that a court would recognize Chue V~'s contribution was merely token consideration and that the true proceeds of the trust emanated from the proceeds of the Zebley award. Xang would, therefore, be considered the settlor of the trust.
  • However, regardless of whether Xang is or is not the settlor, he is not the sole beneficiary. The Trust Agreement provides that the trustee shall make discretionary payments to Xang during his lifetime and, upon Xang's death, shall terminate the trust and distribute the remaining trust property to the State of Minnesota, up to the total amount paid for any medical assistance paid on Xang's behalf. Any remaining balance must then be paid to Xang's surviving issue. Trust Agreement, Article 3 3.02. If Xang does not have any surviving issue, the remaining assets must be distributed to Xang's parents or, if Xang's parents do not survive him, to any of their surviving issue. Trust Agreement, Article 3 3.02(3), (4).
  • We believe that Xang's "issue" would be considered beneficiaries regardless of whether Xang is or is not the settlor. See Schroll, 297 N.W.2d at 284 (court recognized that Minnesota follows the general trust rule that the prospective conveyance of a life-time beneficiary's interest to his "issue" upon his death creates a beneficial interest in those "issue."); RESTATEMENT (SECOND) OF TRUSTS 127, comment b ("[I]f the beneficial interest is limited to the settlor for life and on his death the property is to be conveyed to his children, or 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 (SECOND) OF TRUSTS 127, comment c ("[I]f a beneficial interest is limited to a person other than the settlor for life and the remainder on his death is limited to his heirs or next of kin, his heirs or next of kin as well as the person himself are beneficiaries of the trust in the absence of a manifestation by the settlor of an intention to give the whole beneficial interest to him."). Similarly, Xang's parents and their surviving issue also are contingent beneficiaries whose consent would be need to revoke the trust. Accordingly, regardless of whether Xang is or is not the settlor of the trust, we believe that he would not be considered the sole beneficiary under Minnesota state law. He, therefore, cannot unilaterally revoke the trust in order to use the principal for food, clothing, or shelter.
  • Xang Does Not Have the Right to Direct Use of the Trust's Assets
  • Although Xang does not have the legal authority to revoke the trust, the trust may still be counted as a resource in determining SSI eligibility if Xang has the ability to direct the use of the trust principal. See 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. See id. SI 01120.200(D)(1)(b). Here, the Trust Agreement includes no such provisions. Instead, the Trust Agreement gives the trustee discretion to apply to or expend trust assets and income as he deems necessary and advisable for Xang's supplemental needs. Trust Agreement, Article 3 3.01. Xang, therefore, does not have the right to direct use of the trust's assets.
  • Furthermore, the Trust Agreement provides that no distribution shall be made that would have the effect of replacing, reducing, or substituting for publicly funded benefits otherwise available to Xang. Trust Agreement, Article 4 4.03. When a trust instrument states an intent to supplement, rather than supplant, any government financial assistance, Minnesota courts give effect to this intent and find that the trust is not an asset that is available to the beneficiary. See Matter of Leona C~ Trust, 498 N.W.2d 260, 265 (Minn. App. 1993).
  • Xang's Interest in the Trust Has No Marketable Value
  • A trust can also be a resource if the individual can sell his beneficial interest in the trust. Although the trust contains a spendthrift clause which purports to limit Xang's ability to transfer his beneficial interest, see Trust Agreement, Article 4 4.01, the spendthrift clause would not prevent Xang from selling his interest in the trust because he is also the settlor of the trust. See RESTATEMENT (SECOND) OF TRUSTS 156(1) (stating that settlor/grantor of trust who is also a beneficiary can transfer his interest in trust even if there is a provision restraining the voluntary or involuntary transfer of his interest). Nonetheless, the trust would still not have any marketable value. Under the terms of the Trust Agreement, Xang can only has the right to receive payments at the discretion of the trustee. Thus, Xang could only sell the right to receive or have distributions made on his behalf in the sole discretion of the trustee. We assume this would have no significant value. See Zebley Trust as an SSI Resource - Wisconsin Bernard W~, OGC-V (M~) to John P. M~, ARC (February 23, 1993) at 4-6; RESTATEMENT (THIRD) TRUSTS 60 comment f (tentative draft no. 2, March 10, 1999).
  • Payments Made from the Trust May be Income
  • Lastly, although the trust principal is not a countable resource, disbursements from the trust under certain circumstances would be countable income for determining Xang's SSI eligibility and level of benefits. Any cash paid directly to Xang would be income and any payments to a third party for any food, clothing, or shelter received by Xang would constitute support and maintenance for SSI purposes. See 20 C.F.R. 416.1102; POMS SI 01120.200(E)(1)(a), (b).
  • CONCLUSION
  • Based on the documents provided to us, it is our opinion that the Supplemental Needs Trust established for the benefit of Xang V~ is not a countable resource for purposes of determining his eligibility for SSI. Xang does not have the right to revoke the trust; direct the use of its assets to meet his need for food, clothing, and shelter; or sell his beneficial interest in the trust.
  • P. PS 00-500 SSI-Minnesota-Review of the Kevin G. S~ Supplemental Needs Trust; SSN:~
  • Q. PS 00-500 SSI-Minnesota-Review of the Kevin G. S~ Supplemental Needs Trust; SSN:~
  • DATE: June 21, 2000
  • 1. SYLLABUS
  • This opinion provides an analysis of the subject trust under section 1613(e) of the Social Security Act (statutory trust provisions effective 1/1/00). The opinion also provides an analysis of an assignment of an annuity to the trust by the trust beneficiary. Note, however, that the opinion fails to address the potential transfer of resources issue and its implications.
  • 2. OPINION
  • The Kevin G. S~ Supplemental Needs Trust is an irrevocable, discretionary trust created by Richard S~, Kevin's father, for the purpose of providing for Kevin's "care, maintenance, support, and education in addition to and over and above the benefits he otherwise receives . . . as a result of his disability from any local, state, or federal government." See Kevin G. S~ Supplemental Needs Trust, Article 2, Sections 1, 6, 8, Article 7, Section 1. The trust provides that, upon Kevin's death, the trustee shall reimburse the State of Minnesota for all medical assistance paid on behalf of Kevin. See Kevin G. S~ Supplemental Needs Trust, Article 3, Section 1. After reimbursing the State, and paying for the expenses of Kevin's last illness and funeral and all administrative expenses of the trust, the trustee is instructed to distribute the trust residue as Kevin might appoint in his last will and testament, and, if no appointment is made, then to Kevin's surviving spouse and descendants. See Kevin G. S~ Supplemental Needs Trust, Article 3, Sections 1-2. If Kevin has no surviving spouse or descendants, then to Richard S~, if surviving, otherwise to Mark S~ and Lynn S., or their descendents, if surviving, otherwise to the Minnesota Head Injury Association or its successor entity. See id.
  • You asked us to consider whether, under POMS SI 01120.200(G)(1)(d), a monthly annuity payment from American General Annuity Insurance Company may be irrevocably assigned by the annuitant, Kevin S~, to the Kevin G. S~ Supplemental Needs Trust, and, if so, whether Kevin effected such an assignment by way of a signed letter dated January 25, 2000. In that letter, which was also signed by Richard S~, the trustee of the Kevin G. S~ Supplemental Needs Trust, Kevin states that "[m]y decision to have the annuity check from American General Annuity directly deposited to the Kevin S~ Supplemental Needs Trust is . . . irrevocable and permanent." For the reasons discussed below, we believe that the trust is an excludable resource and that the assignment is most likely valid. Therefore, the annuity payment would not be income countable to Kevin, and his right to receive the annuity payments would not be a countable resource.
  • DISCUSSION
  • I. The Kevin G. S~ Supplemental Needs Trust Is an Excludable Resource.
