PS: Title XVI Regional Chief Counsel Precedents
TN 102 (03-18)
A. PS 17-121 Validity of Purported Pooled Trusts (FL, KY, MS)
Date: July 19, 2017
1. Syllabus
The Regional Chief Counsel (RCC) Opinion examined whether the trusts established by the National Foundation for Special Needs Integrity, Inc. (NFSNI), in Florida, Kentucky, and Mississippi comply with the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant provisions of the Program Operations Manual System (POMS). The RCC concluded that the Master Trusts do not comply with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS.
2. Opinion
QUESTION
You asked whether the trusts established by the National Foundation for Special Needs Integrity, Inc. (NFSNI), in Florida, Kentucky, and Mississippi comply with the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant provisions of the Program Operations Manual System (POMS).
OPINION
The Master Trusts do not comply with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS.
BACKGROUND
According to the information provided, the Social Security Administration (SSA) determined M~ (FL Recipient), W~ (KY Recipient), and M~ (MS Recipient) (collectively, Recipients) were entitled to Supplemental Security Income (SSI) based on disability. SSA has since determined MS Recipient’s disability ceased.1
Each of the Recipients has established a sub-account in master trusts that NFSNI created. NFSNI provided a July XX, 2007, letter from the Internal Revenue Service (IRS) stating that NFSNI is an exempt organization under section 501(c)(3) of the Internal Revenue Code. NFSNI established a master trust in Florida on May 15, 2008 (Florida Master Trust); in Kentucky on October 17, 2008 (Kentucky Master Trust); and in Mississippi on February 24, 2009 (MS Master Trust) (collectively, Master Trusts). See Master Trusts, Recitals and Signatures. Each of the Master Trusts purports to be a “pooled trust” for purposes of the Act. Master Trusts, Art. 2.
FL Recipient created a sub-account in the FL Master Trust by execution of a joinder agreement dated March XX, 2009 (FL Joinder). Assets of the “M~ Trust” funded FL Recipient’s sub-account. FL Joinder, § II.A. Based on the information provided, this was a testamentary trust that failed as a special needs trust and was subsequently used to create FL Recipient’s sub-account in the FL Master Trust. KY Recipient created a sub-account in the KY Master Trust by execution of a joinder agreement dated August XX, 2013 (KY Joinder). Assets from the “V~ Trust UAD” funded KY Recipient’s sub-account. KY Joinder, § II.A. MS Recipient created a sub-account in the MS Master Trust by execution of a joinder agreement dated January XX, 2014 (MS Joinder) (collectively, Joinder Agreements). MS Recipient’s own assets funded his sub-account. MS Joinder, § II.A.
The Master Trusts are intended to be administered for the sole benefit of qualified individual “Beneficiaries.” MS Trust, Art. 1, 2, 13.4; KY and FL Trusts, Art. 1, 2, 13.3. A Beneficiary is defined as a person with a disability as determined by the respective state law of the Master Trusts “and/or as qualified under § 1614(a)(3) of the Social Security Act and/or as determined by 42 U.S.C. § 1382c(a)(3). . . .” FL and MS Master Trusts, Art. 5.D.; KY Master Trust, Art. 5.D., and KY Joinder, § I.D. A “Grantor” of the FL and MS Master Trusts may be the Beneficiary or his or her guardian, parent, or grandparent, or a court order funding a sub-account. FL and MS Master Trusts, Art. 5.C. The KY Master Trust uses similar language, see KY Master Trust Art. 5.C., but the Kentucky joinder agreement states that a “Donor” funds a sub-account using funds that “shall not be assets to which Beneficiary had legal ownership, an interest in ownership, or any other legally colorable claim in law or equity,” KY Joinder, § I.C.
The property of each Master Trust is considered “one entity” for investment purposes, but each sub-account is administered for the sole benefit of individual Beneficiaries. See Master Trusts, Art. 2. A Beneficiary of one of the Master Trusts is entitled to an annual accounting. See Master Trusts, Art. 10.2.
