PS 01825.039: Ohio

changes
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~~Effective Dates: 03/06/2018 - Present~~
Effective Dates: 05/18/2018 - Present
~~TN 98 (03-18)~~
TN 113 (05-18)
PS 01825.039 Ohio
~~A. PS 17-065 Supplemental Security Income – Ohio Review of the Life Enrichment Pooled Trust Master Trust Agreement~~
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 17-065 Supplemental Security Income – Ohio Review of the Life Enrichment Pooled Trust Master Trust Agreement
Date: March 15, 2017
1. Syllabus
The Regional Chief Counsel (RCC) opinion examines whether a sub-account in the Life Enrichment Pooled Trust constitutes a resource for purposes of determining an individual’s eligibility for Supplemental Security Income (SSI). The RCC concluded that the Pooled Trust does not meet the requirements for an exception to resource counting under section 1917(d)(4)(C) of the Social Security Act because the master trust agreement permits early termination and the possibility of disbursement other than to a secondary qualifying pooled trust.
2. Opinion
QUESTION
You asked whether a sub-account in the Life Enrichment Pooled Trust constitutes a resource for purposes of determining an individual’s eligibility for Supplemental Security Income (SSI).
ANSWER
We conclude that a sub-account in the Life Enrichment Pooled Trust is not excepted from resource counting under Social Security Act § 1917(d)(4)(C), 42 U.S.C. § 1396p(d)(4)(C). Specifically, the Trust contains an impermissible early termination provision.
BACKGROUND
The Life Enrichment Trust (“LET”), through the State of Ohio’s Master Trust Agreement (“MTA”), restated and amended on December 20, 2016, established the Life Enrichment Pooled Trust (“Pooled Trust”). See MTA, par. 1-2. The purpose of the Pooled Trust was to comply with Social Security Act § 1917(d)(4)(C), 42 U.S.C. § 1396p(d)(4)(C), and supplement funds and services account beneficiaries received from SSI and Medicaid. See MTA, par. 2.
LET, a non-profit corporation, established and manages the Pooled Trust, and serves as Trustee. See MTA, par. 3, 6. The MTA provides that, should LET employ the services of a for-profit entity, LET will maintain ultimate managerial control over the Trust. See MAT, par. 12. While the for-profit entity may handle certain trust functions on LET’s behalf, the use of the for profit entity will always be subordinate to LET’s managers. See MAT, par. 12.
The MTA further provides that while LET pools funds in various sub-accounts for investment and managerial purposes, it maintains separate accounts for each beneficiary, and LET issues statements for each account on a quarterly basis. See MTA, par. 3-4.
To establish an account in the MTA, the “Settlor” must sign and date a copy of the MTA, as well as fill out the information requested in the Joinder Agreement. See MTA, par. 4. A “Settlor” is the parent, grandparent, or legal guardian of a disabled individual, or the disabled individual himself or herself, or a court. See MTA, par. 4-5.
Funds deposited into an account, as well as the account itself, is irrevocable and non-refundable. See MTA, par. 4. No sub-account funds or property shall be subject to encumbrance, pledge, assignment or transfer by the beneficiary or remainderman. See MTA, par. 7. Additionally, no trust properly shall be available to a beneficiary or remainderman until actually delivered to or for the benefit or him or her. See MTA, par. 7. LET has absolute and sole discretion on distribution of trust account funds. See MTA, par. 6.
If LET determines that it is impossible or impractical to carry out the purpose of the Trust, it may choose, in its sole and absolute discretion, to terminate the Trust and/or resign as Trustee. See MTA, par. 11. In such case, LET will first try to transfer the funds to a section 1917(d)(4)(C) pooled trust. See MTA, par. 11.
Upon the death of a beneficiary, LET will reimburse each State that provided medical assistance on behalf of the individual. See MTA, par. 14. If, after such payment, less than fifty percent of the residual account funds remain, LET will retain those funds. See MTA, par. 14. If fifty percent or more of the residual account funds remain, then LET will distribute those funds pursuant to the Joinder Agreement. See MTA, par. 14. The Joinder Agreement permits a beneficiary to select a residual beneficiary(ies) for any amounts remaining in his or her account after his or her death and after payment to the State of Ohio and any other State that provided the beneficiary medical assistance. See Joinder Agreement, pg. 3.
DISCUSSION
Generally, a trust established after January 1, 2000, with the assets of an individual will be a resource countable to that individual for purposes of determining SSI eligibility. See Social Security Act §§ 1613(e), 1917(d); 42 U.S.C. §§ 1382b(e), 1396p(d); Program Operations Manual System (POMS) SI 01120.201.A. However, a trust established with the assets of a disabled individual that is part of a pooled trust may be excepted under certain circumstances. Social Security Act §§ 1613(e)(5), 1917(d)(4)(C); 42 U.S.C. §§ 1382b(e)(5), 1396p(d)(4)(C); POMS SI 01120.203.B.2. To meet this pooled trust exception: (1) the trust must be managed by a non-profit association; (2) a separate account must be maintained for each beneficiary of the trust; (3) the beneficiary’s account must be established for his or her sole benefit by a parent, grandparent, legal guardian, by the beneficiary, or by a court; and (4) upon the beneficiary’s death, to the extent that amounts remaining in the beneficiary’s account are not retained by the trust, the trust must pay the State(s) the amount remaining in the account up to the total amount of medical assistance paid on behalf of the beneficiary under State Medicaid plan(s). Social Security Act § 1917(d)(4)(C), 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203.B.2.a.
Here, as discussed in greater detail below, the Pooled Trust does not satisfy the requirements of Social Security Act § 1917(d)(4)(C), 42 U.S.C. § 1396p(d)(4)(C). Accordingly, an account in the Pooled Trust is not excepted from resource counting.
A. Managed by a Non-Profit Association
To satisfy the pooled trust exception, the trust must be established and managed by a non-profit association. Social Security Act § 1917(d)(4)(C)(i), 42 U.S.C. § 1396p(d)(4)(C)(i); POMS SI 01120.203.B.2.c. A non-profit entity may employ the services of a for-profit entity, but the non-profit entity must maintain ultimate managerial control over the trust. POMS SI 01120.225.D. The for-profit entity may handle certain trust functions on behalf of the non-profit association; however, the use of a for-profit entity must always be subordinate to the non-profit managers of a pooled trust. Id.
LET, a non-profit corporation, established and manages the Pooled Trust. See MAT, par. 3, 6. Furthermore, the MTA provides that should LET employ the services of a for-profit entity, LET will maintain ultimate managerial control, and the for-profit entity would always be subordinate to LET’s managers. See MTA, par. 12. The foregoing provisions appear to satisfy first requirement of the pooled trust exception.
B. Maintenance of Separate Accounts for Each Trust Beneficiary
To satisfy the pooled trust exception, the pooled trust must maintain a separate account for each trust beneficiary, although it is acceptable under POMS for individual accounts to be pooled for investment and management purposes. Social Security Act § 1917(d)(4)(C)(ii), 42 U.S.C. § 1396p(d)(4)(C)(ii); POMS SI 01120.203.B.2.d.
The MTA provides that although LET may pool funds from various accounts for purposes of investment and management, LET will maintain separate accounts for each beneficiary, and issue quarterly statements for each account. See MTA, par. 3-4. The foregoing provisions appear to satisfy the second requirement of the pooled trust exception.
C. Established for the Beneficiary’s Sole Benefit by the Beneficiary, a Parent, Grandparent, Legal Guardian, or a Court
To satisfy the third requirement of the pooled trust exception, the trust sub-account must be established by the sub-account beneficiary, his or her parent, grandparent, legal guardian, or a court. Social Security Act § 1917(d)(4)(C)(iii), 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203.B.2.f. The MTA provides that only a parent, grandparent, or legal guardian of a disabled individual, or the disabled individual himself or herself, or a court can establish an account in the Pooled Trust. See MTA, par. 4-5.
Additionally, section 1917(d)(4)(C)(iii) of the Social Security Act requires that the trust account be for the sole benefit of the disabled individual. Social Security Act § 1917(d)(4)(C)(iii), 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203.B.2.e. A trust subaccount will not meet the “sole benefit” requirement if the trustee has power to terminate the trust prior to the beneficiary’s death, unless the early termination clause provides that, upon termination of the trust:
(1) the State receives all amounts remaining in the trust up to an amount equal to the amount of medical assistance paid on behalf of the individual, and
(2) after payment of allowable administrative expenses and reimbursement to the State, all remaining funds are distributed to the beneficiary, and
(3) the beneficiary does not have power to terminate the trust. POMS SI 01120.199.F.1; see also POMS SI 01120.203.B.2.e (the pooled trust exception does not apply if the trust account “allows for termination of the trust account prior to the individual's death and payment of the corpus to another individual or entity”).
An early termination provision need not meet the forgoing criteria if the clause solely allows for a transfer of the beneficiary’s assets from one section 1917(d)(4)(C) qualifying pooled trust to another section 1917(d)(4)(C) qualifying pooled trust. See POMS SI 01120.199.F.2. In such event, the early termination clause “must contain specific limiting language that precludes the early termination from resulting in disbursements other than to the secondary section 1917(d)(4)(C) trust,” with the exception of allowable administrative expenses. Id.
Here, the MTA provides that LET shall have discretion to terminate the Trust and/or resign as Trustee if it becomes impossible or impractical to carry out the purpose of the Trust. See MTA, par. 11. In such event, LET will first “try” to transfer account funds to another section 1917(d)(4)(C) pooled trust. See id.
The foregoing provision violates the sole benefit requirement of the pooled trust exception. The provision permits termination of the trust prior to a beneficiary’s death. Although the MTA provides the Trustee will “try” to transfer the Trust’s funds to another qualifying pooled trust, the provision does not ensure such a transfer will take place. See id. Nor does the MTA clarify the disposition of the Trust’s assets in the event such a transfer is unsuccessful. See id. Therefore, the MTA does not contain the requisite “specific limiting language” ensuring that the early termination will not allow disbursement of Trust assets other than to a qualifying secondary pooled trust. As a result, the Pooled Trust does not satisfy the requirements of the pooled trust exception, and constitutes a countable resource to the Trust beneficiary.
LET could bring the Pooled Trust into compliance with section 1917(d)(4)(C)(iii) of the Social Security Act either through removal of the problematic early termination provision or through the inclusion of additional language ensuring that the early termination will not allow disbursement of Trust assets other than to a qualifying secondary pooled trust.
4. Reimbursement to the State(s) Upon the Beneficiary’s Death
To satisfy the fourth requirement of the pooled trust exception, the trust must ensure that upon a beneficiary’s death, the State(s) are reimbursed from any remaining trust balance equal to the total amount of medical assistance paid on behalf of the deceased beneficiary during his or her lifetime. Social Security Act §§ 1917(d)(4)(C)(iv), 42 U.S.C. § 1917(d)(4)(c)(iv); POMS SI 01120.203.B.2.g. The State(s) must be listed as the first payee(s) and have priority over payment of other debts and administrative expenses. Id. 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 MTA provides that, upon the beneficiary’s death, LET will reimburse each State that provided medical assistance to the beneficiary up to the total amount of Medicaid payments made on behalf of the beneficiary. See MTA, par. 14. Likewise, the Joinder Agreement provides that distributions to residual beneficiaries shall be made upon the beneficiary’s death only after reimbursement to the State of Ohio and any other State that provided Medical Assistance to the beneficiary. See Joinder Agreement. Accordingly, the Pooled Trust satisfies the fourth requirement of the pooled trust exception.
APPLICATION OF REGULAR RESOURCE RULES
As discussed, the Pooled Trust contains an impermissible early termination provision, which violates the “sole benefit” requirement of section 1917(d)(4)(C)(iii) of the Social Security Act. Social Security Act § 1917(d)(4)(C)(iii), 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203.B.2.e; POMS SI 01120.199.F.2. Should LET modify the MTA, removing or otherwise bringing the early termination provision into compliance with POMS SI 01120.199.F.2, the Pooled Trust would satisfy the requirements of section 1917(d)(4)(C) of the Social Security Act, and be excepted from resource counting. Nevertheless, even if a tust meets an exception to resource counting, it is still subject to the regular resource counting rules. See POMS SI 01120.203.B.1.a.
Pursuant to POMS SI 01120.200.D.1.a, trust principal is a resource if the beneficiary has the legal authority to revoke or terminate the trust and then use the funds to meet his food or shelter needs, or if the beneficiary can direct 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. Moreover, if the beneficiary can sell his or her beneficial interst in the trust, that interest is a resource. Id.
Here, the MTA provides that a beneficiary may not pledge, assign, transfer, or encumber money or property in his or her trust account. See MTA, par. 7. Additionally, the beneficiary does not have power to direct use of trust funds for his or her support and maintenance; rather, the Trustee has sole and absolute discretion to distribute funds. See MTA, par. 6-7.
Finally, the MTA provides that deposits into a trust account are non-refundable and irrevocable, and the trust account is irrevocable once established. See MTA, par. 4. As a general principle of trust law, when a grantor is the sole beneficiary of a trust, the trust is deemed revocable even if the trust document states that the trust is irrevocable. See POMS SI CHI01120.200.C; Rest. (2d) of Trusts § 339. However, under Ohio law, if a trust explicitly states it is irrevocable, then the trust should be considered irrevocable even if the grantor is the sole beneficiary. See Ohio Rev. Code. Ann. § 5804.18; see also Quinchett v. Massanari, 185 F. Supp.2d 845, 847 (S.D. Ohio 2001) (finding the State of Ohio to be a contingent beneficiary of the trust, and therefore, the trust was irrevocable); POMS SI CHI01120.200.D.5.1 Thus, under the terms of the MTA and Ohio law, a beneficiary’s account in the Pooled Trust is irrevocable.
Finally, the MTA provides that deposits into a trust account are non-refundable and irrevocable, and the trust account is irrevocable once established. See MTA, par. 4. As a general principle of trust law, when a grantor is the sole beneficiary of a trust, the trust is deemed revocable even if the trust document states that the trust is irrevocable. See POMS SI CHI01120.200.C; Rest. (2d) of Trusts § 339. However, under Ohio law, if a trust explicitly states it is irrevocable, then the trust should be considered irrevocable even if the grantor is the sole beneficiary. See Ohio Rev. Code. Ann. § 5804.18; see also Quinchett v. Massanari, 185 F. Supp.2d 845, 847 (S.D. Ohio 2001) (finding the State of Ohio to be a contingent beneficiary of the trust, and therefore, the trust was irrevocable); POMS SI CHI01120.200.D.5.2 Thus, under the terms of the MTA and Ohio law, a beneficiary’s account in the Pooled Trust is irrevocable.
Therefore, should LET modify the Pooled Trust to satisfy the requirements of the pooled trust exception, the Trust would not constitute a resource under regular resource counting rules.
CONCLUSION
The Pooled Trust does not meet the requirements for an exception to resource counting under section 1917(d)(4)(C) of the Social Security Act. The MTA permits early termination and the possibility of disbursement other than to a secondary qualifying pooled trust.
Should LET remove or otherwise rectify the problematic provision, the agency would except the Pooled Trust from resource counting. Furthermore, because a beneficiary of the Pooled Trust does not have power to revoke or terminate his or her trust account, or direct use of the account principal for his or her support or maintenance, the trust account would not constitute a resource under regular resource counting rules.
~~Kathryn Caldwell~~
~~Regional Chief Counsel, Region V~~
~~By Francesco P. Benavides~~
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,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
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,3 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.4
Agency policy provides a 90-day period during which an SSI recipient may have his or her trust amended without the agency counting the trust as a resource. This 90-day period applies where the agency previously determined that a trust was an excepted resource under 1917(d)(4)(A) or (C), and the trust is currently non-compliant because of an invalid early termination clause. See POMS SI 01120.199.A.
This 90-day amendment period shall begin upon the SSI recipient receiving notice that the trust is non-compliant with the criteria for a special needs trust. Id. If the trust still fails to meet the special needs trust requirements upon expiration of the 90-day period, the agency will begin counting the trust as a resource. Id. Each previously excepted trust is permitted only one 90-day amendment period. Id.
Here, the agency previously determined that the Trust was not a countable resource when A~ applied for SSI as a minor. The agency later determined that the Trust was not excepted under section 1917(d)(4)(A) of the Act due to an improper early termination provision. However, A~ is not entitled to a 90-day amendment period to remove the improper early termination provision because the Trust is otherwise a countable resource, as explained below.
Even if a trust is excepted under section 1917(d)(4)(A) of the Act, it is still subject to regular resource counting rules. See POMS SI 01120.203.B.1.a (“A trust which meets the exception to counting the trust under the SSI statutory trust provisions of Section 1613(e) must still be evaluated under the instructions in SI 01120.200, to determine if it is a countable resource”).
Under the regular resource counting rules, trust property is a resource for SSI purposes if the individual (1) has the authority to revoke the trust and then use the funds to meet his or her basic needs for food or shelter; or (2) can direct the use of the trust principal for his or her support and maintenance. See POMS SI 01120.200.D.1.a. Additionally, if the individual can sell his or her beneficial interest in the trust, that interest is a resource. See id.
Whether a trust can be revoked or terminated depends on the terms of the trust and applicable State law. See POMS SI 01120.201.D.3. Here, Article Three provides that the Trust is irrevocable, except that a court may order revocation or amendment of the trust terms in order to accomplish the trust’s stated purpose. To the extent a trust purports to be irrevocable, most states follow the general principle of trust law that if a grantor is also the sole beneficiary of the trust, the trust is revocable regardless of language in the trust to the contrary. See POMS SI 01120.200.D.3; SI CHI01120.200.C; Rest. (Second) of Trusts § 339 (“If the settlor is the sole beneficiary of a trust and is not under an incapacity, he can compel the termination of the trust, although the purposes of the trust have not been accomplished”); Bogert's The Law of Trusts and Trustees, § 1004 (“Numerous courts have found a trust to be terminated or terminable at the instance of the settlor who is also the sole beneficiary”).
Here, Indiana law governs the Trust. Neither Indiana statute nor case law addresses the revocability of self-settled trusts where the settlor is the sole beneficiary. However, Indiana courts have followed the Restatement (Second) of Trusts, particularly concerning a settlor’s powers of revocation. See Breeze v. Breeze, 428 N.E.2d 286 (Ind. Ct. App. 1981) (finding opinion consistent with Restatement (Second) of Trusts § 330 regarding a settlor’s mode of revocation); Hinds v. McNair, 413 N.E.2d 586, 594 (Ind. Ct. App. 1980) (citing Restatement (Second) of Trusts § 330 on for general principal related to a settlor’s power to amend or revoke an irrevocable trust); see also Zoeller v. East Chicago Second Century, Inc., 904 N.E.2d 213, 221 (Ind. 2009) (following general notion of a constructive trust as outlined in Restatement (Second) of Trusts); Kesling v. Kesling, 967 N.E.2d 66, 81-82 (Ind. Ct. App. 2012) (citing to Restatement (Second) of Trusts and Restatement (Third) of Trusts for evolving legal status of trusts). Likewise, Indiana’s legislature has followed the Restatement (Second) of Trusts in drafting several sections of Indiana’s Trust Code. See e.g., Ind. Code Ann. §§ 30-4-3-2, 30-4-3-7, 30-4-3-10, 30-4-3-11, 30-4-3-26. It follows that, should the scenario arise, an Indiana court would adopt the general trust principle that a settlor could revoke a trust for which he or she is the sole beneficiary regardless of any terms in the trust to the contrary. See POMS SI CHI01120.200.C.
Thus, the only remaining question is whether the Trust contained any identifiable residual beneficiaries. Article Five provides that, upon the beneficiary’s death, any remaining balance in the Trust will be used to reimburse Indiana and other applicable state(s) for Medicaid assistance paid on the beneficiary’s behalf, and then pay any remaining amount to “the Personal Representative of the Beneficiary’s probate estate.”
Under the common law doctrine of worthier title, when a settlor designated his children, issue, heirs, or next of kin as remainder beneficiaries, such successors of the settlor’s estate were regarded as taking through the settlor and not as remaindermen; thus, the settlor was treated as the sole owner of the equitable interest in the trust. See Bogert's The Law of Trusts and Trustees, § 1004. Indiana has followed the modern view, and abolished the doctrine of worthier title. Ind. Code Ann. § 30-4-2-7; see also POMS SI 01120.200.D.3 (“Under the modern view, residual beneficiaries are assumed to be created, absent evidence of a contrary intent, when a grantor names heirs, next of kin, or similar groups to receive the remaining assets in the trust upon the grantor's death.”). However, even with the abolishment of the doctrine of worthier title, designating the settlor’s estate as recipient of a remainder share of the trust corpus does not create an identifiable residual beneficiary. See POMS SI CHI01120.200.D.2 (“Where the trust states only that the grantor’s own estate will receive any remaining trust assets on the grantor’s death, and names no other beneficiaries to the trust, the trust should be considered revocable.”). Here, an Indiana court would likely construe any conveyance to A~’s estate as no more than her retention of a future reversionary interest.
As there are no identifiable remainder beneficiaries, A~ is the sole beneficiary of the Trust. As such, under Indiana law, A~ has power to terminate the Trust and use the Trust funds to meet her basic needs. The Trust, therefore, is a countable resource. See POMS SI 01120.200.D.1.a.
CONCLUSION
The Trust is not excepted from resource counting under section 1917(d)(4)(A) of the Act because it contains an improper early termination provision. Additionally, modification of the Trust to meet the foregoing exception would not result in an exclusion from resource counting. As settlor and sole beneficiary, A~ has power to revoke the Trust and use the Trust assets to meet her basic needs. Therefore, even with removal of the improper early termination provision, the Trust is a countable resource.
~~Kathryn Caldwell~~
~~Regional Chief Counsel, Region V~~
~~By: Francesco P. Benavides~~
~~Assistant Regional Counsel~~
~~C. PS 09-104 SSI - Request for Six State Legal Opinion on Spendthrift Clauses - REPL Your Reference: S2D5G6, SI 2-1-3 (Spendshift) Our Reference: 08-0141~~
D. PS 09-104 SSI - Request for Six State Legal Opinion on Spendthrift Clauses - REPL Your Reference: S2D5G6, SI 2-1-3 (Spendshift) Our Reference: 08-0141
Date: May 8, 2009
1. SYLLABUS
This opinion addresses whether spendthrift clauses are recognized in the six states that compose the Chicago region and whether these states allow for a settler to establish a spendthrift trust for his or her own benefit. A spendthrift clause prohibits both involuntary and voluntary transfers of the beneficiary's interest in the trust income or principle. All states in the Chicago region recognize a spendthrift provision in a third-party trust. Likewise, all states in the Chicago region recognize that a beneficial interest in a self-settled discretionary trust would typically not be a countable resource as it would have little, if any, market value. In Illinois, Michigan, Minnesota, and Wisconsin, the beneficiary of a self-settled trust can sell the right to future mandatory disbursements, regardless of whether the trust has a spendthrift provision. Due to a lack of precedent, self-settled trusts with a spendthrift provision in Indiana or Ohio should be submitted to the Regional Chief Counsel's office for evaluation.
2. OPINION
You have asked whether spendthrift clauses are recognized in the six states in the Chicago Region and, if so, whether these states allow for a settlor to establish a spendthrift trust for his or her own benefit. Each of the six states in Region V recognizes spendthrift clauses as valid when they are established by a settlor for a third party. Therefore, the beneficiary of a third party trust could not sell the beneficial interest in that trust if it has a spendthrift provision. The validity and effect of a spendthrift provision in a self-settled trust varies somewhat from state to state. However, in all six states, the settlor's interest in a discretionary trust would not be a countable resource, regardless of any spendthrift provision, because in the laws of those states, even if the settlor can sell the interest, it would have no significant market value, since the transferee could not demand any payments. In Illinois, Michigan, Minnesota and Wisconsin, the settlor could sell the right to receive future mandatory disbursements, even if the trust includes a spendthrift clause, and the current market value of those disbursements would be a resource. In Indiana and Ohio, it appears that a spendthrift clause may effectively prevent a settlor from selling future mandatory disbursements such that the right to those future disbursements would not be a resource. However, since the law has not yet been interpreted clearly, we recommend that you send any self-settled trusts with mandatory disbursements and spendthrift provisions to our office for evaluation if they are governed by Indiana or Ohio law.
DISCUSSION
A spendthrift clause prohibits both involuntary and voluntary transfers of the beneficiary's interest in the trust income or principal. POMS SI 01120.200(B)(16). If a state recognizes the validity of a spendthrift clause, the beneficial interest in the trust, or the right to payments as a beneficiary, is not a countable resource because the beneficiary may not sell his or her beneficial interest in the trust. 1_/ Id. In the Chicago Region, all of the states recognize the validity of a spendthrift clause where the trust is established by a settlor for a third party.
However, if a settlor creates a trust for the settlor's own benefit and inserts a spendthrift clause, the spendthrift clause may be considered invalid. All of the states in the Chicago Region view such self-settled spendthrift trusts to be invalid with respect to creditors. However, in determining whether an interest in a trust is a resource, the focus is on whether the individual can sell his or her beneficial interest in the trust. The states vary with respect to whether a spendthrift clause would prevent a settlor from selling his or her beneficial interest in the trust. The majority of states in the region, namely Illinois, Michigan, Minnesota and Wisconsin, are likely to follow the Restatement (Third) of Trusts, which indicates that a spendthrift clause in a self-settled trust is invalid with respect to any interest retained by the settlor. RESTATEMENT (THIRD) OF TRUSTS § 58, cmt. e. Under the Restatement, the spendthrift clause would not prevent the settlor's interest from being reached by the creditors or from being sold. Id. However, the most a transferee could receive are the rights the settlor has under the trust. See RESTATEMENT (THIRD) OF TRUSTS § 60, cmts. b, f. Therefore, we would typically not consider a discretionary interest in a self-settled spendthrift trust to be a countable resource, since such an interest would have little, if any, market value. However, the right to receive mandatory disbursements from such trusts would generally be considered a resource, since the spendthrift clause would not prevent the individual from selling the interest and that interest would generally have market value.
In contrast, Indiana and Ohio law could be read to view self-settled spendthrift clauses to be invalid only with respect to the rights of creditors. Therefore, a spendthrift clause governed by the laws of those states may effectively prevent a settlor from selling his or her interest in the trust. If that is the case, then the right to both mandatory and discretionary disbursements from such trusts may not be considered a resource for SSI purposes in those states. However, we have not encountered any cases actually interpreting these provisions to prevent a settlor from selling the right to mandatory disbursements from a trust. Therefore, we recommend that self-settled trusts with spendthrift provisions that are governed by the law of Indiana and Ohio be referred for an opinion at least where the settlor has a right to mandatory disbursements.
Illinois
In Illinois, a spendthrift clause in a trust established by a third party will effectively prevent the beneficiary from selling his or her beneficial interest. 2_/ See Danning v. Lederer, 232 F.2d 610, 612 (7th Cir. 1956); Hopkinson v. Swaim, 119 N.E. 985, 990 (Ill. 1918). However, a settlor may not establish a spendthrift trust for his or her own benefit. In re Marriage of Chapman, 297 Ill. App. 3d 611 (Ill. App. 1998). Therefore, in a self-settled trust, the settlor could sell the right to mandatory future disbursements for their current market value, despite any spendthrift provision. However, the settlor's beneficial interest in a discretionary trust would not be a countable resource, even though the spendthrift clause would not prevent the settlor from selling the interest because the right to receive discretionary disbursements would have no significant market value. Although we were unable to find any case law which directly addressed this issue, we found that the Illinois courts have relied upon the Restatement (Third) of Trusts as persuasive authority in interpreting trusts. See In Re Estate of Feinberg, 891 N.E.2d 549 (Ill. App. 2008) (generally recognizing Restatement (Third) of Trusts as persuasive authority). Therefore, we believe that Illinois would adopt the Restatement (Third) approach --that a transferee would receive only the rights the settlor had under the trust, i.e., to receive mandatory or discretionary disbursements when the trust is self-settled and contains a spendthrift provision. See RESTATEMENT (THIRD) OF TRUSTS § 58(2), cmt. e. Therefore, the right to receive discretionary disbursements would not be considered a countable resource, as it is unlikely the right to discretionary disbursements would have any significant market value.
Indiana
Indiana law recognizes spendthrift trusts as generally valid against both voluntary and involuntary transfers. Ind. Code § 30-4-3-2(a). When the settlor is also the beneficiary of the trust, Indiana law recognizes an exception to this rule with respect to the rights of creditors. Ind. Code § 30-4-3-2; see also Matter of Cook, 43 B.R. 996 (N.D. Ind. 1984) (recognizing that if a settlor is also the beneficiary of the spendthrift trust, creditors may reach the trust corpus). Because Indiana law expressly addresses only the validity of a spendthrift clause in a self-settled trust with regard to creditors' rights, it is possible that Indiana would recognize a spendthrift provision to be valid to the extent that it would prevent the settlor from selling his beneficial interest in a self-settled trust. See POMS PS 01825.01 (PS 09-015 SSI - Review of the Trust and Annuity for Savanna R. W~) (concluding that even if the settlor could sell the interest, it would have no value because the trust was discretionary). However, the comments to the section state that it follows the rule in the Restatement (Second) of Trusts section 156, which states that a self-settled spendthrift clause is ineffective against both creditors and transferees. See Ind. Code § 30-4-3-2(b); see also RESTATEMENT (SECOND) OF TRUSTS § 156(2). If you encounter a self-settled trust governed by Indiana law with a spendthrift provision and with the right to future mandatory disbursements, we recommend that you refer the case to our office for a legal opinion, since the law is not clear at this time.
Michigan
Michigan recognizes the validity of spendthrift trusts, in general, by statute and common law. Mich. Comp. Laws Ann. § 700.2902(2); Matter of Estate of Edgar, 389 N.W.2d 696 (Mich. 1986). However, under Michigan law, a person cannot create a true spendthrift trust for himself. See In re Hertsberg Intervivos Trust, 578 N.W.2d 289, 291 (Mich. 1998) (adopting RESTATEMENT (SECOND) OF TRUSTS § 156). In Hertsberg Intervivos Trust, the Michigan Supreme Court adopted Restatement (Second) of Trusts section 156, which states that a creditor or transferee could reach the entire amount of the trust that the trustee could, in his or her discretion, pay to or for the benefit of the settlor of the trust. See id. at 291. However, that case involved only the rights of a creditor, and we have previously advised that we think it likely that Michigan would adopt the Restatement (Third) approach--that a transferee, unlike a creditor, would receive only the rights the settlor had under the trust, i.e., mandatory or discretionary disbursements. See POMS PS 01825.025 (PS 09-062 Michigan - SSI-Review of the Annuity and Special Needs Trust for Jeri L. K~) (citing RESTATEMENT (THIRD) OF TRUSTS § 60 and cmts. e, f (2003)). Therefore, the right to future mandatory disbursements from a self-settled trust would be considered a resource despite any spendthrift clause; however, the right to discretionary disbursements would not be considered a resource as it is unlikely the right to discretionary disbursements would have any market value.
Minnesota
Minnesota recognizes the validity of spendthrift trusts though common law; there is no Minnesota statute which expressly deals with spendthrift provisions. See Morrison v. Doyle, 582 N.W.2d 237, 240 (Minn. 1998); In re Mack, 269 B.R. 392 (D. Minn. 2001). Under Minnesota law, cases involving enforcement of spendthrift provisions have always involved protection of the interest of a beneficiary who is not the settlor of the trust; therefore, in Minnesota, it appears that a spendthrift clause in a self-settled trust would likely be considered void and unenforceable. In re Mack, 269 B.R. at 399 (citing Simmonds v. Larison, (B.A.P. 8th Cir. 1999)). In reaching its holding in Mack, the court looked to the Restatement (Second) of Trusts § 156. 3_/ While there is no Minnesota case specifically adopting the Restatement (Third) of Trusts on this issue, we believe it is likely that a Minnesota court would follow the Restatement (Third) approach in determining the extent to which the settlor's interest can be transferred. See Norwest Bank Minnesota North, N.A. v. Beckler, 663 N.W.2d 571 (Minn. Ct. App. 2003) (relying upon Restatement (Third) of Trusts in determining the role of a trustee); compare In re Syverson Trust, 2003 WL 22016795 (Minn. Ct. App. 2003) (unpublished) (declining to adopt the Restatement (Third) of Trusts where doing so would change existing law in Minnesota, noting such change was reserved for the Minnesota Supreme Court or the legislature). Therefore, the settlor's right to mandatory disbursements would be considered a resource; however, the right to discretionary disbursements would not be considered a resource as it is unlikely the discretionary disbursements would have any significant market value. See RESTATEMENT (THIRD) OF TRUSTS § 58(2), cmt. e.
Ohio
Ohio recognizes the validity of a spendthrift clause through statute and case law. See Ohio Rev. Code Ann. § 5805.01; see also Scott v. Bank One Trust, 577 N.E.2d 1077 (Ohio 1991). Ohio adopted the Uniform Trust Code in 2007, and the controlling provisions are applicable to spendthrift trusts created before and after 2007. See Ohio Rev. Code Ann. §§ 5805.01(A), 5805.06(A)(2), and 5811.03(A)(1). Ohio law recognizes the validity of spendthrift provisions in general, and states that "[a] beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision and, except as otherwise provided in this chapter and in section 5810.04 of the Revised Code, a creditor or assignee of the beneficiary may not reach the interest or a distribution by the trustee before its receipt by the beneficiary." Ohio Rev. Code Ann. § 5801.01(C). This suggests that, even in a self-settled trust, a spendthrift provision will prevent the settler from transferring his or her interest in the trust. The only exceptions to the effectiveness of a spendthrift provision relate to when a creditor or assignee of the beneficiary can reach an interest in or a distribution from the trust. Ohio law further states that whether or not a trust contains a spendthrift provision, the settlor's creditor or assignee may reach the maximum amount that can be distributed to or for the settlor's benefit. See Ohio Rev. Code Ann. §§ 5805.06(A)(2), 5811.03(A)(1). Indeed, the official comment notes, "[W]hether the trust contains a spendthrift provision or not, a creditor of the settlor may reach the maximum amount that the trustee could have paid to the settlor-beneficiary. If the trustee has discretion to distribute the entire income and principal to the settlor, the effect of this subsection is to place the settlor's creditors in the same position as if the trust had not been created." Id. Because Ohio law allows such liberal access to the trust assets by "assignees," section 5805.06 could be read to suggest that the beneficiary of a self-settled trust could sell his beneficial interest in the trust and the purchaser could obtain the maximum amount that the trustee could distribute to or for the settlor's benefit. However, the Office of General Counsel has determined that the better reading of this provision presumes that only an assignee who is a creditor, not a purchaser for value, could reach the maximum amount the trustee could distribute for the settlor's benefit. See POMS 01825.039 Ohio (PS 08-159 SSI Review of the Trust and Annuity for Dustin J. E~). Therefore, it appears that spendthrift provisions in self-settled trusts governed by Ohio law may be fully valid with respect to the limitation on selling the settlor's beneficial interest in the trust. This interpretation of Ohio law would not have a significant impact where a trust is wholly discretionary. Even if the settlor could sell that interest, it would have no significant value. However, this interpretation would also mean that even the right to future mandatory disbursements could not be sold and therefore would not be a resource. This would be a significant departure from the Restatement (Third) of Trusts, as well as the Restatement (Second) of Trusts, both of which state that a spendthrift provision restraining the voluntary and involuntary alienation of the settlor's interest in the trust is invalid. See RESTATEMENT (SECOND) OF TRUSTS § 156(1), RESTATEMENT (THIRD) OF TRUSTS § 58(2). In fact, Ohio adopted the comment to Uniform Trust Code provision, which specifically cites to the Restatement (Second) of Trusts § 58(2) and states that "[a] spendthrift provision is ineffective against a beneficial interest retained by the settler." Ohio Rev. Code Ann. § 5805.01, cmt.; Unif. Trust Code § 502, cmt. It would seem odd, therefore, if the Ohio code (and the uniform code) intended to deviate from the Restatement in this important way. Since the law is not entirely clear, and since there are not yet any cases interpreting the Ohio provisions, we recommend that you refer to our office any self-settled trust governed by Ohio with a spendthrift provision and provisions for mandatory disbursements.