  • Under new SSI resources law effective January 1, 2000, all trust assets in an irrevocable trust created by a claimant and the amount of any claimant assets (or the claimant's spouse's assets) added to an irrevocable trust created by a third party will be considered an SSI resource, irrespective of any limits on the trustee's discretion to make distributions, "if there are any circumstances under which payment from the trust could be made to or for the benefit of the [claimant (or the claimant's spouse)]."
  • 42 U.S.C. 1382b(e) (2000). The foregoing law, however, does not apply (1) to trusts where, upon the death of the claimant, the State will be reimbursed for all "medical assistance" paid on behalf of the claimant, or (2) where the Commissioner determines that counting the trust assets as an SSI resource would work an "undue hardship" on the claimant. 42 U.S.C. 1382b(e)(4), (5), 1396p(4) (2000). Because the Kevin G. S~ Supplemental Needs Trust provides for reimbursement (upon Kevin's death) to the State of Minnesota for all medical assistance provided to Kevin, 42 U.S.C. 1382b(e) does not apply to the Kevin G. S~ Supplemental Needs Trust.
  • To determine whether the trust assets (the transferred annuity as well as any other assets that might be in the trust) are an SSI resource, we must consider whether Kevin 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 POMS SI 01120.105(A)(1), 01120.200(D)(1)-(3). Because the trust gives the trustee absolute discretion over disbursements from the trust, see Kevin G. S~ Supplemental Needs Trust, Article 2, Section 1, Kevin does not have the power to direct the trust assets for his support and maintenance. Kevin also lacks the power to unilaterally terminate or revoke the trust, because the trust creates a number of contingent interests in others, including any surviving spouse or descendants of Kevin, Richard S~, Mark S~, Lynn S~, Mark and Lynn's descendants, and the Minnesota Head Injury Association, all of whom would have to consent to the termination of the trust. See In re Schroll, 297 N.W.2d 282, 284 (Minn. 1980); Restatement (Second) of Trusts 127, 339, 340 (1959). The trust assets are therefore an excludable resource.
  • II. The January 25, 2000, Letter Appears to Constitute a Valid, Irrevocable Assignment of Kevin's Annuity.
  • Turning to the validity of the annuity assignment, a gratuitous assignment is irrevocable if made by way of a signed writing that is delivered by the assignor. See Restatement 332(1)(a) cmt. b (1981); Cooney v. Equitable Life Assur. Soc. Of United States, 51 N.W.2d 285, 288 (Minn. 1952) (requiring delivery, intention to make a gift, and absolute disposition); see also Minnesota Mut. Life Ins. Co. v. Anderson, 1992 WL 89619, at *3 (Minn. Ct. App.) (valid assignment may arise from gift or contract). The signed writing may be delivered to the donee (in this case, to Richard S~ as trustee of the Kevin G. S~ Supplemental Needs Trust) or to a third person on the donee's behalf. See Restatement 332 cmt. b (1981). Although the assignor must fully manifest an intention to make a present transfer, "[n]o particular form of words is required to create an assignment." Minnesota Mut. Life Ins. Co., 1992 WL at *3.
  • On January 25, 2000, Kevin signed a letter indicating his intent to irrevocably and permanently have his annuity payment directly deposited to the Kevin G. S~ Supplemental Needs Trust. Because Richard S~, the trustee, also signed the letter as a witness, Kevin effectively delivered the writing to the donee. Kevin thus appears to have irrevocably assigned his annuity payments to the trust.
  • We note, however, that Kevin apparently suffers from a disabling traumatic brain injury sustained in 1976. See Kevin G. S~ Supplemental Needs Trust, Article 2, Section 1. Insufficient mental capacity can render a transaction either void at the outset or voidable. See Parrish v. Peoples, 9 N.W.2d 225, 228 (Minn. 1943) (individual must have "enough capacity to understand to a reasonable extent the nature and effect of what he [was] doing"); Sullivan v. Brown, 31 N.W.2d 439, 445 (Minn. 1948) (party must be capable of "fairly and reasonably understanding the matter in hand"); Restatement 12 cmts. a, c, 15, cmt. b (Where an individual has "some understanding of a particular transaction which [was] affected by mental illness or defect, the controlling consideration is whether the transaction in its result [was] one which a reasonably competent person might have made."). Although we have no information regarding the severity of Kevin's cognitive limitations (if any), and thus express no opinion on this issue, Kevin's level of cognitive functioning might be a consideration in assessing whether the assignment was revocable. In particular, if Kevin's assignment was void, there would be no assignment; if his assignment was voidable, the assignment would be revocable.
  • CONCLUSION
  • Assuming Kevin had sufficient mental capacity on the date that he signed the January 25, 2000, letter, the letter would serve to irrevocably assign his annuity payments to the Kevin G. S~ Supplemental Needs Trust. In addition, the trust assets are an excludable resource. As such, the annuity payments would not be considered income for SSI purposes under POMS SI 01120.200(G)(1)(d).
  • Q. PS 00-362 Request to Review Minnesota Trust for Elizabeth P~
  • R. PS 00-362 Request to Review Minnesota Trust for Elizabeth P~
  • DATE: December 17, 1997
  • 1. SYLLABUS
  • This trust is not a resource for SSI purposes because the grantor (the SSI recipient) is not the sole beneficiary and, therefore, does not have the legal authority to revoke the trust or direct the use of its assets for her own support an 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
  • This memorandum is in response to your June 10, 1997, inquiry concerning whether funds held in trust for the benefit of Elizabeth P~ (Ms. P~), a Supplemental Security Income (SSI) recipient, constitute a countable resource. We conclude that the trust funds should not be treated as a countable resource for Ms. P~.
  • The pertinent SSI regulations provide at 20 C.F.R. 416.1201 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.
  • (1) If the individual has the right authority and or power to liquidate the property or his or her share of the property, it is considered a resource.
  • Trust assets are a resource to a beneficiary if she can revoke the trust and access the principal thereafter, whether or not she actually does so. Trust assets are a resource if the individual has access to the trust assets and can direct the use of those assets to meet her needs for food, clothing, and shelter. Thus, if Ms. P~ is able to obtain the funds in the trust, or if she is able to convert the funds to cash that can be used towards her support and maintenance, then such funds or property are to be counted as resources for purposes of SSI eligibility determinations. We have reviewed the documents and have determined that this trust should not be considered a countable resource under 20 C.F.R. 416.1201; and the Programs Operation Manual System (POMS) SI 01120.105, 01120.200(D)(1)-(3).
  • FACTS
  • On June 17, 1996, Ms. P~'s parents, William and Sona P~, executed a trust agreement, entitled "Revocable Supplemental Needs Trust of Elizabeth P~." William and Sona P~ described themselves as Grantors of this trust and designated the Norwest Bank Minnesota, N.A., of St. Paul, Minnesota as trustee.
  • The stated purpose of the trust is to supplement, but not supplant, all other financial service benefits to which Ms. P~ may become eligible, including benefits from the Social Security Administration (SSA). In 1.1, the Grantors stated that they had established this Trust Agreement (Trust) upon the authority of Minnesota Statute 501B.89, subdivision 2. The Agreement also purports to be revocable by the Grantors ( 1.2) and states that Ms. P~, as the beneficiary, has no right or power to amend, revoke, or terminate the agreement ( 1.4). The Agreement further states that Ms. P~ has no power to designate the persons who "shall possess or enjoy the trust property."
  • The corpus of the trust consists of $205,861.44. According to a Report of Contact between SSA and William P~, Ms. P~ received this money as the result of the settlement of an insurance claim. The amount was paid directly into the trust. Ms. P~ herself, never directly received this money, and she has never had direct access to the money in the trust.