The Trustee for each trust is NFSNI and may include its successors in interest and appointed co-Trustees. See Master Trusts, Art. 5.B. A Trustee may exercise powers provided under applicable state law trust codes, including designating a co-Trustee and making distributions for a Beneficiary’s supplemental needs during his or her lifetime. See Master Trusts, Art. 11, 13.2. The Master Trusts define “supplemental” to include payments made to a Beneficiary and payments to third parties during a Beneficiary’s lifetime for goods or services he or she receives. See FL Master Trust, Art. 5.J., 13.5; KY Master Trust, Art. 5.J., 13.5 and KY Joinder, § I.K.; MS Master Trust, Art. 5.J., 13.6. The MS Master Trust may purchase real property for a Beneficiary so long as the owner is the MS Master Trust. See MS Master Trust, Art. 13.3.5. The MS Master Trust may also purchase a vehicle for a Beneficiary so long as the vehicle owner is not the MS Master Trust. See MS Master Trust, Art. 13.3.7.
The Master Trusts allow the Trustee to charge pro-rata to all sub-accounts “extraordinary administrative expenses or for the legal defense of the Trust Pool.” Master Trusts, Art. 10.4. Extraordinary administrative expenses or legal challenges incurred by specific sub-accounts will only be charged to the affected sub-accounts, unless the issue “may materially affect the integrity or administration of other sub-accounts.” Id. The Master Trusts also allow for reasonable compensation for Trustees. See Master Trusts, Art. 15.8. The Master Trusts also charge Beneficiaries an annual fee of 1.5% of the sub-account balance to pay for “day-to-day administration” of the sub-account. Joinder Agreements, § III. In addition, the Master Trusts provide that the trust will indemnify Trustees and their agents for “any and all claims, actions, suits, liabilities, fines or penalties. . . .” Master Trusts, Art. 15.10.
A Trustee may terminate a Beneficiary’s sub-account. See Master Trusts, Art. 16.1. In doing so, the Trustee may “transfer the assets in the Beneficiary’s [sub-account] . . . to a qualified private or geographically appropriate and qualified not-for-profit pooled special needs trust.” Id.
The Trusts define “Remainder” as the amount of money remaining in a Beneficiary’s sub-account after death and after payment of reasonable and allowable administrative expenses of the estate. FL and MS Master Trusts, Art. 5.K; KY Master Trust, Art. 5.L. To the extent that the Trusts do not retain this Remainder, the respective state Medicaid agencies “shall be first payee and have priority of payment over any other debts and administrative expenses” except those permitted by SSA policy. FL and KY Master Trusts, Art. 14.1; MS Master Trust, Art. 14. If a Beneficiary has received Medicaid benefits in more than one state, each state that has provided benefits will be repaid a proportionate share of the amount remaining in the Beneficiary’s sub-account. See FL and KY Master Trusts, Art. 14.2; MS Master Trust, Art. 14.
The Master Trusts state that, if any provision of the trust is deemed invalid, that provision is invalidated. See Master Trusts, Art. 15.4, Joinder Agreements, § IX.C. According to the Master Trusts, the invalidated provision will not invalidate the remaining provisions of the Master Trusts. See id.
DISCUSSION
SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Act §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2017).2 “Resources” include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to be used for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a). “If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual. . . .” 20 C.F.R. § 416.1201(a)(1); accord POMS SI 01120.010.B.
Generally, SSA must consider the principal or corpus of a trust established with the assets of an individual to be a resource of the individual. See Act § 1613(e)(1)-(3); POMS SI 01120.201.A.1. However, certain exceptions are provided for trusts established in accordance with section 1917(d)(4) of the Act. See Act § 1613(e)(5); POMS SI 01120.201.A.1; POMS SI 01120.203.A. Pooled trusts are one such exception. See Act § 1917(d)(4)(C); POMS SI 01120.203.B.2 (describing an exception in accordance with § 1917(d)(4)(C) as a “pooled trust”). To satisfy the pooled trust exception, a trust must contain the assets of an individual who is disabled (as defined in section 1614(a)(3)) and meet the following requirements:
The trust is established and managed by a nonprofit association.
A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts.
Accounts in the trust are established solely for the benefit of individuals who are disabled (as defined in section 1614(a)(3)) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court.
To the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan under this title.
Act § 1917(d)(4)(C); accord POMS SI 01120.203.B.2.a.
Assets of the Disabled Individual
Initially, we note that the KY and MS Master Trusts do not satisfy the threshold requirement of containing the assets of a disabled individual. See Act § 1917(d)(4)(C); POMS SI 01120.203.B.2.a. Based on the information provided, SSA has found MS Recipient’s disability ceased, and MS Recipient has not filed an appeal. Thus, the MS Master Trust does not involve a “disabled” individual to the extent it applies to MS Recipient.