Wisconsin
Wisconsin recognizes spendthrift trusts as valid and not subject to voluntary or involuntary alienation only where the beneficiary is a person other than the settlor. Wisc. Stat. Ann. § 701.06(1)-(2). Therefore, it appears that a spendthrift provision would not prevent a settlor from selling his beneficial interest in the trust when he is also the settlor of the trust. Wisc. Stat. Ann. § 701.06(1)-(2)._4 However, we believe that Wisconsin would likely follow the Restatement (Third) approach--that a transferee would receive only the rights the settlor had under the trust, i.e., mandatory or discretionary disbursements. See In re Walters Family Trust, 685 N.W.2d 172 (Wis. Ct. App. 2004) (unpublished) (parties recognizing Restatement (Third) of Trusts as controlling law); see also POMS PS 01825.055 (PS 08-156 - Wisconsin - Review of the Trust for Brian G~) (citing to Restatement (Third) of Trusts as controlling authority in Wisconsin)). Therefore, the right to future mandatory disbursements from a self-settled trust would be considered a resource; however, the right to discretionary disbursements would not be considered a resource, as it is unlikely the right would be of any significant market value.
CONCLUSION
In sum,
o All states in the Chicago region would recognize the validity of a spendthrift provision in a third party trust.
o In all states in the Chicago Region, the beneficial interest in a self-settled discretionary trust would not be a countable resource because even if the individual can sell the interest, it would have no significant market value.
o In Illinois, Michigan, Minnesota, and Wisconsin, the beneficiary of a self-settled trust can sell the right to future mandatory disbursement, regardless of whether the trust has a spendthrift provision.
o Trusts governed by Indiana or Ohio law should be referred for a legal opinion if the trust is self-settled and provides for mandatory disbursements and has a spendthrift clause.
Donna L. C~ Regional Chief Counsel, Region V By: Anne M~ Assistant Regional Counsel
_1/ The trust may still be a resource for other reasons.
_2/ In Matter of Perkins, 902 F.2d 1254 (7th Cir.1990), the Seventh Circuit Court of Appeals noted the following considerations in determining whether a trust under Illinois law qualifies as a spendthrift trust: "(1) whether the trust restricts the beneficiary's ability to alienate and the beneficiary's creditors' ability to attach the trust corpus; (2) whether the beneficiary settled and retained the right to revoke the trust, and (3) whether the beneficiary has exclusive and effective dominion and control over the trust corpus, distribution of the trust corpus and termination of the trust." See, e.g., In re Silldorff, 96 B.R. 859, 864 (C.D.Ill.1989). The degree of control which a beneficiary exercises over the trust corpus is the principal consideration under Illinois law.
_3/ This provision states:(1) Where a person creates for his own benefit a trust with a provision restraining the voluntary or involuntary transfer of his interest, his transferee or creditors can reach his interest. (2) Where a person creates for his own benefit a trust for support or a discretionary trust, his transferee or creditors can reach the maximum amount which the trustee under the terms of the trust could pay to him or apply for his benefit.
_4/ Wisconsin law indicates that where a settlor is a beneficiary of a trust regardless of whether it has a spendthrift provision, a creditor may, at the discretion of the court, receive payments from the income or principal of the trust to satisfy a judgment. Wisc. Stat. Ann. 701.06(6)(a).
~~D. PS 09-071 SSI - Ohio - Review of Special Needs Trust and Annuity for Joseph~~
E. PS 09-071 SSI - Ohio - Review of Special Needs Trust and Annuity for Joseph
Date: March 12, 2009
1. Syllabus
This opinion examines whether or not a trust established on June 14, 2005, with the assets of an individual is a resource for Supplemental Security Income (SSI) purposes. This opinion also examines whether or not an annuity is irrevocably assigned to the trust. The trust is subject to the statutory provisions of Section 1613(e) of the Social Security Act. Generally under these provisions, trusts established with the assets of the individual or the individual's spouse are considered resources for SSI purposes, unless an exception applies. The trust does not qualify for the special needs trust exception because it allows for the payment of prohibited expenses. Therefore, the trust is a countable resource. With respect to the annuity, the annuity payments are irrevocably assigned to the trust. The payments to the trust are income because the trust is a countable resource. On January 1, 2007, the trustee amended the trust so that it meets all of the criteria required to be excluded under the special needs trust exception. The trustee, however, did not provide any evidence showing a court approved the amendment as is mandated by the trust. Therefore, the initial decision to count the trust as a resource remains until such evidence is provided.
2. Opinion
You asked us review the Joseph A. N~ Special Needs Trust and annuity to determine whether:
(1) the trust is a resource for purposes of determining the claimant's eligibility for Supplemental Security Income (SSI); and
(2) whether the annuity is irrevocably assigned to the trust. As explained below, we advise that the trust should currently be considered a resource (and the annuity payments should, therefore, be considered income).
However, the trust would not be a resource for SSI purposes if the trustee can show that she received court the requisite court approval for a 2007 amendment to the trust, governing payment of taxes. In that case, the annuity would no longer be considered income.
BACKGROUND
On June 13, 2005, the Probate Court of Cuyahoga County, Ohio approved a personal injury case settlement for Joseph A. N~, a minor and SSI recipient ("Joseph Jr."). The court approved a $1,700,000.00 settlement, which included $100,000 for medical expenses; $668,960.79 to the attorney for suit expenses and attorney fees; $93,000 to Joseph Jr.'s parents, Joseph A~ ("Joseph Sr.") and Audra, for the loss of service of the minor; and the remaining $838,029.21 for Joseph Jr.'s benefit. See Entry Approving Settlement of a Minor's Claim, June 13, 2005 ("Settlement"). The next day, June 14, 2005, the Probate Court entered a judgment authorizing the establishment of the Joseph A. N~ Special Needs Trust (the "trust"). The order stated that the court had determined that it was in Joseph Jr.'s best interest to hold the settlement funds in trust that would allow him to receive government benefits, because he would require continuing support, assistance and supervision for the rest of his life, and the funds received from the settlement would be inadequate to care for his needs throughout his lifetime. The trust was established by Joseph Sr. as Settlor, and with Janet L. L~, an attorney, as Trustee. The trust establishes that if Ms. L~ is unable or unwilling to continue to serve as trustee, she must apply to the court for leave to resign and appointment of a successor. Trust, Art. IX.
Of the settlement money dedicated to Joseph Jr.'s benefit, the court authorized Joseph Jr.'s guardian to hold $260,000 in escrow to purchase an accessible home for Joseph Jr. Of the remaining money, $178,039.21 directly assigned and used to establish the trust, and $400,000 was used to purchase an annuity. See Trust Art. I; Settlement. However, the trust allows the Trustee to accept additional assets of any kind from any sources, and add those assets to the trust estate. See Trust, Art. I. The stated purpose of the trust is to be a special needs trust as described in 42 U.S.C. § 1396(d)(4)(A). See Trust, Preamble.
The distribution of the income and principal of the trust is made by the Trustee. See Trust, Art. III. The Trustee has the discretion to make distributions as she considers necessary and advisable, but must obtain prior approval of the court before making any such distributions. See Trust, Art. III(1). However, the Trustee is directed not to make any expenditures which would cause Joseph Jr. to become ineligible for Medicaid or other need-based benefits. Id. The Trustee is not obligated and may not be compelled to make any expenditures. See Trust, Art. III(6). To the maximum extent possible, the Trustee is directed to make direct payments to persons or entities who supply goods or services to Joseph Jr., although the Trustee may also allow Joseph Jr. a periodic allowance for spending money, "keeping in mind the effect on his eligibility for disability-related benefits." See Trust, Art. III.
The trust includes a spendthrift provision that indicates that Joseph Jr. "shall have no interest in either the principal or income of this Trust." Trust, Art. V. It provision also states that no beneficial interest in the principle or income of the trust, including any beneficial interest held by Joseph Jr., "shall be anticipated, assigned, or encumbered, or shall be subject to any creditor's claim or legal process" until the property has actually been distributed. See Trust, Art. V. The trust states that its terms are irrevocable, and may not be altered, amended, revoked or terminated by the settlor or any other person. Trust, Art. II. The only exception is that the Trustee and Joseph Jr.'s guardian may amend or revoke the trust for to carry out the trust's purpose, or accommodate any changes in the laws or regulations governing benefit programs. Trust, Art. II. However, the Trustee and guardian may do so only with prior permission of the court. Id.
There are two ways for the trust to be terminated. First, the trust states that because disability is a statutory prerequisite for the beneficiary of a special needs trust, Joseph Jr. himself may terminate the trust if and only if the Social Security Administration or an equivalent state agency determines that he no longer meets the statutory definition of disability. See Trust, Art. IV(A). The trust states that if it is determined that Joseph Jr. is no longer disabled, then the Trustee must inform him in writing of his right to terminate the trust. Trust, Art. IV(A). This right to terminate is personal to Joseph Jr., and may be exercised only by him. Id.
Otherwise, as long as Joseph Jr. continues to be disabled, the trust terminates upon his death. See Trust, Art. IV(B). Upon termination, the Trustee is directed to pay any "properly allowable" costs of administering and wrapping up the trust, but expressly excluding any payments for funeral expenses or debts owed to third parties. See Trust, Art. IV(B)(1).
As originally constituted in 2005, the trust stated that "[u]nless [Joseph Jr.] has made adequate alternative provisions, the Trustee shall pay out of the principal included in the gross estate of [Joseph Sr.] for estate tax purposes, any federal or state estate taxes or other inheritance tax (including interest or penalties thereon) arising by reason of [Joseph Jr.'s] death and attributable to the trust property included in the gross estate of [Joseph Sr.] for purposes of such tax." Trust, Art. IV(B)(2). However, on January 1, 2007, the Trustee signed an amendment specifically deleting the original language of Article IV(B)(2) and replacing it with language that directed the Trustee to pay any state or federal taxes due from the trust because of Joseph Jr.'s death. See First Amendment to Trust Agreement, January 1, 2007. The Trustee is also directed to "comply with all state and/or federal regulations in effect at the time of [Joseph Jr.'s] death regarding notification and disbursement to the state(s)," including claims from any agency or agencies from which Joseph Jr. received Medicaid or other medical assistance pursuant to 42 U.S.C. § 1396. See Trust, Art. IV(B)(3). Such claims are to be paid "from the assets remaining in Trust, up to and including all amounts remaining herein if necessary[.]" Trust, Art. IV(B)(3). If the trust assets are insufficient to pay all such claims in full, the claims are to be reimbursed on a pro rata basis. See Trust, Art. IV(B)(3). If there are any assets remaining in the trust after the repayment of Medicaid expenses, they are to be distributed by the Trustee to Joseph Jr.'s estate. See Trust, Art. IV(B)(4). The trust is governed by Ohio law. See Trust, Art. VIII.
The remaining $400,000 of the settlement was used to purchase an annuity contract from Metropolitan Life Insurance Company ("MetLife'). MetLife Tower Resources Group is named as the owner of the annuity, and Joseph Jr. is named as the "measuring life." See Annuity certificate. Under a Qualified Assignment, Release and Pledge Agreement under the Internal Revenue Code, MetLife agreed to make periodic payments under the annuity contract on behalf of the defendant in the lawsuit. The trust is named as sole payee, with no successor payee other than Joseph Jr.'s estate following his death. See Qualified Assignment, 8. The Qualified Assignment accepts the terms of the settlement as irrevocable. Id. Other than the Qualified Assignment, the annuity contract provides that it is not assignable, and may not be transferred, assigned or pledged as collateral for a loan. Annuity, page 2 and endorsement. The annuity contract specifies also that "[Joseph Jr.] is not the owner of, and has no ownership rights in, this contract and may not anticipate, sell, assign, pledge, encumber, or otherwise use this contract as any form of collateral." Annuity, page 1. According to the annuity contract, the scheduled payments to the trust are as follows: a monthly payment of $1,200 from July 1, 2005, until December 1, 2016. Annuity, Page 3. If Joseph Jr. is still living on December 8, 2016, the trust will received monthly payments of $1,695.00 for life, increasing by 2% every December. Annuity, page 3. MetLife may make a lump-sum payment only if ordered to do so by the court. Annuity, Endorsement.
DISCUSSION
I. The Trust
The trust is subject to the statutory provisions of Section 1613(e) of the Social Security Act for trusts established on or after January 1, 2000. See 42 U.S.C. § 1382(b)(e); POMS SI 01120.201. Generally, under these provisions, trusts established with the assets of the individual or the individual's spouse are considered resources for SSI purposes even if they are irrevocable. However, there is an exception for certain trusts that are established under 42 U.S.C. § 1396p(d)(4)(A), commonly known as the special needs trust exception. See POMS SI 01120.203. For this exception to apply, the trust must be:
(1) Established with the assets of a disabled individual under age 65, or the disabled individual's spouse;
(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 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.
POMS SI 01120.203(B)(1)(a). These rules apply whether the trust is established with the individual's own assets, or with the assets of the individual's spouse. 42 U.S.C. § 1382(e)(2)(A); POMS 01120.201(B)(7). If the trust meets an exception to counting it as a resource under Section 1613(e) of the Act, if must still be evaluated under the regular resource rules. POMS SI 01120.203(B)(1)(a).
A. Special Needs Trust Exception
Assuming Joseph Jr. is found disabled, the trust meets the first two requirements for the special needs trust exception to counting it as a resource under Section 1613(e). Joseph Jr. was born in 1998, and thus is under the age of 65. The trust was established for Joseph Jr.'s benefit by his legal guardian, and was funded with proceeds from the settlement of his lawsuit. Whether the trust meets the third requirement of the special needs trust exception is more problematic.
1. The Original 2005 Trust
Under the original language of Article IV(B)(2), the trust would not meet the third requirement for the special needs trust exception. POMS SI 01120.203(B)(3)(b) explains that inheritance taxes are not permitted prior to reimbursing states for medical assistance. Because the original language of Article IV(B)(2) of the trust allowed the payment of inheritance taxes before reimbursing the state or states for Medicaid expenses, the original 2005 trust would not meet the requirements of a Medicaid payback trust.
2. The 2007 Amendment
The Trustee attempted to correct the problem in 2007 by amending the trust to delete Article IV(B)(2). If the amendment were effective, the language of the amended trust would also meet the third requirement for the special needs trust exception. Although the trust's termination clause lists fees for administering the trust estate, and also taxes due to the state or federal government because of Joseph Jr.'s death, before reimbursement of expenses for Medicaid services, the Agency permits such expenses to be paid prior to reimbursement of the state. POMS SI 01120.203(B)(3)(a). Aside from these allowable expenses, the trust's termination clause provides that the entire amount remaining in the trust may be paid to reimburse all the states that provided medical services to Joseph Jr. Expenses that are prohibited for purposes of meeting the Medicaid payback trust exception, such as funeral expenses, see POMS SI 01120.203(B)(3)(a)-(b), are expressly excluded until after all Medicaid services have been reimbursed.
It is not clear, however, that the amendment is effective. First, the Trustee stated that she was amending the trust pursuant to her authority under Article II of the trust. Article II, however, states that the Trustee may amend the trust only with prior approval of the court. There is nothing that indicates that the Trustee obtained the requisite approval to amend the trust. Second, the amendment purports to be retroactive. Generally, an amendment or modification of a trust's terms has only a prospective effect. See RESTATEMENT (THIRD) OF PROPERTY, § 12.1, Reporter's Notes 7 on cmt. f (contrasting modification and reformation); RESTATEMENT (THIRD) OF TRUSTS, § 62, Reporter's Notes. However, under Ohio law, a court can reform a trust retroactively to conform the terms to the settlor's intention even if the original terms of the trust appear unambiguous, but only if the court finds clear and convincing evidence that both the settlor's intent and the terms of the trust were affected by a mistake of law or fact. OHIO REV. CODE ANN. § 5804.15. Also, a court may modify the terms of a trust, and may give that modification retroactive effect "[t]o achieve the settlor's tax objectives." OHIO REV. CODE ANN. § 5804.16. Therefore, if the court approves the amendment, as required by Article II, the amendment should be effective. The court may rule that the amendment may be applied retroactively if it finds:
(1) clear and convincing evidence of a mistake of law or fact, or
(2) that retroactive modification is appropriate to achieve Joseph Jr.'s tax needs.
OHIO REV. CODE ANN. § 5804.15-16. Therefore, if Trustee can show that she obtained court approval for the 2007 amendment, the trust would meet the requirements for the special needs trust exception.
B. Regular Resource Rules
If a court amends, modifies or reforms the trust so that it meets the special needs trust exception to counting it as a resource under Section 1613(e) of the Act, the regular resource rules would apply. See POMS SI 01120.200, SI 01120.203(B)(1)(a). Under the regular resource rules, a trust will be a resource if it is revocable, or if the individual can direct the use of the trust principal for his support. Also, if the individual can sell his beneficial interest in the trust, that interest is a resource. POMS SI 01120.203(D)(1)(A). The trust would not be a resource under these rules.
First, the trust specifically states that it is irrevocable. Trust, Art. III. However, there is an exception under which the Trustee, or Joseph's guardian (acting on Joseph's behalf), may amend or revoke the trust, although only to carry out the trust's purpose. Under Ohio law, an Ohio trust that otherwise meets the Medicaid payback trust provisions is considered irrevocable if it says it is irrevocable and the terms of the trust prohibit the settlor from revoking it, whether or not the settlor's estate or the settlor's heirs are name as the remainder beneficiary or beneficiaries of the trust upon the settlor's death. OHIO REV. CODE ANN. § 5804.18. The trust specifies that it is governed by Ohio law.
Here, Joseph Jr. is the settlor, to the extent his assets were used to fund the trust. See OHIO REV. CODE ANN. § 5801.01(5). And, under the terms of the trust, Joseph Jr.'s guardian, acting on Joseph Jr.'s behalf, can revoke the trust. See Trust, Art. II-III. Because the provisions at Ohio Revised Code § 5804.18 may not apply, the general rule may apply, and the court would be required to approve the termination of the trust if Joseph Jr. is both the settlor and the sole beneficiary. Ohio Rev. Code Ann. § 5604.4. However, the State of Ohio would likely be considered a trust beneficiary, whose consent would be required to revoke the trust. See Quinchett v. Massanari, 185 F. Supp. 845 (S.D. Ohio 2001) (finding state to be an intended beneficiary of trust where trust stated that it was "irrevocable," and state law did not require Medicaid payback trusts to be irrevocable). Therefore, it appears that Joseph Jr. lacks the authority to revoke the trust unilaterally.
The trust also allows Joseph Jr. to terminate the trust if he is found not to meet the statutory definition of disability. Under this provision, the trust will become a resource to Joseph only if and when he is found to be no longer disabled, which is beyond his control. And, in any event, if the Social Security Administration finds he is no longer disabled, he would only potentially be eligible for SSI for two months, regardless of any available resources. See 42 U.S.C. § 1383(a)(5).
Therefore, Joseph Jr. cannot unilaterally revoke the trust at will and obtain the assets. In addition, Joseph Jr. cannot compel the Trustee to use the trust funds for his support and maintenance. See Trust, Art. III(6). And finally, the trust also expressly bars Joseph Jr. from assigning any beneficial interest he may have in the trust. See Trust, Art. V. Therefore, the trust is not a resource under the regular resource rules.
However, certain payments from the trust may constitute income to Joseph Jr. Although it is disfavored, and the Trustee is directed to keep Joseph Jr.'s eligibility for disability benefits in mind when making distributions, the Trustee has the discretion to make payments to Joseph Jr., including a periodic allowance for spending money. See Trust, Art. III. Such payments would constitute unearned income to Joseph Jr. See POMS SI 01120.200(E)(1)(a). And if the Trustee contracts with third-party vendors for food or shelter for Joseph Jr., that would constitute income in the form of in-kind support and maintenance. See POMS SI 01120.200(E)(1)(b).
II. The annuity contract
Because the trust is currently a resource under Section 1613(e) of the Act, any payments to the trust are income. POMS SI 01120.200(G)(2)(b). However, if the trust were properly amended, modified, or reformed so that it was not a resource, the annuity payments made to the trust would not be income. Under the resource rules, a legally assignable payment that is assigned to a trust that is not a resource is income unless the assignment is irrevocable. See POMS SI 01120.200(G)(1)(d). Under the annuity, the trust is the only payee entitled to receive periodic payments under the annuity contract. See Annuity, Qualified Assignment. For all practical purposes, this constitutes an irrevocable assignment of periodic payments to the trust, because there is no provision for naming any successor payee while Joseph Jr. is living. The annuity certificate otherwise specifies that the annuity cannot be assigned. Therefore, only the trust has the right to receive payments, and Joseph Jr. cannot demand payment or sell his right to receive payments. Consequently, the annuity payments have been irrevocably assigned to the trust. For that reason, the annuity payments would not be income to Joseph Jr. if the trust were not a resource.
CONCLUSION
In sum, until the Trustee can show that a Court has approved the 2007 amendment, the trust is a resource for SSI purposes, and the annuity payments are income to Joseph Jr. However, if the court were to approve the amendment, and thus modify or reform the trust consistent with the language in the proposed amendment, the trust would no longer be a resource, and the annuity payments would not be income.
~~Donna L. C~Regional Chief Counsel, Region V~~
~~By: Julie L. B~Assistant Regional Counsel~~
~~E. PS 08-159 SSI-Review of the Trust and Annuity for Dustin~~
F. PS 08-159 SSI-Review of the Trust and Annuity for Dustin
Date: July 28, 2008
1. Syllabus
This opinion evaluates a trust established for a disabled child in 1993. The trust was established by the Probate Court of Crawford County, Ohio, and funded with the proceeds from a personal injury settlement. The terms of the settlement included lump sum deposits to the trust and periodic annuity payments that are irrevocably assigned to the trust. Because the trust was established prior to January 1, 2000, it is evaluated only under regular SSI resource rules. That is, the trust principal is a countable resource if the individual can (1) revoke or terminate the trust and use the assets to meet his needs for food or shelter, or (2) direct the use of the trust assets for his support and maintenance. In this case, the trust is irrevocable as stated. Moreover, the individual cannot direct usage of the trust assets because a trustee-appointed Trust Advisory Committee has absolute discretion to make distributions. The periodic annuity payments are not considered countable income because the annuity payments are determined to have been irrevocably assigned under Ohio state law.
CAUTION: Due to a change in Social Security law this precedent may only be applicable for trusts established prior to January 1, 2000.
2. Opinion
You asked:
(1) whether the Dustin J. E~ Trust is a resource for SSI purposes, and
(2) whether the periodic annuity payments are irrevocably assigned to the trust, such that they would not be income to Dustin.
For the reasons discussed below, we conclude that the trust is not a resource, and that the periodic annuity payments are not income.
BACKGROUND
I. Creation and Funding of the Trust
On August 25, 1993, the Probate Court of Crawford County, Ohio approved the first of two settlements in a claim by Dustin J. E~, a minor. The Probate Court approved a $200,000 settlement, which included $87,500 to be held in trust for Dustin's benefit. On the same date as it approved the settlement, the Probate Court approved the "Trust Agreement for the Dustin J. E~ Trust" and directed that proceeds of the settlement in the amount of $87,500 be paid to Mid-American National Bank and Trust Company ("Mid-American Bank"), as Trustee of the trust.
On October 13, 1993, the Probate Court approved a second settlement, which included a lump sum of $525,000 as well as periodic payments. As part of the settlement, $100,000 was paid to Mid-American Bank, as Trustee of the trust. Also, the defendant's insurer agreed to make certain periodic payments to Mid-American Bank, as Trustee of the trust. The defendant's insurer assigned its obligation to make these payments to Jamestown Life Insurance Company.
Jamestown Life Insurance Company, in turn, purchased an annuity policy from First Colony Life Insurance Company. Jamestown Life Insurance Company is named as the Owner of the annuity, Dustin is named as the "Measuring Life," and Mid-American Bank, as Trustee of the trust, is named as the Payee. According to the annuity contract, the scheduled payments to Mid-American Bank are as follows: $2,250/month from November 1993 to October 2003; $2,450/month from November 2003 to October 2013; and $2,650/month from November 2013 to October 2023 and as long thereafter as Dustin lives.
The annuity contract further provides that the Owner (i.e., Jamestown Life Insurance Company) may change the Payee, subject to the written consent of any irrevocable Payee. Also, any payments made to the Payee may not be transferred, commuted, or encumbered.
II. Trust Agreement
As noted above, the Dustin J. E~ Trust was established on August 25, 1993, with approval by the Probate Court. According to the trust agreement, Dustin is severely disabled as a result of brain injuries suffered during childbirth, and needs assistance for all his activities of daily living. The purpose of the trust is to provide for management of the funds from the settlements and to provide for Dustin's supplemental care and support. Trust Agreement, pp. 3, 6-7. The trust is not intended to replace, interfere with, or reduce other benefits (state, federal, or private) to which Dustin is otherwise entitled. Trust Agreement, pp. 3, 4-5, 7.
The trust was funded with the proceeds of Dustin's two court settlements. The trust states that additions may be made to the trust from any source at any time, and shall include the periodic payments set forth in the court approved settlement. Trust Agreement, p. 6.
The trust agreement names Mid-American Bank as Trustee. Trust Agreement, p. 1. It also names a Trust Advisory Committee, comprised of three individuals. Trust Agreement, pp. 1, 11. The Trust Advisory Committee is responsible for determining what discretionary distributions shall be made from the trust, and the Trustee is responsible for the investment and management of the trust estate. Trust Agreement, pp. 5-6, 11.
The trust states that it is irrevocable, except as provided in Paragraph III. Trust Agreement, p. 4. Paragraph III(B) states that, upon reaching the age of majority or any time thereafter, if a court of competent jurisdiction determines that Dustin is "fully competent and without any legal disability," he has the right to terminate the trust and withdraw its assets for 30 days after receiving written notice of this right. Trust Agreement, p. 10.
The Trustee and Trust Advisory Committee have authority to amend the terms of the trust, with court approval, to carry out the intention of the court and the parties in the event that the laws or regulations concerning benefit programs subsequently change. Trust Agreement, p. 4.
The Trust Advisory Committee has "absolute and unfettered" discretion with regard to disbursements from the trust. Trust Agreement, p. 7. Such disbursement from the trust principal or income shall be made upon agreement of the majority of the Trust Advisory Committee. Trust Agreement, p. 17. Moreover, the trust states that Dustin has no interest in either the principal or the income of the trust. Trust Agreement, p. 9.
The trust also contains a spendthrift provision, which states that the assets of the trust are not assignable or alienable, and are not subject to any creditor's claims. Trust Agreement, p. 9.
The trust terminates upon Dustin's death. After reimbursement to the Trustee and the Trust Advisory Committee for all fees and expenses, any remaining trust assets will be distributed according to the terms of a valid will, if there is one. Otherwise, the remaining assets will be distributed to Dustin's "heirs at law," in accordance with the intestacy laws of the State in which he is residing at the time of his death. Trust Agreement, p. 11.
III. April 2008 Probate Court Action
In response to a petition by Dustin's parents for a judgment declaring the intention and meaning of various conflicting language of the trust, the Probate Court issued a judgment entry on April 2, 2008. The court judgment indicated that Huntington National Bank succeeded Mid-American Bank as Trustee.
The court judgment also added a Medicaid payback requirement to the trust. The Probate Court noted the intent of the trust to supplement, and not to interfere with, any public or private benefits Dustin may qualify for as a result of his disabilities. Thus, the Court added a requirement that, if any funds remain in the trust at the time of Dustin's death, and if the State of Ohio has provided any Medicaid or other public program benefits to Dustin that require repayment, then repayment must be made to the State of Ohio up to the level of benefit actually received by him. With this addition, the Probate Court found that the trust meets the requirements of a Medicaid Qualifying Trust pursuant to Ohio Administrative Code § 5101:1-39-27.1(C)(3).
DISCUSSION
I. The Trust is not a Resource
Because the trust was established prior to January 1, 2000, it is evaluated only under the regular resource rules set forth in POMS SI 01120.200. Under the regular resource rules, the trust principal will be a resource if the individual can (1) revoke or terminate the trust and use the assets to meet his needs for food or shelter, or (2) direct the use of the trust assets for his support and maintenance. See POMS SI 01120.200(D)(1)(a). In addition, the current value of the individual's future interest in mandatory disbursements, if any, may be a resource if it can be sold. See id. Applying these rules, the trust is not a resource to Dustin.
First, Dustin cannot revoke the trust. Whether a trust can be revoked or terminated depends on the terms of the trust and the applicable state law. See POMS SI 01120.200(D)(2). Here, the trust agreement states that it is irrevocable, with one exception that appears unlikely to ever occur and which is, to a large extent, beyond Dustin's control. Trust Agreement, p. 4. Under the exception, upon reaching the age of majority or any time thereafter, Dustin has right to terminate the trust and withdraw its assets if and only if a court of competent jurisdiction determines that he is "fully competent and without any legal disability." Trust Agreement, p. 10. However, based on the information provided to us, it appears that Dustin's disabilities, which include severe mental retardation, are lifelong and will not improve significantly. Thus, it is unlikely that Dustin would ever be declared "fully competent and without any legal disability" by any court.
Nor would Dustin otherwise have authority to revoke the trust. Under the original terms of the trust, any amounts remaining on Dustin's death would be paid to his heirs at law, unless he established a will. Therefore, Dustin could not revoke the trust without the consent of his heirs. See Restatement (Third) of Trusts § 49, cmt. a(1) (2003) (presuming that language leaving assets to the grantor's heirs is intended to create a remainder interest in those heirs); see also Ohio Rev. Code Ann. § 5804.11 (irrevocable trust generally can be terminated if grantor and all beneficiaries agree). This provision of the trust does not appear to have been reformed or amended by the 2008 judgment by the probate court, since that judgment provided that only those provisions in the original trust that conflicted with the requirements of the state Medicaid payback trust provisions would be considered to have been reformed or amended. Furthermore, assuming the amendment to the trust is valid, the State of Ohio would also likely be considered a beneficiary of the trust, under Ohio law, whose consent would be required to revoke the trust. See Quinchett v. Massanari, 185 F. Supp. 2d 845 (S.D. Ohio 2001) (finding State to be an intended beneficiary of trust where trust stated it was "irrevocable," and State law did not require that Medicaid Payback trusts be irrevocable); In re Rosenbaum, No. 81213, 2003 WL 1849141 (Ohio Ct. App. 2003) (denying motion to amend trust to list residual beneficiaries in order to qualify for SSI because this would effectively be establishing a will for a ward, which guardians lack authority to do under State law). Therefore, it appears that Dustin lacks the authority to revoke the trust unilaterally.
Second, Dustin cannot direct the use of the trust assets for his support and maintenance. Here, the trust states that the Trust Advisory Committee has absolute discretion to make distributions, and that William has no interest in the trust principal or income. Trust Agreement, pp. 7, 9. This language would preclude William from directing the use of the trust assets. Therefore, the trust principal is not a resource. And finally, the trust does not provide for any mandatory disbursements to Dustin, other than the disbursement he could demand at the age of majority if a court has declared him competent. However, it appears unlikely that he could sell this future payment, under Ohio law, since the trust has a spendthrift provision. Moreover, even if he could sell it, it would have little or no current value, given that it is highly unlikely a court will find him competent in the future.
II. The Annuity Payments Are Not Income
Under the resource rules, a legally assignable payment that is assigned to a trust that is not a resource is income unless the assignment is irrevocable. See POMS SI 01120.200(G)(1)(d). Here, the terms of the October 1993 settlement agreement state that the defendant's insurer would make periodic payments to Mid-American Bank, as Trustee of the trust. Similarly, the annuity contract names Mid-American Bank as the Payee. Moreover, the annuity contract provides that only the Owner of the annuity (i.e., Jamestown Life Insurance Company) has the right to change the Payee. Thus, the annuity payments have been irrevocably assigned to the trust. As such, the annuity payments are not income to Dustin.
CONCLUSION
For the reasons discussed above, we conclude that the Dustin J. E~ Trust is not a resource, and that the periodic annuity payments are not income.
~~Donna L. C~Regional Chief Counsel, Region V~~
~~By: Cristine B~Assistant Regional Counsel~~
~~F. PS 08-150 SSI - Ohio -- Review of Ashley E. D~ Irrevocable Special Needs Trust~~
G. PS 08-150 SSI - Ohio -- Review of Ashley E. D~ Irrevocable Special Needs Trust
Date: July 8, 2008
1. Syllabus
This decision clarifies the issue of the extent of the Medicaid reimbursement. This Trust fails to meet the criteria of a Special Needs Trust because it would limit the amount to be reimbursed to Medicaid at the death of the beneficiary to only the Medicaid paid from the establishment of the Trust. The law requires reimbursement of all the Medicaid funds without regard to any limits on time.
2. Opinion
You asked whether the Ashley D~ Irrevocable Special Needs Trust (trust) is a resource for SSI purposes. We conclude that the trust is a resource because it does not meet the requirements for the statutory Medicaid special needs trust exception.
Background
Ashley inherited $5,000.00 from her aunt several years ago. The inheritance was held in an account in Ashley's name until she attained age 18. On June XX, 2003, Ashley's parents created the trust, depositing into the trust $5,000.00, previously held in Ashley's account, and naming Ashley as the trust beneficiary and Ashley's mother as the trustee. Agreement of Trust, Art. 1.1. The trust is governed by Ohio law. Agreement of Trust, Art. 6. The trust is expressly irrevocable. Agreement of Trust, Art. 2.1. The trust assets are to be used only for Ashley's supplemental services, as defined in the Ohio Admin. Code, § 5123:2-18-01, and are to be distributed consistent with the provisions of the trust and the Ohio Admin. Code, § 5123:2-18-01. Agreement of Trust, Art. 3.2. Trust assets may not be used for any item or service which is provided by any private or governmental agency or organization. Agreement of Trust, Art. 3.2. The trustee is directed to purchase the supplemental services on Ashley's behalf, and the trustee is to make no cash distribution to Ashley, except as otherwise permitted under the Ohio Administrative Code. Agreement of Trust, Art. 3.5.