  • The trust agreement further provides that on the death of Ms. P~, the trustee shall pay the state of Minnesota all amounts remaining in the trust up to the amount of unreimbursed medical assistance paid on Ms. P~'s behalf, and that if any funds are left, the trustee will pay the funeral expenses, last bills, and valid debts of Ms. P~. However, if either of the Grantors is still alive at the time the trust terminates, the entire remaining balance of the trust property shall "revert" to them. If neither of the Grantors is alive at the time the trust terminates, then the trustee is directed to distribute the entire remaining balance to Ms. P~'s heirs at law ( 3.14.3).
  • DISCUSSION
  • Revocability of a trust depends on the terms of the trust agreement and State law. This Trust purports to track Minnesota statute 501B.89: "Trust Provisions linked to public assistance eligibility; supplemental needs trusts"; and subdivision 2 of that statute, which is entitled "Supplemental trusts for persons with disabilities." The statute in question, provides that for purposes of subdivision 2, a supplemental needs trust must be funded by someone other than the trust beneficiary, the beneficiary's spouse, or anyone obligated to pay any sum for damages or any other purpose to or for the trust beneficiary under the terms of a settlement agreement or judgment. Here, Ms. P~ is the trust beneficiary and the person who provided the funds for the trust. As such, the trust under consideration here cannot be viewed as a "Supplemental Needs Trust" as contemplated in 501B.89 of the Minnesota Statutes. Even if one argues that the trust is funded not by Ms. P~, but by the insurer, it still would not qualify as a supplemental needs trust under the statute because the insurance company would be viewed as someone obligated to pay any sum for damages or any other purpose to Ms. P~.
  • The Grantor or settlor of the trust is generally the person who provides the consideration for the trust, even if another entity nominally creates the trust. 76 Am. Jur. 2d 55. Although Ms. P~'s parents (and guardians), William and Sona P~, have named themselves as the "Grantors" in the agreement, there is no evidence that they had any ownership interest in the settlement. Thus, under the facts supplied, the funds that constitute the corpus of this trust are Ms. P~'s alone and she must be considered as the true settlor or grantor of this trust. See 76 Am. Jur. 2d 47 (it is a basic requirement for the creation of a valid trust that the settlor have a transferable title or interest in the trust property).
  • Whether Ms. P~ can revoke the trust and use its funds for her support and maintenance also depends on whether she is the sole identifiable beneficiary of this trust. If Ms. P~ is both the Grantor and the sole beneficiary of the trust, she would have the power to revoke the trust despite terms in the agreement itself that state that she cannot revoke or modify it. Restatement (Second) of Trusts, 339 and comment (1959).
  • If, however, the trust specifies that any trust assets remaining at the time of the sole beneficiary's death are to be distributed to certain other individuals, then those residual beneficiaries would render the trust irrevocable and it would not be countable as a resource. See Zebley Trust as an SSI Resource Wisconsin, Shannon O~ (~)," (M~) to G~, Acting Assistant Regional Counsel-POS, Social Security Administration V (07/09/93); see also In re Schroll, 297 N.W. 2d 282 (1980)(Minnesota court held that an "irrevocable" trust could not be revoked without the consent of a person appointed to represent the interests of residual unborn beneficiaries); see also Restatement (Second) of Trusts 127 and comment (b), 339 and comment (b) 1959); 76 Am. Jur. 2d 95("a trust cannot be terminated by the consent or acts of beneficiaries where there are contingent interests in the trust which cannot be determined until the happening of certain events").
  • Ms. P~ is the sole beneficiary of this trust during her lifetime. Section 3.14 of the trust, however, specifies that there are three possible outcomes for the trust after her death. In our opinion, one of these creates an interest in contingent beneficiaries. Thus, the trust is not an available asset to Ms. P~ and it is not a countable resource for her. We will initially discuss the two parts of section 3.14 that do not create a contingent interest.
  • The first part of this section requires the trustee to pay the State of Minnesota all amounts remaining in the trust up to the total of unreimbursed medical expenses paid on behalf of Ms. P~. This provision does not make the State of Minnesota a beneficiary of the trust. The Restatement (Second) of Trusts 3(4) defines a beneficiary as "[t]he person for whom the property is held in trust." The trust funds here are being held for the benefit of Ms. P~, not the State of Minnesota. Moreover, this section of the trust agreement merely requires that the trust reimburse the state of Minnesota for benefits it has already conferred on Ms. P~ during her lifetime. Thus, the money repaid is for the benefit of the beneficiary, Ms. P~, not the State of Minnesota. See Illinois Trust for Dominick J. G~, ~, POGC-V (D~) to Gerald K~, Center Director (April 17, 1997) at 4 (required reimbursement to the State of Illinois or its agencies does not make the state of these agencies beneficiaries).
  • Section 3.14.3 also does not create a contingent remainder interest. This section specifies only that if neither parent is alive at the time of the termination of the trust, the remaining balance will be distributed to Ms. P~'s "heirs-at-law." We have previously advised that a remainder interest in the settlor's estate fails to establish additional or contingent beneficiaries. See Trust as Resource - Theresa M~, SSN: ~ OGC-V (P~) (August 4, 1993); Illinois OBRA '93 Trust for Dominick G~ SSN: ~ OGC-V (D~) (April 17, 1997).
  • Although section, 3.14.2, can be construed in a number of ways, depending on how one defines the "Grantor" or "grantor" of this trust, we believe that it does create a contingent interest in William and Sona P~ so long as they are alive. In directing that any residual amount be delivered to William and Sona P~, the trust agreement certainly establishes identifiable residual beneficiaries with an interest in the trust. Thus, under In re Schroll, 297 N.W. 2d 282 (1980), the trust is not revocable by Ms. P~'s actions alone. Therefore, Ms. P~ does not have unrestricted access to the trust principal and cannot convert the funds in the trust to her personal use for support and maintenance.
  • Another factor that weighs heavily in favor of finding that this trust is not a countable resource to Ms. P~ is the intent for which the trust was created. When a trust instrument states an intent to supplement, rather than supplant, any government financial assistance, as this instrument does in section 3.8, most courts give effect to this intent and find that the trust is not an asset that is available to the beneficiary. See Matter of Leona Carlisle Trust, 498 N.W.2d 260, 265 (Minn. App. 1993). Thus, the creation of contingent beneficiaries and the intent to supplement rather than supplant public benefits available to Ms. P~, support our finding that the funds in this trust should not be considered as a countable resource to Ms. P~.
  • Ms. P~ cannot, at this time, convert the funds in this trust for her personal use or for her support and maintenance. Thus, the trust is not an available asset to her, nor is it a countable resource for determining eligibility for SSI benefits.
  • CONCLUSION
  • We conclude that the trust assets at issue should not be considered a resource to Ms. P~ for purposes of SSI.
  • R. PS 00-332 Riley L. M~ Supplemental Needs Trust, SSN ~, Your File No.: S2D5G3
  • S. PS 00-332 Riley L. M~ Supplemental Needs Trust, SSN ~, Your File No.: S2D5G3
  • DATE: May 10, 1999
  • 1. SYLLABUS
  • This opinion concerns a supplemental needs trust in Minnesota. 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 may be revoked if the grantor of the trust is the sole beneficiary. However, under the terms of this trust, the grantor is not the sole beneficiary. The trust provides for residual beneficiaries in the event of the grantor's death. Therefore, the grantor cannot revoke the trust. The trust also provides the trustee with sole discretion over payments made from the trust. Therefore, the grantor does not have the ability to direct the use of the trust assets. 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 inquired whether the funds held pursuant to the terms of a Supplemental Needs Trust should be treated as a countable resource for purposes of SSI eligibility for Riley L. M~, the beneficiary of the trust. We have reviewed the trust agreement as well as the arguments advanced by claimant's attorney in his October 22, 1997 memorandum in support of the use of a Supplemental Needs Trust. For the following reasons, we conclude that the assets subject to the trust agreement should not be considered a countable resource for purposes of Riley L. M~'s SSI eligibility.