Although SSA has found KY Recipient disabled, the KY Master Trust does not contain “the assets of” KY Recipient. The joinder agreement states a “Donor” has been funding KY Recipient’s sub-account using assets that “shall not be assets to which Beneficiary had legal ownership, an interest in ownership, or any other legally colorable claim in law or equity.” KY Joinder, § I.C. Consistent with these definitions, assets from the “V~ Trust UAD” funded KY Recipient’s sub-account. KY Joinder, § II.A. Although neither the Act nor the POMS defines the term “assets of,” its plain meaning indicates the assets in a valid pooled trust should belong to the SSI beneficiary claiming the benefit of the pooled trust exception. The Act’s plain meaning is conclusive where, as here, it would not lead to lead to an unintended result. See United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 242 (1989). Both the source of the funds and the definitions of the KY Master Trust indicate KY Recipient’s sub-account was not funded with assets belonging to KY Recipient, so the KY Master Trust does not involve “assets of” a disabled individual.
Although we conclude the KY and MS Master Trusts do not involve valid pool trusts based on the limited circumstances presented, we nonetheless address their provisions below as many of them overlap with the FL Master Trust provisions.
Established and Managed by a Non-Profit
To meet the first numbered requirement, the trust must be established and maintained by an organization that has been established and certified under a state nonprofit statute. See Act § 1917(d)(4)(C)(i); POMS SI 01120.203.B.2.c. NFSNI established each of the Master Trusts and manages them as Trustee. See Master Trusts, Recitals and Signature, Art. 5.B. The documents provided include a July XX, 2007, letter from the Internal Revenue Service (IRS) stating that NFSNI is an exempt organization under section 501(c)(3) of the Internal Revenue Code, and the IRS lists NFSNI as a tax-exempt organization on its website.3 Thus, it appears the Master Trusts are established and maintained by a nonprofit entity. See POMS SI 01120.203.F (referring to the procedures in POMS SI 01130.689.E for determining if an organization is a nonprofit or tax-exempt organization); POMS SI 01130.689.E.2 (indicating SSA considers an organization to be a non-profit organization if it can verify it is a tax-exempt organization with the IRS).
However, the Master Trusts create a possibility of management by a for-profit entity. The Trustee for each trust is NFSNI and may include its successors in interest and any appointed co-Trustees. See Master Trusts, Art. 5.B. The Master Trusts contain no restriction that successors in interest or co-Trustees must only be nonprofit entities. For pooled trusts, a nonprofit management entity like NFSNI may employ the services of a for-profit entity so long as the nonprofit retains ultimate managerial control. See POMS SI 01120.225.B, D. However, such a for-profit entity employed by a nonprofit pooled trust management entity cannot make discretionary disbursements. See POMS SI 01120.225.E. Here, the potential exists that for-profit successors in interest or co-Trustees could exercise all the powers of the Trustee, including making discretionary disbursements for a Beneficiary’s supplemental needs. See Master Trusts, Art. 5.B., 11, 13.2. We have not received any material indicating NFSNI has actually appointed a for-profit successor in interest or co-Trustee for any of the Master Trusts involved in this opinion. Thus, we conclude the Master Trusts meet the first numbered requirement of the pooled trust exception. However, because other revisions to the Master Trusts are required as discussed below, NFSNI should consider redefining “Trustee” or the powers to be exercised by a co-Trustee to ensure a nonprofit entity retains ultimate managerial control of the Master Trusts at all times.
Separate Accounts and Pooled Investment
To satisfy the second numbered requirement, the trust must maintain a separate account for each trust beneficiary, although the funds may be pooled for investment and management purposes. See Act § 1917(d)(4)(C)(ii); POMS SI 01120.203.B.2.d. The trust must also be able to provide an accounting for each beneficiary’s individual account. See POMS SI 01120.203.B.2.d. The property of each Master Trust is considered “one entity” for investment purposes, but each sub-account is administered for the sole benefit of individual Beneficiaries. See Master Trusts, Art. 2. A Beneficiary of one of the Master Trusts is entitled to an annual accounting. See Master Trusts, Art. 10.2. Our review confirms that the Master Trusts meet the second numbered requirement of the pooled trust exception.