The trust beneficiary has no right to compel the trustee to make any distribution for maintenance support, make any payment from income or principal, or convert any part of the principal to cash. Agreement of Trust, Art. 3.3. The trust also includes a spendthrift clause, prohibiting the beneficiary from anticipating, assigning, transferring, selling, or encumbering any of the trust assets or making them subject to any creditors' claims or legal process prior to actual receipt by the beneficiary. Agreement of Trust, Art. 3.4.
The Agreement of Trust provides that, upon Ashley's death, the trust terminates and the assets remaining in the trust are to be distributed first for Medicaid payback, to the extent that Medicaid benefits were paid on Ashley's behalf by any state during the existence of the trust. Where more than one state paid Medicaid benefits on Ashley's behalf, payment is to be made to each state, based on the proportionate share of the amount of Medicaid benefits paid by that state to the total amount of Medicaid benefits paid by all states. Agreement of Trust, Art. 3.5(a). Any assets remaining after such Medicaid payback are to be distributed to Ashley's parents. Agreement of Trust, Art. 3.5(b).
The trustee has the power to amend the trust, but only to conform to subsequent changes in Federal or state law and to better effect the purposes of the trust. Agreement of Trust, Art. 4.7.
Discussion
The Social Security Act (the Act) provides that an individual is not eligible for SSI if she has resources that exceed $2,000.00. See 42 U.S.C. § 1382(a)(1)(B)(ii), (a), (3)(B). A resource is cash or other liquid assets or real or personal property that an individual, or her spouse, owns and can convert to cash to be used for support and maintenance. 20 C.F.R. § 416.1201(a). Trust property may be a resource for SSI purposes. See 20 C.F.R. 42 U.S.C. § 1382b(e); Program Operations Manual System (POMS) SI 01120.200A. This trust is also subject to the statutory provision of Section 1613(e) of the Act for trusts established on or after January 1, 2000. See 42 U.S.C. § 1382b(e), POMS SI 01120.201. Generally, under these provisions, trusts established with the assets of the individual are considered resources for SSI purposes, even if they are irrevocable. However, there is an exception for certain trusts that comply with 42 U.S.C. § 1396p(d)(4)(A), i.e., the Medicaid special needs trust exception. See POMS SI 01120.203. For this exception to apply, the trust must: (1) be established with the assets of a disabled individual under age 65; (2) be 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 the individual's behalf under a state Medicaid plan. POMS SI 01120.203B.1.a.
Assuming that Ashley is a disabled person under age 65, the first requirement is met because the trust was established with Ashley's funds, i.e., $5,000.00 that Ashley previously inherited from her aunt. The second requirement is also met because the trust was established for Ashley's benefit by her parents. Agreement of Trust, Preamble.
Regarding the third requirement, we note that Article 3.2 of the Agreement of Trust states that the assets shall be distributed consistent with the provisions of Ohio Admin. Code § 5123:2-18-01. That section of the Ohio Administrative Code, dealing with trusts for supplemental services for individuals with mental retardation and developmental disabilities, includes standards for distribution of trust assets both during the beneficiary's lifetime and upon the death of the beneficiary. Ohio Admin. Code § 5123:2-18-01(E). The standards for distribution upon the death of a beneficiary of a trust governed by that provision require a trustee to disburse the remaining assets of the trust in the following order: (1) for burial expenses for the beneficiary, up to a limit of $5,000.00; (2) a portion equal to at least 50% of the remaining trust assets "pursuant to the terms of the trust" to the state treasurer for deposit into a supplemental services fund for individuals with mental retardation or other developmental disabilities; and (3) the remainder pursuant to the terms of the trust and the direction of the court if a court has jurisdiction over the trust. Ohio Admin. Code § 5123:2-18-01. Thus, Section 5123:2-18-01 does not provide that the first priority for distribution at death is reimbursement for all Medicaid benefits paid by the state. We note, however, that Article 3.2 of the Agreement of Trust, which references Ohio Admin. Code § 5123:2-18-01, refers to use of the trust assets for supplemental services and, thus, it appears to pertain only to distributions from the trust during Ashley's lifetime. We also note that the same paragraph of the Agreement of Trust provides that the assets shall be distributed "consistent with the provisions of 5123:2-18-01 and this Trust and shall not be used for any item or service which is provided by any private or government agency or organization. Agreement of Trust, Art. 3.2 (emphasis added). The provisions for termination of the trust and distribution of the assets remaining in the trust at the beneficiary's death are contained in a separate article. Agreement of Trust, Art. 3.5. Therefore, we think it reasonable to conclude that the more specific terms of Article 3.5 of the Agreement of Trust, rather than the general reference to Ohio Admin. Code § 5123:2-18-01 contained in the section dealing with lifetime distributions, more accurately reflect the settlor's intent regarding distribution upon termination of the trust and, therefore, the terms of Article 3.5 of the Agreement of Trust govern the distribution of the trust assets upon Ashley's death.
We conclude, however, that even under Article 3.5 of the Agreement of Trust, the trust does not meet the third requirement for the Medicaid special needs trust exception because Article 3.5 of the Agreement of Trust provides that, at Ashley's death, the trust is to terminate and the remaining assets are to be distributed first to any states that provided Medicaid benefits to Ashley during the existence of the trust. Agreement of Trust, Art. 3.5(a). Because the Agreement of Trust does not contain specific language providing for reimbursement of Medicaid payments made throughout Ashley's lifetime, rather than merely during the existence of the trust, the trust does not comply with the Medicaid special needs trust exception requirements. See 42 U.S.C. § 1396p(d)(4)(A) (trust must provide that Medicaid is reimbursed for "the total medical assistance paid"); POMS PS 01825.039 A., PS 08-075 SSI-Ohio: Review of Sub-Account of Nathan H~ in the Ohio Community Pooled Flexible Spending Trust (provision for reimbursement for Medicaid assistance since establishment of trust did not comply with special needs trust exception requirements); Memorandum from Regional Chief Counsel, Reg. V, Chicago to Asst. Reg. Comm'r-MOS, Chicago, Reg. V, SSI-Ohio Review of Reconsideration Request on the Joanne F. M. Trust Agreement at 5 (same). Therefore, the trust is a resource under the statutory trust provisions.
If the Agreement of Trust were amended to require reimbursement of all Medicaid benefits paid during Ashley's lifetime, rather than merely the Medicaid benefits paid during the existence of the trust, the trust would not be considered a resource, either under the statutory trust provisions or under the regular resource rules. Under the regular resource rules, a trust is a resource if the individual can revoke or terminate the trust and obtain unrestricted access to the trust assets, or if the individual can direct the use of the trust principal for her support and maintenance. Also, if there are mandatory disbursements, and the individual can sell the right to these payments, their current value may be a resource. POMS SI 01120.201. We conclude that the trust would not be resource to Ashley under the regular resource rules. The terms of the Agreement of Trust do not give Ashley the power to revoke this trust, as the trust is expressly irrevocable. Agreement of Trust, Art. 2.1. Under Ohio law, a trust that meets the Medicaid special needs trust exception provisions of 42 U.S.C. § 13960(d)(4) is irrevocable if the terms of the trust prohibit the grantor from revoking it, whether or not the settlor's estate or the settlor's heirs are named as the remainder beneficiary or beneficiaries of the trust upon the settlor's death. OHIO REV. CODE ANN. § 5804.18. Nor can Ashley compel the trustee to use the trust funds for her support and maintenance. Agreement of Trust, Art. 3.2 (assets to be used only for supplemental services), Art. 3.3 (beneficiary has no right to compel the Trustee to furnish maintenance support, make payments from principal or income or convert any portion of the principal into cash). Finally, regardless of whether Ashley could sell her interest in the trust, it would have no market value, because the trustee is not obligated to make any payments. Therefore, the trust would not be a resource under the regular resource rules.
Conclusion
We conclude that the trust is a resource for SSI purposes because it does not meet the Medicaid special needs trust exception requirements. If the Agreement of Trust were amended to require reimbursement to the states for all Medicaid payments made during Ashley's lifetime, however, the trust would not be considered a resource, although clarification as to the applicability of the Ohio Admin. Code § 5128:2-18-01 with regard to distributions at Ashley's death would be desirable.
~~Donna L. C~Regional Chief Counsel, Region V~~
~~By: Nancy L. B~Assistant Regional Counsel~~
~~G. PS 08-075 SSI-Ohio: Review of Sub-Account of Nathan, in the Ohio Community Pooled Flexible Spending Trust~~
H. PS 08-075 SSI-Ohio: Review of Sub-Account of Nathan, in the Ohio Community Pooled Flexible Spending Trust
Date: March 11, 2008
1. Syllabus
The opinion in this case examines whether or not the pooled trust account in question is a countable resource for SSI purposes. There is an exception to counting a pooled trust as a resource if certain criteria are met. One of the requirements is that to the extent any amounts remaining in the beneficiary's account upon the death are not retained by the trust, the trust will pay to the State the amount remaining up to an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under a State Medicaid plan. The pooled trust in this case frustrates the Medicaid payback requirement in two respects. First, the trust allows for payment of unallowable taxes, fees, and expenses before Medicaid reimbursement. Second, the trust limits Medicaid reimbursement to the time period after the establishment of the individual's trust account. For these reasons the trust does qualify for the pooled trust exception and is a countable resource for SSI purposes.
2. Opinion
You asked whether the account, established for the benefit of Nathan H~ (Nathan) in the Ohio Pooled Flexible-Spending Trust is a resource for SSI purposes. We conclude that it is a resource because the terms of the trust do not meet the Medicaid payback requirements.
BACKGROUND
In March 2007, the Probate Court of Auglaize County, Ohio approved a settlement in which Nathan, a minor, was awarded $33,000.00. Entry Approving Court Settlement (Settlement). The Court ordered that, out of the settlement amount, $3,841.96 would be paid to the Treasurer of the State of Ohio for a subrogation claim for medical and other expenses and $13,741.78 would be paid for Nathan's benefit, to be structured "as set forth in the documents attached to the application." Settlement. Although the documents to which the Court referred were not submitted to us, we assume they provided that the money for Nathan's benefit be placed in trust, as you submitted an affidavit, signed by an attorney, reciting that a check for $13,741.78 was provided to the Disability Foundation to fund a flexible-spending trust for Nathan.
You submitted a copy of an Account Agreement, executed by Nathan's mother and legal guardian on December 28, 2006. The Account Agreement establishes an account for Nathan within the Ohio Community Pooled Flexible-Spending Trust and lists Nathan as a "qualified donor" and as an "individual with disabilities" who is receiving SSI. Account Agreement at 1. Nathan's mother is listed as his personal representative. Account Agreement at 2. The Agreement recites that $12,991.78 was transferred by the qualified donor. Account Agreement at 3. Section 7 acknowledges that, at Nathan's death, 25% of any funds remaining in Nathan's account will be retained by the Disability Foundation, Inc., for Disability Programs and Services. It further states that 100% of any funds remaining in the account be "retained by the Trust, for Disability Programs and Services." Account Agreement at 3.
You also submitted a copy of the Agreement of Trust (Trust Agreement) between the Disability Foundation, Inc., as Settlor and Distribution Trustee, and an Ohio bank, as Trustee, creating the Ohio Community Pooled Flexible-Spending Trust ("the Trust"), to be managed pursuant to 42 U.S.C. § 1396p(d)(4)(C), the Ohio Revised Code Annotated § 5111.151(F)(3), and the Ohio Administrative Code § 5101:1-39-27.1(c)(3)(c). Trust Agreement at § 1. The purpose of the Trust is to provide for the supplemental needs of individuals with disabilities, without supplanting benefits or services otherwise provided by local, state, or federal entities. Trust Agreement at § 1. The Trust Agreement provides for the establishment of an Account for each individual with disabilities, by completion of an account agreement. Trust Agreement at §§ 1(D), 2. The trustee is empowered to place property from the accounts in one or more common funds for investment purposes, assigning the appropriate interest in the common funds to each separate account. Trust Agreement at § 9.
Until termination of the Account, the trustee is directed to use the income and principal of the Account solely for the supplemental needs of the individual, making distributions only where the Distribution Trustee deems them advisable. Trust Agreement at § 2(A). Distributions may be made directly to the individual, to his personal representative, legal guardian, or custodian, or directly in payment of expenses incurred for supplemental needs. Trust Agreement at § 8. The Account is terminated at the death of the individual, at which time the Trustee is to pay "fees, taxes, or expenses properly chargeable to the Account of the Individual with Disabilities" and then distribute any remaining property attributable to the Account as follows:
* 25% is to be retained by the Trust to be used for Disability Programs and Services, as the Distribution Trustee may deem advisable;
* 75% is to be distributed by one or both of following methods, as designated in the Account Agreement:
* to each State that has provided medical assistance to the individual "during the existence of the Account since the Account was established" a proportionate share of the assets remaining in the Account up to an amount equal to the total assistance paid on the disabled individual's behalf under a State Plan pursuant to 42 U.S.C. §1396 et seq., to the extent permitted by law and required by law; and/or
* to a separate share of the trust to be used for Disability Programs and Services;
* If the qualified donor does not make a designation in the Account Agreement, the remaining property in the Account is distributed to a separate account to be used for Disability Programs and Services as the Distribution Trustee from time to time may deem advisable.
Trust Agreement at §2(B).
The Trust is explicitly irrevocable. Trust Agreement at § 12. The Settlor, i.e., the Disability Foundation, Inc., may amend the provisions of the Trust only to further the purposes of the trust, but the Settlor has no power to terminate the Trust, unless no Account is established. Trust Agreement at § 12. The Trust Agreement provides that the disabled individual cannot assign, anticipate, alienate, or otherwise transfer any right or interest in the Account Agreement. Trust Agreement at § 8. No right of termination or amendment is given to the disabled individual. See Trust Agreement at § 12.
DISCUSSION
The Social Security Act (the Act) provides that an individual is not eligible for SSI if he has resources that exceed $2,000. See 42 U.S.C. § 1382(a)(1)(B)(ii), (a), (3)(B). A resource is cash or other liquid assets or real or personal property that an individual, or his spouse, owns and can convert to cash to be used for support and maintenance. 20 C.F.R. § 416.1201(a). Trust property may be a resource for SSI purposes. See 42 U.S.C. § 1382b(e); Program Operations Manual System (POMS) SI 01120.200A. Under the Act, a trust created for the benefit of an individual with the assets of that individual on or before January 1, 2000 generally is a resource, even if the trust is irrevocable, as it is in this case, unless a statutory exception applies. See 42 U.S.C. §§ 1382b(e); POMS SI 01120.201D. See Trust Agreement § 12. There is an exception for pooled trusts, such as the trust involved here, but only if certain criteria are met. See 42 U.S.C. §§ 1382b(e), 1396p(d)(4)(C). Even if a trust meets an exception under the statute, however, it may still be a resource under the regular resource rules if the trust is revocable, or if the trust is irrevocable and the individual can compel the trustee to provide for his support and maintenance, or if there are mandatory disbursements and the individual could sell his beneficial interest in the trust. See POMS SI 01120.200A, D.
To meet the statutory pooled trust exception to counting a trust as a resource, the individual whose assets are contained in the trust must be disabled under the Act, and the following conditions must be met:
* The trust must be established and maintained by a non-profit association;
* The trust must have separate accounts for each beneficiary, although assets may be pooled for investment and management purposes;
* The separate account in the trust must be established solely for the benefit of the disabled individual;
* The separate account must be established by the individual, by the individual's parent, grandparent, or legal guardian, or by a court; and
* The trust must provide that, on the death of the beneficiary, any funds not retained by the trust must be used to reimburse any state for Medicaid payments made for the benefit of the beneficiary during his lifetime.
42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203B.2.
Here, the Trust is irrevocable. We assume, for purposes of this memorandum, that Nathan meets the Act's SSI disability requirements. The trust was established by the Disability Foundation, Inc., which is a non-profit organization. Trust Agreement at Preamble. The trust has separate accounts for each beneficiary, although the property of those separate accounts can be pooled into a common fund for investment and management purposes. Trust Agreement at §§ 1(D), 2, 9. Therefore, the first two requirements for the pooled trust exception are met. The third and fourth requirements are also met, as Nathan's mother established the Account for Nathan, and there is no provision by which any distributions can be made during Nathan's lifetime, except for Nathan's supplemental needs. Trust Agreement at § 2(A).
The Trust Agreement, however, does not meet the fifth requirement for the pooled trust exception. As an initial matter, we note that the Trust Agreement provides for "payment of fees, taxes, or expenses properly chargeable to the Account of the Individual with Disabilities" prior to reimbursement of the State for medical assistance provided. Trust Agreement at §2(B). It is allowable, prior to reimbursement of the State, to pay State and Federal taxes due from the trust because of the death of a beneficiary, as well as reasonable fees for administration of the trust estate, such as a trust accounting to a court and completion and filing of documents or other required actions associated with terminating or wrapping up the trust account. See POMS SI 01120.203B.3.a. However, it is not entirely clear from the language in Section 2(B) of the Trust Agreement that payment prior to reimbursing the State for medical assistance would be limited to those payments permitted under the POMS. The term "fees, taxes, and expenses" in Section 2(B) might be interpreted to include expenses not allowable under the pooled trust exception, such as debts owed to third parties by the trust or funeral expenses, as well as taxes "chargeable to the Account" for reasons other than the individual's death. See POMS SI 01120.203B.3.b.
In addition, Section 2(B)(2)(a) of the Trust Agreement requires the trustee to:
“distribute to each State, which has provided medical assistance through Title XIX of the Social Security Act, to the Individual with Disabilities during the existence of the Account since the Account was established a proportionate share of the assets remaining in the Account of the Individual with Disabilities, up to an amount equal to the total assistance paid on his behalf by such State under a State Plan pursuant to 42 U.S.C. § 1396, et seq., to the extent permitted and required by law.”
Trust Agreement at § 2(b)(2)(a) (emphasis added). Thus, under the Trust Agreement, the Trustee need not reimburse a State for medical assistance supplied to the individual before the establishment of the individual's Account in the Trust. Because the Trust Agreement does not contain specific language providing that, to the extent amounts remaining in the Account are not retained by the Trust, each state will receive an amount equal to the total amount of medical assistance paid on behalf of the individual throughout his lifetime, the Trust Agreement does not comply with the Medicaid payback requirement of the pooled trust exception. See Memorandum from Regional Chief Counsel, Reg. V, Chicago to Asst. Reg. Comm'r-MOS, Reg. V, SSI-Ohio Review of Reconsideration Request on the Joanne F. M. Trust Agreement at 5 (provision for reimbursement for Medicaid assistance since establishment of trust did not comply with special needs trust exception requirements).
We recognize that, in this particular case, Nathan, by his Account Agreement, provided that all amounts remaining in his Account at his death should be retained by the Trust. This provision does not cure the defect, however. Because the Trust Agreement does not comply with the pooled trust exception, none of the Accounts established under that Trust Agreement can meet the exception. See POMS SI 01120.203B.2.g (trust must contain specific language stating Medicaid reimbursement provision). Therefore, we conclude that Nathan's Account does not meet the pooled trust exception, and, therefore, it is a resource.
CONCLUSION
The Ohio Pooled Flexible-Spending Trust does not meet the Medicaid payback provision requirement for the statutory pooled trust exception to counting a trust as a resource. Therefore, Nathan's account in the Ohio Pooled Flexible-Spending Trust is a resource for SSI purposes.
~~Donna L. C~Regional Chief Counsel, Region V~~
~~By: Nancy L. B~Nancy L. B~Assistant Regional Counsel~~
~~H. PS 07-161 SSI-Ohio-Review of the Rodney Irrevocable Special Needs Trust~~
I. PS 07-161 SSI-Ohio-Review of the Rodney Irrevocable Special Needs Trust
Date: June 26, 2007
1. Syllabus
This case involved a special needs trust established by court order. It involves the purchase of an annuity to fund the Trust. In order to meet the requirements of the special needs trust language was included that assures the state will be reimbursed for the medical assistance given the claimant during the time he was eligible for Supplemental Security Income. The term "minimum" was added when applied to the medical assistance reimbursement but this has no affect on the amount that Medicaid may demand. The precedent that is established is that the term "minimum" has no effect on what the state determines it is owed or will accept. There is no range of acceptable payments only what the state demands.
2. Opinion
You asked us whether Rodney S. H~ trust is a resource for SSI purposes and whether the annuity payments made to the trust are income. You specifically expressed concern about Article 3.1(b) of the Trust, which provides that the trustee will pay the "minimum" amount of the remaining principal to the state when Rodney dies. Also, you questioned whether the trustee would be required to use any annuity payments that were received after Rodney's death to satisfy the obligation owed to the state for medical assistance paid on Rodney's behalf. For the reasons discussed below, we conclude that the trust is not a resource for SSI purposes and that the annuity payments are not income. We further conclude that paying the "minimum" amount of the remaining principal to the state complies with the special needs trust exception. Finally, we conclude that the trustee would be required to use all annuity payments to satisfy the obligation owed to the state.
Background
In December 2006, the Franklin County, Ohio Probate Court approved a settlement for Rodney S. H~, a minor. The court ordered that $2,000,000 of the settlement be used to purchase annuities for the benefit of Rodney. The annuities were to produce payments of $8,239 per month, commencing March 21, 2007, and continuing for fifteen years, increasing at a rate of 2% compounded yearly. Then, starting on March 21, 2022, the monthly payments would increase to $11,089 per month, increasing at a rate of 2% compounded yearly, and continuing for life with fifteen years certain. The court ordered that, until it issued a subsequent order, no payments could be made from the annuities. Also, the court noted that the payee on each annuity would be determined by the court at a later date. The remaining proceeds from the settlement ($437.393.90) were ordered to be held by a law firm in an escrow account until further order.
After a hearing on January 17, 2007, the probate court accepted jurisdiction over the "Rodney S. H~ Irrevocable Special Needs Trust" ("Trust") created by Lisa G. W~ (Rodney's guardian and grandmother). The court ordered that the Trust be funded with the proceeds of the settlement and that all monthly payments from the annuities be deposited into a custodial account established for the Trust. The court designated the Trust as the contingent beneficiary should Rodney not survive the guaranteed payment period. The court indicated that its order was in the best interest of Rodney.
The Trust was established for the benefit of Rodney and provides that, during the term of the Trust, Rodney's interests and welfare shall be paramount. Trust, Article 2.1. The Trust named Ms. W~ as trustee of the Trust, Rodney as primary beneficiary, and the State of Ohio as residual beneficiary. Trust, Introductory Paragraph; Article 1.1. The Trust states that it is irrevocable, subject to the right of the trustee to amend it for the limited purpose of ensuring that it complies with the applicable laws governing Rodney's eligibility for assistance under available governmental programs. Trust, Article 1.3; Trust, Article 4.4. The Trust indicates that all net income of the Trust shall be added to the principal upon receipt. Trust, Article 2.1. The Trust provides that the trustee has, upon approval of the probate court, absolute discretion from time to time to distribute or apply for the benefit of Rodney portions or all of the principal as the trustee considers advisable, provided the distribution would not render Rodney ineligible for a government assistance program for which he is otherwise qualified. Trust, Article 2.1. The Trust provides that Rodney has no right to compel the trustee to make a distribution to him or for his benefit. Trust, Article 2.1. The Trust indicates that no interest in the income from or principal of the Trust shall be subject to any form of alienation or hypothecation by any beneficiary, without the express consent of the Trustee. Trust, Article 2.3.
The Trust provides that, upon Rodney's death, the trustee shall pay, in the following order:
(a) any final costs and expenses of the administration of the Trust, provided it is not contrary to the requirements for exemption of this Trust under Title 42 of the United States Code;
(b) The minimum amount of the remaining principal that under applicable law must be distributed to any state or states of the United States in respect of the amount of the total of medical assistance paid on behalf of Rodney by such state or states under any state plan established under Title 42 of the United States Code in order to qualify this Trust for exemption pursuant to Section 1396p(d)(4)(A) of such title; and(c) the balance of the Trust principal to Rodney's estate.
Trust, Article 3.1.
DISCUSSION
A. The Trust Is Not a Resource
This Trust is subject to the statutory provisions of Section 1613(e) of the Social Security Act for trusts established on or after January 1, 2000. See 42 U.S.C. § 1382b(e); POMS SI 01120.201. Generally, under these provisions, trusts established with the assets of the individual are considered resources for SSI purposes even if they are irrevocable. However, there is an exception for certain trusts that are established under 42 U.S.C. § 1396p(d)(4)(A), commonly known as the special needs trust exception. See POMS SI 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.
POMS SI 01120.203B1a. Assuming Rodney is found disabled, the Trust would meet the first and second requirements. Rodney, born in 2004, is under the age of 65, and the Trust was established for his benefit by his grandmother. The Trust was further funded with Rodney's assets - namely, money a W~ as a settlement of a lawsuit.
The trust also meets the third requirement for the special needs trust exception. The Trust's termination clause provides that the trustee will pay the "minimum" amount of the remaining principal to the state when Rodney dies. Due to the Trust's use of the word "minimum," we contacted the Office of Income Security Program's Trust Team for guidance. We were advised that, while use of the word "minimum" was not ideal, it nonetheless complied with the special needs trust exception. The Trust Team explained that the dollar amount requested by the state will be an absolute figure rather than a range of figures, and thus the "minimum" amount will be what the state is owed or is willing to accept. As such, the word "minimum" would not have any practical impact on the state's ability to seek full reimbursement of the amount owed.
Furthermore, the trustee would be required to use any annuity payments that were received after Rodney's death to satisfy the obligation owed to the state for medical assistance paid on Rodney's behalf. The Trust specifically provides that all income of the Trust shall be added to the principal upon receipt. Trust, Article 2.1. The court order further names the Trust as contingent beneficiary should Rodney not survive the guaranteed payment period of the annuities, and the Trust names the State of Ohio as residual beneficiary. Upon Rodney's death, the right to any income accrued but not received will be added to the principal of the Trust, and the Trust will terminate. Trust, Article 3.1. Thus, all of the annuity payments, whether accrued or received, will be added to the principal of the Trust, and the Trust will terminate. Accordingly, the trustee would be required to use any annuity payments received after Rodney's death to satisfy the obligation owed to the state for medical assistance paid on Rodney's behalf. In sum, the Trust satisfies the Medicaid Trust exception requirements, and it is not a countable resource under the statute. Therefore, the regular resource rules apply.
Under these rules, a trust will be a resource if it is revocable, or if the individual can direct the use of trust principal for his support. Also, if there are mandatory disbursements, and the individual can sell the right to these payments, their current value may be a resource. The Trust would not be a resource under these rules. First, the Trust is irrevocable. The Trust specifically states that it is irrevocable. Trust, Article 1.3. While Rodney is the true grantor of the Trust (since the Trust was established with funds that belonged to him), see POMS SI 01120.200(B)(2), he is not the sole beneficiary under the Trust (which would make the Trust unilaterally revocable notwithstanding any contrary language). See POMS SI 01120.200(D)(3). The Trust names the State of Ohio as residual beneficiary. Trust, Article 1.1. And indeed, in Ohio, the state is recognized as a residual beneficiary, provided the Trust cannot be unilaterally revoked and meets the Medicaid payback provision. See POMS SI CHI01120.200(D)(5) ("Effective June 25, 2004, the Social Security Administration recognizes the State as a residual beneficiary of Ohio trusts, if the language of the trust specifies that it is irrevocable, it does not appear that the trust can be unilaterally revoked, and the trust meets the Medicaid payback provisions."); see also Memorandum from Reg. Chief Counsel, Chicago, to Assistant Reg. Comm. - MOS, Chicago, Ohio Treatment of the State as a Beneficiary in a Medicaid Payback Trust, at 4-5 (March 19, 2004). Accordingly, the Trust is irrevocable.
Secondly, Rodney cannot compel the trustee to use the trust funds for his support and maintenance. Trust, Article 2.1. And finally, irrespective of whether Rodney could sell his interest in the Trust, it would have no market value, because the trustee is not obligated to make any payments. See Restatement (Third) of Trusts, § 60 and comments c, f. Therefore, the Trust is not a resource under the regular resource rules.
B. The Annuity Payments Are Not Income
Because the Trust is not a resource, the annuity payments made to the Trust are not income to Rodney if he has irrevocably assigned them to the Trust. POMS SI 01120.200(G)(1)(d). Although the court order states that the annuity payments will be made directly to the Trust, if Rodney could ask the court to modify the order so that the payments would be made directly to him, the annuity payments should be considered income to him. See Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, Review of the Marital Settlement Agreement for Patricia J. H~ and Floyd A. H~ and the Patricia J. H~ Special Needs Trust, at 3-4 (Dec. 4, 2003).
However, it appears that, as with the creation of the Trust, the court's order with respect to the annuity would have to be based on a finding that, among other things, the annuity assignment was in the best interests of Rodney. Ohio Rev. Code Ann. § 2111.50(C)(1) (2006) (all powers of the probate court shall be exercised in the best interest of the minor subject to guardianship). Indeed, the court appointed a guardian for Rodney and indicated that it had carefully considered Rodney's best interests before issuing its order. Accordingly, for Rodney to convince the court to redirect the annuity payments to him, he (or Ms. W~ his guardian) would have to show that such a change was in his best interests. Id. This, however, is unlikely since we are not aware of any change of circumstance since the probate court hearing that would cause the court to reconsider its finding that assigning the annuity payments to the Trust is in Rodney's best interests. Therefore, the annuity payments are, at this time, irrevocably assigned to the trust, and thus are not income under POMS SI 01120.200(G)(1).
CONCLUSION
In sum, the trust is not a resource for SSI purposes and the annuity payments are not income. Also, paying the "minimum" amount of the remaining principal to the state after Rodney's death complies with the special needs trust exception. Finally, the trustee would be required to use all annuity payments to satisfy the obligation owed to the state.
~~Donna L. C~Regional Chief Counsel, Region VBy: Karen S~Assistant Regional Counsel~~
~~I. PS 07-120 SSI- Ohio Review of the Jennifer Special Needs Trust~~
J. PS 07-120 SSI- Ohio Review of the Jennifer Special Needs Trust
Date: April 24, 2007
1. Syllabus
This opinion addresses whether or not the special needs trust in question is a resource for SSI purposes. The special needs trust satisfies all of the criteria found in SI 001120.203B. in order to be excluded from resource counting, however, the trust does provide for payment of taxes that would fall outside the scope of allowable expenses as outlined in SI 01120.203B.3. The trust does contain a limiting clause stating, "to the extent permitted by applicable Medicaid or SSI, regulation or policy at the time of death." The limiting clause as written is acceptable, provided that the field office properly documents the fact that the non-permissible taxes cannot be paid before the State Medicaid Agency is reimbursed. For these reasons, the trust is not a countable resource for SSI purposes.
2. Opinion
You have requested an opinion regarding whether the Jennifer C. S~ Special Needs Trust (Trust) would be a resource to Jennifer C. S~ (Jennifer) in determining her eligibility for Supplemental Security Income (SSI). For the reasons discussed below, we believe that the Trust should not be considered a resource.
Background
On December 29, 2005, the Trust was established by order of the Franklin County Ohio Probate Court (Court), Case No. 510324. See Trust, Art. 1.1, Trust Ex. A. Barbara J. S~ was named guardian of Jennifer's estate (Grantor) and Trustee of the Trust (Trustee). The Trust agreement named Jennifer as a beneficiary, as well as the State Medicaid plans. See Trust, Art. 1.2. The Trust was funded with the proceeds from a personal injury settlement that Jennifer received. See Trust, Art. 1.4. The Trust provides that it is to be administered to protect Jennifer's long-term interests and to provide for her supplemental care and special needs, in addition to government assistance programs for which she is qualified, and is intended to conform with the requirements of 42 U.S.C. § 1396p(d)(4)(A) and Ohio state trust law, Rev. Code §5111.151(F)(1) and O.A.C. §5101:1-39-27.1(C)(3). See Trust, Art. 1.3.
The Trust states that it is irrevocable. See Trust, Art. 1.5. The Trust, however, provides that the Trustee may amend the Trust, if, due to changes in governing law or legal interpretations concerning Jennifer's eligibility for available government assistance programs, the Trustee believes that it is in Jennifer's best interest and reasonably necessary to maintain or achieve such eligibility. See Trust, Art. 1.5, Art. 2.3(D). The Trust also provides that the Trustee has sole discretion to make distributions of principal to or for the benefit of Jennifer to provide supplemental services. See Trust, Art. 2.1. At the same time, Jennifer has no right to compel the Trustee to make a distribution of principal to her or for her benefit. Id. The Trust, in a spendthrift provision, further provides that no interest in the Trust is subject to any form of alienation. See Trust, Art. 4.3.
Unless earlier exhausted, the Trust will terminate upon Jennifer's death, at which time any amount remaining in the Trust will first be used to pay all final expenses and costs for the administration of the Trust, as well as all taxes arising as a result of her death. See Trust, Art. 3.4 (A), (B). Next, any remaining amount shall be paid to the states as reimbursement for medical assistance provided to Jennifer. See Trust, Art. 3.3. Finally, after paying any remaining obligations of the Trust, the trustee will distribute the remainder to Jennifer's estate. See Trust, Art. 3.5, 3.6. The Trust does not name any specific residual beneficiaries. See Trust, Art. 3.6.
DISCUSSION
Pursuant to 42 U.S.C. § 1382b(e) (the "statutory trust resource rules"), the principal of a trust created on or after January 1, 2000, with the assets of an individual will be considered a resource to the extent that the trust is revocable or, in the case of an irrevocable trust, to the extent that any payments from the trust could be made to or for the benefit of the individual (or the individual's spouse), with certain exceptions. See also POMS SI 01120.201(D). However, even if an exception applies, all trusts are still subject to the regular resource rules.
This Trust is Irrevocable
The Trust document states that it is irrevocable. See Trust, Art. 1.5. While Jennifer is the true grantor of the Trust (since the Trust was established with funds that belonged to her), see POMS SI 01120.200(B)(2), she is not the sole beneficiary under the Trust (which would make the Trust unilaterally revocable notwithstanding any contrary language). See POMS SI 01120.200(D)(3). In Ohio, the state is recognized as a residual beneficiary, provided the Trust cannot be unilaterally revoked and meets the Medicaid payback provision. See POMS SI CHI01120.200(D)(6) ("Effective June 25, 2004, the Social Security Administration recognizes the State as a residual beneficiary of Ohio trusts, if the language of the trust specifies that it is irrevocable, it does not appear that the trust can be unilaterally revoked, and the trust meets the Medicaid payback provisions."); see also Memorandum from Reg. Chief Counsel, Chicago, to Assistant Reg. Comm. - MOS, Chicago, Ohio Treatment of the State as a Beneficiary in a Medicaid Payback Trust, at 4-5 (March 19, 2004). Here, the trust states that it is irrevocable, and, as discussed below, it meets the Medicaid Payback provisions, so the state is a residual beneficiary. Accordingly, the Trust is irrevocable.