  • FACTS
  • On October 29, 1997, David W. N~ and Amy S. N~ executed a trust agreement entitled "Riley L. M~ Supplemental Needs Trust." Art. 6 1. See 42 U.S.C. 1396p(4)(B). The trust agreement names David and Amy N~ as both "Settlors" and "Trustees." Art. 1 1. Riley L. M~ (Ms. M~) is described as the beneficiary of the trust. Art. 2 1. The corpus of the trust consists of $37,871.25. The trust is funded by the proceeds of Ms. M~'s settlement of what appears to be a personal injury action. Art. 2 1. Mr. G~, Ms. M~'s attorney, indicated that the trust was established with Ms. M~'s assets. Memorandum of Law at 2, 5.
  • The stated purpose of the trust is to provide for Ms. M~'s "supplemental" or "special needs" which refers to Ms. M~'s "reasonable living expenses for maintaining [Ms. M~'s] good health, safety and welfare when . . . such requisites are not being provided by any federal, state, county or local public agency, office or department of the State of Minnesota, or of any other state, or of the United States." Art. 2 1. By its terms, the trust agreement is irrevocable. Art. 7 1.
  • The trust agreement further provides that, upon the death of Ms. M~, the trustee shall pay to the State of Minnesota an amount equal to the total Medical Assistance paid on behalf of Ms. M~, and may pay expenses of her last illness and funeral, and all administrative expenses including reasonable attorney and accountant fees. Art. 3 1. The trust agreement further provides that the trust will terminate upon the death of Ms. M~, and contains the following clause regarding distribution:
  • the trustee shall distribute and deliver the residue, subject to first paying any amounts to be paid under the preceding paragraph, free of trust to the settlors or settlor if they then be living. If neither settlor is living, the trustee shall deliver the trust residue to our daughter, ABBEY M. M~. In the event ABBEY predeceases us, then her share shall be distributed to her issue by right of representation (per stirpes). In the event ABBEY shall leave no surviving issue, then it shall be distributed to such of the spouse, children, grandchildren or other descendants of RILEY L. M~ may designate and appoint in and by her Last Will and Testament. This power of appointment shall be exercisable by her alone and in all events a provision in her Will shall be required for its exercise.
  • Art. 3 2. The trust agreement then provides that if Ms. M~ fails to exercise the power of appointment granted by the trust agreement, the trustee shall pay and distribute any such remaining amounts to the heirs-at-law of Ms. M~ in accordance with the laws of intestate succession of the State of Minnesota. Id.
  • DISCUSSION
  • The pertinent SSI regulations provide at 20 C.F.R. 416.1201(a) 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).
  • Therefore, 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. Trust assets are a resource to the individual if she has access to the trust assets and can direct the use of the assets to meet her needs for food, clothing, and shelter, or if she can revoke the trust and obtain unrestricted access to the trust assets. Programs Operation Manual System (POMS) SI 01120.200(D)(1)(a). Conversely, if the individual has no legal power to access or direct the use of the trust principal, then the trust will not be considered a resource. POMS SI 01120.200(D)(2). Whether an individual can revoke the trust or direct use of the trust assets depends on the terms of the trust agreement and applicable state law. We have reviewed the documents you have provided and, for the following reasons, we conclude that the trust agreement in question should not be considered a countable resource under 20 C.F.R. 416.1201.
  • Ms. M~ cannot direct the use of trust assets.
  • Ms. M~ does not have the authority to direct the payment of trust principal for her support and maintenance because the trust is a discretionary trust. A discretionary trust is trust in which the trustee has full discretion as to time, purpose and amount of all distributions. POMS SI 01120.200(B)(10). 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). Ms. M~'s trust is not one of these "rare instances." The trust gives the Trustees, David W. N~ and Amy S. N~, "sole and absolute discretion" to distribute trust income or principal. Art. 2 1. Moreover, the trust requires the trustees to deny any request by any department or agency to release principal or income, and to defend in court any contest or attack to the trust estate. Art. 2 8. Therefore, Ms. M~ does not have authority to demand payment from the trust, as David and Amy N~ as trustees have exclusive authority over distribution of trust income and principal. Furthermore, the trustee's power to distribute the trust is limited. The trust prohibits David and Amy N~ from making any disbursements of income or trust principal that would effectively replace, reduce, or substitute public funds available to Riley, or render her ineligible for publicly funded benefits. Art. 2 6-8. Therefore, Ms. M~'s access to the trust principal is restricted, and the trust principal should not be considered a countable resource for this reason.
  • 2. Ms. M~ is the grantor of the trust.
  • The grantor or settlor of a trust is generally the person who provides the consideration for the trust, even if another entity nominally creates the trust. 76 Am.Jur. 2d 55; POMS SI 01120.200(B)(2). Although the trust agreement names David and Amy N~ as "settlors," it is Ms. M~ who is, in fact, the settlor of this trust since it is her money that provided the consideration comprising the corpus of the trust. Based upon the documents you provided, we assume that Ms. M~ is the sole settlor of the trust.
  • 3. Ms. M~ cannot revoke the trust because she is not the sole beneficiary
  • The next consideration is whether Ms. M~ is the sole, identifiable beneficiary of the trust, in which case, she would have the power to revoke the trust, even if, by its terms, the trust agreement is irrevocable. Restatement (Second) of Trusts, 339 and comment (1959). However, if the trust specifies that any trust assets remaining at the time of the primary beneficiary's death are to be distributed to certain other individuals, then the need to obtain consent form those residual beneficiaries would render the trust irrevocable. See "Zebley Trust as an SSI Resource" Wisconsin, Shannon O~ (~),: RA V (M~) to G~, Acting Assistant Regional Counsel-POS, Social Security Administration V (07/09/93); see also In re Schroll, 297 N.W.2d 282 (1980) ( holding that an "irrevocable" trust could not be revoked without consent of the guardian ad litem appointed to represent the interests of residual unborn beneficiaries); see also Restatement (Second) of Trusts 127 and comment (b), 339 and comment (b) (1959); 76 Am.Jur. 2d 95 ("a trust cannot be terminated by the consent or acts of beneficiaries where there are contingent interests in the trust which cannot be determined until the happening of certain events").
  • A beneficiary is any person with a beneficial, or equitable ownership interest in the trust. POMS SI 01120.200(B)(4). Ms. M~ is the only beneficiary of the trust during her lifetime. Art. 2 1. Upon Ms. M~'s death, the trustee must pay state reimbursement claims, if any, and may pay expenses related to Ms. M~'s last illness and funeral and costs attendant to administering the trust. Art. 3 1. The trust agreement directs the trustees to distribute and deliver the "residue" trust assets to the settlors David and Amy N~, and if neither are living to their daughter Abbey M. M~. Art. 3 2. If Abbey M~ predeceases David and Amy N~, then the residue is to be distributed to her issue. If Abbey M~ leaves no surviving issue, then the residue is to be distributed to the spouse, children, grandchildren, or other descendants of Riley L. M~ pursuant to the terms of her Will. Art. 3 2. If Riley L. M~ fails to exercise the power of appointment, then the remaining residue passes to her "heirs-at-law."