Established for the Sole Benefit of Disabled Individuals
The third numbered requirement mandates that the accounts in the trust are established for the sole benefit of individuals who are disabled within the meaning of the Act. See Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.B.2.e. SSA considers a trust to be for the sole benefit of an individual “if the trust benefits no one but that individual, whether at the time the trust is established or at any time for the remainder of the individual’s life.” POMS SI 001120.201.F.2.a. More specifically, aside from payments for goods or services for the trust beneficiary and reasonable administrative expenses, the trust must not:
(1) provide a benefit to any other individual or entity during the disabled individual’s lifetime; or
(2) allow for termination of a trust account prior to the individual’s death and payment of the assets to another individual or entity. See POMS SI 001120.201.F.2; POMS SI 01120.203.B.2.e.
Our review of the Master Trusts confirms that they limit lifetime distributions to a Beneficiary or to a third-party for the benefit of the Beneficiary. See FL Master Trust, Art. 5.J., 13.5; KY Master Trust, Art. 5.J., 13.5 and KY Joinder, § I.K.; MS Master Trust, Art. 5.J., 13.6. The Master Trusts allow for reasonable compensation for Trustees. See Master Trusts, Art. 15.8. The Master Trusts also charge Beneficiaries an annual fee of 1.5% of the sub-account balance to pay for “day-to-day administration” of the sub-account. Joinder Agreements, § III. These provisions generally comply with the “sole benefit” requirement. See POMS SI 01120.201.F.1, F.2.b.-c.
However, certain provisions of the Master Trusts could be read to allow a benefit to third parties during a Beneficiary’s lifetime. The Master Trusts allow the Trustee to charge “extraordinary administrative expenses or for the legal defense of the Trust Pool” pro-rata to all sub-accounts. Master Trusts, Art. 10.4. Extraordinary administrative expenses or legal challenges incurred by specific sub-accounts will only be charged to the affected sub-accounts, unless the issue “may materially affect the integrity or administration of other sub-accounts.” Id. In addition, the Master Trusts provide that the trust will indemnify Trustees and their agents for “any and all claims, actions, suits, liabilities, fines or penalties.” Master Trusts, Art. 15.10.4 The relevant POMS provision provides that only payments of legal costs or services rendered “on behalf of the individual with regard to the trust” do not violate the sole benefit rule. POMS SI 01120.201.F.2.c. Here, the Master Trusts’ provisions contemplate potentially using sub-account assets to pay for administrative or legal expenses without requiring that a Beneficiary had actually incurred those expenses. The provisions therefore contemplate the potential use of assets in a Beneficiary’s sub-account for the benefit of others besides the Beneficiary, and thus the sub-accounts are not established for the “sole benefit” of any sub-account holder.
The Master Trusts also contain early termination provisions that allow for the termination of a trust sub-account before the death of the Beneficiary. See Master Trusts, Art. 16.1. Early termination provisions generally violate the third statutory element required for valid pooled trusts. See POMS SI 01120.203.B.2.e. Such provisions may be acceptable if they otherwise comply with all the requirements for pooled trusts and provide for Medicaid payback, disallow third parties to benefit except for payment of certain approved expenses, and give termination power to someone other than the trust beneficiary. See POMS SI 01120.199.F. However, the Master Trusts’ early termination provisions here do not satisfy any of these requirements. See Master Trusts, Art. 16.1. Where an early termination provision does not satisfy the above requirements, it may still be acceptable if it “contain[s] specific language” that limits distribution only to another valid pooled trust and it disallows other expenses. POMS SI 01120.199.F.2. Here, NFSNI may terminate a Beneficiary’s sub-account and “transfer the assets in the Beneficiary’s [sub-account] . . . to a qualified private or geographically appropriate and qualified not-for-profit pooled special needs trust.” Master Trusts, Art. 16.1. The term “pooled special needs trust” is not sufficiently specific to limit transfer of a sub-account’s funds to another valid pooled trust. See POMS SI 01120.199.F.2. Therefore, the early termination provision violates the “sole benefit” requirement for pooled trusts.
We also note that the MS Master Trust may purchase a vehicle for a Beneficiary provided the owner of the vehicle is not the MS Master Trust. See MS Master Trust, Art. 13.3.7. If funds from a trust that is a resource are used to purchase a vehicle, the individual (or the trust) must be shown as its owner. See POMS SI 01120.201.F.1. The documents provided do not indicate that a vehicle was purchased for MS Recipient or that the owner was listed as someone other than MS Recipient. Thus, this provision does not violate the “sole benefit” requirement based on the information presented. However, because other revisions to the MS Master Trust are required, NFSNI should consider modifying the vehicle-purchase provision to clarify who will be listed as the owner of a vehicle purchased for a Beneficiary of the MS Master Trust.