The Trust Satisfies the Medicaid Trust Exception for Individual Trusts
The statutory trust resource rules are not applicable to this irrevocable trust because an exception applies. The exception under 42 U.S.C. § 1396p(d)(4)(A) applies to a trust which: (1) is established with the assets of an individual under age 65 who is disabled; (2) is established for the benefit of such individual by a parent, grandparent, legal guardian, or a court; and (3) provides that on the death of the individual, any funds remaining in the trust will be used to reimburse the State for Medicaid payments made on behalf of the individual. See also 42 U.S.C. § 1382b(e)(5); POMS SI 01120.203(B)(1). These elements are satisfied here. Jennifer is under age 65 and disabled, and the Trust was established for Jennifer's benefit by her guardian. Finally, the Trust explicitly provides for reimbursement to the states for medical assistance to Jennifer, after allowing the trustee to first pay final costs for the administration of the Trust. See Trust, Art. 3.4(A), (B); see POMS SI 01120.203(B)(3)(a).
Of note, the Trust's payback provision states:
3.4 Payment of Final Administrative Costs and Taxes. Prior to reimbursing any state plan under Section 3.3 hereof, to the extent permitted by applicable Medicaid or SSI law, regulation or policy at the time of JENNIFER's death, the Trustee shall pay:
A. all final administrative costs of this trust; and
B. all taxes arising as the result of JENNIFER's death, including estate, gift, generation-skipping, and inheritance taxes, whether federal, state, or local.
All or most of the taxes described in section 3.4(B) would fall outside the scope of allowable expenses. See POMS SI 01120.203(B)(3). Indeed, the only permissible tax would be estate taxes due by reason of inclusion of the trust corpus in the claimant's estate. However, the Trust contains a limiting clause, "to the extent permitted by applicable Medicaid or SSI law, regulation or policy at the time of JENNIFER's death," see Trust, Art. 3.4(B), suggesting that payment of prohibited taxes would not be allowed under the Trust.
Ideally, references to taxes, which would be non-permissible payments, should be removed from the Trust. However prohibited, the limiting clause would be acceptable as written, provided that the Field Office documents that we have accepted the Trust based on the limiting language and that the non-permissible payments (e.g. inheritance, gift, generation-skipping taxes, and non-trust related estate taxes) cannot be paid before the State Medicaid Agency is reimbursed. Further, the beneficiary and trustee should be notified in writing to explain that, while we accept the Trust as written based on the limiting language, it is with the understanding that the non-permissible payments listed in section 3.4 may not be paid before the State Medicaid Agency is reimbursed. See Memorandum from Reg. Chief Counsel, Chicago, to Assistant Reg. Comm. - MOS, Chicago, Review of Special Needs Trust and Periodic Payments for Tamara H~, at 3-4 (March 27, 2007).
Thus, since the Trust meets the requirements of the Medicaid Trust exception under 42 U.S.C. § 1396p(d)(4)(A), it is not considered a countable resource under 42 U.S.C. § 1382b(e). However, the Trust is still subject to the regular resource rules. See POMS SI 01120.200(D)(1). Under these rules, a trust will be a resource if it is revocable, or if the individual can direct the use of trust principal for her support. Also, if there are mandatory disbursements, and the individual can sell the right to these payments, their current value may be a resource. But, as stated earlier, the Trust is not revocable. And, the individual cannot direct the use of Trust assets. Finally, there are no mandatory distributions. Therefore, the trust if not a resource under the regular resource rules either.
CONCLUSION
For the reasons discussed above, we conclude that the Trust is not a resource to Jennifer for SSI purposes. However, we recommend that the Agency provides written notification to the Trustee and Beneficiary, advising that we have accepted the Trust based on its limiting language and that non-permissible payments may not be paid before the State Medicaid Agency is reimbursed.
~~J. PS 07-091 SSI - Ohio-Review of the Anthony Special Needs Trust for Anthony Jr.~~
K. PS 07-091 SSI - Ohio-Review of the Anthony Special Needs Trust for Anthony Jr.
Date: March 13, 2007
1. Syllabus
This opinion addresses whether or not the trust in question is considered a resource for SSI purposes. Trust assets established with funds of a third party are a resource if the individual:
(1) can terminate the trust and obtain unrestricted access to the trust assets; (2) has access to the trust assets and can direct the use of the trust assets to meet his/her need for food or shelter; or
(3) can sell his/her beneficial interest in the trust. In this case, the SSI claimant does not have the authority to terminate the trust. In addition, the claimant cannot assign interest in the trust or direct use of the trust assets.
For these reasons, the trust is not a resource for SSI purposes.
2. Opinion
You have asked whether the Anthony C~, Sr., Special Needs Trust for Anthony C~, Jr., (Trust) is a resource for purposes of determining Anthony C~, Jr's eligibility for SSI. Based on the information provided, the Trust would not be a resource to Anthony C~, Jr.
Background
On March 27, 2001, parents Anthony C~, Sr., (Anthony, Sr.) and Linda C~ entered into a Settlement Agreement and Full and Final Release with Golden Rule Insurance Company and United Healthcare d/b/a Healthcare. In the settlement agreement, Anthony C~, Sr. received $15,000, Linda C~ received $45,000, Children's Hospital of Cincinnati received $154,530.70, and Anthony, Sr., as Trustee of the Special Needs Trust for the benefit of Anthony P. C~, Jr. (Anthony, Jr.) received $95,000 (less legal fees of $38,000) as settlement of nonpayment of Children's Hospital of Cincinnati bills incurred on behalf of Anthony, Jr.
The C~s' attorney advised that the settlement was the result of a lawsuit filed against the insurance company on behalf of Anthony, Jr.'s parents in relation to a dispute for unpaid hospital bills for Anthony, Jr.'s care. As part of the settlement, the parents received compensation, above and beyond the unpaid bills, for the insurance company's "bad faith" in failing to pay the hospital at the time services were incurred. The attorney advised that there was no malpractice or personal injury settlement involved. Apparently, the settlement funds were for the parents only, not for Anthony, Jr., but Anthony Sr. chose to place some of the settlement funds in a trust for the benefit of Anthony, Jr.
On March 25, 2001, Golden Rule issued a check in the amount of $95,000 to Anthony, Sr., as Trustee of the Special Needs Trust for the benefits of Anthony, Jr. After attorney's fees were paid, $57,000 was placed in the Trust for the benefit of Anthony, Jr.
The Special Needs Trust for Anthony, Jr. was created on May 31, 2001, by Grantor Anthony, Sr., with Linda C~ as Trustee. The Trust provides, in Section 2, that the Trust is irrevocable and the Grantor expressly waived and surrendered the power to alter, amend, revoke, or terminate the agreement. Sections 3.1. and 3.1.1 state that any assets of the trust estate shall be held for the benefit of the Grantor's son, Anthony, Jr., (Beneficiary) and the Trustee is not to make any payments or distributions from the principal or income which cause the Beneficiary to incur a reduction or increase in the cost of benefits otherwise available to him from any local, state or federal government agency or entity or any private agency. Under Section 3.1.2, the Trustee is instructed to not make any payments or distributions of income or principal from this Trust to reimburse or supplant any local, state or federal government agency which provides necessities (e.g., food, lodging, medical care). However, the Trustee may from time to time apply amounts from the income and principal for the Beneficiary's Special Needs (defined in the Trust as cost of home, medical costs, personal items, etc., in Section 3.1.4). The Beneficiary is not considered to have access to the principal of this Trust. Section 3.1.5. Under Section 3.1.7, the Beneficiary's interest in the Trust cannot be assigned.
DISCUSSION
POMS SI 001120.00(B)(17) defines a third party trust as a trust established by someone other than the beneficiary as the grantor. This same POMS provision cautions, however, that agency decision-makers are to be "alert for situations where a trust is allegedly established by a third party, but in reality is created with the beneficiary's property," in which case the trust would be a "self-settled" or "grantor" trust, rather than a "third party" trust. See POMS SI 01120.200(B)(8), (B)(17); POMS SI 01120.201(A)(1) (providing that assets held in self-settled trusts established on or after 1/1/00 will generally be considered resources for SSI purposes unless an exception applies).
Here, the C~s' attorney advised that the settlement funds placed in Trust belonged to Anthony, Jr.'s parents, not to Anthony, Jr. Assuming this is true, the Trust is a third party trust and should not be considered a resource to Anthony, Jr. 1
For purposes of SSI eligibility, "resources" are cash or other liquid assets or any other real or personal property that an individual owns and could convert to cash to be used for his or her support and maintenance. 20 C.F.R. § 416.1201(a); POMS SI 01110.100(B)(1). If an individual has the right, authority, or power to liquidate the property, it is considered a resource. Id. Trust assets established with funds of a third party are a resource if the individual: (1) can terminate the trust and obtain unrestricted access to the trust assets; (2) has access to the trust assets and can direct the use of the trust assets to meet his need for food or shelter; or (3) can sell his beneficial interest in the trust. POMS SI 01120.200(D)(1)-(3).
Here, Anthony, Jr., does not have the right to terminate the Trust. Nor can he direct the Trustee to provide for his support and maintenance. And, he cannot assign his beneficial interest in the Trust. Accordingly, the Trust is not a resource to Anthony, Jr.
CONCLUSION
For the reasons discussed above, we conclude that the Trust is not a resource to Anthony, Jr.
1 If you receive additional information that suggests that any funds in the Trust may be attributable to Anthony, Jr., that portion of the Trust would need to be evaluated separately. See POMS SI 01120.201.
~~K. PS 07-086 SSI - Ohio - Review of the Gwen Special Needs Trust~~
L. PS 07-086 SSI - Ohio - Review of the Gwen Special Needs Trust
Date: March 12, 2007
1. Syllabus
This case represents a distinction between trust funds originating from different sources. The funds coming from a 3rd party are not countable, but the funds originating from the grantor are countable. The grantor funds did not follow the strict guidelines for the order of payment for the Medicaid reimbursement making it countable.
2. Opinion
You asked us to review a trust dated February 5, 2005, to determine whether the assets placed in trust would be a countable resource to Gwen M. F~ ("Gwen"). For the reasons discussed below, we conclude that any portion of the trust funded with Gwen's assets is a countable resource, but any portion of the trust funded with assets of a third party is not a resource.
Background
We base our opinion on our review of the trust instruments you provided to us. The Gwen M. F~ Special Needs Trust (hereinafter "Trust") was established by Gwen's mother, Janice F~.
On February 5, 2005, the Trust was established solely for Gwen's benefit, and provided that the agreement could be neither amended nor revoked. See Trust, Preamble, Article II. In addition, the Trust refers to Gwen as a "disabled individual." See Preamble.
The Trust gives the trustee unfettered discretion to distribute Trust assets and income. See Article III. The Trust further provides that the Trustee "shall not be obligated or compelled to make" distributions of the income or principal. See Article III(6). Thus, Gwen does not appear to have any rights of withdrawal. The Trust also contains a "spendthrift provision:" "No beneficial interest (including any beneficial interest held by GWEN M. F~) in the principal or income of this Trust shall be anticipated, assigned, or encumbered, or shall be subject to any creditor's claim or legal process, prior to its actual receipt by the Beneficiary." See Article V.
Article IV of the Trust provides that the Trust shall terminate upon cessation of Gwen's disability or, in the alternative, Gwen's death. Upon Gwen's death "the Trustee shall pay the attorney's fees and other properly allowable costs incurred in administering and wrapping up the Trust." Article IV(B)(1). Allowable costs are described as "accounting of the Trust to a court, completion and filing of documents, or other required actions, but not payments of GWEN's debts owed to third parties or funeral expenses." Id. The Trust also provides that, upon Gwen's death, "the Trustee shall pay out of the principal included in the gross estate of GWEN for estate tax purposes, any federal or state estate tax or other inheritance tax (including interest or penalties thereon) arising by reason of GWEN's death and attributable to the Trust property included in the gross estate of GWEN for purposes of such tax." Article (IV)(B)(2).
The Trust next provides that the Trustee "shall notify the appropriate agency or agencies for each state from which the Beneficiary may have received medical assistance under a State Plan pursuant to 42 U.S.C. sec 1396, et seq.," and pay all claims for Medicaid services rendered to Gwen from assets remaining in the Trust. See Article IV(B)(3). The Trust specifically excludes from this repayment provision third-party funds contributed to the Trust, which did not first pass in title to Gwen, and which were not commingled with other Trust assets. Id.
Any remaining assets in the Trust Estate may be used to pay for Gwen's funeral and burial expenses to the extent they were not prepaid, and then distributed to Gwen's issue, or if she was not survived by issue, to her mother, or if she was not survived by her mother, Gwen's sister Emily F~, per stirpes. Article IV(B)(4), (5).
DISCUSSION
The Trust was established on February 5, 2005, and was originally funded by $10.00 received from Janice F~, Gwen's mother. Accordingly, it appears on the surface that the Trust is a third-party Trust because it contained only assets of a third party, i.e., Gwen's mother, on creation. See POMS SI 01120.200(B) (17).
The information you provided shows that, as of March 2005, the Trust was valued at $2,900.00, but does not show the source of the $2,900.00. If the remainder of the principal of the Trust was funded by Gwen's own assets, then this portion of the Trust should be considered self-settled. See 42 U.S.C. § 1382b(e)(3)(B); POMS SI 01120.200(B)(8); POMS SI 01120.201 (C)(1), (C)(2)(c), (D). This portion of the Trust must be assessed to determine whether it meets the Medicaid payback exception. See 42 U.S.C §1396p(d)(2)(B).
1. To the extent that the Trust is a third party trust, it is not a resource to Gwen
For purposes of SSI eligibility, "resources" are "[c]ash or other liquid assets or any other real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance." 20 C.F.R. § 416.1201(a). If an individual has the right, authority or power to liquidate the property, it is considered a resource. See 20 C.F.R. § 416.1201(a)(1). When a trust is created for the benefit of an individual with the assets of a third party, the trust constitutes a resource if: (1) the SSI beneficiary can terminate the trust and use the assets for her support and maintenance; (2) the SSI beneficiary can direct the trustee to pay her the funds or use the funds for her support and maintenance; or (3) if the individual can sell her beneficial interest in the trust. See POMS SI 01120.200(D). If the Trust did not contain any of Gwen's assets, and to the extent it was a third party trust, the Trust would not be a resource under any of these tests.
First, to the extent that the Trust is a third party trust, it is clear that Gwen does not have the power to terminate the Trust and use the assets for support and maintenance. Whether a trust can be terminated by a beneficiary depends on the terms of the trust and/or applicable state law. See POMS SI 01120.200(D)(2). Gwen does not have the right to terminate the Trust under its own terms or the terms of Ohio state law. Article II specifically provides that the agreement shall not be revoked or terminated "by the Settlor or any other person."
Although Gwen does not have legal authority to revoke or terminate the Trust agreement, the Trust may be counted as a resource in determining SSI eligibility if she has the ability to direct the use of Trust assets. See POMS SI 01120.200(D)(1)(a). Such authority may be included specifically in a trust provision allowing the beneficiary to act on her own, or in a provision allowing her to order actions by the trustee. See POMS SI 01120.200(D)(1)(b). The Trust includes no provision allowing Gwen to direct any actions by the trustee or to act on her own behalf. Indeed, Article III specifically provides that "[i]n making any distribution, the Trustee . . . [s]hall not be obligated to or compelled to make such payments." Thus, Gwen does not have any rights of withdrawal. Instead, the Trustee has to sole discretion to make distributions and payments as she deems appropriate. According to the terms of the Trust, Gwen does not have the right to direct the use of the Trust assets to meet her food, clothing and shelter needs.
Finally, because the Trust contains a spendthrift provision, it does not appear that Gwen has the power to sell her beneficial interest in the Trust. In general, a spendthrift trust is a trust which by its terms provides that a "beneficial interest shall not be transferable by the beneficiary or subject to claims of the beneficiary's creditors." Restatement (Third) of Trusts § 58(1). Absent such a restraint, a beneficiary of a trust would generally be free to assign his rights to a third party in exchange for consideration. Here, the Trust provides that "No beneficial interest . . . in the principal or income of this Trust shall be anticipated, assigned, or encumbered, or shall be subject to any creditor's claim or legal process, prior to its actual receipt by the Beneficiary." See Article V. Thus, it is evident that Gwen does not have the power to transfer her interest in the Trust and use those proceeds for support and maintenance.
In sum, under the ordinary resource rules applicable to third party trusts, Gwen does not have the legal authority to revoke the Trust, direct the use of the Trust assets for her own support and maintenance, or transfer her interest in the Trust. Accordingly, to the extent that the Trust is a third party trust, the assets in Trust are not a countable resource for SSI purposes.
2. The Trust is a resource to the extent it was funded with Gwen's own assets because it does not qualify for the Medicaid payback exception
If any of the assets in the Trust are attributable to Gwen, i.e., if any part of the Trust is self-settled, the same resource analysis applied to the third party portion of the analysis would apply to the self-settled amounts to determine if they are resources. Any self-settled portion of the trust would not be a resource to Gwen under the regular resource rules.
In the State of Ohio, a trust, like this one, that purports to be irrevocable can be revoked if the settler (grantor) of the trust is also the sole beneficiary. See POMS SI 01120.200(D)(3); POMS SI CHI 01120.200C. However, in Ohio, if a 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." POMS SI CHI 01120.200C. Here, the Trust names the state and Gwen's issue as residual beneficiaries and her mother and sister as contingent residual beneficiaries. See Article IV(B)(5). Thus, even if a portion of the Trust were self-settled, it remains irrevocable. See POMS SI CHI 01120.200D(5). Nor can Gwen direct the trustee to use any funds she has contributed for her support and maintenance. And, even if she could sell her beneficial interest, it would have no market value.
In addition to the regular rules for determining whether trusts are resources, additional statutory rules would apply to any self-settled portions of the trust. See 42 U.S.C. § 1382b(e) (providing that assets held in self-settled trusts established on or after January 1, 2000, will generally be considered resources for SSI purposes); POMS SI 01120.201. Trust assets that were originally Gwen's would be considered a resource unless the Trust qualifies for the Medicaid payback exception. See 42 U.S.C. § 1382b(e)(5); POMS SI 01120.203.
The Medicaid payback trust exception applies where the trust is: (1) established with the assets of an individual under age 65 who is disabled; (2) established for the benefit of such individual by a parent, grandparent, legal guardian or a court; and (3) provides that, on the death of the individual, any funds remaining in the trust will be used to reimburse the state for Medicaid payments made for the benefit of the individual during her lifetime. See 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.201(B)(1).
Here, the first two requirements are met because Gwen is under age 65, she is apparently disabled, and the Trust was established for her benefit by her mother. We have previously advised that a parent may establish a Special Needs Trust for an adult, competent child, in Ohio, where state law recognizes the existence of a dry or empty trust. See Memorandum from Reg. Chief Counsel, Region V, to Ass't Reg. Comm.-MOS, Chicago, SSI-Ohio Review of the Request for Reconsideration of the Review of the Charles C. G~ Trust (April 22, 2005). In any event, the trust appears to have been seeded by the mother's own funds before any of Gwen's assets were added.
However, even though the first two requirements for the Medicaid payback trust exception are met, the trust does not qualify for the exception because it does not meet the third requirement-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 her lifetime. Here, upon termination, the Trust does not list the State as the first payee and give it priority over payment of other debts and administrative expenses. Article IV(B). We further note that, prior to reimbursement of medical assistance to the state, the Trust allows for payment of "any federal or state estate tax or other inheritance tax (including interest or penalties thereon) arising by reason of GWEN's death and attributable to the Trust property included in the gross estate of GWEN for purposes of such tax." Article (IV)(B)(2). Generally, inheritance taxes are paid by the heir who receives estate property, and not by the estate of the deceased individual. It would be inappropriate for the Trust to provide for the payment of inheritance taxes owed by heirs of the estate or Trust prior to reimbursing the State for Medicaid payments.1 POMS SI 01120.203(B)(3)(b); See Memorandum from Reg. Chief Counsel, Region V, to Ass't Reg. Comm.-MOS, Chicago, SSI-Ohio Review of the Request for Reconsideration of the Review of the James J. S~ Trust Agreement (November 30, 2006). Therefore, the Trust does not come within the special needs exception to counting it as a resource under the Social Security Act.
CONCLUSION
In sum, any Trust assets contributed by third parties are not resources. However, trust assets attributable to Gwen are countable resources for purposes of determining SSI eligibility because they do not meet the Medicaid payback exception.
1 The trust also permits payment of "attorney's fees and other properly allowable costs incurred in administering and wrapping up the Trust" before the State is reimbursed. Article IV(B)(1). However, the POMS allows payment of "[r]easonable fees for administration of the trust estate . . . associated with termination and wrapping up of the trust," prior to reimbursement of medical assistance to the state. POMS SI 01120.203(B)(3)(a). Thus, this Trust provision is allowable under the Medicaid payback exception.
~~L. PS 07-024 SSI-Ohio-Review of Request for Reconsideration on the James Trust Agreement~~
M. PS 07-024 SSI-Ohio-Review of Request for Reconsideration on the James Trust Agreement
Date: November 30, 2006
1. Syllabus
This opinion concludes that a trust established with the proceeds of an inheritance is a countable resource to the SSI beneficiary because it cannot be excluded under the Medicaid payback trust exception. The trust in question meets the first requirement of a Medicaid payback trust because it was established by a court with the assets of a disabled individual under the age of 65. However, the trust fails to meet the second statutory requirement because it creates contingent interests that could benefit third parties during the lifetime of the SSI beneficiary. The trust also does not meet the third requirement to qualify under the Medicaid trust exception due to language permitting prohibited payments to be made prior to Medicaid reimbursement.
2. Opinion
The Agency previously determined that the James J.S~ Trust Agreement (hereinafter "Trust") was a resource to James J.S~, an SSI beneficiary. Mr. S~, through his attorney representative, Richard F. M~, requested reconsideration. Mr. M~ asserts that the trust is not a resource, and you asked us to address Mr. M~'s argument. For the reasons discussed below, we agree with the initial determination that the Trust is a resource.
FACTS
The John J.S~ Trust was established for the benefit of James J.S~ to hold the proceeds ($74,000.00) from an inheritance. Judge Lawrence A. B~, of the Probate Court of Franklin County, Ohio, established the Trust by order of the court on May 21, 2002. Richard F. M~, Esq., as Conservator of James J.S~, is names as the Grantor, and Mr. M~ is the Trustee. The Trust states that it "is established for the benefit of James J.S~."
Item I of the Trust provides that the inheritance property was irrevocably transferred to the Trustee and that the Trust may be revised only by court order. The Trust notes that "[r]evisions may be needed due to legislative changes, court cases, changes in health care, or other events which would cause the Conservator or Trustee to consider revisions."
Under Item II, Dispositive Provisions, section (A), the Trustee is "authorized to expend, on a monthly basis, income and principal as the Trustee deems appropriate for the needs and miscellaneous expenses of" Mr. S~, "considering all other resources and income available to him, and as approved by the" court. Item II(B) of the Trust limits the amounts which may be paid each month for Mr. S~ basic living needs so as not to exceed the monthly income eligibility standard for Medicaid or any other program for which Mr. S~ may be eligible, and the Trust directs that any other distributions must not render Mr. S~ ineligible for Medicaid nursing home benefits.
Item II(C) of the Trust directs that, should the State of Ohio fail to honor its Terms or if the purpose of the Trust is otherwise frustrated, the Trustee will distribute the Trust to beneficiaries designated in the Trust. Item II(D) of the Trust provides, in pertinent part, that, upon the death of Mr. S~, all principal and accumulated income in the Trust will be distributed as follows: (1) to pay for general expenses, to reimburse any party for advances for Mr. S~ burial, for payment of any taxes, and for payment of any administrative expenses to terminate the trust; (2) to reimburse the State of Ohio for assistance paid on Mr. S~ behalf under the Medicaid program; and (3) to an heir as designated in Mr. S~ will or according to intestacy provisions. Each of the second and third distribution is specifically subject to the previous enumerated distribution.
Item III, Definitions, section (C), defines beneficiary as including only Mr. S~. Item V, Restriction Against Alienation, states that "[i]f a beneficiary alienates or attempts to alienate any interest or right to receive payments" under the trust, then Mr. S~ interest in and right to receive the payments will cease and the payments thereafter will be applied "as determined by the Trustee in . . . [his] uncontrolled discretion to the use of any other beneficiary or beneficiaries." Furthermore, if the trust is terminated after such an attempt at alienation, the trustee will distribute the beneficiary's share to those who would be entitled to receive it as if the beneficiary had died the day before the termination.
Item VI, Termination Procedure, directs distribution of the Trust, upon termination of Medicaid or government benefits due to existence of the trust, to a charitable remainder trust which shall pay to Mr. S~ eight percent (8%) of the assets of the Trust yearly. The charitable remainder trust also provides for Mr. S~ estate to furnish funds for payment of any estate and death taxes owing from the Trust, and for trust distribution to certain charities upon Mr. S~ death.
DISCUSSION
Pursuant to POMS SI 001120.201(D)(2), the principal of an irrevocable trust established with the assets of an individual (on or after January 1, 2000) is a resource if payments from the trust principal could be made to or for the benefit of the individual, unless one of the exceptions applies in POMS SI 01120.203 (listing Medicaid trust exceptions for individuals and pooled trusts, and the waiver for undue hardship). The Agency previously determined that the Trust in this case is a countable resource for Mr. S~ because the Trust does not meet an exception for self-funded Medicaid payback trusts established after January 1, 2000.
Mr. M~ argues on behalf of Mr. S~ that the relevant issue is whether the trust is revocable. Mr. M~ asserts that the trust is not a resource because Mr. S~ cannot terminate the trust. He states that Mr. S~ has never accessed or used the trust's property for his support and maintenance, and that the trust principal has been an unavailable resource to him at all times. He therefore concludes that the trust is not a countable resource. Mr. M~'s conclusion, however, is not correct. The Trust in this case is irrevocable, but, nonetheless, its principal is a countable resource to Mr. S~ because he payments can be made form the trust to Mr. S~ or for his benefit, and because the Medicaid payback trust exception does not apply.
Under the plain language of the statute, trusts established on or after January 1, 2000, with the assets of an individual are a countable resource if payments from the trust principal could be made to or for the benefit of the individual unless one of the exceptions in POMS applies, including the exception for a Medicaid payback, or "special-needs" trust. 42 U.S.C. § 1382b(e)(3)(B), (e)(5); see also POMS SI 01120.201(D)(2), SI 01120.203. Here, payments can be made from the trust principal to Mr. S~ or for his benefit. The Dispositive Provisions of Item II of the Trust direct that the Trustee may expend principal, as he deems appropriate, for the needs and miscellaneous expenses of Mr. S~, with consideration of all other resources available to him as approved by the Court. Monthly payments for Mr. S~ basic living needs are restricted so as to prevent Mr. S~ from surpassing the monthly income eligibility threshold set by the State of Ohio's Medicaid program. This restriction on monthly payments applies only with regards to Mr. S~ basic living needs, however, and does not appear to restrict the Trustee's general discretion to make other payments from the Trust principal for Mr. S~ other needs or miscellaneous expenses. See POMS SI 01120.201(D)(2)(b). Thus, the Trust specifically provides for payments from the trust principal to or for the benefit of Mr. S~, and, therefore, it would constitute a countable resource unless one of the exceptions - in particular, the Medicaid payback trust exception - of 42 U.S.C. § 1396p(d)(4) applies. See 42 U.S.C. § 1382b(e); POMS SI 01120.203.
We agree, however, with the Agency's earlier determination that the Trust here does not meet the requirements to qualify for a Medicaid payback trust exception. The Medicaid trust exception for individual trusts applies where the trust is:
(1) established with assets of an individual under age 65 who is disabled;
(2) established for the benefit of such individual by a parent, grandparent, legal guardian or a court; and
(3) provides that, on the death of the individual, any funds remaining in trust will be used to reimburse the state for Medicaid payments made for the benefit of the individual during her lifetime. 42 U.S.C.§ 1396p(d)(4)(A); POMS SI 01120.203(B)(1).
The S~ Trust satisfies the first requirement of a Medicaid payback trust because it was established with assets of an individual under age 65, who is disabled, and a court established the Trust for his benefit. As the Agency determined, however, the Trust does not satisfy the second and third requirements under the Medicaid trust exception.
Regarding the second requirement, the Trust was not established for the sole benefit of Mr. S~ as it creates contingent interests that could benefit third parties during Mr. S~ lifetime. Regarding the third requirement, the Trust allows for payments which are prohibited under the Medicaid trust exception.
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 his 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). As Mr. M~ points out, it is not clear that the early termination provision creates a contingent interest that could benefit third parties during Mr. S~ lifetime, as the Agency previously determined. The charitable remainder trust specifies payments only to Mr. S~ during his lifetime and then to third parties after his death. In the event such a trust were established, portions of the principal made available to Mr. S~ could be a countable resource under the regular trust counting rules, but any such trust would require separate evaluation. However, the Frustration of Trust Purpose provision in Item II(C), and the Restriction Against Alienation provision in Item V do create contingent interests that could benefit third parties during the lifetime of the claimant. The Frustration of Trust Purpose provision appears to allow the Trustee to terminate the trust and distribute the proceeds to "the beneficiaries" (apparently Mr. S~ heirs) if the State of Ohio fails to honor the trust or if the Trustee otherwise determines that its purpose has been frustrated. The Restriction Against Alienation provision directs that, upon attempted alienation of interest or right to receive payments by Mr. S~, during his lifetime, his right or interest to those payments ceases and terminates. The Trust directs that the Trustee shall then apply such payments, in his discretion, to any other beneficiary, as he determines. The provision further provides that if the trust itself is terminated, after any such attempts at alienation, the trustee will distribute the beneficiary's share to those who would be entitled to receive the share as if the beneficiary had died the day before the termination. Thus, the Trust allows for termination with distribution of assets to Mr. S~ heirs during his lifetime, or for payments to other beneficiaries during Mr. S~ lifetime upon his attempted alienation.
Mr. M~ argues that the only beneficiary of the Trust is Mr. S~. Mr. M~ urges construction of Item V of the Trust to read the phrase "any other beneficiary or beneficiaries" means "the beneficiary," i.e., Mr. S~. This is not sensible given the contrast of the two clauses in the same sentence and elsewhere in Item V. Regardless, Item II(C) of the trust unequivocally creates third party contingent interests who may benefit during Mr. S~ lifetime. Given these contingent interests in third parties, the Trust is not for the sole benefit of the Mr. S~ during his lifetime. Thus, the Trust does not meet the second requirement of a Medicaid payback trust.
The Trust also does not meet the third requirement of a Medicaid payback trust, because the Dispositive Provision of Item II, and the Termination Procedure of Item VI of the Trust, allow for prohibited payments before Medicaid is reimbursed. The statute provides that a trust is excepted only "if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State [Medicaid] plan . . . ." 42 U.S.C. § 1396p(d)(4)(A) (emphasis added). POMS SI 01120.203 (B)(1)(f) explains that, "[t]o qualify for the special-needs trust exception, the trust must contain specific language that provides that upon the death of the individual, the State will receive all amounts remaining in the trust, up to an amount equal to the total amount of medical assistance paid on behalf of the individual under the State Medicaid plan. This State must be listed as the first payee and have priority over payment of other debts and administrative expenses," subject to specific exceptions. The POMS directs that the trust at issue "must contain language substantially similar to" the above-quoted language. POMS SI 001120.203(B)(1)(f).
The Trust in this case allows for payments, prior to the reimbursement to the State for Medicaid expenses, which are not allowable expenses. Contrary to Mr. M~'s assertion, the Dispositive Provisions of Item II directs that after Mr. S~ death, the Trust shall be distributed first for payment of general expenses, for reimbursements for burial expenses, and for payment of any taxes, as well as payment for administrative expenses to terminate the trust. Yet, only taxes due from the trust and fees for trust administration may be paid prior to reimbursing the State Medicaid expenses. POMS SI 001120.203(B)(3)(a). Further, payments of debts to third parties and of funeral expenses prior to Medicaid reimbursement are specifically prohibited. POMS SI 001120.203(B)(3)(b). Mr. M~ argues that the Trustee has approved the purchase of an irrevocable burial arrangement for Mr. S~ that he claims will not be considered a resource under the statute. However, even if the Trustee makes such a purchase, the plain language of the Trust still would allow the Trustee to reimburse any party that makes advancements for Mr. S~ funeral. Given the provisions allowing prohibited payments (of any taxes, of burial fees, and of general expenses and corresponding reimbursements to third parties) prior to reimbursing Medicaid, the Trust fails to satisfy the third requirement of a Medicaid payback trust.
CONCLUSION
For the above reasons, we conclude that Trust is a countable resource and does not meet the purpose of the special needs trust exception. Specifically, the trust does not meet the requirements of a Medicaid payback trust because it is not for Mr. S~ sole benefit during his lifetime and because the trust allows inappropriate payments from the trust after Mr. S~ death before Medicaid is reimbursed. It thus is considered a resource.
~~M. PS 06-356 SSI-Ohio-Review of the Sub-Account of Jackie in the Ohio Pooled Trust-REPLY Your Reference: S2D5G6, SI 2-1-3 OH (R~) Our Reference: 06-0014~~
N. PS 06-356 SSI-Ohio-Review of the Sub-Account of Jackie in the Ohio Pooled Trust-REPLY Your Reference: S2D5G6, SI 2-1-3 OH (R~) Our Reference: 06-0014
Date: October 2, 2006
1. Syllabus
Trusts created on or after January 1, 2000, from the assets of an SSI claimant or beneficiary is considered a resource to the extent that the trust is revocable or the extent any payments can be made from the trust for the benefit of the individual. However, certain pooled trusts are excepted from this provision if they qualify as a Medicaid payback trust under § 1917(d)(4)(C) of the Act. In order to qualify for the Medicaid pooled trust exception, the trust must contain the assets of a disabled individual and satisfy the following conditions: 1) It must trust be established and maintained by a nonprofit association; 2) Separate accounts be maintained for each beneficiary, but assets are pooled for investing and management purposes; 3) Accounts are established solely for the benefit of the disabled individual; 4) Accounts in the trust must be established by the individual, a parent, grandparent, legal guardian, or a court; and 5) The trust must provide that to the extent any amounts remaining in the beneficiary's account upon the death of the beneficiary are not retained by the trust, the trust will pay to the State the amount remaining up to an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under a State Medicaid plan.