  • A residual beneficiary is an individual or class of individuals who is not a current beneficiary of a trust but will receive the residual benefit of the trust contingent upon the occurrence of specified events, e.g. the death of the primary beneficiary. POMS SI 01120.200(B)(12). The trust agreement provides that the "residue" of the trust shall be distributed to identifiable beneficiaries, by name and by class. Unborn or unascertained contingent beneficiaries can be beneficiaries for purposes of revocation by consent. See Restatement (Second) of Trusts 127 Comment (b); Restatement 339 Comment (b); 76 Am. Jur. 95. The general principle of trust law that applies here is that if "a beneficial interest is limited to the settlor for life and on his death the property is to be conveyed to his children, or issue, or descendants, he [i.e., the settlor] is not the sole beneficiary of the trust, but an interest in the remainder is created in his children, issue or descendants." Restatement (Second) of Trusts, 127, comment b (1959) (emphasis added). There is no blanket rule that residual or contingent beneficiaries must be identified by name, and in fact, reservation of an interest in favor of descendants, issue, or children would suffice to deprive a grantor-beneficiary of the ability to revoke the trust at will in the absence of an express statement providing that the trust is revocable by the grantor. Restatement (Second) of Trusts, 127, comment b (1959); see also 76 Am. Jur.2d Trusts 93 (1992)(where trust is not expressly made revocable, trust may not be terminated at will where consent of unborn beneficiaries would be required); Clarification of Regional SSA Program Circular 94-05 Concerning Trusts, RA V (K~) to ARC, Programs, 5-24-95. Although Ms. M~ is the grantor or settlor of the trust, she is not the sole beneficiary of the trust and cannot alone compel the termination of the trust. Restatement (Second) of Trusts 339 (1959). The trust agreement clearly names identifiable beneficiaries upon Ms. M~'s death. See Art. 3 2. Therefore, Ms. M~ cannot unilaterally revoke the trust in order to use the principal for food, clothing, or shelter. Accordingly, the trust should not be treated as a countable resource for the purpose of determining Ms. M~'s eligibility for SSI. See POMS SI 01120.200(d)(1)(a).
  • Moreover, if any of the named beneficiaries is a minor, it would be impossible for Ms. M~ to revoke the trust agreement even if all the named beneficiaries agreed. Where some of the beneficiaries are under an incapacity (are not of full age), or are not ascertained or unborn, the grantor or settlor cannot revoke the trust even though the other beneficiaries consent. Schroll, 297 N.W.2d at 284; see also 76 Am. Jur. 2d ("A trust cannot be terminated by the consent, contract, transfer, or conveyance of beneficiaries unless all beneficiaries have given their consent or joined in the contract, conveyance, or transfer, and unless all beneficiaries are of full age and otherwise sui juris" (footnotes omitted)).
  • CONCLUSION
  • For the above reasons, we believe the trust principal should not be considered a countable resource when determining Ms. M~'s eligibility for SSI.
  • S. PS 00-312 Trust Accessibility Minnesota Nathan L~ Trust, SSN ~; Your File No. S2D8NG
  • T. PS 00-312 Trust Accessibility Minnesota Nathan L~ Trust, SSN ~; Your File No. S2D8NG
  • DATE: May 7, 1996
  • 1. SYLLABUS
  • This opinion involves a trust created for the SSI recipient with funds he received from the settlement of a lawsuit.
  • Prior to the SSI recipient's 18th birthday, the trust funds were not a resource as under Minnesota law, court approval was required to release the funds and a Minnesota court would not have released the funds for his support and maintenance.
  • However, the funds became a resource as of the SSI recipient's 18th birthday since he is both the grantor and the sole beneficiary of the trust.
  • 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 us to review the Nathan J. L~ Trust Agreement to determine whether it is a countable resource for SSI purposes. For the following reasons, we believe that the Trust became a countable resource on Mr. L~'s eighteenth birthday.
  • Mr. L~, who is nineteen years old, received a cash settlement in 1989 from a class action suit. The settlement money was put in trust by order of a Minnesota federal district court. Mr. L~ is the sole beneficiary of the Trust. The Trust appointed Mr. L~'s mother as Custodian, and a Minnesota bank as Trustee. The Trust authorizes the Trustee, at the Trustee's "sole discretion," to pay for Mr. L~'s support and maintenance. The Trust gives Mr. L~ the right to terminate the Trust upon attaining age eighteen and receiving notice. If Mr. L~ does not terminate the Trust within thirty days of receiving notice, then the right to terminate the Trust lapses and the Trust continues as provided therein.
  • The Social Security Act provides that an unmarried individual is not eligible for SSI if his countable resources exceed $2,000. 42 U.S.C. 1382(a)(1)(B)(ii), (a)(3)(B). Resources are assets that an individual owns and could convert to cash to use for his support and maintenance. 20 C.F.R. 416.1201(a). If Mr. L~'s Trust is a countable resource, then he is ineligible for SSI.
  • You asked us whether the Trust was irrevocable under Minnesota state law. The Restatement (Second) of Trusts states that "[i]f the settlor [the person who creates the trust] is the sole beneficiary of a trust and is not under an incapacity, he may compel the termination of the trust, although the purposes of the trust have not been accomplished." Id. 339; see also 76 Am. Jur. 2d Trusts 91 (1975). The POMS recognizes the general rule that such settlor's trusts are revocable in many states, and are thus countable resources in those states. POMS SI 01120.200D.3. (TN 33 3-94). The issues are thus whether Mr. L~'s Trust is a settlors' trust, and whether settlor's trusts are revocable in Minnesota. See Trusts Established as the Result of Zebley Underpayments, SSI Program Branch (C~) to B~, Director, Div. of Program Requirements, at 4 (8/28/91) ("If the child is both the grantor . . . [and] the sole trust beneficiary, we believe that the answer to the question [(is the trust a resource to the child?)] will turn on State law principles regarding the validity and revocability of [settlor's trusts].").
  • We believe that Mr. L~'s Trust meets the definition of a settlor's trust. Mr. L~ created the Trust, through his mother, with funds he received from the settlement of a lawsuit. Since Mr. L~'s mother was acting on his behalf, Mr. L~ was the actual settlor of the Trust. See Minn. Rev. Stat. 527.21-527.44. Moreover, trusts established from personal injury settlements are established by the person who received the settlement award. POMS SI 01120.200J.3.a. (TN 33 3-94); Whether Trust Established By A Legally Incompetent Grantor That Solely Benefits Grantor and Those Whom The Grantor Might Appoint In Her Will Is A Revocable Trust Under Wisconsin Law And Hence A Countable SSI ResourceTheresa L. D~Wisconsin, OGC-V (S~) to L~, Acting ARC, SSA-V (3/29/95). Mr. L~ was also the sole beneficiary of the Trust. The mere fact that the Trust lists unnamed heirs as residual beneficiaries does not create additional beneficiaries. Wisconsin Trust For By Y~, OGC-V (D~) to Panama, ARC, SSA-V, at 3 (7/25/94); cf. POMS SI 01120.200D.3. (TN 33 3-94) ("Some States recognize the irrevocability of a grantor [(settlor's)] trust if there is a named 'residual beneficiary' in the trust document . . .") (emphasis added). Therefore, it appears that Mr. L~'s Trust is a settlor's trust.
  • We have previously advised that settlor's trusts are revocable in Minnesota:
  • In Darcy v. First Trust Company of St. Paul, 297 N.W. 2d 282 (Minn. 1980), the Minnesota Supreme Court held that a trust can be modified where the grantor and all beneficiaries agree, despite language renouncing the ability to modify or revoke. Id. at 283-84. Although the court's conclusion related to modification rather than termination of a trust, the court specifically indicated that the power to revoke and the power to modify are coextensive unless an express provision in the trust provides otherwise. Id. at 284. Consequently, we believe the court's conclusion applies to revocation as well as modification.
  • See also Warner v. Warner, 117 N.W.2d 224, 229 (Minn. 1962) (indicating that the grantor and all beneficiaries have the power to modify trust because they have power to terminate the trust). Because, under Minnesota case law, the grantor and all beneficiaries may revoke a trust, it follows that a trust can be revoked by a grantor who is sole beneficiary.