Medicaid Reimbursement
To meet the fourth numbered requirement, the trust instrument must contain specific language providing that, to the extent that amounts remaining in an individual’s account upon his or her death are not retained by the trust, the trust will pay the remaining amount to the state(s) up to the total amount of medical assistance state Medicaid plan(s) paid on behalf of the individual. See Act § 1917(d)(4)(C)(iv); POMS SI 01120.203.B.2.g. The trust must contain language “substantially similar” to the language in the Act and POMS. POMS SI 01120.203.B.2.g. Further, the trust “must provide payback for any State(s) that may have provided medical assistance under the State Medicaid plan(s) and not be limited to any particular State(s).” Id.
The Master Trusts provide that, to the extent any amounts remain in a sub-account after payment of reasonable and allowable administrative expenses and amounts retained by the Master Trusts, the respective state Medicaid agencies “shall be first payee and have priority of payment over any other debts and administrative expenses” except those permitted by SSA policy. FL and KY Master Trusts, Art. 14.1; MS Master Trust, Art. 14. If a Beneficiary has received Medicaid benefits in more than one state, each state that has provided benefits will be repaid a proportionate share of the amount remaining in the Beneficiary’s sub-account. See FL and KY Master Trusts, Art. 14.2; MS Master Trust, Art. 14.
This language is insufficient to meet the fourth numbered requirement because the language is not substantially similar to that required by the POMS. The Medicaid payback provisions at issue limit the payback to either the state in which the respective trust is established or to multiple states. For example, a Beneficiary participating in the MS Master Trust could receive Medicaid assistance only from Alabama and, upon death, his or her sub-account would not be required to repay Alabama for any Medicaid assistance. This language is therefore insufficient to satisfy the fourth numbered requirement for pooled trusts.5
Severability Clauses
The Master Trusts state that, if any provision of the trust is deemed invalid, that provision is invalidated. See Master Trusts, Art. 15.4, Joinder Agreements, § IX.C. According to the Master Trusts, the invalidated provision will not invalidate the remaining provisions of the trust. See id. However, for SSI purposes, a null and void clause or savings clause does not cure an otherwise defective trust instrument. See POMS SI 01120.227.D. To qualify for the pooled trust exception, a trust must meet the criteria in section 1917(d)(4)(C) without regard to its severability clause. See POMS SI 01120.227.D.1. Thus, the Master Trusts’ severability clause does not nullify or sever the provisions discussed above that do not satisfy the pooled trust requirements. See POMS SI 01120.227.D.
CONCLUSION
For the reasons discussed above, the Master Trusts do not meet all the requirements of the pooled trust exception under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS.
Sincerely,
Mary Ann Sloan
Regional Chief Counsel
By: Jeffrey S. Wilson
Assistant Regional Counsel
B. PS 16-184 State Law for Empty and Dry Trusts in Atlanta Region
Date: April 25, 2016
1. Syllabus
This Regional Chief Counsel opinion provides the State law related to trusts established with no funds (i.e., dry or empty trusts), for the States in Region IV to assist field offices in addressing questions regarding how such purported trusts should be considered under the Social Security Administration’s (agency) Supplemental Security Income (SSI) resource rules.
2. Opinion
QUESTION
You asked us to provide the State law related to trusts established with no funds (i.e., dry or empty trusts), for the States in Region IV to assist field offices in addressing questions regarding how such purported trusts should be considered under the Social Security Administration’s (agency) Supplemental Security Income (SSI) resource rules.
BACKGROUND
SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Social Security Act (Act) §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2015).*6 “Resources” include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to use for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a). “If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual . . . .” 20 C.F.R. § 416.1201(a)(1); see Program Operations Manual System (POMS) SI 01120.010.B. Even if property has no current market value, it may still be considered a resource if it is property that an individual owns and has the right to convert to cash, and the individual is not legally restricted from using the property for his or her support and maintenance. See POMS SI 01110.100.B.2, B.3.