In this case, the trust contains a provision that might allow other individuals to benefit from the trust during the beneficiary's lifetime which is contrary to requirement three listed above. However, the trust contains a void clause which nullifies the offending provision which permits the trust to meet the Medicaid pooled trust exception and thus be excluded from resources for SSI purposes.
2. Opinion
You asked us whether Jackie R~sub-account in the pooled trust is a resource for SSI purposes. For the reasons discussed below, we conclude that the trust is not a resource
BACKGROUND
A trust sub-account to the Ohio Pooled Trust was established for the benefit of Jackie R~ to hold the proceeds from a personal injury settlement. The Center for Special Needs Trust Administration, Inc., is the trustee. Joinder Agreement for the Ohio Pooled Trust, Art. I, § 1.01. The trust provides that it is irrevocable and shall be established with resources, including assets and/or income, belonging solely and exclusively to the beneficiary (Jackie R~). Joinder Agreement for the Ohio Pooled Trust, introductory paragraph; Declaration of Trust Art. 1, § 1.4
The Center for Special Needs Trust Administration, Inc., is a non-profit corporation, which established the National Pooled Trust on February 5, 2002. See Declaration of Trust at 1. The trust defines beneficiaries as disabled individuals consistent with § 1614(a)(3) of the Social Security Act. Declaration of Trust at Art. 2, § 2.4. The purpose of the trust is to hold assets of individuals who are disabled and provide for their supplemental care and needs. Declaration of Trust at Art. 3, § 3.1; Art. 5, § 5.3.
Within the trust, individual trust accounts, called "sub-accounts," are created and managed for each beneficiary. Declaration of Trust at Art. 2, § 2.8; Art. 8, § 8.1. The funds from each sub-account are pooled for investment and management of the funds. Declaration of Trust at Art. 8, § 8.1. The trust is activated for an individual beneficiary when the trustee accepts a joinder agreement signed by a grantor, who according to the trust may be the individual with a disability, a parent, a grandparent, a guardian, a conservator, or a court. Declaration of Trust at Art. 4, § 4.2; Art. 2, §§ 2.3, 2.4. A sub-account is established upon receipt, by the trustee, of any assets transferred on behalf of a person with a disability. Declaration of Trust at Art. 4, § 4.2. Under the terms of the trust, the trustee has sole discretion to determine when payments will be made to the beneficiary. Declaration of Trust at Art. 5, §§ 5.1, 5.2. The trust states that it is irrevocable (Declaration of Trust at Art. 4, § 4.2), and spendthrift provisions provide that the beneficiary does not have the power to anticipate, assign, attach, or compel a distribution from the trust sub-account or any other part of the trust estate. Declaration of Trust at Art 3, §§ 3.1, 3.2.
Upon the death of a beneficiary, any amounts that remain in the beneficiary's trust sub-account shall be retained by the trust and, in the trustee's sole discretion used for the benefit of other beneficiaries enrolled in the pooled trust, or to add disabled persons, as defined in 42 U.S.C. § 1382c(a)(3), who are indigent, to the trust as beneficiaries; orto provide disabled persons, as defined in 42 U.S.C. § 1382c(a)(3), with equipment, medication, or such other services deemed suitable for such persons by the trustee.
Declaration of Trust at Art. 6; Joinder Agreement for the Ohio Pooled Trust at Art. III, § 3.2.
The trust also contains the following provision:
If the trustee has reasonable cause to believe that principal and/or income in any trust sub-account maintained for any beneficiary will be required to be used for the care of a beneficiary that has been, or would otherwise be, provided by local, state, or federal government, or an agency or department thereof, the trustee may, in its sole and absolute discretion, exercise one of the following provisions:
terminate the affected beneficiary's trust sub-account as though that beneficiary had died and treat the property in the sub-account according to the provisions in Article 6; or, continue to administer the affected beneficiary's trust sub-account under separate arrangement with the affected beneficiary or such beneficiary's legal representative.
Before making any distribution under this paragraph 7.1, the trustee should consider the tax, Medicaid, and other public benefit consequences to the beneficiary of any particular distribution. Declaration of Trust, Art. 7, § 7.1.
Any provision of the trust that may disqualify the beneficiary for government assistance shall be automatically, ab initio, amended, limited or void, to avoid that disqualification. Declaration of Trust, Art. 10, § 10.4.
DISCUSSION
Under the Social Security Act, trusts created on or after January 1, 2000, from the assets of an SSI claimant or beneficiary will be considered a resource to the extent that the trust is revocable or to the extent that any payments can be made from the trust for the benefit of the individual. See 42 U.S.C. § 1382b(e); POMS SI 01120.201. In the present trust, the trustee has the discretion to use the income and the principal in the trust sub-account for the benefit of the beneficiary for whom the sub-account was established. See Declaration of Trust Art. 3, § 3.1; Art. 5, § 5.3; Art. 7, § 7. Therefore, the trust would be a resource to the beneficiary under these provisions. See 42 U.S.C. § 1382b(e)(3)(B).
However, certain pooled trusts are excepted from this provision if they qualify as a Medicaid payback trust under the provisions of § 1917(d)(4)(C) of the Social Security Act, 42 U.S.C. § 1396p(d)(4)(C). See POMS SI 01120.203(B)(2). In order to qualify for the Medicaid payback trust exception, the trust must contain assets belonging to a disabled individual and must satisfy the following conditions:
It must be established and managed by a nonprofit association.
A separate account must be maintained for each beneficiary of the trust; but, for purposes of investment and management of funds, the trust pools these accounts.Accounts in the trust must be established solely for the benefit of the disabled individual by the individual, or parent, grandparent, legal guardian, or court.
The trust must provide that to the extent that amounts remaining in the beneficiary's account upon the death of the beneficiary are not retained by the trust, the trust will pay to the state from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary.
See POMS SI 01120.203(B)(2).
The Trust Does Not Qualify For the Medicaid Payback Exception, Unless the Offending Provision is Removed from the Trust under Article 10, § 10.4.
According to the terms of the Trust,
If the trustee has reasonable cause to believe that principal and/or income in any trust sub-account maintained for any beneficiary will be required to be used for the care of a beneficiary that has been, or would otherwise be, provided by local, state, or federal government, or an agency or department thereof, the trustee may, in its sole and absolute discretion, exercise one of the following provisions:
terminate the affected beneficiary's trust sub-account as though that beneficiary had died and treat the property in the sub-account according to the provisions in Article 6; or,
continue to administer the affected beneficiary's trust sub-account under separate arrangement with the affected beneficiary or such beneficiary's legal representative.
Before making any distribution under this paragraph 7.1, the trustee should consider the tax, Medicaid, and other public benefit consequences to the beneficiary of any particular distribution.
Declaration of Trust, Art. 7, § 7.1.
Section 1917(d)(4)(C)(iii) of the Social Security Act, 42 U.S.C. § 1396(d)(4)(C), states, in relevant part, "Accounts in the trust are established solely for the benefit of individuals who are disabled . . . ." The implementing POMS provide that one should "[c]onsider a trust established for the sole benefit of an individual if the trust benefits no one but that individual, whether at the time the trust is established or at any time for the remainder of the individual's life." (emphasis in original). See POMS SI 01120.201(F)(2). Since terminating the beneficiary's trust sub-account under the fiction "as though that beneficiary had died" would create the possibility that other individuals could benefit from the trust during the beneficiary's lifetime, the trust fails to meet the resource exception for Medicaid payback trusts under the Social Security Act. Therefore, under this provision, a beneficiary's sub-account in the trust would be a resource to the beneficiary. See 42 U.S.C. § 1382b(e)(3)(B).
Exclusion of the "as though that Beneficiary had died" Provision May Allow Trust to Qualify for the Medicaid Payback Trust Exception
However, if the foregoing offending provision were removed from the trust, it appears that, based on the remaining language of the trust, the trust would qualify for the Medicaid payback trust exception. Article 10, § 10.4 provides that if any provision of the trust disqualifies a beneficiary for government assistance, that provision may be voided to avoid such disqualification. This clause appears to void the offending language, which permits the trust to meet the Medicaid payback trust exception.
If the "as though that beneficiary had died" provision (§ 7.1(a)), were removed from the trust, it seems that based on the remaining language of the trust, without any additional alternations, the trust may qualify for the Medicaid payback exception.
The trust provides that it intends to create a self-funded, irrevocable trust. Declaration of Trust at Art. 4, §§ 4.1, 4.2. The trust defines the beneficiaries of the trust as disabled individuals pursuant to section 1614(a)(3) of the Social Security Act. See Declaration of Trust at Art. 2, §2.4. The Center for Special Needs Trust Administration, Inc., which is the organization that proposes to establish the trust, is identified as a non-profit corporation. See Declaration of Trust at 1. Next, the trust maintains a separate account for each beneficiary, but pools the accounts for purposes of investment and management of funds. See Declaration of Trust Art. 8, § 8.1. The trust further states that the trust is established by a grantor, which is defined as the individual with a disability, parents, grandparents, guardian, or conservator of a court and the trust is established solely for the purpose of providing a service to individuals with disabilities who qualify and wish to participate. Declaration of Trust at Art. 4, § 4.2; Art. 2, §§ 2.3, 2.4. And, finally the trust provides that upon the death of a beneficiary, any amounts that remain in the beneficiary's trust sub-account shall be distributed to each state in which the beneficiary received government assistance. Any remaining assets in the beneficiary's sub-account shall be retained by the trust and, in the trustee's sole discretion used for the benefit of other beneficiaries enrolled in the pooled trust, or to add disabled persons, as defined in 42 U.S.C. § 1382c(a)(3), who are indigent, to the trust as beneficiaries; or to provide disabled persons, as defined in 42 U.S.C. § 1382c(a)(3), with equipment, medication, or such other services deemed suitable for such persons by the trustee.
Declaration of Trust at Art. 6; Joinder Agreement for the Ohio Pooled Trust at Art. III, § 3.2. Therefore, if § 7.1(a) were excluded from the trust, it appears that the Medicaid payback exception would apply.
Furthermore, according to the regular resource rules, see POMS SI 01120.200(D), the trust will be considered a resource only if: (1) Ms. R~ can terminate or revoke the trust or her interest in the trust and obtain the assets; (2) Ms. R~ can compel the trustee to pay for her support and maintenance; or (3) Ms. R~ can sell her beneficial interest in the trust. See POMS SI 01120.200(A)(1)(a), (D)(1). Ms. R~ is the "grantor" of the trust to the extent the trust contains assets and/or income that belonged to her. See POMS SI 01120.200(B)(2). Generally, a grantor of a trust can revoke her contributions to the trust if she is also the sole beneficiary of the trust, even if the trust purports to be irrevocable. See POMS SI 01120.200(D)(3); POMS SI ATL01120.201(B), (C)(2); RESTATEMENT (THIRD) OF TRUSTS § 65 & comment a & Reporter's Note (2003). In this case, however, Ms. R~ is not the sole beneficiary of the trust, since the trust itself is a residual beneficiary of the trust sub-account, whose consent would be necessary to revoke the trust (Declaration of Trust Art. 6), and thus she could not unilaterally revoke her contributions to the trust and recover those assets to use for her support and maintenance. Declaration of Trust, Art. 4, § 4.2. Nor would Ms. R~ have the power or authority to direct the use of the trust property for her support and maintenance. Under the terms of the trust, the trustee has sole discretion to determine when payments will be made for her benefit. Declaration of Trust at Art. 5, §§ 5.1, 5.2. Finally, even if Ms. R~ could sell her beneficial interest in the trust, that interest would have little or no value because the trustee is not required to make any payments for her benefit. See RESTATEMENT (THIRD) OF TRUSTS § 60 & comments e, f (Tentative Draft No. 2, Mar. 10, 1999).
CONCLUSION
For the foregoing reasons, we conclude that a sub-account in the proposed pooled trust would not be a resource. In particular, we conclude that, after application of the Art. 10, § 10.4 "void clause," the trust meets the Medicaid payback trust exception, and would not be a resource under the regular resource rules. However, the trustees should be advised that SSA regards the Art. 7, § 7.1(a) provisions of the trust as being no longer of any legal effect.
~~N. PS 06-113 SSI-Ohio-Review of the Agreement of Trust for Nicole~~
O. PS 06-113 SSI-Ohio-Review of the Agreement of Trust for Nicole
Date: April 10, 2006
1. Syllabus
A trust agreement executed on September 28,2004 created two special needs trusts for the benefit of an SSI beneficiary. The first trust (the Zoom Trust) was funded solely with the beneficiary's assets and named the parents as grantors. The second trust (the N.R.R Trust) was funded solely with the assets of a third party and also names the parents as grantors. The Zoom Trust contains a provision stating that the Trust can be terminated if it interferes with Medicaid eligibility and, at that time, the Trust assets shift to the second Trust (the N.R.R Trust). Due to language contained in the second Trust, the assets of the Zoom Trust could potentially be used for the benefit of contingent beneficiaries during the SSI beneficiary's lifetime.
Therefore, the Zoom Trust is not for the sole benefit of the beneficiary and does not qualify for the Medicaid trust exception. The second Trust, funded solely with the assets of a third party, is not subject to examination under the Medicaid trust exception policy. As such, it is excluded from resource counting since the Trust is irrevocable, contains a spendthrift clause, and the beneficiary cannot direct use of the funds to meet basic needs.
2. Opinion
You have asked whether the two trusts created by the Agreement of Trust for Nicole R. R~ (Nicole), known as "The Zoom Trust" and "The N.R. R~ Trust," are resources for purposes of determining Nicole's eligibility for SSI. For the reasons explained below, we believe that the Zoom Trust is a resource to Nicole but the N.R. R~ Trust is not a resource to her.
Background
On September 28, 2004, Theodore C. R~ and Wanda A. R~ (Nicole's parents) created the "Agreement of Trust for Nicole R. R~" (Agreement) for Nicole's benefit. Trust Preamble & Trust § 1.5. The Agreement indicates that Nicole is a disabled person under the age of 65. Trust Preamble. This Agreement created two special needs trusts for Nicole's benefit. Trust § 1.1. The first trust was named "The Zoom Trust" while the second trust was named "The N.R. R~ Trust." Trust §§ 1.1, 2.1, & 3.1. The Agreement indicates that these trusts are to be construed under Ohio law. Trust Preamble, Trust § 9.1.1.
A. The Zoom Trust
The Zoom Trust is a special needs trust which was funded solely from Nicole's assets. Trust § 2.1. The amount or origin of the assets is not stated in the trust agreement. Nicole's parents were named as grantors of the Trust and Nicole's father, Theodore R~, was named as the trustee of the Trust. Trust Preamble & Trust § 5.1. The Agreement provides that the Trust is revocable during the lifetime of either grantor but is not revocable by the beneficiary, Nicole. Trust §§ 1.3, 1.6.
The Trust declares that its purpose is to supplement, but not to supplant, whatever benefits and services Nicole may receive as a result of her disability from federal, state, and local government or from any other private or public profit or non-profit organizations. Trust §§ 1.2, 2.2.
The Trust provides that it may terminate during Nicole's lifetime if a court of competent jurisdiction finds that Nicole is (1) fully competent without any legal disability and (2) does not meet the requirements of the federal and state disability criteria. Trust § 2.3. The Trust also provides that it will terminate upon Nicole's death. Trust § 2.4. Upon Nicole's death, the Trust's assets would be distributed in the following order:
1. To pay for Nicole's trustee fees, attorney fees, final taxes, and other trust estate administration costs, including costs related to accounting of the trust to a court, completion of filing of documents, or other required actions associated with the termination and wrapping up of the trust;
2. To repay each state which had provided medical assistance (Medicaid) to Nicole during her lifetime; and
3. Any remaining assets would then be distributed to the grantors, or the survivors of them. If neither grantor survived, then the Trust assets would be distributed to Sarah R. R~. And if none of these beneficiaries survived Nicole, the remaining trust assets would be distributed to certain named family members, per capita.
Trust §§ 2.4, 2.4.1, 2.4.2.
Finally, the Agreement provides that if the Zoom Trust is terminated due to a determination that its income or principal constitutes a resource which would interfere with or prevent Nicole's Medicaid benefits, the Trustee may elect to have all, or any part, of the Trust funds converted to "The Special Needs Trust of Nicole R. R~," subject to an amendment that upon Nicole's death, the R~ trust assets would first be used repay each state which has provided Medicaid to Nicole during her lifetime. Trust § 8.3.1.
B. The N.R. R~ Trust
The N.R. R~ Trust is also a special needs trust but this trust was funded by a third party; the assets are not (and were never) Nicole's assets. Trust § 3.1. The Trust declares that its purpose is to supplement, but not to supplant, whatever benefits and services Nicole may receive as a result of her disability from federal, state, and local governments or from any other private or public profit or non-profit organizations. Trust § 3.2. The amount or origin of the assets is not stated in the trust agreement. Nicole's parents were both named as grantors of the Trust and Nicole's father, Theodore R~, was named as the trustee of the Trust. Trust Preamble & Trust § 5.1. The trust would be revocable during the lifetime of either grantor but is not revocable by Nicole. Trust §§ 1.3, 1.6.
The Trust provides that the trustee may, but is not required to, establish a regular monthly amount to be paid as a supplement for Nicole to provide for services she needs as a direct result of her disability. Trust § 3.2.2. The Trust further provides that Nicole would be restricted from transferring, selling, or assigning any beneficial interest (whether it be income or principal) she receives. Trust § 3.2.5.
The Trust provides that it may be terminated during Nicole's lifetime if a court of competent jurisdiction finds that Nicole is (1) fully competent without any legal disability and (2) does not meet the requirements of the federal and state disability criteria. Trust § 3.3. If so terminated, trust assets either go to Nicole or stay in the trust. The Trust also provides that it may be terminated if it is determined that the income or principal of this Trust constituted a resource which would interrupt, prevent, or interfere with Nicole's Medicaid benefits. Trust § 3.4. In the event that the Trust is terminated due to its interference with Medicaid benefits, the Trust assets would be distributed first to the Grantors, or their survivors, then to Sarah R. R~, and then to certain named family members, per capita. Trust §§ 3.4.1. Finally, the Trust would also terminate upon Nicole's death. Trust § 3.5. Upon Nicole's death, the Trust assets would be distributed as follows:
a. To pay for Nicole's trustee fees, attorney fees, final taxes, and other trust estate administration costs, including costs related to the accounting of the Trust to a court, completion of filing of documents, or other required actions associated with the termination and wrapping up of the trust.
b. Then to the grantors, or their survivors. If neither grantor survived, then the Trust assets would be distributed to Sarah R. R~. And if none of these beneficiaries survived Nicole, the remaining trust assets would be distributed to certain named family members, per capita.
Trust §§ 3.5, 3.5.2.
DISCUSSION
For the reasons explained in the following discussion, we believe the Zoom Trust is a resource to Nicole, while the N.R. R~ Trust is not a resource to her.
A. The Zoom Trust
Under federal law, a trust established by an individual after January 2000 generally will be considered a resource to her if the trust is irrevocable, if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual. In that case, the value of the resource is the portion of the trust corpus which could be made to or for the benefit of the individual. 42 U.S.C. § 1382b(e)(3)(B); POMS SI 01120.201(D)(2)(a). However, certain exceptions may apply.
Here, while the Trust indicates that either grantor could revoke the trust, Nicole is explicitly prohibited from revoking the Trust. Trust §§ 1.3, 1.6. Moreover, even though Nicole should be considered the true grantor of the Trust (since the Trust was established with funds that belonged to her), she is not the sole beneficiary under the Trust (which would make the Trust unilaterally revocable notwithstanding any contrary language). Trust § 2.1., POMS SI 01120.200(B)(2), 01120.200(D)(3), 01120.201(B)(7), CHI01120.200. Specifically, the Trust creates contingent remainder interests in certain named family members. Trust § 2.4.2, POMS SI CHI01120.200(D)(1). Accordingly, the Trust is irrevocable. POMS SI CHI01120.200(C) ("[I]f the trust names a residual beneficiary to receive the benefit of the trust interest after a specific event, usually the death of the primary beneficiary, the trust is irrevocable. The primary beneficiary cannot unilaterally revoke the trust; he needs the consent of the residual beneficiary.").
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 (which is the case here, since Nicole is a beneficiary), unless the Trust meets the requirements of the Medicaid trust exception in POMS SI 01120.203(B).
The Medicaid trust exception for individual trusts applies where the trust:
a. contains the assets of an individual who is under age 65 and disabled;
b. is established for the benefit of such individual by a parent, grandparent, legal guardian, or a court; and
c. provides that, upon the death of the individual, the State will receive all amounts remaining in the trust, equal to the total medical assistance (Medicaid) paid for the individual's benefit.
POMS SI 01120.203(B).
Here, the Trust satisfies two out of the three requirements, namely requirements (1) and (3). Specifically, the Trust provides that Nicole is under 65 and disabled and that upon her death, any medical assistance agencies would be reimbursed for Medicaid benefits Nicole received during her lifetime. Trust Preamble, Trust § 2.4.1. However, due to the termination provision in Section 8, the Trust fails to satisfy the second requirement, which requires that the Trust be established for the benefit of an individual by a parent, grandparent, legal guardian, or court. Trust § 8.1. We have previously opined that the second requirement should be interpreted to necessitate 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, one of the Zoom Trust termination provisions creates contingent interests that could potentially benefit third parties during Nicole's lifetime. Specifically, if the trustee decides to terminate the Trust because it disqualifies Nicole from Medicaid benefits, the Trust assets may be shifted into the N.R. R~ Trust, and the R~ Trust contains a termination provision that creates contingent interests in individuals other than Nicole. Trust § 3.4.1. This contingent interest in third parties causes the Zoom Trust to not be for the sole benefit of Nicole during her lifetime. Accordingly, the exception under Section 1917(d)(4)(A) of the Social Security Act (POMS SI 1120.203(B)), as well as any other exceptions, would not be available. Therefore, the Zoom Trust should be considered a resource to Nicole under POMS SI 01120.201(D)(2).
A. The N.R. R~ Trust
In contrast to the Zoom trust, since the N.R. R~ Trust was funded solely by assets that were not Nicole's, it is a third party trust. Trust § 3.1. Trusts established by third parties are resources if an individual (Nicole) has the legal authority to revoke the trust and then use the funds to meet her food, clothing, and shelter needs, or if the individual can direct the use of the trust principal for her support and maintenance. SI 01120.200(D)(1)(a). Additionally, if the trust provides mandatory disbursements to the beneficiary and the beneficiary is not prohibited from anticipating, assigning, or selling the right to future payments, the current value of these payments may be a resource to the beneficiary. SI 01120.200(D)(1)(a). Here, neither situation exists. The Trust provides that Nicole cannot terminate or revoke the Trust. Trust § 1.3. And only the trustee, not Nicole, is authorized to invade the Trust principal if the net income is not sufficient to make appropriate distributions. Trust § 3.2.4. In addition, the Trust provides that the trustee may establish a regular monthly amount to be paid as a supplement for Nicole to provide for services she needs as a direct result of her disability. Trust § 3.2.2. The Trust further provides that Nicole is restricted from transferring, selling, or assigning any beneficial interest (whether it be income or principal) she receives. Trust § 3.2.5. As such, we believe that the N.R. R~ Trust should not be considered a resource to Nicole.
Conclusion
For the reasons discussed above, we conclude that The Zoom Trust is a resource to Nicole, but the N.R. R~ Trust is not.
~~O. PS 06-053 SSI-Ohio-Review of the Gift Annuity Account for Janalyn~~
P. PS 06-053 SSI-Ohio-Review of the Gift Annuity Account for Janalyn
Date: January 30, 2006
1. Syllabus
The Ohio Community Pooled Trust was amended on September 16, 2005 to incorporate changes to the Master Trust that would permit all sub-accounts to be excluded from countable resources for SSI purposes. The amendments to the Master Trust Agreement bring the Trust into compliance with the Medicaid payback provisions such that the subaccounts are now excluded under provisions found at 42 U.S.C.1396p(d)(4)(c). Amendments incorporated September 16,2005 modified the original Trust. This means that the changes to the Master Trust, and the subaccounts found therein, are effective September 16,2005 and not for any time prior to execution of the amendments.
2. Opinion
In May 2005, the Agency determined that the Gift Annuity Account established for Janalyn M. H~ (Janalyn) in the Ohio Community Pooled Trust was a resource to Janalyn for purposes of determining her eligibility for Supplemental Security Income (SSI). See Memorandum from Reg. Chief Counsel, Chicago, to Ass't. Reg. Comm. - MOS, Chicago, SSI - Ohio - Review of the Gift Annuity Account for Janalyn M. H~ in the Ohio Community Pooled Trust (May 16, 2005) (hereinafter, H~ memo). We also explained that, with certain changes to the trust, Janalyn's subaccount would no longer be considered a resource.
On September 16, 2005, a new Trust Agreement was drafted which incorporated the changes discussed in the H~ memo. A representative of the Trustee now requests written confirmation that the new Trust Agreement eliminates the Agency's previous concerns and complies with the Medicaid payback trust provisions at 42 U.S.C. § 1396p(d)(4)(C). For the reasons discussed in the H~ memo, we conclude that the new Trust Agreement complies with the Medicaid payback provisions and that Janalyn's subaccount would no longer be a resource. However, as discussed below, the new Trust Agreement became effective on September 16, 2005 and Janalyn's subaccount would be a resource prior to that date.
The Restatement (Third) of Trusts distinguishes between two types of alteration of a trust document. A "'reformation' involves the use of interpretation (including evidence of mistake, etc.) in order to ascertain - and properly restate - the true, legally effective intent of a settler with respect to the original terms of trusts they have created." Restatement (Third) of Trusts, § 62, Reporter's Notes. In contrast, a "modification involves a change in - a departure from - the true, original terms of the trust, whether the modification is done by a court [cites omitted] or by the beneficiaries." Id.
We believe that the September 2005 amendment modified, or changed, the original Trust. Restatement (Third) of Trusts, § 62, Reporter's Notes (defining "modification"). With its statement that the new trust Agreement is to be "generally effective as of the 25th day of August, 1998 but specifically effective with respect to the duties and responsibilities of the Trustees as of the date of this Agreement," the Dayton Foundation and the Trustees attempt to retroactively apply modified Trust terms. But such retroactive application is inconsistent with modification, which, unlike reformation, does not give effect to original intention. See Restatement (Third) of Property, § 12.1, Reporter's Notes 7 on Comment f (contrasting modification and reformation to explain the fact that a reformation order operates to alter the text as of the date of execution rather than as of the date of the order). Rather, because the modification is a "departure from the true original terms of the trust," the amendment here became effective upon its execution, September 16, 2005. Restatement (Third) of Trusts, § 62, Reporter's Notes.
CONCLUSION
We believe that the terms of the new Trust Agreement meet the Medicaid payback exception criteria. However, the new Trust Agreement would be effective as of September 16, 2005. Thus, as of that date, Janalyn's sub-account under the new Trust Agreement would not be a resource to her.
~~P. PS 05-160 SSI-Ohio-Review of the Gift Annuity Account for J~ in the Ohio Community Pooled Trust~~
Q. PS 05-160 SSI-Ohio-Review of the Gift Annuity Account for J~ in the Ohio Community Pooled Trust
Date: May 16, 2005
1. Syllabus
This case involves a sub-account (Charitable Gift Annuity) created in the Ohio Community Pooled Trust in 2004 for an SSI individual. Generally, such an account would constitute a resource for SSI purposes if it is created on or after January 1, 2000 and the Master Trust allows the trustee to use the assets in the sub-account for the benefit of the individual beneficiary.
However, Section 1917(d)(4)(C) of the Social Security Act permits an exception to pooled trusts if the following conditions are met:
(1) the trust must be established and managed by a non-profit corporation; (2) a separate account must be maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts;
(3) accounts in the trust must be established solely for the benefit of the disabled individual by the individual, or the disabled individual's parent, grandparent, or legal guardian, or a court; and
(4) the trust must provide that to the extent that amounts remaining in the beneficiary's account upon the death of the beneficiary are not retained by the trust, the trust will pay to the State from such remaining amounts an amount equal to the total amount of medical assistance paid on behalf of the beneficiary.
In the immediate case, the RCC determined that the third requirement for the exception was not met; i.e., the sub-account was not established for the sole benefit of the disabled individual. The Master Trust contains a provision that allows the beneficiary to disclaim her interest in the sub-account, at which point she would be "deemed dead." The trustee would then distribute any annuity amount and any remaining accumulated annuity amount to the State for reimbursement . Any remaining property in the sub-account would then be allocated to a separate fund of the Master Trust to be used for disability programs and services the trustee deemed advisable. The RCC opined that, given the possibility that a third party (the separate fund of the trust) could benefit from the assets in the beneficiary's sub-account during the beneficiary's lifetime, that the trust exception did not apply. Thus, the sub-account was found to be a resource for SSI purposes.
2. Opinion
You asked whether the Gift Annuity Account established for J~ M. H~ (J~) in the Ohio Community Pooled Trust (Trust) is a resource to J~ for purposes of determining her eligibility for Supplemental Security Income (SSI). For the reasons discussed below, we conclude that, pursuant to the current Trust provisions, the Gift Annuity Account constitutes a resource for purposes of determining J~'s SSI eligibility.
BACKGROUND
The Dayton Foundation, an Ohio not-for-profit corporation, established the Trust on August 25, 1998. Trust, Section 1. The purpose of the Trust is to "promote the general well being of individuals with disabilities by providing for their supplemental needs, in addition to and not in lieu of and not to supplant benefits or services otherwise provided by any local, state or federal government, agency or department thereof." Trust, Section 1(A). The Trust defines individuals with disabilities as those who are disabled within the meaning of 42 U.S.C. § 1382c(a)(3). Trust, Section 4(H). The Trust is intended to be a pooled Medicaid payback trust established under 42 U.S.C. § 1396p(d)(4)(C). Trust, Section 1.
Within the Trust, individual sub-accounts, called "Charitable Gift Annuities" are created and maintained for each disabled beneficiary, but pooled for investment and management of the funds. Trust, Sections 2, 8, 11. The Trust is activated for an individual beneficiary when the trustee accepts a Gift Annuity Account Agreement entered into by the trustee and a qualified donor. Trust, Section 1(D). According to the Trust, a qualified donor may be the disabled indi- vidual, or a parent, grandparent, or legal guardian of the disabled individual. Trust, Section 4(K). The trustee may, but is not required to, accept property from a qualified donor in exchange for a sub-account to be used and administered for the benefit of a disabled individual. Trust, Section 1(D).
During the disabled individual's lifetime, the trustee shall use the annuity amount and any accumulated annuity amount solely for the supplemental needs of the disabled individual, and shall use such amounts to the fullest extent possible. Trust, Sections 2(A)(1), 2(A)(2). If the disabled individual has a personal representative, the trustee shall consult with the personal representative concerning the disabled individual's supplemental needs. However, decisions concerning the use of any annuity amount or accumulated annuity amount for the supplemental needs of the disabled individual are made as the trustee deems advisable. Trust, Section 2(A)(3).
The Trustee shall not make any distributions from the Trust for the support and maintenance of a disabled SSI recipient. Gift Annuity Account Agreement, Paragraph B. The trustee has the power and authority, and full discretion, to hold, invest, reinvest, sell, convey, exchange or otherwise handle and/or dispose of Trust property as the trustee deems advisable. Trust, Sections 8(A)-(P). If the disabled individual receives SSI benefits, the trustee has the power to pay such annuity amount or accumulated annuity amount directly for reimbursement of expenses for supplemental needs incurred by or for the disabled individual. The trustee also has the power to pay such annuity amount or accumulated annuity amount to the disabled SSI recipient's personal representative or natural or legal guardian or custodian for the supplemental needs of such disabled individual. Trust, Section 10. The trustee shall not make any payments directly to a disabled SSI recipient. Gift Annuity Account Agreement, Paragraph B.
A disabled individual has no right or power to assign, anticipate, alienate or otherwise transfer any right or interest in any account or Gift Annuity Account Agreement, except as provided for in Section 9 of the Trust agreement. Trust, Section 10; Gift Annuity Account Agreement, Paragraph C(3). Section 9 of the Trust provides that any individual who has, or might acquire in the future, an interest in any account created under the Trust or Gift Annuity Account Agreement may disclaim all or any part of such interest. Trust, Section 9. "[F]or the purposes of determining the disposition of such interest, such person shall be deemed to have died on the effective date of such disclaimer." Id.
Following the death of a disabled individual who is an SSI recipient, the trustee shall distribute any annuity amount and any remaining accumulated annuity amount to the State. Trust, Section 2(B)(1); First Amendment to the Ohio Community Pooled Trust. The trustee shall allocate the remaining property of the disabled individual's account to a separate fund of the Trust to be used for disability programs and services as the trustee deems advisable. Trust, Section 2(B)(2).
On January 19, 2004, Terry H~ and Trina S~r (J~'s co-guardians) executed a Gift Annuity Account Agreement, enrolling J~ in the Ohio Community Pooled Trust. According to the Gift Annuity Account Agreement, J~'s co-guardians transferred $42,543.83 to the trustee in exchange for a Charitable Gift Annuity to be administered in a separate account of the Trust. Gift Annuity Account Agreement, para. B, Schedule A. Under the terms of the Gift Annuity Account Agreement, $184.36 per month (an annual total of $2,212.32), is to be used for J~'s supplemental needs. Gift Annuity Account Agreement, Schedule A.
DISCUSSION
A trust established on or after January 1, 2000, is a resource if it is a revocable trust established by an individual. See 42 U.S.C. § 1382b(e)(3)(A). Further, irrevocable trusts established by an individual on or after January 1, 2000, are resources to the extent that payments from the trust could be made to or for the benefit of the individual or his/her spouse. See 42 U.S.C. § 1382b(e)(3)(B). However, these rules do not apply where (1) the Commissioner determines that such rules would work an undue hardship on an individual or (2) a Medicaid trust exception applies, as described in 42 U.S.C. § 1396p(d)(4)(A) or (C). See 1382b(e)(4)-(5); Program Operations Manual System (POMS) SI 01120.203.
Under the three-pronged Medicaid trust exception applicable to special needs trusts, trust assets will not be considered a resource to the individual where (1) the individual is disabled and under age 65,
(2) the trust was established for the individual's benefit by a parent, grandparent, legal guardian or a court, and
(3) the terms of the trust provide that, upon the death of the individual, the State will be reimbursed for the total amount of medical assistance paid on the individual's behalf under a State Medicaid plan.
POMS SI 01120.203B.1.a. Where the assets of an SSI claimant/recipient form only a part of the trust, these rules will apply to that portion of the trust attributable to the individual. Thus, a proration of the trust assets may be necessary. Moreover, even if the trust is not counted under the statute due to the application of the Medicaid trust exception, SSA still applies the general resource rules in 42 U.S.C. §§ 1382 and 1382b in determining whether the trust is a resource for SSI purposes.