  • Six-State Synopsis of Trust LawsMultistate, OGC-V (P~) to P~-W~, ARC, SSA-V, at 4 (2/26/92) (footnote omitted). Since his eighteenth birthday, therefore, Mr. L~ has had the power to terminate the Trust, because he is the both the settlor and the sole beneficiary of the Trust./ Thus, the Trust should be considered a countable resource as of Mr. L~'s eighteenth birthday.
  • Prior to Mr. L~'s eighteenth birthday, however, the Trust does not appear to be a countable resource under Minnesota law. Minnesota law provides that a minor's settlement proceeds in a court-ordered trust are not available until released by the court. Minn. Rev. Stat. 540.08. We have previously advised that section 540.08 prevents the Agency from counting as resources a minor's funds in an account established under its provisions, since Minnesota courts apparently would not release funds for the minor's support and maintenance (since these should be provided by the parents during minority). Blocked Account in Minnesota as SSI Resource Minnesota Joseph C. T~, OGC-V (M~) to P~-W~, ARC, SSA-V, at 3 (5/29/91); Trust For Minor As A Resource Where Termination Authorized At Age 18 Minnesota Pao G. Y~, OGC-V (M~) to Panama, ARC, SSA-V, at 3 (6/17/92). Section 540.08 is explicitly limited to minor children. Therefore, section 540.08 would not appear to impede Mr. L~'s access to the Trust after he reached majority on his eighteenth birthday./
  • Although we believe that this conclusion controls the disposition of this case, we now address your two other specific queries. You asked whether the Trust is being violated because the Trustee was not providing for Mr. L~'s support and maintenance. The Restatement (Second) of Trusts (1959) provides that where a trustee's discretion is uncontrolled, the beneficiary may not compel the trustee to make payments from the trust. Id. 128 cmt. d, 156(1). Accordingly, the POMS states that a discretionary trust is generally not an available resource, POMS SI 01120.200J.2.B.a. (TN 33 3-94), and our prior memoranda are consistent, Supplemental Trust Wisconsin David E. M~, OGC-V (H~) to W~, ARC, SSA-V, at 2 (9/6/88) (citations omitted). Thus the Trustee is not required to provide for Mr. L~'s support and maintenance. However, since Mr. L~ could terminate the Trust after attaining age eighteen without the Trustee's consent, the funds are still a resource to him.
  • You also asked whether Mr. L~'s right, for thirty days, to terminate the trust upon attaining age eighteen, is in accordance with Minnesota state law. We previously advised that such a provision was not inconsistent with general trust law principles.
  • P~ Yang, at 3. While the Trust was a resource during the thirty-day "window," id., Trust of Amy C~, OGC-II (Swerdloff) to M~, Dir., RSI/SSIB, SSA-II, at 2 (3/8/95); Counting a Trust as a Resource for SSI Nebraska Christine V~, OGC-VII (C~) to ARC, POS, SSA-VII, at 3 (11/5/93), it is unnecessary to rely upon this limited period given our conclusion above. Mr. L~ could terminate the Trust at any time after age eighteen, even after the 30-day window lapsed.
  • Finally, we note that during our research we learned that the district court has entered an order allowing the Trustee to pay Mr. L~'s father $37,000.00 a year to care for and to transport Mr. L~. (Copy attached.) We need not determine the effect of these payments, however, since the Trust funds are deemed to have been a resource to Mr. L~ since his eighteenth birthday, rendering him ineligible for SSI.
  • In sum, the trust funds were not a resource to Mr. L~ prior to his eighteenth birthday since, under Minnesota law, court approval was required to release the funds, and a Minnesota court would not have released the funds for his support and maintenance. The funds became a resource as of Mr. L~'s eighteenth birthday, however, after which time he was free to revoke the trust, either by the express terms of the trust or as a matter of law (since he was both the settlor and the sole beneficiary of the trust).
  • T. PS 00-305 SSI-Minnesota-Review of a Trust for Dana J. K~, SSN: ~
  • U. PS 00-305 SSI-Minnesota-Review of a Trust for Dana J. K~, SSN: ~
  • DATE: April 24, 2000
  • 1. SYLLABUS
  • This opinion concerns a trust and the SSI home exclusion. The SSI applicant inherited a one-fourth interest in a farm house with contiguous farmland. The applicant is also a beneficiary of a trust that has farm land as its only asset. The farmland held by the trust is contiguous to the inherited farm house and farmland. This was once all one farm owned by the applicant's parents. The regional attorney determined that the SSI applicant has ownership interest in the inherited farm house and farmland, and that this is not counted as a resource because it is considered an excluded home. The regional attorney also determined that the farmland held in the trust is not a countable resource. This is because the SSI applicant has ownership interest in this land because she is a beneficiary of the trust. And, the farmland held by the trust is covered by the home exclusion because this exclusion includes land that is contiguous to the home in which the recipient lives.
  • 2. OPINION
  • You asked us whether a trust is a countable SSI resource to Dana K~, an SSI applicant. The trust was established by her parents, and we have been advised that the only asset owned by the trust is farmland that was part of the family farm. In addition, Ms. K~ has a one-fourth interest in additional farmland she and her siblings inherited from her parents that did not pass through the trust. Ms. K~ currently resides in the farmhouse on the property. Because Ms. K~ has an ownership interest in both parcels of land and because the land is contiguous, we conclude that it is excluded from being a countable resource as property attached to the home.
  • FACTS
  • Ms. K~'s parents, Walter J. S~ and Grace L. S~ owned a family farm in Dalbo, Minnesota. In 1994, Mr. and Mrs. S~ created the "Walter J. S~ and Grace L. S~ Irrevocable Trust Agreement for the Benefit of Their Children." The trust indicates that it was expected to include primarily real estate and exist for the benefit of their children. The S~s transferred part of the family farm land into the trust. Other parts of the land, including the farmhouse were not transferred into the trust before the S~s died. Mr. S~ died in 1995; Mrs. S~ died in 1998.
  • The trust names two of their children, including Ms. K~, as trustees. All four children, including Ms. K~, are beneficiaries. During the S~s' lifetimes, the trustees had full discretion to use the trust assets to provide for the beneficiaries' health, support, maintenance and education. Trust
  • 1.1. After the death of the S~s, the trustee was directed to distribute to the beneficiaries the entire principal of the trust "other than the assets listed on Exhibit A. Trust 2.1. In addition, the trustee was directed to distribute to the beneficiaries "at least annually" the entire income of the trust.
  • Trust 2.1.
  • The trust further directs that when any assets in Exhibit A are sold, the proceeds shall be distributed to the beneficiaries. Trust 2.2. If any of the assets are not sold after ten years from the death of both settlors, the trustee was directed to distribute the assets. Trust 2.3.
  • Each child was given a power to appoint by will his or her trust share to such child's descendants or the settlors' descendants. Trust 2.5. Paragraph 5 of the trust includes a spendthrift clause, prohibiting any beneficiary "to sell, assign, transfer, encumber, or in any manner to anticipate or dispose of his interest in the trust estate or the income therefrom."
  • The letter from the attorney indicates that some of the property has been sold, but that the trust has not had any income and that no distributions have been made from the trust.
  • DISCUSSION
  • The short answer to the question presented is that the property is excluded because it comprises Ms. K~'s home. The Social Security Act excludes from countable resources "the home (including the land that appertains thereto)." 42 U.S.C. 1382b(a)(1). Our regulations make clear that the home is excluded as a resource "regardless of its value." 20 C.F.R. 416.1212(b); see also POMS SI 01130.100(A)(1). The local office obtained for us additional evidence, a copy of the plat of the property, which demonstrates that all of the farmland is contiguous, even though some of it is owned by the trust and some of it is part of the inheritance estate. Because the land is contiguous and is appurtenant to the home in which Ms. K~ lives, it is all excluded from countable resources. Therefore, the property is not a countable resource.