Property held in a trust may or may not be considered a resource for SSI purposes. See POMS SI 01120.200.A.1. Generally, the agency must consider the principal or corpus of a trust established with the assets of an individual to be a resource of the individual. See Act § 1613(e)(1)-(3); POMS SI 01120.201.A.1. Trust principal is a countable resource if the individual (claimant, recipient, deemer) has legal authority to revoke or terminate the trust and use the funds to meet his or her food or shelter needs, or if the individual can direct the use of the trust principal for his or her support and maintenance under the terms of the trust. See POMS SI 01120.200.D.1.a. Also, if an individual can sell his or her beneficial interest in the trust, that interest is a resource. See POMS SI 01120.200.D.1.a. Conversely, if an individual does not have legal authority to revoke or terminate the trust or to direct the use of the trust assets for his own her own support and maintenance, the trust principal is not a resource for SSI purposes. See POMS SI 01120.200.D.2. The revocability of a trust and the ability to direct the use of trust principal depends on the terms in the trust agreement and on State law. See POMS SI 01120.200.D.2.
DISCUSSION
Alabama:
Alabama statutory law indicates a trust may be established through the conveyance of property but does not otherwise explain the property requirements to establish a trust. See Ala. Code § 19-3B-401, comment (2016). Alabama case law, however, has clarified that the existence of property held by a trustee for the benefit of a trust as an essential element of a trust. See Corretti v. First Nat’l Bank of Birmingham, 276 So. 2d 141, 147 (Ala. 1973); Gordon v. Central Park Little Boys League, 119 So. 2d 23, 27 (Ala. 1960). Thus, Alabama law does not appear to recognize a trust that is established with no funds.
Florida:
Florida statutory law indicates a trust may be created when property or a property interest is transferred to a trustee, but does not further explain the property requirements to establish a trust. See Fla. Stat. Ann. § 736.0401 (West 2016). Florida case law, however, indicates an express trust is not created until property is conveyed for the purpose of the trust. See McLemore v. McLemore, 675 So. 2d 202, 205 (Fla. Dist. Ct. App. 1996); In re Herskowitz’s Estate, 338 So. 2d 210, 212 (Fla. Dist. Ct. App. 1976). Thus, Florida law does not appear to recognize a trust that is established with no funds.
Georgia:
Georgia statutory law requires express trusts to include trust property. See Ga. Code Ann. § 53-12-20 (West 2016). Georgia case law also holds that an essential element of an express trust is the existence of trust property. See Hayes v. Clark, 530 S.E.2d 38, 39 (Ga. Ct. App. 2000); Lummus Supply Co. v. Fidelity Fed. Sav. & Loan Ass’n, 234 S.E.2d 671, 672 (Ga. Ct. App. 1977). Thus, Georgia law does not appear to recognize a trust that is established with no funds.
Kentucky:
Kentucky statutory law indicates a trust may be created through the transfer of property to a trustee or by a declaration that an owner of property has made that the owner holds identifiable property as trustee, but does not further explain the property requirements to establish a trust. See Ky. Rev. Stat. Ann. § 386B.4-010 (West 2016). Kentucky case law clarifies that a fundamental element of a trust is the devotion of trust property to the benefit of the trust beneficiaries. See Siter v. Hall, 294 S.W. 767, 770 (Ky. Ct. App. 1927). Such property must be in existence and identified to establish the trust. See DeLeuil’s Ex’rs v. DeLeuil, 74 S.W.2d 474, 477 (Ky. Ct. App. 1934). Thus, Kentucky law does not appear to recognize a trust that is established with no funds.
Mississippi:
Under the Family Trust Preservation Act of 1998, Mississippi statutory law defines trusts to mean an express trust, private or charitable, or a trust created or determined by a judgment or decree under which the trust is to be administered in the manner of an express trust. See Miss. Code Ann. § 91-9-501(a) (West 2016). Mississippi excludes from this definition of a trust the following: constructive trusts, other than those created by a judgment or decree under which the trust is to be administered in the manner of an express trust, and resulting trusts; guardianships and conservatorships; executors and administrators of decedent's estates; totten trust accounts; custodial arrangements pursuant to the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act of any state; business trusts that are taxed as partnerships or corporations; investment trusts subject to regulation under the laws of this state or any other jurisdiction; common trust funds; voting trusts; security arrangements; transfers in trust for purpose of suit or enforcement of a claim of right; liquidation trusts; or any arrangement under which a person is nominee or escrowee for another. See Miss. Code Ann. § 91-9-501(b). Missisippi statutory law does not appear to contain any additional definition of a trust or further explanation regarding any property requirements to establish a trust.