Here, the special needs trust was established by Scott's father with Scott's father's funds ($10.00). See Trust Agreement, Schedule A. The Trust Agreement allowed for subsequent additions to be made to the trust. The regular resource rules apply to the initial trust contribution of $10.00 from Scott's father and any addition made to the trust that was the asset of any individual other than Scott. See POMS SI 01110.100B.1. If the UGMA/UTMA funds that were subsequently added to the trust are considered to be Scott's assets, then the portion of the trust attributable to the UGMA/UGTA contribution is a resource to Scott, unless the Medicaid trust exception applies.
We conclude that the UGMA/UTMA funds should be considered Scott's assets. Because we do not know when the transfer to trust was made, we cannot determine whether Scott had outright ownership of the assets when they were transferred into the trust.1 However, this should not matter. We conclude that, even if the assets were transferred into the trust prior to date he attained the age of majority, the assets should be considered Scott's assets. POMS SI 01120.201B.2 states that an "asset" includes "any other payment or property to which the individual or individual's spouse 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 . . .." Because the funds in question were initially deposited into investment accounts under a UGMA/UTMA, Scott would not have received the funds or had access to them before he reached the age of majority because they were held by a custodian (his father) who had legal authority to act on Scott's behalf with regard to the money. Therefore, the funds must be considered Scott's assets. See POMS SI 01120.201B.7. Regardless of whether the assets were Scott's outright or held by a custodian on his behalf under the UGMA/UTMA, they should be considered Scott's assets.
Because the funds that were transferred to the trust from the UGMA/UTMA investment accounts are considered Scott's assets, they constitute a resource to him upon transfer into the trust unless the Medicaid trust exception applies. Here, the Medicaid trust exception applies. The trust contains the assets of Scott, who is under age 65 and, for purposes of this memorandum, presumably disabled.2 In addition, Scott's father established the trust for Scott's benefit. Under the Medicaid trust exception rules, the "person who established the trust" is "the individual who physically took action to establish the trust even though the trust was established with the assets of the SSI claimant/recipient." POMS SI 01120.203B.1.e. Since Scott's father "physically took action" to establish the trust, he established the trust. Moreover, the trust provides that the State will receive all amounts remaining in the trust upon Scott's death up to an amount equal to the total medical assistance paid on Scott's behalf under the State Medicaid plan. Thus, the requirements of the Medicaid trust exception for special needs trusts are met.
The Medicaid trust exception also requires that "[t]he State must be listed as the first payee and have priority over payment of other debts and administrative expenses except as listed in SI 01120.203B.3.a." POMS SI 01120.203B.1.f. Scott's trust contains provisions providing that upon Scott's death, the Trustee shall "pay attorney fees and other properly allowable costs incurred in administering and wrapping up the Trust" and "any federal or state estate tax or inheritance tax" arising from Scott's death before the State is reimbursed the amount of medical assistance it paid on Scott's behalf. Trust Agreement, Article V. These provisions are consistent with POMS SI 01120.203B.3.a, which allows such payments.
Since the Medicaid trust exception applies, the statutory trust provisions regarding resources do not apply to the portion of Scott's trust attributable to the UGMA/UGTA funds. See 42 U.S.C. § 1382b(e)(5). However, even if this portion of Scott's trust is not counted under the statute (because the Medicaid trust exception applies), SSA will apply the regular resource rules in 42 U.S.C. §§ 1382 and 1382b, in determining whether this portion of the trust is a resource for SSI purposes.3
Under the regular resource rules, trust assets are a resource if (1) the individual can revoke or terminate the trust and obtain unrestricted access to the assets, (2) the individual has access to the trust assets and can direct their use to meet his needs for food, clothing, and shelter, or (3) the individual can sell his beneficial interest in the trust. POMS SI 01120.200D.
Whether a trust can be revoked or terminated depends on the terms of the trust and the applicable state law. The Trust Agreement explicitly states that Scott cannot revoke the trust. Trust Agreement, Article II. We also note, however, that the Trust Agreement permits the trustee to revoke the trust if it is in Scott's best interest. Id. However, because the trustee has the absolute discretion to revoke the trust, Scott cannot compel the trustee to revoke the trust and distribute the principal or income to him. Nevertheless, some trusts may be revocable, despite express language to the contrary. Grantor trusts, in which the grantor is also the sole beneficiary, may be revocable regardless of explicit language to the contrary. POMS SI 01120.200D.3. However, a grantor trust is irrevocable where there is a residual beneficiary. Here, Scott is the true grantor with regard to the portion of the trust pertaining to the UGMA/UGTA funds, but he is not the sole beneficiary. As we recently advised, we believe that, in Ohio, if the language of the trust specifies that it is irrevocable, and it does not appear that the trust can be unilaterally revoked, and it meets the Medicaid payback provisions, then the Agency can consider the state of Ohio to be a beneficiary. See Memorandum from Regional Chief Counsel, Chicago, to Asst. Reg. Comm.-MOS, Chicago, Ohio Treatment of the State as a Beneficiary in a Medicaid Payback Trust (March 19, 2004). Because the State of Ohio can be considered a residual beneficiary, the trust is irrevocable by Scott.
Nor can Scott compel distributions from the trust. Trust Agreement, Article III. The Trust Agreement also contains a spendthrift provision that prevents him from selling his interest in the trust. Trust Agreement, Article V. For these reasons, the trust assets are not a resource to Scott for SSI purposes.4
CONCLUSION
We conclude that the portion of the trust attributable to the UGMA/UTMA contribution is Scott's asset, but not a resource to Scott for SSI purposes. In addition, the portion of the trust attributable to the contribution made by Scott's father does not constitute a resource to Scott for SSI purposes.
1 UGMA/UTMA assets are not income to a minor until the custodian makes disbursements to the minor or on the minor's behalf or the minor reaches the age of majority. POMS SI 01120.205B.1.b-c. In Ohio, the age of majority is 18. According to the computer printout you provided, Scott attained age 18 in September 2003, shortly after the trust was established. Because we do not know the date on which the assets were transferred into the trust, we cannot determine whether Scott acquired legal ownership and control over the assets prior to the transfer of the assets into the trust.
2 Scott's SSI application is currently awaiting medical review, pending receipt of this memorandum.
3 As previously noted, the regular resource rules also apply to the portion of the trust attributable to the $10.00 contribution from Scott's father.
4 We note that the Trust Agreement provides that the trustee may, in the trustee's sole discretion, pay Scott "amounts from the principal or income" and "a periodic allowance for spending money." Trust Agreement, Article III. To the extent that Scott receives any distributions from the trust, such distributions may be considered countable income to Scott.
~~Q. PS 05-155 SSI - Review of the Request for Reconsideration of the Review of the Charles Trust~~
R. PS 05-155 SSI - Review of the Request for Reconsideration of the Review of the Charles Trust
Date: April 22, 2005
1. Syllabus
This opinion modifies a previous opinion which concluded that the trust in question is a countable resource for SSI purposes. The original opinion concluded that the trust did not satisfy the rules in SI 01120.203 (Medicaid trust exceptions) because the trust was not established by a parent, grandparent, legal guardian, or court. However, upon further review, it was determined that the trust was established by the claimant's mother and thus is an excludable resource for SSI purposes. This opinion also revises a previous opinion by concluding that the state of Ohio would recognize the existence of a "dry" or "empty" trust for purposes of applying the Medicaid trust exceptions (see SI 01120.203).
2. Opinion
You have asked whether, in light of the arguments advanced by Charles G~'s attorney, the Charles C. G~ Trust should be considered a resource for purposes of determining Charles' eligibility for Supplemental Security Income (SSI). As discussed below, we now conclude that the principal the Trust principal is not a resource, and that Charles' interest in the Trust is a resource with no value. In addition, we partially revise an earlier opinion, Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, Six State Survey on "Dry" or "Empty" Trusts, (November 30, 2004) (hereinafter "Six State Survey") and now conclude that Ohio would recognize the existence of a "dry" or "empty" trust.
FACTS
The Charles C. G~ Trust (Trust) was created on July 1, 2002. Charles C. G~ is listed as the "settlor," and Candace G~, Charles' mother, is listed as the person "establishing" the Trust. Preamble and Signature Block. Article II provides that "[t]he settlor has irrevocably assigned, transferred, and delivered to the Co-Trustees the property listed in Schedule A attached hereto, the receipt of which is hereby acknowledged by the Co-Trustees, upon the express terms and conditions provided in this Agreement."
The Trust provides that Charles has the right to terminate the Trust and receive the Trust assets if he is determined to be not disabled by either the Social Security Administration or the Ohio Department of Job and Family Services. Article V(A). Otherwise, the Trust terminates upon Charles' death, and the Trust assets are to be used first, to wrap up the administration of the Trust; second, to pay any federal or state taxes; third, to reimburse the State for Medicaid services; fourth, to pay for Charles' funeral and estate expenses; and, finally, as Charles may appoint in his will, or, absent such appointment, to certain named siblings. Article V(B).
DISCUSSION
As you know, in our prior opinion on this Trust, we concluded that the Trust should be considered a resource because it did not satisfy any of the exceptions to the statutory trust resource rules as discussed in POMS SI 01120.203 (listing Medicaid trust exceptions for individual and pooled trusts, and the waiver for undue hardship). In particular, we opined that POMS SI 01120.203(B)(1) (the exception for individual trusts) would be unavailable because it appeared that Charles, a competent adult, "established" the Trust when he transferred the assets listed in Schedule A to the trustees contemporaneous with the execution of the Trust document. And, the exception under POMS SI 01120.203(B)(1), "does not apply to a trust established by the individual himself/herself." POMS SI 01120.203(B)(1)(e). However, upon further review, we now conclude that the Trust was "established" by Charles' mother, Candace G~, and that the exception under POMS SI 01120.203(B)(1) would be applicable to the Trust.
It appears that, in Ohio, a trust is valid notwithstanding the absence of a trust corpus. Ohio Rev. Code Ann. § 1335.01(b) (West 2005) ("A trust is valid regardless of the existence . . . of the corpus of the trust."). According to the legislative history, section 1335.01(b) was enacted in October 1992, to supersede the case of Knowles v. Knowles, 212 N.E.2d 88 (Ohio Prob. 1965), which found, in part, that a testamentary disposition could not "pour over" assets into a separate, unfunded trust document that was executed before the testator's death, because an unfunded trust document was not a valid trust. In our prior opinion, Six State Survey, we relied on case law that predated the 1992 statutory enactment (First Nat'l Bank of Middletown v. Gregory, 468 N.E.2d 739 (Ohio App. 1983)), which seemingly no longer controls. Accordingly, we revise our opinion in Six State Survey to conclude that Ohio would recognize an "empty" or "dry" trust as of October 1992.
Pursuant to advice received from the Team Leader of the Office of Disability and Income Security Programs (ODISP) Deeming, Income, and Resources Team, because Ohio recognizes dry or empty trusts, Candace could "establish" a trust for Charles, a competent adult, for purposes of the POMS SI 01120.203(B)(1) exception to the statutory trust resource rules. And here, the Trust indicates that Candace did "establish" the Trust (presumably by seeking an attorney and requesting that the trust document be drafted, and by agreeing to serve as a co-trustee) contemporaneous with the funding of the Trust, which was effected by Charles. See Preamble and Article II; POMS SI 01120.203(B)(1)(e) (The individual who established the trust is the individual "who physically took action to establish the trust, even though the trust was established with the assets of the SSI claimant/recipient."). And, as we indicated in our prior opinion on this Trust, all of the other elements of the POMS SI 01120.203(B)(1) exception seem otherwise to have been met.
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 a trust is a resource if it can be sold. POMS SI 01120.200(D).
Here, as we explained in our prior opinion on this Trust, Charles cannot revoke the trust (except, as discussed above, under the limited circumstances provided for in the termination clause). The Trust also provides that Charles has no right to demand income or principal from the Trust. Article VI(A). Therefore, the Trust principal is not a resource.
With respect to selling Charles' beneficial interest, the Trust provides that no interest shall be assignable. Article VI(A). However, since Charles is the settlor of the trust for state law purposes, the non-assignment provision would not prevent him from selling his interest in the trust. See Restatement (Second) of Trusts § 156(1) (1957); POMS SI 01120.200(B)(16). But, since disbursements are completely within the trustee's discretion, Charles' interest in the trust has no significant market value. The interest, however, is a resource since a resource is defined as an interest that an individual (1) owns (2) has the right, power or authority to convert to cash, and (3) is not legally restricted from using for his support and maintenance, POMS SI 01110.100(B)(1), even if the interest has no current market value, POMS SI 01110.100(B)(2), SI 01140.044. Accordingly, Charles' interest in the Trust should be considered a resource with no market value, even though the Trust principal is not a resource.
CONCLUSION
For the reasons discussed above, we conclude that the Trust principal is not a resource, and that Charles' interest in the Trust is a resource with no value. We also partially revise our earlier opinion, Six State Survey, and now conclude that Ohio would recognize the existence of a "dry" or "empty" trust for purposes of applying the POMS SI 01120.203(B)(1) exception to the statutory trust resource rules.
~~R. PS 04-221 SSI-Ohio-Review of the Scott Special Needs Trust~~
S. PS 04-221 SSI-Ohio-Review of the Scott Special Needs Trust
Date: May 17, 2004
1. Syllabus
This opinion concerns a Medicaid payback trust established in 2003 by a parent for his son using UGMA/UTMA funds. In this case, the UGMA/UTMA funds were determined to be the assets of the son, so the trust is a grantor trust. The trust was determined to be irrevocable because the language of the trust states that it is irrevocable, it meets the Medicaid payback requirements, and SSA considers the State of Ohio to be a residual beneficiary in this type of situation. (See also Chicago Region's POMS issuance SI CHI 01120.200.)
2. Opinion
You asked whether a special needs trust established for the benefit of Scott K~ (Scott) is a countable resource to Scott for SSI purposes. We conclude that the portion of the trust attributable to contributions transferred to the trust from investment accounts established under the Uniform Gift to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA) does not constitute a resource to Scott for SSI purposes. We also conclude that the portion of the trust attributable to contributions to the trust made by persons other than Scott does not constitute a resource to Scott for SSI purposes. Therefore, none of the trust assets are a countable resource to Scott for SSI purposes.
BACKGROUND
On September 2, 2003, Loren K~ (Scott's father) created a trust for Scott's benefit by executing a Trust Agreement. When he established the trust, Scott's father transferred $10.00 of his own money to the trust with himself and Fern K~ (Scott's mother) as co-trustees. It appears from the materials forwarded to us that Scott's parents previously deposited their own monies into investment accounts on Scott's behalf under the UGMA/UTMA in order to obtain more favorable tax treatment. On or before December 31, 2003, Scott's father transferred the UGMA/UTMA funds to Scott's trust. We are unable to ascertain from the materials you sent exactly when the funds were transferred.
DISCUSSION
A trust established on or after January 1, 2000, is a resource if it is a revocable trust established by an individual. See 42 U.S.C. § 1382b(e)(3)(A). Further, irrevocable trusts established by an individual on or after January 1, 2000, are resources to the extent that payments from the trust could be made to or for the benefit of the individual or his/her spouse. See 42 U.S.C. § 1382b(e)(3)(B). However, these rules do not apply where (1) the Commissioner determines that such rules would work an undue hardship on an individual or (2) a Medicaid trust exception applies, as described in 42 U.S.C. § 1396p(d)(4)(A) or (C). See 1382b(e)(4)-(5); Program Operations Manual System (POMS) SI 01120.203.
Under the three-pronged Medicaid trust exception applicable to special needs trusts, trust assets will not be considered a resource to the individual where (1) the individual is disabled and under age 65, (2) the trust was established for the individual's benefit by a parent, grandparent, legal guardian or a court, and (3) the terms of the trust provide that, upon the death of the individual, the State will be reimbursed for the total amount of medical assistance paid on the individual's behalf under a State Medicaid plan. POMS SI 01120.203B.1.a. Where the assets of an SSI claimant/recipient form only a part of the trust, these rules will apply to that portion of the trust attributable to the individual. Thus, a proration of the trust assets may be necessary. Moreover, even if the trust is not counted under the statute due to the application of the Medicaid trust exception, SSA still applies the general resource rules in 42 U.S.C. §§ 1382 and 1382b in determining whether the trust is a resource for SSI purposes.
Here, the special needs trust was established by Scott's father with Scott's father's funds ($10.00). See Trust Agreement, Schedule A. The Trust Agreement allowed for subsequent additions to be made to the trust. The regular resource rules apply to the initial trust contribution of $10.00 from Scott's father and any addition made to the trust that was the asset of any individual other than Scott. See POMS SI 01110.100B.1. If the UGMA/UTMA funds that were subsequently added to the trust are considered to be Scott's assets, then the portion of the trust attributable to the UGMA/UGTA contribution is a resource to Scott, unless the Medicaid trust exception applies.
We conclude that the UGMA/UTMA funds should be considered Scott's assets. Because we do not know when the transfer to trust was made, we cannot determine whether Scott had outright ownership of the assets when they were transferred into the trust.1 However, this should not matter. We conclude that, even if the assets were transferred into the trust prior to date he attained the age of majority, the assets should be considered Scott's assets. POMS SI 01120.201B.2 states that an "asset" includes "any other payment or property to which the individual or individual's spouse 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 . . .." Because the funds in question were initially deposited into investment accounts under a UGMA/UTMA, Scott would not have received the funds or had access to them before he reached the age of majority because they were held by a custodian (his father) who had legal authority to act on Scott's behalf with regard to the money. Therefore, the funds must be considered Scott's assets. See POMS SI 01120.201B.7. Regardless of whether the assets were Scott's outright or held by a custodian on his behalf under the UGMA/UTMA, they should be considered Scott's assets.
Because the funds that were transferred to the trust from the UGMA/UTMA investment accounts are considered Scott's assets, they constitute a resource to him upon transfer into the trust unless the Medicaid trust exception applies. Here, the Medicaid trust exception applies. The trust contains the assets of Scott, who is under age 65 and, for purposes of this memorandum, presumably disabled.2 In addition, Scott's father established the trust for Scott's benefit. Under the Medicaid trust exception rules, the "person who established the trust" is "the individual who physically took action to establish the trust even though the trust was established with the assets of the SSI claimant/recipient." POMS SI 01120.203B.1.e. Since Scott's father "physically took action" to establish the trust, he established the trust. Moreover, the trust provides that the State will receive all amounts remaining in the trust upon Scott's death up to an amount equal to the total medical assistance paid on Scott's behalf under the State Medicaid plan. Thus, the requirements of the Medicaid trust exception for special needs trusts are met.
The Medicaid trust exception also requires that "[t]he State must be listed as the first payee and have priority over payment of other debts and administrative expenses except as listed in SI 01120.203B.3.a." POMS SI 01120.203B.1.f. Scott's trust contains provisions providing that upon Scott's death, the Trustee shall "pay attorney fees and other properly allowable costs incurred in administering and wrapping up the Trust" and "any federal or state estate tax or inheritance tax" arising from Scott's death before the State is reimbursed the amount of medical assistance it paid on Scott's behalf. Trust Agreement, Article V. These provisions are consistent with POMS SI 01120.203B.3.a, which allows such payments.
Since the Medicaid trust exception applies, the statutory trust provisions regarding resources do not apply to the portion of Scott's trust attributable to the UGMA/UGTA funds. See 42 U.S.C. § 1382b(e)(5). However, even if this portion of Scott's trust is not counted under the statute (because the Medicaid trust exception applies), SSA will apply the regular resource rules in 42 U.S.C. §§ 1382 and 1382b, in determining whether this portion of the trust is a resource for SSI purposes.3
Under the regular resource rules, trust assets are a resource if (1) the individual can revoke or terminate the trust and obtain unrestricted access to the assets, (2) the individual has access to the trust assets and can direct their use to meet his needs for food, clothing, and shelter, or (3) the individual can sell his beneficial interest in the trust. POMS SI 01120.200D.
Whether a trust can be revoked or terminated depends on the terms of the trust and the applicable state law. The Trust Agreement explicitly states that Scott cannot revoke the trust. Trust Agreement, Article II. We also note, however, that the Trust Agreement permits the trustee to revoke the trust if it is in Scott's best interest. Id. However, because the trustee has the absolute discretion to revoke the trust, Scott cannot compel the trustee to revoke the trust and distribute the principal or income to him. Nevertheless, some trusts may be revocable, despite express language to the contrary. Grantor trusts, in which the grantor is also the sole beneficiary, may be revocable regardless of explicit language to the contrary. POMS SI 01120.200D.3. However, a grantor trust is irrevocable where there is a residual beneficiary. Here, Scott is the true grantor with regard to the portion of the trust pertaining to the UGMA/UGTA funds, but he is not the sole beneficiary. As we recently advised, we believe that, in Ohio, if the language of the trust specifies that it is irrevocable, and it does not appear that the trust can be unilaterally revoked, and it meets the Medicaid payback provisions, then the Agency can consider the state of Ohio to be a beneficiary. See Memorandum from Regional Chief Counsel, Chicago, to Asst. Reg. Comm.-MOS, Chicago, Ohio Treatment of the State as a Beneficiary in a Medicaid Payback Trust (March 19, 2004). Because the State of Ohio can be considered a residual beneficiary, the trust is irrevocable by Scott.
Nor can Scott compel distributions from the trust. Trust Agreement, Article III. The Trust Agreement also contains a spendthrift provision that prevents him from selling his interest in the trust. Trust Agreement, Article V. For these reasons, the trust assets are not a resource to Scott for SSI purposes.4
CONCLUSION
We conclude that the portion of the trust attributable to the UGMA/UTMA contribution is Scott's asset, but not a resource to Scott for SSI purposes. In addition, the portion of the trust attributable to the contribution made by Scott's father does not constitute a resource to Scott for SSI purposes.
1 UGMA/UTMA assets are not income to a minor until the custodian makes disbursements to the minor or on the minor's behalf or the minor reaches the age of majority. POMS SI 01120.205B.1.b-c. In Ohio, the age of majority is 18. According to the computer printout you provided, Scott attained age 18 in September 2003, shortly after the trust was established. Because we do not know the date on which the assets were transferred into the trust, we cannot determine whether Scott acquired legal ownership and control over the assets prior to the transfer of the assets into the trust.
2 Scott's SSI application is currently awaiting medical review, pending receipt of this memorandum.
3 As previously noted, the regular resource rules also apply to the portion of the trust attributable to the $10.00 contribution from Scott's father.
4 We note that the Trust Agreement provides that the trustee may, in the trustee's sole discretion, pay Scott "amounts from the principal or income" and "a periodic allowance for spending money." Trust Agreement, Article III. To the extent that Scott receives any distributions from the trust, such distributions may be considered countable income to Scott.
~~S. PS 04-345 SSI-Ohio-Review of the Inter Vivos Trust Agreement of Anne for the Benefit of Catherine M~~~
T. PS 04-345 SSI-Ohio-Review of the Inter Vivos Trust Agreement of Anne for the Benefit of Catherine M~
Date: September 21, 2004
1. Syllabus
A living trust established by her mother in October 2002 named an SSI recipient as a beneficiary upon the death of the grantor. The SSI recipient's brother became the trustee over her funds when her mother passed away. He was responsible for distributing monthly payments composed of net earnings and principal to the SSI recipient for a period of five years following the mother's death. The trust contained a spendthrift provision preventing sale of the recipient's beneficial interest in the trust, but allowed her to direct the trustee to retain required payments for future use. Any retained payments could thereafter be requested by the recipient at any time to provide for food, clothing, or shelter. Based on SSI trust policy, it was determined that the trust was not a countable resource since the recipient could not revoke the trust, direct the trustee to make additional payments for basic needs, or sell her beneficial interest in the trust. However, because the trustee is required to make mandatory distributions from the trust, those distributions are countable unearned income even if the recipient directs the distribution to be retained. Furthermore, any distributions retained in trust would be countable resources if held in the following month since the recipient could, in that instance, direct the retained distributions to be used for food, clothing, or shelter.
2. Opinion
You asked whether an inter vivos trust agreement for the benefit of Catherine M~ (Catherine) is a countable resource to Catherine for SSI purposes. For the reasons stated below, we believe that the trust does not currently constitute a resource to Catherine for SSI purposes, but that any distributions from the trust should be counted as unearned income. Further, if Catherine exercises a clause that allows mandatory distributions to be retained in trust, that portion of trust assets would be considered a resource.
BACKGROUND
On October 12, 2002, Anne L. M~ (Catherine's mother) created the Anne L. M~ Living Trust ("the trust"). She specified that she was the grantor and that her son, Robert E. M~, was the trustee, and that the trust was revocable by her, during her lifetime, until such time as she became disabled or incapacitated. Art. 1; Art. 4, § 1. Anne L. M~ died on October XX, 2002. See letter, dated May 17, 2004, from Attorney Glenn A. B~ to Robert E. M~.
The trust agreement provides that, upon the death of the grantor, the trustee "may" pay all or any portion of a number of categories of expenses, including: the grantor's last medical expenses and funeral, cremation, or burial expenses; the grantor's debts, obligations, and the administrative expenses of the estate; estate taxes; and testamentary bequests. Art. 6, § 1. All trust property not so distributed is to be "divided, administered, and distributed under the ensuing Articles, beginning with Article Nine." Art 8. Article 9 provides that the remaining trust property should be divided into shares of 50 percent each for her son, Robert E. M~, and daughter, Catherine A. M~, if they survived her. Art. 9, § 1. The trust share for Robert E. M~ should be distributed to him. Art. 9, § 2a. The trust share for Catherine is to be held "in a separate trust for her exclusive benefit" and administered and distributed by the trustee as follows: "[The] trustee shall distribute monthly to or for the benefit of [Catherine] the net income derived from her trust share and approximately equal installments of principal for a period of five years after which time the trust created for her shall terminate and the Trustee shall distribute the balance of the principal, if any, together with any undistributed net income remaining in her separate share of the trust to her fee [sic] of trust." Art. 9, §§ 3, 3a.
The trust also provides that, at such times as the trustee is authorized or required to make a distribution to the beneficiary, she may direct the trustee in writing to retain such distribution in trust. Art. 9, § 4. The beneficiary can at any time request payment of trust interest or principal retained under this provision. Art. 9, §§ 4a-4c.
The trust contains a spendthrift provision. Art 14, § 9. Finally, the trust provides that the trustee is not permitted to reimburse any governmental authority which has incurred expenses for the benefit of any beneficiary. Art. 14, § 11.
In a letter to the agency, Robert E. M~ stated that, pursuant to the trust agreement, he was distributing to Catherine about $170 per month from the trust, pursuant to the terms of Article 9, and would continue to do so, as required by the trust, until five years after his mother's death or until October 2007.
Mr. M~ relies on a letter to him from Glenn A. B~, the attorney who prepared the trust, regarding Mr. M~'s ability to make distributions to Catherine. According to Mr. B~, "the distributions are strictly limited by the above provisions of Article 9 Section 3 a [sic] of the trust to the net income and approximately equal installments of principal in Catherine's share of the trust per annum payable in monthly installments over a five year period." He states that Mr. M~ has no authority to alter the amount or manner of distribution. He also discusses his view that these are binding provisions because the time to contest the trust had expired.
DISCUSSION
A resource is defined as cash or other liquid assets, or any real or personal property that an individual owns and could convert to cash to use for her support and maintenance. 20 C.F.R. § 416.1201; POMS SI 01110.100(B)(1). For trusts like this one, that are established with the funds of a third party, the 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; or (iii) the individual can sell his beneficial interest in the trust. POMS SI 01120.200(D)(1)-(3); compare POMS SI 01120.201 (discussing trusts established by an individual with his or her own funds after January 1, 2000).
Here, as the beneficiary of a third party trust, Catherine has no right to revoke or terminate the trust, so the trust cannot be a resource on this basis. As further discussed below, Catherine also has no right to direct the trustee to make payments to meet her need for food, clothing or shelter. Lastly, in light of the spendthrift clause, which is enforceable in Ohio, Catherine cannot sell her beneficial interest in the trust. Scott v. Bank One Trust Company, N.A., 577 N.E.2d 1077, 1084 (Ohio 1991), overruling Sherrow v. Brookover, 189 N.E.2d 90 (Ohio 1963); POMS SI 01120.200(B)(16). Therefore, the trust should not be considered a countable resource with respect to Catherine.
With regard to the ability to direct the use of trust assets, we have carefully examined Art. 9, § 4, which provides that, at such times as the trustee is authorized or required to make a distribution to the Catherine, she may direct the trustee in writing to retain such distribution in trust. Art. 9, § 4. This section further provides that Catherine has an unrestricted right to trust income and principal. Art. 9, §§ 4a, 4b. This section of the trust agreement, which is entitled "Retention of Distributions in Trust," is somewhat ambiguous. Read in isolation, subsections a and b could be interpreted as giving Catherine access to the trust principal and income without restriction. However, given the title of the section, the presence of a spendthrift clause in the trust, and the overall apparent intent of the trust to provide a stream of income to Catherine, we conclude that Art. 9, § 4 merely provides that Catherine can direct the trustee to retain in the trust, rather than pay to her, any distributions authorized or required to be made and to then pay them to her at a later date. In other words, Catherine only has unrestricted access to trust income and principal retained under Art. 9, § 4 - not that she has unrestricted access to the entire trust principal. Thus, Catherine lacks the ability to direct the use of trust assets. See POMS SI 01120.200(D)(1)(a) and (b).
Even though the trust is not a resource, because the trustee is required to make mandatory distributions of interest and principal, those distributions are unearned income even if Catherine were to direct that the distribution be retained in trust pursuant to Art. 9, § 4. POMS SI 01120.200(E)(1)(a) and G(1)(a). Further, any distributions retained in trust under Art. 9, § 4 would be a resource if held in the trust for any following month, since Catherine could then direct that the assets be distributed to meet her needs for food, clothing, or shelter. POMS SI 01120.200(D)(1).
A resource is defined as cash or other liquid assets, or any real or personal property that an individual owns and could convert to cash to use for her support and maintenance. 20 C.F.R. § 416.1201; POMS SI 01110.100(B)(1). For trusts like this one, that are established with the funds of a third party, the 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; or (iii) the individual can sell his beneficial interest in the trust. POMS SI 01120.200(D)(1)-(3); compare POMS SI 01120.201 (discussing trusts established by an individual with his or her own funds after January 1, 2000).
Here, as the beneficiary of a third party trust, Catherine has no right to revoke or terminate the trust, so the trust cannot be a resource on this basis. As further discussed below, Catherine also has no right to direct the trustee to make payments to meet her need for food, clothing or shelter. Lastly, in light of the spendthrift clause, which is enforceable in Ohio, Catherine cannot sell her beneficial interest in the trust. Scott v. Bank One Trust Company, N.A., 577 N.E.2d 1077, 1084 (Ohio 1991), overruling Sherrow v. Brookover, 189 N.E.2d 90 (Ohio 1963); POMS SI 01120.200(B)(16). Therefore, the trust should not be considered a countable resource with respect to Catherine.
With regard to the ability to direct the use of trust assets, we have carefully examined Art. 9, § 4, which provides that, at such times as the trustee is authorized or required to make a distribution to the Catherine, she may direct the trustee in writing to retain such distribution in trust. Art. 9, § 4. This section further provides that Catherine has an unrestricted right to trust income and principal. Art. 9, §§ 4a, 4b. This section of the trust agreement, which is entitled "Retention of Distributions in Trust," is somewhat ambiguous. Read in isolation, subsections a and b could be interpreted as giving Catherine access to the trust principal and income without restriction. However, given the title of the section, the presence of a spendthrift clause in the trust, and the overall apparent intent of the trust to provide a stream of income to Catherine, we conclude that Art. 9, § 4 merely provides that Catherine can direct the trustee to retain in the trust, rather than pay to her, any distributions authorized or required to be made and to then pay them to her at a later date. In other words, Catherine only has unrestricted access to trust income and principal retained under Art. 9, § 4 - not that she has unrestricted access to the entire trust principal. Thus, Catherine lacks the ability to direct the use of trust assets. See POMS SI 01120.200(D)(1)(a) and (b).
Even though the trust is not a resource, because the trustee is required to make mandatory distributions of interest and principal, those distributions are unearned income even if Catherine were to direct that the distribution be retained in trust pursuant to Art. 9, § 4. POMS SI 01120.200(E)(1)(a) and G(1)(a). Further, any distributions retained in trust under Art. 9, § 4 would be a resource if held in the trust for any following month, since Catherine could then direct that the assets be distributed to meet her needs for food, clothing, or shelter. POMS SI 01120.200(D)(1).
CONCLUSION
For the foregoing reasons, we conclude that the trust currently is not a resource as to Catherine because it was funded by a third party and she cannot revoke it, direct the trustee to use it for her need for food, clothing or shelter, or assign her interest in it. However, any direct distributions to her in cash, such as the trustee has indicated that he currently pays her, are unearned income. Further, if, in the future, Catherine directs that the distributions mandated by the trust be retained in trust rather than paid to her, such retained distributions are a resource.
~~T. PS 04-003 SSI-Ohio-Review of the Subaccount of Mary in the Community Fund Management Foundation Pooled Medicaid Payback Trust~~
U. PS 04-003 SSI-Ohio-Review of the Subaccount of Mary in the Community Fund Management Foundation Pooled Medicaid Payback Trust
Date: September 23, 2003
1. Syllabus
In this case, a pooled trust is determined to be a resource because it does not meet one of the requirements for the exception in Section 1917(d)(4)(C) of the Social Security Act, i.e., that the trust must be established solely for the benefit of the disabled individual. This trust provides that, if it becomes impossible or impracticable to carry out the trust purposes with respect to all beneficiaries, the trustee may terminate the trust and distribute property as if the beneficiary had died. These terms create a contingency under which someone other than the beneficiary could benefit from the trust during the beneficiary's lifetime. Therefore it is not considered to be for the beneficiary's sole benefit, so it does not meet all the requirements for the Section 1917(d)(4)(C) exception.
2. Opinion
You asked us whether the subaccount of Mary T~ in the Community Fund Management Foundation Pooled Medicaid Payback Trust (Trust) constitutes a countable resource for Supplemental Security Income Purposes. We conclude that the Trust should be considered a resource.
BACKGROUND
In February 2002, Ms. T~ completed a Joinder Agreement and Application for Admission to Establish Trust Subaccount (Joinder Agreement). The Joinder Agreement specifies that Ms. T~'s subaccount is to be administered in accordance with the terms and conditions of the Trust. The Joinder Agreement was entered into pursuant to inter alia 42 U.S.C. § 1396p(d)(4)(C). The Joinder Agreement establishes Ms. T~ as the beneficiary. Section 8 of the Joinder Agreement, "Distributions to the Beneficiary," provides that the income and principal of the Joinder Agreement should be distributed in the Trustee's discretion pursuant to the terms of the Trust. Section 9 of the Joinder Agreement, "Distributions Upon Death of Beneficiary," provides that, upon the death of Ms. T~, distribution of the subaccount shall be made first to pay any claim made by State(s) for reimbursement of medical assistance expenditures made on behalf of Ms. T~, and second, if monies remain in the subaccount, then the subaccount should be distributed to Martin and Deborah T~, or to their survivor. Section 10 provides that the Joinder Agreement is irrevocable.