  • The letter from the lawyer states that the farmhouse in which Ms. K~ lives is part of the inheritance estate. This counts as Ms. K~'s property because of her interest as an heir. See POMS SI 01120.215. The other property is part of the trust estate, of which Ms. K~ is a beneficiary. Because she is a beneficiary of the trust, this, too, counts as an ownership interest. See POMS SI 01120.200(F). Because she has an ownership interest in the inheritance estate and the trust estate, the entire property is excluded as connected to Ms. K~'s home.
  • Even though the property is now an excluded resource, we wish to make clear several points relevant to Ms. K~'s resource status. If the inheritance estate has any resources other than the land, or if it sells the land, the property in the inheritance estate will be Ms. K~'s countable resource. See POMS SI 01120.215.
  • The trust property (if at any time there is property other than the farmland) is not a countable resource because (1) the trustees have the discretion whether to distribute to any beneficiary and (2) the trust includes a spendthrift provision. Therefore, property retained in the trust is not a countable resource. See POMS SI 01120.200(D)(2).
  • However, the trust provides that the trustee must distribute to the beneficiaries any income to the trust and any proceeds of sale of the trust assets. If the trust property generates income or if the trust sells part of the property, Ms. K~ would have a valid claim for her share of the proceeds. That claim would be a countable resource. Additionally, the trust provides that the trustees must sell any of the trust property that remains after ten years, and they must distribute that property to the beneficiaries. At that time, the trust property (except to the extent that Ms. K~ still owns it and it is land appurtenant to her home) will be a countable resource.
  • Finally, if at some point Ms. K~ leaves the farm house, then the property would no longer be an excluded resource.
  • CONCLUSION
  • Because Ms. K~ has an ownership interest in the house in which she lives, all of the property connected to the house is an excluded resource. This includes land in which she has an equitable ownership interest as a beneficiary of the trust as well as land in which she has an ownership interest through her inheritance. However, if circumstances change, the property could become a resource. We suggest that any changed conditions be submitted to us for review under the state law current at that time.
  • U. PS 00-278 Midland Life Insurance Funded Burial Contract (LIFBC); Your Reference No. SI-2-1-4
  • V. PS 00-278 Midland Life Insurance Funded Burial Contract (LIFBC); Your Reference No. SI-2-1-4
  • DATE: May 16, 1997
  • 1. SYLLABUS
  • Under Minnesota law, an individual can assign a life insurance policy to fund a prearrangement funeral trust, which may also be called a prearranged funeral or burial contract. Such a trust can be made irrevocable up to an amount equivalent to the current allowable SSI resource limit used for determining SSI eligibility (currently $2,000 for an individual and $3,000 for a couple) plus interest. These amounts are excluded from resources for SSI purposes. The assignment of any trust assets above this amount would be revocable and, therefore, a countable resource (unless otherwise excludable).
  • 2. OPINION
  • You sent for our review a proposed memorandum regarding Midland Life Insurance Funded Burial Contract (LIFBC). While the proposed memorandum is generally correct, we propose the following language, which may be a little more concise:
  • Under Minnesota law, an individual can assign a life insurance policy to fund a prearrangement funeral trust, which may also be called a prearranged funeral or burial contract. Minnesota law provides that such a trust can be made irrevocable up to an amount equivalent to the current allowable SSI asset exclusion used for determining eligibility for assistance, plus the interest on that amount. Therefore, an individual can assign irrevocably up to $2000.00 for an individual and up to a combined total of $3000.00 for a couple, plus interest on those amounts. These amounts would be excluded from countable resources pursuant to POMS SI 01130.425(B)(2). The assignment of any trust assets above this amount, however, would be revocable, and therefore those assets would be a countable resource (unless otherwise excludable).
  • In determining whether the individual has irrevocably assigned his or her interest in the life insurance policy you should check for:
  • (1) a valid insurance policy with a beneficiary designation that is not inconsistent with the irrevocable assignment under the prearrangement funeral contract.
  • Generally, if the policy names as the beneficiary "any funeral home as its interest may appear," or "the funeral home of choice," or the like, this should be sufficient. The designation should reflect the ability of the beneficiary or his or her personal representative or next-of-kin to designate a different funeral home at any point in time.
  • (2) a document showing the irrevocable transfer or assignment of the individual's interest in the life insurance policy to a funeral home.
  • The assignment need not name a particular funeral home, but the individual (or his or her personal representative or next-of-kin) must have the ability to designate a funeral home or change the funeral home to which the policy is assigned at any time. If the agreement does not specify that the personal representative or next-of-kin has the right to change the funeral home after the individual's death, you generally can assume that this right exists, absent evidence to the contrary. The fact that the individual retains the right to change the funeral home, however, does not make the cash surrender value of the policy a resource to the individual.
  • Note that the individual need not have a funeral purchase contract with any particular funeral home in order to irrevocably assign his or her interest in the life insurance policy. If the individual has entered into a funeral purchase contract with the funeral home named in the irrevocable assignment or another funeral home, this does not affect the validity of the irrevocable assignment of the insurance policy or the individual's ability to change the assignment to name a different funeral home.
  • Also note that the funds in the irrevocable funeral or burial contract are funds specifically set aside for burial expenses within the meaning of 20 C.F.R. 416.1231(b)(1) and 42 U.S.C. 1382b(d).
  • V. PS 00-169 SSI-Minnesota Sara R. C~ Supplemental Needs Trust ~ (Your File No. S2D5G3)
  • W. PS 00-169 SSI-Minnesota Sara R. C~ Supplemental Needs Trust ~ (Your File No. S2D5G3)
  • DATE: July 27, 1999
  • 1. SYLLABUS
  • This opinion concerns whether or not a "supplemental needs trust" is considered a countable resource for SSI purposes.
  • A general rule of trust law asserts that if an individual is both the grantor and sole beneficiary of a trust it is considered a resource. Thus, the trust is a countable resource in determining eligibility for SSI.
  • 2. OPINION
  • You requested an opinion regarding whether the funds held in a supplemental needs trust funded by a prior Zebley underpayment should be treated as a countable resource for the purpose of SSI eligibility for Sara R. C~, the beneficiary of the trust. We have reviewed the trust agreement and, for the following reasons, we conclude that the assets subject to the trust agreement should be considered a countable resource.
  • FACTS
  • On October 7, 1997, Sara R. C~ and Connie S~ executed a trust agreement entitled "The Sarah R. C~ Supplemental Needs Trust." The trust agreement identifies Sara C~ as the settlor, and Connie S~ as trustee. The trust was established with "certain payments which have been made to and on behalf of Sara R. C~ pursuant to a notice of award received on February 23, 1993, from the Department of Health and Human Services, or other properties, the receipt of which is hereby acknowledged." Recital 2. According to the information you provided, the trust was funded with the proceeds of a prior Zebley underpayment.
  • The trust's stated purpose is to provide for Sara's "reasonable living expenses and other needs when benefits from publicly-funded benefit programs are not sufficient to provide adequately for those needs" (Article 2, 1). The trust is intended to prohibit disbursements that would have the effect of replacing, reducing or substituting for publicly funded benefits otherwise available to Sara, or rendering her ineligible for publicly funded benefits. The trust is intended to comply with Minn. Stat. 501B.89(3) and applicable federal law to create a "supplemental needs trust" (Article 2, 1).
  • The trust is silent with regard to issues of revocation or amendment, but it does provide that if it is determined that the trust disqualifies Sara from public assistance benefits then the trust property can be used for her "well being" (Article 2, 5).