Mississippi case law also does not appear to address whether there are property requirements to establish a trust. Cases that describe the essentials of an express trust do not address this question. See, e.g., Smiley v. Yllander, 105 So. 3d 1171, 1175 (Miss. Ct. App. 2012) (identifying two types of trusts, express and implied, and noting express trusts or any trust holding real property must be written, while implied may either be constructive or resulting, without addressing whether property is a prerequisite to establishing any type of trust); Sligh v. First Nat’l Bank of Holmes Cty., 735 So. 2d 963, 974 (Miss. 1999) (describing a trustee’s duties and noting guarantorships and conservatorships are not trusts); Ogle v. Durley, 77 So. 2d 688, 691-92 (Miss. 1955) (explaining that real property that was devised to a survivor in a will with condition of splitting the income of said property with another survivor did not create trust, but instead created an equitable charge). Thus, we found no Mississippi statute or case law authorizing the establishment of a trust with no funds.
North Carolina:
North Carolina statutory law indicates a trust may be established when property is transferred to or held by a trustee, but does not further describe the property requirements to establish a trust. See N.C. Gen Stat. Ann. § 36C-4-401 (West 2016). North Carolina case law, however, requires the conveyance of property in order for a trust to be created. See Bissette v. Harrod, 738 S.E.2d 792, 799 (N.C. Ct. App. 2013). Thus, North Carolina law does not appear to recognize a trust that is established with no funds.
South Carolina:
South Carolina statutory law indicates a trust may be established when property is transferred to a trustee or through a written, signed declaration from an owner of property that the owner is holding the property as a trustee, but does not further explain the property requirements to establish a trust. See S.C. Code Ann. § 62-7-401 (2016). South Carolina case law, however, indicates that a trust generally can exist only if it is funded. See Foster v. Foster, 682 S.E.2d 312, 314 (S.C. Ct. App. 2009) (listing trust res as a necessary element to establish a trust); Mayer v. M.S. Bailey & Son, 555 S.E.2d 406, 410 (S.C. Ct. App. 2001) (noting a trust generally can exist only if it is funded). Thus, South Carolina law does not appear to recognize a trust that is established with no funds.
Tennessee:
Tennessee’s Uniform Trust Code includes a provision identifying the requirements for creating a trust particularly with respect to identifying a settlor with the requisite capacity and intention, a trustee with duties to perform, and a definite beneficiary. See Tenn. Code Ann. § 35-15-402 (West 2016). However, neither this provision nor other provisions of Tennessee statutory law appear to discuss whether the trust must contain property. Under Tennessee case law, however, for an express trust to exist, the trust must contain a corpus, or property. See Myers v. Myers, 891 S.W.2d 216, 218 (Tenn. Ct. App. 1994). Thus, Tennessee law does not appear to recognize a trust that is established with no funds.
CONCLUSION
If you have any questions regarding this memorandum, please contact the undersigned.
Sincerely,
Mary Ann Sloan
Regional Chief Counsel
By: Natalie Liem
Assistant Regional Counsel
Footnotes:
MS Recipient does not currently receive SSI, but we nonetheless use the identifying term “Recipient” for purposes of consistency in this opinion.
All references to the Code of Federal Regulations are to the 2017 edition.
. Specifically, the IRS’s website indicates NSFNI is a public charity to which certain contributions could be tax deductible. See Exempt Organizations Selection Check, https://apps.irs.gov/app/eos/pub78Search.do?ein1=20-8405771&names=&city=&state=All...&country=US&deductibility=all&dispatchMethod=searchCharities&submitName=Search (last visited July 10, 2017).
. Indemnity is a legal obligation to be held responsible for another’s wrongdoing despite a lack of any personal negligence or fault. See, e.g., Zeiger Crane Rentals, Inc. v. Double A Indus., Inc., 16 So. 3d 907, 911 (Fla. Dist. Ct. App. 2009); Frear v. P.T.A. Indus., Inc., 103 S.W.3d 99, 107 (Ky. 2003); Gully v. First Nat. Bank, 184 So. 615, 617 (Miss. 1938).
. We also note that the Master Trusts indicate they “shall not be used to reimburse any state . . . government for any benefits or maintenance representing basic medical care. . . .” Master Trusts, Art. 6. This prohibition is not limited to the lifetime of a Beneficiary and could conflict with the pooled trust requirement that a sub-account pay back Medicaid upon the death of a Beneficiary. NFSNI should consider clarifying this language.
. * All references to Code of Federal Regulations are to the 2015 edition.