The Joinder Agreement establishes a subaccount in the Trust. The express purpose of the Trust is to provide for Ms. T~'s supplemental needs over and above those benefits she receives from the federal, state, and local governments as a result of her disability. The Trustee distributes income and the principal of the Trust for the benefit of Ms. T~ during her life or until the termination of the Trust, whichever is sooner. The Trustee has absolute discretion in making distributions to supplement other benefits received by Ms. T~. Ms. T~'s subaccount terminates upon her death. The Trust will pay the subaccount attorney's fees and other allowable costs incurred in administering and wrapping up the Trust, which exclude Ms. T~'s third-party debts and funeral expenses. The Trustee shall comply with all state and/or federal regulations in effect at the time of Ms. T~'s death regarding notification and disbursement to the State(s). After payment of any claim by any State, if Ms. T~'s probate estate is insufficient, the Trustees shall pay from the subaccount funeral expenses, attorney's fees, and other properly allowable costs. The balance of the subaccount shall be distributed as provided in Section 9 of the Joinder Agreement. If it becomes impossible or impracticable to carry out the Trusts purposes, the Trustee may terminate the Trust and distribute the Trust property as set forth therein. Trust Art. 4, H. The Trust also states that if a Trust beneficiary in any manner directly or indirectly contests or attacks this Trust or any of its provisions, any share or interest of the contesting beneficiary in the Trust estate is revoked and shall be disposed of in the same manner provided herein as if that contesting beneficiary had never had any interest in the Trust subaccount.
DISCUSSION
To qualify for SSI benefits, a claimant must show that her resources are below a statutory maximum. 20 C.F.R. §§ 416.202, 416.1205; 42 U.S.C. § 1382(a). Under the Social Security Act, trusts created on or after January 1, 2000, from the assets of an SSI claimant or beneficiary will be considered a resource to the extent that the trust is revocable, or, in the case of an irrevocable trust, to the extent that any payments can be made from the trust for the benefit of the individual. See 42 U.S.C. § 1382b(e)(3)(A)-(B); POMS SI 01120.201. The present Trust was created after January 1, 2000, because Ms. T~ did not transfer her assets to the Trust until February 2003. Under the terms of the Trust, the trustee has discretion to use the entire income and the principal of the Trust subaccount for the benefit of the beneficiary for whom the subaccount was established. See Trust Art. III. Therefore, even if irrevocable, the Trust would be a resource to the beneficiary under these provisions. See 42 U.S.C. § 1382b(e)(3)(B).
Certain pooled trusts are excepted from this statutory provision if they qualify as a Medicaid payback trust under the provisions of Section 1917(d)(4)(C) of the Social Security Act. 42 U.S.C. § 1382b(e)(5); POMS SI 01120.203B2. To qualify for the Medicaid payback trust exception, the trust must contain assets belonging to a disabled individual and must satisfy the following conditions:
1. The trust is established and maintained by a nonprofit association;
2. Separate accounts are maintained for each beneficiary, but funds are pooled for investment and management;
3. Accounts in the trust must be established solely for the benefit of the disabled individual;
4. Accounts are established by the individual, or a parent, grandparent, legal guardian, or court; and
5. The trust must provide that, to the extent that amounts remaining in the account on the beneficiary's death are not retained by the trust, the trust will pay to the State the amount remaining up to an amount equal to the total amount of the medical assistance paid on behalf of the beneficiary.
See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203B2a. If a trust meets the pooled trust exception to counting it under the statute, the regular resource rules apply. See POMS SI 01120.203B2a. (cautionary statement).
"Resources" are defined as:
cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance.
20 C.F.R. § 416.1201(a).
If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource.
20 C.F.R. § 416.1201(a)(1). A trust is a resource under these rules if the individual can: (1) revoke or terminate the trust and obtain the trust assets; (2) direct the trustee to use the assets for his or her support and maintenance; or (3) liquidate his or her beneficial interest in the trust. See POMS SI 01120.200D1a.
Here, the Trust appears to meet all of the requirements except the third: It is not established for the sole benefit of the individual. The Trust provides that if it becomes impossible or impracticable to carry out the Trust purposes with respect to all beneficiaries, the trustee may terminate the Trust and distribute the Trust property as if the person had died. Trust Art. IV, H. In Ms. T~'s case, that means that after the State was repaid for any Medicaid benefits conferred on her, Martin and Deborah T~, or their survivor, would receive any remaining benefits. Thus, there are some contingent circumstances under which someone other than Ms. T~ could benefit from the Trust during her lifetime, and therefore is not considered to be for her sole benefit. See Memorandum from Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, SSI-Michigan-Review of Proposed Pooled Amenities Trust Fund for Community Advocates for Persons with Developmental Disabilities (Feb. 13, 2003). Even if this provision were deleted from the Trust, however, it still would be a resource under the regular resource rules because it is revocable.
We previously advised, in Memorandum from Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, Supplemental Security Income-Ohio Trusts-1. Community Fund Management Foundation Pooled Medicaid Payback Trust Agreement. 2. Community Fund Management Foundation 1995 Master Trust Agreement (Nov. 23, 1999), that, under a prior version of this Trust, an individual trust account in the trust may or may not be a resource to an individual under any one of the three theories above, depending on how the grantor completes the Joinder Agreement. We advised that the disabled individual may be able to revoke the trust and obtain the assets if she has not named any other beneficiaries to the trust in Section 9 of the Joinder Agreement. And depending on how the grantor completes Section 8 of the Joinder Agreement, the disabled individual may be able to direct the trustee to use the assets of the trust for her support and maintenance, or the disabled individual may be able to sell her beneficial interest in the trust. However, the trust has been amended more recently, in 2002. Although we no longer have a draft of the prior trust document, the current amended version is problematic because, in addition to the concerns previously noted, the Trust provides that if the beneficiary in any way directly or indirectly contests or attacks the Trust or any provision of the Trust, the subaccount in the Trust is revoked and the trustee will dispose of the funds as if the account was never created. Trust Art. VII, E. Thus, Ms. T~ has the ability to revoke her Trust and recover her assets.
If this provision were removed, the Trust would otherwise appear to be irrevocable, as currently written. The Trust states that it is irrevocable, but under Ohio law, even a trust that purports to be irrevocable may be revoked where the grantor and all beneficiaries of the trust agree. Memorandum from Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, Six State Synopsis of Trust Laws (Feb. 26, 1992); Mumma v. Huntington Nat'l Bank of Columbus, 223 N.E.2d 621, 624 (Ohio App. 2d 1967); Restatement (Third) of Trusts, § 65 (2003); POMS SI 01120.200D3. Therefore, if Ms. T~ were both the grantor and sole beneficiary of the Trust, she could revoke the Trust and obtain the subaccount assets.
Under Ohio law, the grantor of a trust is the person who provides the consideration for or creates the trust. See Three Bills, Inc. v. City of Parma, 676 N.E.2d 1273, 1276 (Ohio App. 3d 1996); see gen. 76 Am. Jur. 2d § 55; POMS SI 01120.200B2. Here, Ms. T~ is the grantor of the Trust because she provided the funds for the Trust through the subaccount.
The beneficiary of a trust is the person for whose benefit the property is held in trust. 76 Am. Jur. 2d § 59; POMS SI 01120.200B4. We have previously advised that a provision mandating repayment to the State for Medicaid expenditures does not create an additional beneficiary o the trust. Memorandum from Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, States Names as Beneficiary to a Trust (June 24, 1997). However, the Joinder Agreement also designates specific residual beneficiaries to receive any remaining assets in the Trust after the state(s) is reimbursed for Medicaid expenditures. Because Section 9 of the Joinder Agreement lists residual beneficiaries, Ms. T~ would need their consent to revoke the Trust. Therefore, Ms. T~ would not have the power to revoke the Trust if the offending provision were removed.
Even where a beneficiary does not have the power to revoke a trust, however, the trust assets may still be counted as a resource if the beneficiary has the authority to direct the use of the trust principal or if the beneficiary can sell his or her beneficial interest in the trust. POMS SI 01120.200D1b. Here, in Section 8 of the Joinder Agreement, Ms. T~ specified that the income and principal of the Trust shall be distributed in the trustee's discretion pursuant to the terms of the Trust. By having chosen this provision, Ms. T~ forfeited any ability to direct the trustee to use the assets for her support and maintenance, or to liquidate her beneficial interest in the Trust. Nor could she sell her interest in the discretionary trust. Restatement (Third) of Trusts, § 58 (2003).
CONCLUSION
In sum, the Trust is a resource under the statute because it is not for Ms. T~'s sole benefit during her lifetime. And even if the Trust met the exception to counting it under the statute, it would be a resource under regular resource rules because it is revocable.
~~Kim L. B~Regional Chief CounselOffice of the Regional Chief Counsel~~
~~By: Charles R. G~ Assistant Regional Counsel~~
~~U. PS 03-024 SSI-Ohio-Review of Reconsideration Request on the Daniel Special Needs Trust~~
V. PS 03-024 SSI-Ohio-Review of Reconsideration Request on the Daniel Special Needs Trust
Date: October 18, 2002
1. Syllabus
In this opinion, a trust funded with the beneficiary's personal injury settlement contains Medicaid reimbursement language and states that it is irrevocable. However, it names only the beneficiary's estate as the residual beneficiary which is not sufficient to create a residual beneficiary in Ohio. Furthermore, the State of Ohio is considered a creditor with respect to the reimbursement of Medicaid funds, not a beneficiary. Under Ohio law, a trust can be revoked if the grantor and sole beneficiary are the same person. Therefore, this trust is considered a resource for SSI purposes. The beneficiary also asserted that this trust should not be counted as a resource because the county Probate Court will not permit him to change the residual beneficiary and asserted that such a change is permitted in other Ohio jurisdictions. This opinion concludes that SSA does not need to decide if the county Probate Court made the correct decision and that the beneficiary's remedy is to appeal the Probate Court's decision in a higher court.
2. Opinion
INTRODUCTION
This is in response to your inquiry regarding whether the trust agreement designating Daniel J. R~ as a beneficiary should be considered a resource in determining his eligibility for Supplemental Security Income (SSI) benefits. For the reasons stated below, we believe that the trust is a resource.
FACTS
On November 29, 2001, the Court of Common Pleas, Probate Division in Cuyahoga County, Ohio (Probate Court) and Charles C. R~, Daniel J. R~'s father and the guardian, established “The Daniel J. R~ Special Needs Trust” (Trust). Trust at 1. The Trust was reviewed and approved by the Probate Court and an order was entered establishing the Trust. Trust at 1.
The Trust provides that Daniel J. R~ (Daniel) is now and will continue for his lifetime to be a disabled individual. Trust at 1. The Trust provides that it is established for the sole benefit of Daniel and is funded with a lump sum that Daniel received from the settlement of a personal injury lawsuit. Trust Article 1. The Trust names Charles R~ and the Court as the settlors of the Trust. Trust at 1. Charles R~ is also named as the trustee. Trust at 1. The Trust states that it is established pursuant to 42 U.S.C. § 1396p(d)(4)(A), and that the assets directed to the Trust should be deemed not available to the beneficiary for purposes of Medicaid or Supplemental Security Income programs. Trust at 2. The purpose of the Trust is to provide Daniel a system for fund management and investment and provision of services required, as well as to provide for continuing conservation and enhancement of funds by supplementing all other financial and service benefits for which Daniel might be eligible as a result of his disability. Trust Article III.
The Trust states that the trustee has sole discretion to distribute the Trust principle and income. Trust Article III(A). In making such distributions, the trustee shall take into consideration all entitlement benefits from any government agency, such as Social Security Disability and Supplemental Security Income payments, Medicare, Medicaid, and other special benefits that Daniel is receiving. Trust Article III(A)(3). The Trust states that it is irrevocable, but that the trustee and the guardian shall have authority to revoke the Trust or alter its terms, with prior Court approval, to carry out the intention of the Court and the parties or in the event that the law or regulations concerning benefit programs change or if revocation is in the best interest of Daniel. Trust Article II.
The Trust provides that upon the Daniel's death, each State which has provided medical assistance to him shall receive a proportionate share of assets remaining in the Trust up to an amount equal to the total medical assistance paid on his behalf by such state under a State plan. Trust Article III(B)(1)-(2). Any assets remaining in the Trust estate after repayment to the State(s) shall be distributed to the “estate of DANIEL J. R~.” Trust Article III(B)(3).
On February 25, 2002, the Agency determined that the Trust was a countable resource to Daniel and terminated his SSI benefits. On March 27, 2002, Charles R~ moved to amend the Trust to provide different named residual beneficiaries in order to make the Trust irrevocable, so that Daniel's SSI benefits could be reinstated. However, the Probate Court overruled the motion. Pursuant to Ohio Revised Code § 2111.50(B), the Probate Court is prohibited from making or revoking a will for an incompetent ward of the court. The Probate Court concluded that by granting the requested relief, it would effectively be creating a testamentary disposition for a ward of the Court. This decision is currently being appealed to the Court of Appeals for the Eight District of Ohio.
DISCUSSION
The usual resource rules apply to The Daniel R~ Special Needs Trust
In 1999, the Social Security Act was amended to explain when some trusts would be considered resources for purposes of SSI eligibility. Pursuant to the new rules for determining SSI eligibility, a trust established on or after January 1, 2000, is a resource if it is a revocable trust established by an individual. See 42 U.S.C. § 1382b(e)(3)(A). Further, irrevocable trusts established by an individual on or after January 1, 2000, are resources to the extent that payments from the trust could be made to or for the benefit of the individual or his/her spouse. See 42 U.S.C. § 1382b(e)(3)(B). However, these rules do not apply where (1) the Commissioner determines that such rules would work an undue hardship on an individual or (2) the trust is a Medicaid payback trust as described in 42 U.S.C. § 1396p(d)(4)(A) or (C). See 1382b(e)(4)-(5); Program Operations Manual System (POMS) SI 01120.203.
The claimant argues that the statutory rules applying to revocable and irrevocable trusts do not apply to trusts that meet the requirements of a Medicaid payback trust. The Agency would agree that the statutory trust provision would not apply to a trust that meets the Medicaid payback requirements, and qualifies as a Medicaid payback trust under 42 U.S.C. § 1382b(e)(5). We agree that these trusts are excepted from the statutory trust provisions under subsection (e) of 42 U.S.C. § 1382b. However, where the specific statutory provisions regarding certain trusts do not apply, the general resource rules with respect to the other subsections of 42 U.S.C. §§ 1382 and 1382b continue to apply in order to determine SSI eligibility. Under 42 U.S.C. § 1382(a)(1)(B), an individual's resources are counted unless excluded under the provisions of 42 U.S.C. § 1382b. Section 1382b does not state that Medicaid payback trusts are excluded resources. Rather, it states that certain trusts must be considered resources, and it excepts Medicaid payback trusts from the statutory provisions requiring certain trusts to be considered resources.
Since the statutory trust provisions do not apply, the Agency applies the regular resource rules to determine if the trust is a resource. A resource is defined as cash or other liquid assets, or any real or personal property that an individual owns and could convert to cash to use for his support and maintenance. See 20 C.F.R. § 416.1201; POMS SI 01110.100B.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 01110.100B.1. Under general resource rules, trust assets are a resource if (i) the individual can revoke 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 01120.105A.1., SI 01120.200D.1.-SI 01120.200D.3. Here, Daniel has the power to revoke the Trust even though the Trust was intended to be irrevocable.
The Daniel J. R~ Special Needs Trust is revocable
Whether a trust is revocable depends on the terms of the trust and/or on state law. See POMS SI 01120.200D.2. First, Daniel does not have the right to revoke the Trust under the terms of the Trust. Article II of the Trust specifically states that it is irrevocable and “shall not be altered, amended, revoked, or terminated by the settlor or any other person, however, that the trustee and the guardian shall have authority to revoke this Trust or amend the terms hereof, with prior Court approval, to carry out the intention of the Court and that parties hereto or in the event that the laws or regulations concerning benefit programs change hereafter or if such revocation or amendment is in the best interest of DANIEL J. R~, the Beneficiary.” Trust Article II. However, because Daniel does not have the authority to terminate the Trust, and because the trustee's and the guardian's ability to terminate the trust is not unlimited and must take into consideration Daniel's eligibility for federal and state aid, we do not believe this provision renders the Trust revocable.
Second, although the Trust provides that it is irrevocable, under Ohio law, even a trust that states that it is irrevocable and that was intended to be irrevocable can be revoked if the grantor and the sole beneficiary are the same person. See Mumma v. Huntington Nat'l Bank of Columbus, 223 N.E.2d 621, 624 (Ohio Ct. App. 1967) (citing Restatement (Second) of Trusts § 339). The trust names the Court and Charles C. R~, Daniel's guardian, as the grantors. However, Daniel is the actual grantor because the trust was created with the funds he received from his personal injury settlement. Trust at 1-3; see 76 Am. Jur. 2d Trusts § 55; Forsyth v. Rowe, 629 A.2d 379, 384 (Conn. 1993); POMS SI 01120.200B.2. (a grantor of a trust is the individual who furnishes the consideration that established the trust, even if another entity nominally creates the trust); POMS SI 01120.200L.3. (claimant is grantor even though trust was nominally created by claimant's guardian where the trust's funds were obtained from a settlement of the claimant's personal injury suit). The Trust states that it was created for the benefit of Daniel, Trust at 1, and the Trust states the primary concern in creating this Trust is for the care of Daniel. See Trust at 1, Article III(A). The Trust provides that it will continue for the lifetime of Daniel, and upon Daniel's death, each State which has provided medical assistance to Daniel shall receive a proportionate share of the assets remaining in the Trust up to an amount equal to the total unreimbursed medical assistance paid on his behalf under a State Plan, and any assets remaining in the Trust after repayment to the State(s) shall be distributed by the Trustee to the estate of Daniel J. R~. Trust Article IV(B).
Daniel is the only beneficiary of the Trust during his lifetime. The next question is whether, on Daniel's death, the Trust creates an interest in any residual/contingent beneficiaries. Despite the claimant's argument to the contrary, the Agency does not view the State of Ohio as a contingent beneficiary. Daniel points out that in v. Massanari, 185 F.Supp.2d 845, 847 (S.D. Ohio E.D., August 20, 2001), the district court held that the claimant intended to create a beneficial interest in the State of Ohio by including in his special needs trust, a provision that, upon his death, any remaining trust assets be used to reimburse the State for Medicaid payments made for his benefit. The Agency is not required to follow the holding in this case, as it is a district court decision and is not precedential. Moreover, the Agency disagrees with the holding in as it would deviate from the manner in which the Agency treats Medicaid payback trusts. See e.g. Request to Review Ohio Trust or Special Needs Trust for Katelynn G~ ~, OGC-V (J. Martin) to Donna Y. M~, ARC-MOS (May 7, 1999) (advising that such a provision does not make the state a contingent beneficiary of the Trust). Under the district court's reasoning, individuals could qualify for SSI even though they have resources that would exclude them from the program participation requirements. The agency's position in this situation is to view the State of Ohio as a creditor, rather than a beneficiary, because the trust was created to benefit Daniel, not the State. Thus, there is no obligation on the trustee to preserve funds for the State, but rather, it may be reimbursed, from the trust, for medical assistance already provided to Daniel upon his death. Again, although the State may benefit from the performance of the Trust when Daniel dies, it was not created for the benefit of the State. The Trust names only Daniel as “the Beneficiary,” and states that the Trust is “for the sole benefit of” Daniel See Trust p. 2. The Trust language also indicates that the Medicaid payback provision is the exception to the grantor's intent that creditors would not generally be able to reach trust funds. Trust at 6. Thus, the language of the Trust confirms that Daniel is the only intended beneficiary and that the state is intended only to be a creditor of the Trust. Thus, even though Daniel may have intended to make the trust irrevocable, and even through he may have intended to remain eligible for public benefits, he did not intend to create any additional beneficiaries to the Trust. Therefore, under Ohio law, he still would be able to revoke the Trust.
Next, Daniel argues that the “estate of Daniel J. R~” creates a contingent beneficiary to the Trust. However, under the rules of trust construction, this language is not sufficient to create contingent beneficial interests in third parties. See Restatement (Second) of Trusts § 127 comment b (1959). Indeed, the Probate Court has made clear that it does not believe it even has the authority to approve a trust that names beneficiaries who would receive trust assests after Daniel dies. Therefore, Daniel is the Trust's sole beneficiary.
The Agency should make its determination with regard to the Trust that has been entered by the Probate Court.
On February 25, 2002, the Agency determined that the Trust was revocable (because Daniel was the grantor and sole beneficiary) and thus a countable resource to Daniel, and it terminated Daniel's SSI benefits. On March 27, 2002, Charles R~ moved to amend the Trust to change “estate of” to named individuals in order to make the Trust irrevocable, so that Daniel's SSI benefits could be reinstated. However, the Probate Court denied the motion. Pursuant to the Ohio Revised Code Annotated § 2111.50(B)(3), the Probate Court has the power to create revocable trusts of property of the estate of the person, that may not extent beyond the disability or life of the person. The Probate Court stated that by granting the requested relief, it would effectively be creating a testamentary disposition for a ward of the Court.
Claimant contends that he should not be penalized because he lives in a county in which the Probate Court will not allow him to change the disposition on his assets upon his death. Claimant argues that other Probate courts in Ohio have allowed the trust to name residual beneficiaries, and the Agency has recognized such trusts as irrevocable. However the Agency need not decide if, in the present case, the Probate Court correctly interpreted Ohio law. The Probate Court had proper jurisdiction to make such decision, and the claimant's remedy, if he believes the Probate Court was in error, is to appeal such decision. And, he has apparently already done so. It is the Agency's role only to consider the Trust that is in effect. While the Probate Court has indicated that it will not name additional beneficiaries to the Trust, the Probate Court has not, to our knowledge, suggested that it would prohibit Daniel's guardian from revoking the Trust on Daniel's behalf, since he is the grantor and sole beneficiary of the Trust. Nor is there any reason to believe that Daniel's guardian, who established the Trust for his benefit while he was incompetent, could not also revoke the Trust, on his behalf, while Daniel is still incompetent.
If Daniel were not the sole beneficiary of the Trust, then the Trust likely would not be considered a resource.
If Daniel were not the sole beneficiary of the Trust, the next inquiry would be whether Daniel could direct the use of the Trust assets for personal maintenance and support under the terms of the terms of the Trust or sell the interest in the Trust and use the proceeds for support and maintenance. See POMS SI 01120.200D.1.a. The Trust states that the trustee has sole discretion to pay to Daniel or for his benefit any portion of the income or principal of the Trust that he deems necessary or advisable. Trust Article III(A). The Trust also indicates that Daniel shall have no interest in either the principal or income of the Trust, and that no interest in principal or income of this Trust shall be anticipated, assigned, or encumbered, or shall be subject to any creditor's claim or legal process, prior to its actual receipt by Daniel. Trust Article IV. Therefore, under the terms of the Trust, Daniel could not direct the use of assets, and his beneficial interest in the Trust would have no significant fair market value even if it were sellable. See Restatement (Third) of Trusts § 60 and comment f (Tentative Draft No. 2, Mar. 10, 1999). Thus, if the Trust were irrevocable, it likely would not be a resource.
Finally, although the Trust principal would not be a resource, disbursements from the Trust, under certain circumstances, would be income for determining Daniel's SSI eligibility and level of benefits. See POMS SI 01120.201I.1. If the trustee were to authorize disbursements from the Trust consisting of cash paid directly to Daniel or payments to a third party for any food, clothing, or shelter received by Daniel, such disbursements or in-kind payments would constitute income for SSI purposes. See POMS SI 01120.200E.1.a.-SI 01120.200E.1.b. Trust disbursements resulting in Daniel's receipt of goods or services other than food, clothing, or shelter--such as medical care-- would not constitute countable income for SSI purposes. See POMS SI 01120.200E.1.c.
CONCLUSION
For the foregoing reasons, we conclude that even though Daniel has a Medicaid payback trust to which statutory trust counting provisions do not apply, the Trust is a resource under general resource rules. Daniel is the grantor and sole beneficiary, and therefore, the Trust is revocable. It follows then, that the Trust assets are a resource to Daniel.
~~THOMAS W. C~ REGIONAL CHIEF COUNSEL OFFICE OF THE REGIONAL CHIEF COUNSEL~~
~~By: Shefali B. B~ Assistant Regional Counsel~~
~~V. PS 02-134 SSI-Ohio-Review of the Dustin Trust~~
W. PS 02-134 SSI-Ohio-Review of the Dustin Trust
Date: September 12, 2002
1. Syllabus
This opinion concerns a trust established in 1995 in Ohio on behalf of a minor with funds from a personal injury award. Although the trust was established by a court, the minor is considered the grantor because the trust was funded with the minor's own assets. The trust is revocable because the minor is the grantor and the sole beneficiary of the trust. Therefore, the trust is countable as a resource for purposes of determining eligibility for SSI. In this case, even if the trust was irrevocable, it would be considered a resource for SSI purposes because the funds in the trust are available for the beneficiary's support and maintenance.
2. Opinion
You asked for a legal opinion concerning whether Dustin A. M~'s trust is a resource to Dustin for SSI purposes. We conclude that the trust assets should be treated as a resource for Dustin.
BACKGROUND
On November 15, 1995, the Ohio Probate Court apparently approved a trust which named Dustin A. M~, a minor born February XX, 1989, as beneficiary. See Trust at 1. The trust named the Fifth Third Bank of Northwestern Ohio as trustee. The trust document states that the Court created the trust pursuant to Ohio Rev. Code Ann. 2125.03 (West 2002), and the trust is funded with proceeds and payments from a personal injury award to Dustin. See Trust at 1; see also Release and Settlement Agreement at 3-4. The stated purpose of the trust is to pay, up to the whole amount of the trust's income and/or principal, as the Court “in its discretion deems necessary, advisable or expedient[,] for the care, comfort, support, education or best interests” of the beneficiary, Dustin.
The trust provides that upon Dustin's twenty-fifth birthday, i.e., on February XX, 2014, the whole trust balance, including principal and income, shall be distributed to him and the trust shall terminate. See Trust at 7. If Dustin should die before the trust terminates, the trust will then terminate, with the balance being distributed to Dustin's estate. See Trust at 7.
DISCUSSION
In determining whether or not trust assets should be considered a resource, the pertinent SSI regulation provides 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 or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual (or spouse).
20 C.F.R. 416.1201(a) (2002).
For trusts, like this one, that were created prior to January 1, 2000, the trust assets are a resource to an SSI recipient if he can revoke the trust and access the principal thereafter, whether or not he actually does so. Trust assets are also a resource if the individual can direct use of trust assets to meet his needs for food, clothing, and shelter, or if the SSI recipient can sell his beneficial interest in the trust. Thus, if Dustin is able to revoke the trust, direct the trustee to use the funds in the trust for him, convert the funds to cash that can be used towards his support and maintenance, or sell his beneficial interest in the trust, then the trust is a resources for purposes of SSI eligibility determinations. See 20 C.F.R. 416.1201; Programs Operation Manual System (POMS) SI 01120.200D.1.-SI 01120.200D.3. Here, it appears that the trust would be a resource under each of these methods.
The Trust is a Resource Because Dustin Can Revoke It.
The Trust Agreement does not specify whether the trust is revocable. However, under Ohio law, a trust may be revoked, and may even be invalid, if the grantor of the trust is also the sole beneficiary of the trust. See Memorandum from OGC-V to ARC, SSA-V, Six State Synopsis of Trust Laws (Feb. 26, 1992); Mumma v. Huntington Nat'l Bank of Columbus, 223 N.E.2d 621, 624 (Ohio Ct. App. 1967); POMS SI 01120.200D.3.; see also Ohio Rev. Code Ann. 1335.01(A) (gifts in trust for the exclusive benefit of the person making the gift are void).
In this case Dustin is the grantor of the trust. Even though the Court created the trust, see Trust at 1, Dustin is considered the grantor since his assets from a personal injury settlement were used to establish the trust. See Three Bills, Inc. v. City of Parma, 676 N.E.2d 1273, 1276 (Ohio Ct. App. 1996); POMS SI 01120.200B.2. (a grantor, or settlor, is the individual who provides the trust principal, or corpus, even if another entity nominally creates the trust). Further, in creating the trust, the Court acted on behalf of Dustin (through his guardian). See Trust at 1. “[A]n action by someone in his/her capacity as an agent is equivalent to an action by the ward for whom he/she acts.” POMS SI 01120.020B.1., SI 01120.020C.1.
Dustin is also the sole beneficiary of the trust. The trust indicates that all of the trust assets are to be held or distributed to or for the benefit of Dustin, with all trust assets to be distributed to him when he turns twenty-five. In the event of his death prior to the trust's termination, the trust assets are to be disbursed to his estate. See Trust at 7. The provision directing distribution to Dustin's estate does not create a contingent beneficiary in anyone other than Dustin. See Restatement (Second) of Trusts, 127, comment (b) (an individual who transfers trust principal to his estate upon his death is the sole beneficiary of the trust); see also Mumma, 223 N.E.2d at 625.
Thus, Dustin is the sole beneficiary as well as the grantor of the trust, and, as such, he may revoke the trust. See id. at 624. Since the trust is revocable by Dustin, it is considered a recourse to him for SSI purposes. See 20 C.F.R. 416.1201; POMS SI 01120.200D.1.-SI 01120.200D.3.
The Trust Fund Also Is a Resource Because It Operates as a Conservatorship, or “Blocked,” Account, Which Is Available for Dustin's Support and Maintenance.
Even if Dustin could not revoke the trust, however, it still would be a resource because the funds are available to him for his support and maintenance. Dustin's trust was created by a court, and court approval is required for distributions. Thus, this trust account functions in much the same manner as a conservatorship, or “blocked” account. See POMS SI 01120.200C.1.a., SI 01140.215A.1., SI 01140.215A.3.
When an individual's funds are held in a conservatorship account, but state law requires those funds be made available for the individual's care and maintenance, we assume, absent evidence to the contrary, that those funds are available to the individual for his support and maintenance, even if the individual or his agent must petition a court to access the funds. See POMS SI 01120.010C.3., SI 01140.215B.1. As we have previously advised, in Ohio, a ward's estate is to be used for his support and maintenance on petition by his guardian to the probate court, and funds held in a blocked account generally are presumed to be available to the beneficiary for his support and maintenance, absent a legal restriction on the guardian's use of or access to the funds. See Memorandum from OGC-V to ARC, SSA-V, (Ohio) Guardianship/Blocked Account for Erik R~, ~ (Oct. 4, 1996); Ohio Rev. Code Ann. 2111.13(A)(2)-(3), (B); see also Gorenflo v. Ohio Dept. of Human Servs., 611 N.E.2d 425, 429 (Ohio Ct. App. 1992) (guardian has duty to petition Court for disbursement of funds within its jurisdiction when required for ward's care and well-being); In re Burns, 79 N.E.2d 234, 235 (Ohio Ct. App. 1948) (guardian's duty includes maintenance of ward, “which must be paid out of the estate of such ward”).
Under Ohio law, Dustin's mother is his “natural guardian,” charged with the care and management of his estate. See Ohio Rev. Code Ann. 2111.08; see also Release and Settlement Agreement at 1 and 10. The Court's Trust Agreement states that the funds are available for Dustin's “care, comfort, support, education or best interests.” See Trust at 6. The only restriction on the use of, or access to, the funds is that they must pertain to Dustin in some way. Indeed, the history of petitions for fund withdrawals in this case shows that Dustin's mother obtained reimbursement for Dustin's support and maintenance as well as for non-essential items. See POMS 01140.215B.3. Information you provided indicates that Dustin's mother has received payments from the trust fund to reimburse her for clothing and recreational items for Dustin, for home repairs, and for the purchase of a house (presumably the house in which Dustin resides). There is nothing in the file to suggest that the funds were not available for Dustin's support or maintenance, or that requests for such expenditures ever have been, or would be, denied by the Court. And, Dustin's mother has not alleged that the funds are unavailable for this purpose. Thus, Dustin's trust has been available for his support and maintenance at all times, and is therefore a countable resource for SSI purposes.
Dustin Also May Be Able to Sell His Beneficial Interest in the Trust
Although the trust contains a spendthrift provision, such a provision generally is not recognized as valid with respect to self-settled trusts, such as this one. See Miller v. Ohio Dep't of Human Servs., 644 N.E.2d 619, 621 (Ohio App. 1995), citing Restatement (Second) of Trusts 156 (1959); cf. Ohio Rev. Code Ann. 1335.01(A) (“any beneficial interest reserved to the creator [of a trust] may be reached by his creditors”). Especially since Dustin will receive all remaining assets outright at age twenty-five, his beneficial interest in the trust may have a current market value. However, since the entire trust corpus is a resource because the trust is revocable, and because the funds are available for Dustin's support and maintenance, it is not necessary to determine the value, if any, of Dustin's beneficial interest in the trust.
CONCLUSION
In summary, we conclude that, because Dustin's trust is revocable, and because the trust funds are available for Dustin's support and maintenance, the trust is a resource for purposes of determining SSI eligibility.
~~Sincerely,~~
~~Thomas W. C~Regional Chief Counsel~~
~~By: Sara E. Z~Assistant Regional Counsel~~
~~W. PS 01-109 Ohio Guardianship/Blocked Account/Grantor Trust for Ruth~~
X. PS 01-109 Ohio Guardianship/Blocked Account/Grantor Trust for Ruth
Date: February 13, 2000
1. Syllabus
Under Ohio law, a trust, which purports to be irrevocable, may nevertheless be terminated if the grantor is the sole beneficiary, even if the purposes of the trust have not been accomplished. However, if the trust specifies that any trust assets remaining at the time of the beneficiary's death are to be distributed to certain other individuals, then the need to obtain consent from those residual beneficiaries would render the trust irrevocable.
2. Opinion
You inquired whether the funds held in a guardianship account on behalf of a minor SSI beneficiary, Ruth A. H~ ("Ms. H~"), would constitute countable resources for purposes of SSI eligibility, the beneficiary of the account. We conclude that these funds are available for Ms. H~'s maintenance and support and are, therefore, countable resources for SSI purposes.
FACTS
On November 17, 1989, the Common Pleas Court of Logan County, Ohio Probate Division, entered an order approving settlement of a claim for personal injuries suffered by Ruth H~, who sued Simon Kenton School for personal injuries. The Court ordered that after payment of costs, attorneys fees, and a subrogation interest of the Ohio Department of Human Services, the remaining funds would be used to purchase an annuity, payable to the legal guardian of Ms. H~, under a guaranteed payout schedule commencing when she attained the age of 18. The Court ordered that the annuity "shall be payable (pursuant to the same schedule) to the estate of Ruth A~ H~ in the event she dies prior to final payment." Order at 2.