  • The trust terminates (1) on Sara's death; or (2) if Sara, after age 64, becomes a resident of a state institution or nursing facility for six months or more and is not reasonably expected to be discharged (Article 6, 1-2).
  • Upon Sara's death, the trustee is directed to first pay the State of Minnesota or other states an amount equal to the total medical assistance paid on Sara's behalf under the state plan. Article 3, 1. Thereafter, the trustee may pay last illness-related expenses and other administrative expenses. Article 3, 1. The trustee is to distribute the residue to "such of the spouse, children, grandchildren or other descendants of Sara R. C~ in such proportions and upon such terms and conditions and trusts as she may designate and appoint in and by her Last Will and Testament." Article 3, 2. Should Sara fail to exercise her power of appointment, the trustee is instructed to pay and distribute any remaining trust amounts to Sara's "heirs-at-law" in accordance with Minnesota's laws of intestate succession. Article 3, 2.
  • DISCUSSION
  • For SSI purposes, a resource 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 his 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 his 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 these 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, the trust assets will be counted as a resource. Similarly, if the individual can direct the use of the trust principal for his or her support and maintenance under the terms of the trust, the trust 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). Whether the claimant can revoke the trust or direct use of the trust assets depends on the terms of the trust agreement and applicable state law.
  • We first address whether Sara has the power to direct the use of the trust principal for her support and maintenance. Here, the trustee has sole discretion to make expenditures to fulfill the purpose of the trust (Article 2, 1). The trust does not prohibit the trustee from making disbursements for food, shelter or clothing in the event Sara becomes ineligible for publicly-funded benefits (Article 2, 5). Nonetheless, the stated purpose of the trust is to provide for Sara's reasonable living expenses and other needs when benefits from publicly-funded benefit programs are not sufficient to adequately provide for those needs (Article 2, 1). Because the trustee has sole discretion to make expenditures, and expenditures for food, shelter or clothing would be contrary to the trust purpose, Sara is not able to direct use of the trust principal for her support and maintenance.
  • We next consider whether or not Sara has the power to revoke the trust. As noted above, the trust is silent regarding revocation or amendment. Generally, a grantor must, by the terms of the trust, specifically reserve the power to modify or revoke the trust. Conversely, the grantor cannot revoke a trust if she did not reserve the power of revocation. Restatement (Second) of Trusts, 330 (1959). Thus, on its face, the trust is irrevocable because Sara did not reserve the power to revoke the trust.
  • However, the general law of trusts recognizes that where the grantor is the sole beneficiary of the trust arrangement and is not under an incapacity, she may amend or compel termination of the trust, even if she did not expressly reserve the power to do so. Restatement (Second) of Trusts, 339 (1959); 76 Am. Jur. 2d Trusts 91 (1975). The POMS provide that “[m]ost states follow the general principle of trust law that if a grantor is also the sole beneficiary of a trust, the trust is revocable regardless of the language in the trust document to the contrary.” POMS SI 01120.200(D)(3); see also 01120.200(B)(8). Minnesota can be presumed to apply this general principle absent any statutes or case law to the contrary. See Six-State Synopsis of Trust Laws, OGC-V (P~) to Panama, ARC, SSA-V (2/26/92) (advising that all six states in our region can be presumed to apply this principle); see also Minn. Stat. 501B.01 et. seq.; In re Schroll, 297 N.W.2d 282, 284 (Minn. 1980) (although settlor could not unilaterally revoke trust where he did not reserve such power, trust could be modified where settlor and all beneficiaries agreed).
  • Here, the trust was created with Sara's own assets and the trust agreement identifies Sara as the settlor (grantor) of the trust. The question, then, is whether Sara, as grantor of the trust, is also its sole beneficiary.
  • Sara is the sole beneficiary of the trust during her lifetime (Article 2, 1). Upon Sara's death, the trust first provides for payment to the State of Minnesota in an amount equal to the total medical assistance paid by the state on Sara's behalf (Article 3, 1). Thereafter, the trust provides for payment of last illness and funeral-related expenses and administrative expenses (Article 3, 1). As we have previously advised, these provisions do not render the State of Minnesota or other creditors beneficiaries. A beneficiary is “[t]he person for whose benefit property is held in trust.” Restatement (Second) of Trusts 3(4) (1959). None of the trust property is held for the “benefit” of the state or other creditors; rather, this provision requires the trust to reimburse the state and other creditors for benefits already conferred on Sara during her lifetime. See States Named as Beneficiary to a Trust, OGC-V (D~) to Panama (6/24/97) at 2.
  • The trust provides that the remaining balance of trust assets shall be distributed to “such of the spouse, children, grandchildren or other descendants of Sara R. C~” on such terms and conditions as Sara may designate and appoint in and by her Last Will and Testament.
  • This provision does not create residual beneficiaries. While the provision may seem to create a beneficial interest in certain parties that may be named in Sara's will, the interest is illusory because it is contingent upon Sara exercising her testamentary appointment power. Sara is not required to execute a will; and once executed, she has the discretion to modify or revoke her will during her lifetime. See Minn. Stat. 524.2-507. Thus, a trust purporting to create a remainder interest in those to be named by will does not, in effect, create residual beneficiaries. See Restatement (Second) of Trusts, 127; 339, comment b, illustration 2; see also Clarification of Regional SSA Program Circular 94-05 Concerning Trusts, OGC-V (K~) to L~ (5/24/95) at 3-4 (hereinafter Clarification).
  • Should Sara fail to exercise her appointment power, any remaining trusts amounts are to be distributed to Sara's “heirs at law.” Use of the term “heirs at law” does not create residual beneficiaries, because there are no identifiable residual beneficiaries either by name or class. Restatement (Second) of Trusts, 127, comment b (1959); see also Clarification at 4-6. Thus, where a trust purports to create an interest in favor of the grantor-beneficiary's “heirs at law” (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. Our research has revealed no Minnesota cases that run contrary to this general trust principle, and we therefore conclude that absent the manifestation of a contrary intention, the inclusion of unnamed heirs does not create additional beneficiaries of a Minnesota trust.
  • Here, we are not convinced that the trust language indicates a contrary intention (i.e., the intention to make Sara's “heirs at law” residual beneficiaries). The trust does limit Sara's testamentary appointment power to her “spouse, children, grandchildren or other descendants.” Article 3, 2. Thus, the manner in which the trust was drafted seems to favor distribution to certain parties: should Sara exercise her appointment power, she is limited to distribution to her spouse, children and other descendants; should Sara fail to exercise her appointment, distribution under intestate succession still favors Sara's spouse and descendants. This suggests Sara may have intended to create a beneficial interest in certain heirs at law; her spouse, children and other descendants.
  • However, “heirs at law” according to Minnesota's intestate succession might result in distribution to parties (such as grandparents or distant cousins) other than Sara's spouse, children or other descendants. In addition, the trust terms allow Sara to exercise her appointment power in a manner that would exclude certain “heirs at law.” For example, Sara could exclude distribution to her spouse and provide by will that the entire trust residual be distributed to her children. Thus, we think the trust is sufficiently ambiguous that no specific class of beneficiaries can be identified and, consequently, the intent to make Sara's unnamed heirs at law residual beneficiaries should not be inferred. As a result, Sara is the sole beneficiary of the trust.
  • Because Sara is both the grantor and the sole beneficiary of the Trust, we believe the general trust rule applies, and Sara “can compel termination of the trust, although the purposes of the trust have not been accomplished.” Restatement (Second) of Trusts 339 (1959). Thus, Sara should have the power to revoke the trust and use the assets to meet her needs for food, clothing and shelter. As such, the Trust should be treated as a countable resource for the purpose of Sara's SSI eligibility. See POMS SI 01120
  • 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.
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