The Court acknowledged that Ms. H~, then age seven, suffered from a genetic deficiency and was, therefore, mentally retarded and physically unable to care for herself. Order at 2. Accordingly, the Court ordered that if such condition continued to exist when payments under the annuity were to commence, then the parents or other legal guardian of Ms. H~ shall apply to the Court for the appointment of a legal guardian to hold such payments "in trust" to distribute the funds "only" to provide extra and supplemental care, maintenance, support and education in addition to and over and above the benefits Ms. H~ may receive as a result of her disability from other local, state, federal or private agencies. Id. Further, the Court ordered that the trust shall be considered "purely discretionary, and not a basic support trust," and the trust estate "shall not be used to provide basic food, clothing, and shelter," nor be available to Ms. H~ unless all local, state, and federal benefits have been duly expended for such purpose. Order at 3. Upon the death of Ruth, the trust would expire and its assets would be distributed "within the estate of Ruth A~ H~." Id.
The corpus of the trust created pursuant to the Court's Order, would consist of an award for personal injury damages and resulting settlement between Ms. H~ and Simon Kenton School and Hardin County Board of Mental Retardation and Developmental Disabilities. Order at 1. The Court's Order approved a settlement amount which, after payment of attorney's fees and costs, totals $72,000 payable to the legal guardian of Ms. H~, in an annuity at five year intervals. Order at 2. Although the Court Order indicates that the parents or guardian of Ms. H~ shall apply to the Court for the appointment of a legal guardian to hold the annuity payments in trust, counsel for Ruth A~ H~, in a letter dated September 1, 2000, has indicated that her parents will be making the application to the Court to be appointed guardians.
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 Ms. H~ 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 (1) has access to the trust assets and can direct the use of the assets to meet her needs for food, clothing, and shelter; or
(2) if she can revoke the trust and obtain unrestricted access to the trust assets; or
(3) if she can sell her beneficial interest in the trust. Programs Operation Manual System (POMS) SI 01120.200D.1.a.
Conversely, if the individual has no legal power to access or direct the use of the trust principal and cannot sell her beneficial interest, then the trust will not be considered a resource. POMS SI 01120.200D.2. We have reviewed the documents you have provided and, for the following reasons, we conclude that the trust agreement in question should be considered a countable resource under 20 C.F.R. 416.1201 because Ms. H~ can revoke the trust.
Ms. H~ cannot direct the use of trust assets.
The Court Order makes clear that payments held in trust after the application to the Court for the appointment of a legal guardian, shall be held in trust. Order at 2. Payments made from the trust shall be considered "purely discretionary" and not utilized for basic support. Order at 3. Accordingly, Ms. H~ 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 01120.200B.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 01120.200D.1.b. Ms. H~'s trust is not one of these rare instances. The trust authorizes the legal guardian to hold annuity payments made to Ms. H~ in trust, and to distribute the funds "only to supplement other benefits which may be received by Ruth A~ H~." Order at 2. Moreover, the trust shall be "purely discretionary." Order at 3. Therefore, Ms. H~ does not have authority to demand payment from the trust, as the legal guardian has discretion over distribution of trust income and principal. Furthermore, the trustee's power to distribute the trust is limited. The Court's Order indicates that trust assets "shall not be used to provide basic food, clothing, and shelter, nor be available to the beneficiary for conversion for such items" unless all other benefits, have been first duly expended. Order at 3. Therefore, Ms. H~'s access to the trust principal is restricted, and the trust principal should not be considered a countable resource for this reason.
2. Ms. H~ can revoke the trust because she is the grantor and sole beneficiary.
If Ms. H~ is the sole grantor as well as the sole, identifiable beneficiary of the trust, 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). Under Ohio law, a trust, which purports to be irrevocable, may nevertheless be terminated if the grantor is the sole beneficiary, even if the purposes of the trust have not been accomplished. Mumma v. Huntington Nat'l. Bank of Columbus, 223 N.E.2d 621, 625 (Ohio App. 1967)(citing Restatement of Trusts (Second), 339). 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 Memorandum from Regional Chief Counsel, Chicago, to Acting Ass't Reg. Comm.-POS, Chicago, Zebley Trust as an SSI ResourceWisconsin, Shannon O-B~ (~), (July 9 1993); 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").
Under Ohio law, the grantor of a trust is the person who provides the consideration for or creates the trust. See Three Bills, Inc. v. City of Parma, 676 N.E.2d 1273, 1276 (Ohio App. 3d 1996); see generally 76 Am. Jur. 2d 55; POMS SI 01120.200B.2. Here, the trust is funded with proceeds Ms. H~ will receive from a settlement agreement between herself and Simon Kenton School and the Hardin County Board of Mental Retardation and Developmental Disabilities. Order at 1. Therefore, Ms. H~ is, in fact, the grantor 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. H~ is the sole settlor of the trust. Since the trust agreement is for the benefit of Ms. H~, if the trust does not create other beneficiaries, it would be considered a grantor trust, allowing Ms. H~ the power to revoke the trust.
A beneficiary is any person with a beneficial, or equitable ownership interest in the trust, or person for whose benefit the property is held in trust. 76 Am. Jur. 2d 59; POMS SI 01120.200B.4. If the grantor designates any other beneficiaries to the trust, the trust would not be a resource. 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 01120.200B.12. However, the grantor presumably does not name any additional beneficiaries if he or she designates as the residual beneficiary his or her "heirs," "next of kin," "estate," "personal representative," or the like. See Mumma, 223 N.E.2d at 625; Restatement (Second) of Trusts 127, comment b (1959).
Here, Ms. H~ is the only beneficiary of the trust during her lifetime. Upon her death, the trust expires and it assets shall be distributed within the estate of Ms. H~. Order at 3. Based upon the language of the Court's Order, the trust does not appear to name additional beneficiaries because the residual beneficiary upon Ms. H~'s death is her "estate." Order at 3. Thus, Ms. H~ appears to be both the grantor and the sole beneficiary of the trust and can, therefore, unilaterally revoke the trust in order to use the principal for food, clothing, or shelter. Accordingly, the trust should be treated as a countable resource for the purpose of determining Ms. H~'s eligibility for SSI. See POMS SI 01120.200D.1.a. 3. Even if this were a Blocked account situation, the funds would be a resource to Ms. H~.
As noted above, Counsel for Ms. H~ has indicated that the money held in trust is accessible only by petition to the Court. The actual court documents do not appear to require this. The Court's Order approving settlement and creating the trust references only an application to the Court for the appointment of a legal guardian, but does not require prior court approval for withdrawals from the trust. Order at 2. However, if Counsel's assertion were true, then even if Ms. H~ attempted to revoke the trust, the money in the account might still be under court jurisdiction during the guardianship of Ms. H~. If the money were accessible only by petition to the court, it would then be a "blocked account," as described in POMS 01121.210D.1.
Some states permit a guardian or payee to access funds held on behalf of another only with the permission of the court having jurisdiction over the guardianship. This is known as a "blocked" account. The POMS states that if state law requires funds be made available for the care and maintenance of an individual, funds maintained in a "blocked account" should be assumed, absent evidence to the contrary, to be available despite the requirement that the individual petition the court to withdraw funds for support and maintenance. POMS SI 01120.010C.3.
We do not believe this is a blocked account because the Court's Order does not require prior Court approval for disbursement of funds. The Court's Order requires only that the parents or guardian of Ms. H~ apply to the Court for the appointment of a legal guardian to hold annuity payments in trust for Ms. H~. Order at 2. It does not contain language, as Counsel for Ms. H~ suggests, that prior Court approval is required before any funds are dispersed.
Moreover, we believe that even if the Court retained jurisdiction over the funds, requiring Ms. H~'s guardian to petition for access to the funds, the funds would still be a resource. We have previously advised that in Ohio, funds held by a guardian on a claimant's behalf should be presumed accessible to her, absent evidence to the contrary. Memorandum from Regional Chief Counsel to Ass't Reg. Comm.-POS, Washington, "Blocked Accounts" as SSI ResourcesACTION, (August 3, 1989); see also Memorandum from Regional Chief Counsel to Acting Ass't Reg. Comm.-POS, Chicago, Supplemental Security Income Regional Transmittal Concerning Blocked Accounts, (November 28, 1995). Ohio law requires a guardian to provide suitable maintenance for his ward when necessary, which shall be paid out of the estate of such ward. Ohio Rev. Code Ann. 2111.13(A)(2). While 2111.13(B) seems to require the Court's permission before the guardian may make such expenditures ("No part of the ward's estate shall be used for the support, maintenance, or education of such ward unless ordered and approved by the Court."), the courts have interpreted this language to permit the court to consider the appropriateness of the expenditures at the time of the accounting. Blocked Accounts as SSI Resources; See In the Matter of: The Guardianship of Anna V. E~, 1985 WL 11124 (Ohio App. 1985); In re Burns, 79 N.E. 2d 234 (Ohio App. 1948).
Furthermore, the Court Order provides that the trust estate shall not be used to provide basic food, clothing, and shelter, nor be available to the beneficiary for conversion for such items, that limitation applies only until all local, state, and federal benefits for which Ms. H~ is eligible as a result of disability, have been expended for that purpose. Thus, the funds would be available for Ms. H~'s support and maintenance after all local, state, and federal benefits were expended. Ms. H~ has submitted no evidence that the Court has denied any such request or that it would deny such request in the future.
CONCLUSION
In short, we believe that the trust funds are a resource even if they were to remain "blocked" if Ms. H~ revoked the trust, since the funds would nonetheless be available for her support and maintenance under Ohio law. The documents appear to create only a court-approved settlement of a lawsuit, which establishes a trust. Since Ms. H~ is both the grantor and the sole beneficiary of the trust, she can revoke the trust and obtain the assets. Although Ms. H~'s attorney suggests that the court document creates a "blocked account," requiring prior Court approval to withdraw any funds, we do not believe the documents create such an account. Furthermore, even if this were a blocked account, we would presume that the Court would allow the funds to be used for Ms. H~'s support and maintenance after all local, state, and federal benefits that Ms. H~ is eligible for were duly expended.
For the above reasons, we believe the trust principal should be considered a countable resource when determining Ms. H~'s eligibility for SSI.
~~X. PS 01-104 SSI-Ohio-Review of Chad Trust~~
Y. PS 01-104 SSI-Ohio-Review of Chad Trust
Date: January 31, 2001
1. Syllabus
This opinion discusses a trust case in Ohio. The trust is excludable from SSI resource counting until 7/10/04. This is because, under the trust's terms, the beneficiary cannot revoke the trust, cannot direct the trustee to use the benefits for his support and maintenance, and cannot get any value for his interest in the trust. However, the trust will be countable as a resource starting on 7/10/04 because the trust gives the beneficiary the authority to revoke the trust and use the money on that date.
NOTE: Because of a change in the Social Security Act, this precedent may only be applicable to a trust established prior to 1/1/00.
2. Opinion
You asked for a legal opinion concerning whether the subject trust is a countable resource to Chad W. J~ Chad), an SSI applicant. We conclude that the trust assets should not be treated as a countable resource for Chad until July 10, 2004.
BACKGROUND
The Chad W. J~ Trust Agreement was created on August 13, 1998, with one dollar held as the trust property. The trust names Chad as the grantor and beneficiary of the trust, and names Chad, Russell T. J~, and William T~ as the trustees. Russell T. J~ (Russell) is Chad's father, and is the designated "Family Trustee." William T. is the designated "Investment Trustee."
The August 1998 trust agreement states that until July 10, 2004, Chad can amend or revoke the trust only with the consent of at least one of the trustees other than himself. After July 10, 2004, Chad can amend or revoke the trust on his own, or direct the trustee to use the funds to secure any of his legal obligations. At age 30, Chad will have the power to withdraw all or part of the trust property. It also states that the trustees "shall" pay Chad "as the Trustees shall determine to be necessary or desirable for [his] maintenance, health, support and education."
Chad reserved the right to designate, by will, the residual beneficiaries to receive the trust property on his death. However, his power of appointment is limited to a class, including any spouse, descendants, his parents, his siblings, and step-brothers, and religious and charitable organizations. If he does not exercise this right, the trust passes to his lineal descendants, and if there are none, to his parents, siblings, and step-brother.
On May 10, 1999, the trust was amended, and the amendments were approved by Russell, one of the trustees. The amendment stated that Chad shall no longer serve as a trustee, and Russell shall join as a grantor. The amended trust stated that the purpose of the amendments was to make the trust agreement conform to the requirements of 42 U.S.C. 1396p(d)(4)(A) and Ohio Administrative Code 5101:1-39-271, so the assets held in trust would not be deemed to be available to Chad for purposes of benefit eligibility, and the other trustees agreed to such modification. The amended trust explained that if Chad were receiving a government need-based benefit, such as Medicaid, the distributions from the trust would be limited to those distributions necessary to meet Chad's supplemental needs, and any income not so distributed would be added to the principal of the trust. The amendments deleted the provision that allowed Chad to withdraw funds from the trust when he is 30 years old.
The amended trust stated that its primary purpose was for Chad's care, and the secondary purpose was to ensure that trust distributions did not cause him to lose his government entitlement benefits. Under the amended trust, the trustees have discretion to make distributions to supplement Chad's government benefits. The amended trust also provides that upon Chad's death, "each State which has provided medical assistance to [Chad] since the Trust was established shall receive a proportionate share of the assets remaining in the within Trust upon [Chad's] death, up to an amount equal to the total medical assistance paid on [Chad's] behalf by such State under a State plan pursuant to 42 U.S.C. 1396 et seq., to the extent permitted by law." This provision allows reimbursement upon Chad's death from the remaining trust assets to the government entities that provided assistance to Chad.
Chad's lawyer has asserted that the amended trust qualifies as an exempt asset under 42 U.S.C. 1396p(d)(4)(A) and 42 U.S.C. 1382(b) as amended by 205 of the Foster Care Independence Act of 1999.
DISCUSSION
For SSI purposes, resources are cash or other liquid assets, or any real or personal property that an individual owns and could convert to cash to use for his support and maintenance. 20 C.F.R. 416.1201(a). Trust property may be such a resource for SSI purposes. Program Operations Manual System (POMS) SI 01120.200A. Specifically, trust principal constitutes a resource if an individual:
(1) has legal authority to revoke the trust and then use the funds to meet his food, clothing, or shelter needs,
(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. 20 C.F.R. 416.1201(a); POMS SI 01120.200D.1.a.
As we discuss below, the trust here is not a countable resource, because none of these circumstances are present.
A. Chad Lacks The Legal Authority To Revoke The Trust
Article II of the trust agreement, titled "Reserved Rights; Temporary Irrevocability" specifically states that Chad can amend or revoke the trust only with the written consent of at least one of the Trustees other than himself. The First Amendment of Trust Agreement, Second Paragraph, states that Chad shall not serve as a Trustee. As Chad may not revoke the trust without the consent of one of the Trustees, Chad lacks the legal authority to revoke the trust on his own under the terms of the trust. Indiana Trust for Angela R. M~ (~), RA V (K~) to M~, ARC-MOS (December 28, 1999) at 3 (copy attached) (if trustee must agree, you cannot revoke on your own).
Under Ohio law, a trust also may be revoked if the grantor of the trust is also the sole beneficiary. See Mumma v. Huntington Nat'l Bank of Columbus, 223 N.E.2d 621, 624 (Ohio Ct. App. 1967) (citing Restatement (Second) of Trusts 339) (1959)). Initially, Chad was named as the grantor of this trust, and under the First Amendment of Trust Agreement, Chad's father joined as a grantor. However, Chad is not the sole beneficiary of the trust.
Article III, paragraph (c) of the trust provides that upon Chad's death, any remaining assets are to be distributed to a limited class, including Chad's "living lineal descendants." Chad's "living lineal descendants" are contingent beneficiaries, and the presence of such contingent beneficiaries preserves the irrevocability of the trust. See The National City Bank of Cleveland v. Ford , 299 N.E.2d 310, 314 (Ohio Ct. of Common Pleas 1973) ("If any beneficiary is unascertained or unborn termination [of a trust] cannot be forced.") (citing Mumma); Clarification of Regional SSA Program Circular 94-05 Concerning Trusts RA V (K~) to L~, Acting ARC POS (May 24, 1995) (a remainder interest in favor of "descendants," "children," or "issue" renders a trust irrevocable absent an express statement that the trust is revocable by the grantor). Thus, the trust agreement creates contingent beneficiaries, and we do not assume that such beneficiaries would consent to revoke the trust agreement. See SSI - Ohio - Review of Special Needs Trust for Kevin E. L~ (~), RA V (S~) to M~, ARC-MOS (May 10, 1999), at 4. Accordingly, Chad lacks legal authority to revoke the trust and use the trust property for his support and maintenance.
However, on July 10, 2004, he can revoke the trust at any time. Therefore, as of that date, the trust will be a resource.
B. Chad Cannot Direct The Trustees To Use The Assets For His Support And Maintenance
Under the original trust terms, any distributions from the trust before Chad turns 30 are at the discretion of the trustee. The amended trust agreement states that the trustee may not distribute trust funds in such a way as to render Chad ineligible for his government assistance program(s) (First Amendment of Trust Agreement, First Paragraph). The stated purpose of the trust is to supplement Chad's needs which are provided for by government entitlement programs. Under the terms of the amended trust, the beneficiary cannot direct the trustee to use the assets in his account for his support and maintenance. Rather, the trustee has sole discretion to disburse such funds, and disbursements are to be made only for the beneficiary's "supplemental needs." (First Amendment of Trust Agreement, First Paragraph).
C. Chad Cannot Obtain Value For His Interest In The Trust
If Chad is the grantor of the trust, the spendthrift provision, which would ordinarily prevent him from selling his beneficial interest, would be invalid. See Restatement (Second) of Trusts 156 (1959). However, we assume that Chad's interest in the trust would have little or no market value, since the trustee must make any disbursements for the beneficiary's benefit, and is prohibited from making any part of the principal or undistributed income available to the beneficiary (First Amendment of Trust Agreement, First Paragraph). See Zebley Trust as an SSI Resource-Wisconsin, Bernard W~ (~), RA V (M~) to M~, Acting ARC-POS (Feb. 23, 1993) at 5; Tentative Draft No. 2: Restatement (Third) of Trusts 60 and comment f (March 10, 1999).
CONCLUSION
We conclude that until July 10, 2004, the trust assets at issue here should not be considered a resource to Chad J~ for SSI purposes because the beneficiary cannot revoke or terminate the trust, he cannot direct the trustee to use the assets for his support and maintenance, and he cannot obtain value for his interest in the trust. However, after July 10, 2004, the trust will be a resource (unless it is amended), because Chad will have the authority to revoke the trust.
~~Y. PS 00-387 SSI-Ohio-Review of a Medicaid Trust for Silas K~~~
Z. PS 00-387 SSI-Ohio-Review of a Medicaid Trust for Silas K~
Date: July 13, 1998
1. Syllabus
NOTE: This trust was evaluated under the rules in place prior to 1/1/00 and thus this precedent may not apply to trusts established after that time.
For SSI purposes, a trust may be considered a resource if the beneficiary can direct use of the trust principal to pay for his/her support and maintenance, or if the beneficiary can revoke the trust and use the funds to pay for his/her food, clothing, and shelter needs. In this situation the SSI applicant is both the grantor and the sole beneficiary of the trust, thus creating a grantor trust (see SI 01120.200(B)8). This trust is a countable resource for SSI purposes because the SSI applicant has the ability to revoke the trust and use the assets for his support and maintenance.
2. Opinion
You asked for our opinion on whether the trust established for Silas K~, an SSI applicant, by his guardians should be considered a countable resource. For the reasons set out below, we believe that the trust is a revocable grantor trust, the contents of which should be considered a countable resource for purposes of SSI.
FACTS
Silas K~, a twenty-three year-old SSI applicant, was injured in an automobile accident in 1992. He has been "mentally disabled" since suffering severe head trauma in the accident. Mr. K~'s legal guardians, Carina and Steven, petitioned the court to establish a special needs fund for Silas with the money he was to receive from a $110,000 settlement with one of the defendant's from his personal injury lawsuit. One of his legal guardians, Carina, is named as trustee, with the other guardian, Steven, to replace her upon her death. These individuals are also listed as grantors, acting on behalf of Silas.
This trust states that it is created pursuant to 42 U.S.C. § 1396p(d)(4)(A). This statute exempts certain types of trusts from being considered as countable resources for purposes of determining Medicaid eligibility. The Medicaid rules, however, are not the same as those governing SSI. See Memorandum from OGC-V (D~) to Gloria J. P~, ARC, MOS (June 24, 1997), States Named as Beneficiary to a Trust.
The trustee is authorized to spend, on a monthly basis, whatever is needed to pay for Silas' expenses and needs, but at no point is this amount to exceed that which would render Silas ineligible for Medicaid, or any other Ohio aid programs for which Silas may qualify. Upon Silas' death, the remaining assets of the trust will be used to reimburse the state of Ohio pursuant to 42 U.S.C. § 1396p, up to the amount paid by the state for Silas' previously incurred medical expenses. The remainder is to be distributed pursuant to the Ohio statutes of descent and distribution. The trust purports to be irrevocable and can only be amended with the authority of the Franklin City Probate Court.
DISCUSSION
For SSI purposes, a resource is any property or asset that an individual owns which he could convert to cash and could use for his own support and maintenance. See 20 C.F.R. § 416.1201(a). Trust principal may be a resource, if the beneficiary can direct the use of the principal to pay for his support and maintenance, or if the beneficiary can revoke the trust and subsequently use the funds to pay for his food, clothing, and shelter needs. POMS SI 01120.105(A)1, 01120.200 (D)(1)-(3).
Silas Has The Authority To Revoke The Trust
A grantor trust is a trust in which the grantor is also the sole beneficiary of the trust. POMS SI 01120.200(B)8. We have previously advised that in Ohio, grantor trusts are revocable by the grantor, so long as he is the sole beneficiary, even where clear language stated that the trust was irrevocable. Memorandum from OGC-V (P~) to Gloria P~, ARC (Feb. 26, 1992), Six -State Synopsis of Trust Laws; see Restatement Second of Trusts § 339; Ohio Jurisprudence Third, Trusts § 150 (1989, 1997 Supp.); Mumma v. Huntington Nat'l Bank of Columbus, 223 N.E. 2d 621, 625 (Ohio Ct. App. 1967). An individual is considered a grantor if an agent empowered to act for him (such as a guardian) establishes the trust with funds which belong to the individual. POMS SI 01120.200(B)(2). Silas's guardians established this trust for his benefit with funds from his settlement. These funds belong to Silas. Therefore, Silas would be considered the legal grantor of this trust.
Silas is also the sole beneficiary of this trust. Item II(A) of the trust lists Silas alone as the beneficiary of the trust while Silas is alive. Item II(B) directs that, after Silas' death, the remainder of the trust is to go to the state of Ohio, but only in an amount great enough to repay the state for the medical assistance given to Silas during his lifetime. The remainder of the trust is to be distributed pursuant to the Ohio statutes of descent and distribution. Therefore, Silas is the only beneficiary of the trust.
A beneficiary "is a person for whose benefit a trust exists." POMS SI 01120.200(B)(4). The state of Ohio is not a beneficiary because the trust was not established for its benefit. It will only be reimbursed for whatever cost it incurred paying for Silas' medical expenses over the course of his lifetime. See Memorandum from OGC-I (K~) to Barbara B~, Deputy ARC (Aug. 21, 1995) Grantor Trusts-General Policy and Responses to Specific Inquiries. Also, while the trust does direct the remainder to go to the heirs of Silas to be determined by the Ohio statutes of descent and distribution, this also does not create any additional interests. Rather, Ohio courts have ruled that this provision merely creates the inference that the grantor was intended to be the sole beneficiary. Mumma v. Huntington Nat'l Bank of Columbus, 223 N.E. 2d 621, 625 (Ohio Ct. App. 1967). Because Silas is both the grantor and the sole beneficiary of the trust, he would be able to revoke it and use the assets for his support and maintenance.
CONCLUSION
For the foregoing reasons, we conclude that the Silas K~ trust should be considered as a countable resource for SSI purposes.
Thomas W. C~Chief Counsel, Region VBy: Charles A. C~, Jr.Law Clerk
~~Z. PS 00-384 Ohio Special Needs Trust - Sana~~
AA. PS 00-384 Ohio Special Needs Trust - Sana
Date: May 20, 1999
1. Syllabus
This opinion discusses who is considered to be a residual beneficiary of a trust under Ohio law.
2. Opinion
You have requested an opinion on whether the funds held pursuant to the terms of a trust agreement should be treated as a resource of Sana S. S~, a Supplemental Security Income (SSI) recipient, for purposes of determining her eligibility for SSI. For the reasons discussed below, it is our opinion that the trust principal should not be counted as a resource.
FACTS
This case involves a trust agreement created by Sabreen, parent of Sana (the beneficiary). The agreement directs the trustee, Thomas (a lawyer), to make payments to or for the benefit of Sana in such amounts as Thomas, in his absolute discretion, considers advisable to provide supplemental services for Sana (Trust, Article II). In making these discretionary payments, the trustee is instructed to only make payments that will not affect Sana's eligibility for assistance. Trust, Article II, par.1. Upon Sana's death, the trust will terminate and any remaining trust assets, after the payment of any final costs and expenses of the trust, and the minimum payment that under applicable law must be distributed to any state for medical assistance, will be distributed to Sana's spouse if then living, or if none, to her children and more remote lineal descendants. Trust, Article III, Paragraph C. The trust document also contains an express irrevocability clause. Trust, Article I, Paragraph 3.
DISCUSSION
The pertinent SSI regulations provide at 20 C.F.R. 416.1201(a) that:
resources mean cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance. If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource.
Thus, if an individual is able to obtain funds or convert property to cash to be used toward her support and maintenance, such funds or property are to be included as resources for purposes of SSI eligibility determinations. Assets in a trust can be a resource if the SSI recipient can revoke the trust and obtain the assets, or if she can direct the use of the assets for support and maintenance. POMS SI 01120.200D.1.-SI 01120.200D.3. Here the beneficiary cannot direct the use of the trust property, and the trust is not revocable.
Under Ohio law, a grantor who is also the sole beneficiary may revoke a trust, despite the presence of an express irrevocability clause. See Columbus Bar Association v. Ramez, 290 N.E.2d 831, 836 (Ohio 1972); Mumma v. Huntington National Bank of Columbus, 223 N.E.2d 621, 624 (Ohio Ct. App. 1967). Thus, the inclusion of an irrevocability clause in the trust agreement is not dispositive. Rather, the question is whether Sana, as grantor of the trust, is also its sole beneficiary.
Here, Sana is not the sole beneficiary of the trust. Although Sana is the sole beneficiary during her lifetime, the assets of the trust are to be distributed to Sana's spouse if then living or to Sana's children and more remote lineal descendants upon Sana's death. The addition of these residual or contingent beneficiaries generally makes the trust irrevocable, because their consent would be necessary to revoke the trust. Restatement (Second) of Trusts, 127, comment b (1959). The trust created residual beneficiaries by naming Sana's spouse if living or her children or more remote lineal descendants, as beneficiaries upon Sana's death. See Mumma, 223 N.E.2d at 624-25 (citing Restatement (Second) of Trusts, 127 (grantor is not sole beneficiary if income to grantor for life and corpus upon grantor's death, to grantor's unborn children, issue or descendants)); First National Bank v. Tenney, 137 N.E.2d 585 (Ohio Ct. App. 1955), aff'd, 138 N.E.2d 15 (Ohio 1956).
Since the Trust language created an interest in the trust estate in Sana's spouse or descendants, a residual beneficiary other than Sana exists, in the absence of an express reservation of the power to revoke by claimant. Mumma, 223 N.E.2d at 624; Restatement (Second) of Trusts, 127, comment b (1959). Claimant did not reserve this power; thus, she cannot revoke the trust and the trust principal cannot be counted as a resource on that basis.
~~AA. PS 00-373 Ohio Special Needs Trust for Nathan~~
BB. PS 00-373 Ohio Special Needs Trust for Nathan
Date: September 18, 1997
1. Syllabus
This opinion concerns a special needs trust established in Ohio in November 1996. The trust is a resource for SSI purposes as the SSI recipient is both the grantor and the sole beneficiary of the trust and can revoke the trust and use the assets for his support and maintenance.
CAUTION: Because of a change in the Social Security Act, this precedent may only be applicable to a trust established by an individual before 1/1/00.
2. Opinion
This is in response to your inquiry regarding whether the trust agreement designating Nathan S. R~ as a beneficiary should be considered a resource in determining his eligibility for SSI benefits. For the reasons stated below, the trust should be considered a resource.
FACTS
Mr. James R. R~ (James), as court appointed guardian and natural parent of Nathan S. R~ (Nathan), petitioned the Warren County Probate Court for approval of a Special Needs Trust for the benefit of Nathan. In November 1996, the court granted the petition.
The trust agreement names James as the grantor and trustee and Nathan as the beneficiary of the trust. The trust was to be funded initially with proceeds from the settlement of a personal injury lawsuit. The trust agreement provides that the trust is irrevocable and the purpose of the trust is to provide the beneficiary with "supplemental services." The trust agreement also provides that upon the death of Nathan, the trust is terminated and the trust principal is distributed to pay any final costs and expenses related to the administration of the trust; any remaining principal to reimburse the State of Ohio for amounts paid for Nathan's medical assistance; and to distribute all remaining funds to Nathan's estate.
ANALYSIS
For purposes of SSI eligibility, a resource is defined as property that an individual owns and could convert to cash to be used for his support and maintenance. See 20 C.F.R. 416.1201(a).
If the person has the right, authority, or power to liquidate the property, it is considered a resource. See 20 C.F.R. 416.1201(a)(1). The trust principal is a resource when an individual has legal authority to revoke the trust and use the funds to satisfy his food, clothing or shelter needs. POMS SI 01120.200D.1.a. We previously advised that, even if a trust purports to be irrevocable, it nevertheless may be revoked if the individual is both the grantor and sole beneficiary of the trust. Six-State Synopsis of Trust Laws, OGC V (P~) to Gloria P~, ARC (Feb. 26, 1992)(relying on the holding in Mumma v. Huntington Nat'l Bank of Columbus, 223 N.E.2d 621 (Ohio Ct. App. 1967); see also Restatement of Second of Trusts 330; Ohio Jurisprudence 3d, Trusts 150 (1989, 1997 Supp.).
Nathan is the grantor of the trust at issue, even though the trust names James as the grantor. Where a beneficiary acting through his guardian establishes a trust with funds that actually belong to the beneficiary, the beneficiary can legally be considered the grantor of the trust. See POMS SI 01120.020B.1., SI 01120.020C.1., SI 01120.200J.3.a. Here, Nathan acted through James, his guardian, to establish a trust with proceeds he received from the settlement of a personal injury lawsuit. Since trusts established from personal injury settlements are considered established by the person who received the reward, Nathan is the grantor of the trust. See POMS SI 01120.200J.3.a.
Nathan is also the sole beneficiary of the trust. A beneficiary is "[t]he person for whose benefit property is held in trust." Restatement (Second) of Trusts, 3(4); Ohio Jurisprudence 3d, Trusts 3 (1989, 1997 Supp.). Although the trust agreement provides for distribution of the trust principal upon the death of Nathan, the trust agreement does not identify any residual beneficiaries. No additional beneficiaries are established by the provision allowing payments for administrative costs of the trust because these payments relate to running the trust or providing goods and services for Nathan's benefit. Furthermore, the trust agreement provision requiring the trustee to reimburse the state for the cost of medical assistance provided to Nathan does not make the state a beneficiary of the trust. The trust principal does not benefit the state, but merely repays the state for the costs of providing benefits to Nathan during his lifetime. See Illinois OBRA '93 Trust for Dominick J. G~, ~, OGC-V (D~) to Gerald K~, Center Director (Apr. 17, 1997) at 4; Supplemental Security Income-Wisconsin Trust-Michelle J. L~, OGC-V (M~) to Gloria P~ ARC-MOS (June 9, 1997); Grantor Trusts-General Policy and Responses to Specific Inquiries, OGC-I (K~) to Barbara B~, Deputy ARC (Aug. 21, 1995). Finally, the trust provision requiring that remaining funds be distributed to Nathan's estate does not create residual beneficiaries. See Restatement (Second) of Trusts, 127, comment (b)(an individual who transfers trust principal to his estate upon his death is the sole beneficiary of the trust); see also Mumma v. Huntington Nat'l Bank of Columbus, 223 N.E.2d 621, 625 (Ohio Ct. App. 1967).
CONCLUSION
The trust assets at issue should be considered a resource to Nathan for SSI purposes because, as grantor and sole beneficiary of the trust, he can revoke the trust and use the trust assets for his support and maintenance.
~~BB. PS 00-325 SSI - Ohio-Review of Special Needs Trust for Kevin~~
CC. PS 00-325 SSI - Ohio-Review of Special Needs Trust for Kevin
Date: May 10, 1999
1. Syllabus
This opinion concerns a special needs trust in Ohio. The trust is not a resource for SSI purposes because the SSI recipient (the grantor) does not have the legal authority to revoke the trust or direct the use of its assets for his own support and maintenance.
Under Ohio law, 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 that the grantor's parents are the beneficiaries in the event of the grantor's death. The trust also provides that the Trustee has sole discretion over payments made from the trust. Therefore, the SSI recipient 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 asked whether, for Supplemental Security Income ("SSI") purposes, the Special Needs Trust established for the benefit of Kevin E. L~ is a countable resource. Because Kevin E. L~ ("Kevin") does not have legal authority to revoke the trust or to direct the use of trust assets for his own support and maintenance, we have concluded that the trust principal is not a countable resource. However, any distributions or in-kind payments from the trust that are used for Kevin's support and maintenance and any cash distributions paid directly to Kevin, would be countable income for SSI purposes.
FACTS
On December 16, 1998, the Court of Common Pleas, Probate Division, Lake County, Ohio approved the Kevin E. L~ Special Needs Trust ("Trust Agreement" or "Trust"). The Trust Agreement names Linda J. P~, Kevin's parent, as Trustee, and it names Kevin as beneficiary. The Trust Agreement does not name a Grantor, but states that the Trust is to be funded initially by "all guardianship assets" including an Equitable Life Assurance Annuity Contract. While the Trust Agreement does not state to whom the Trust assets initially belonged, for the purposes of analysis we assume that the assets belonged to Kevin.
The Trust Agreement states that it is established pursuant to 42 U.S.C. 1369p(d)(4)(A) and Ohio Administrative Code 5101:1-39-271. The purpose of the Trust is to care for Kevin, provide services required by Kevin, and provide for continuing conservation and enhancement of funds to supplement all other financial and service benefits for which Kevin might be eligible as a result of his disability. The Trust Agreement states that as long as Kevin is disabled and unable to maintain and support himself, the Trustee is to seek support and maintenance for him from all available public resources, including, but not limited to, Supplemental Security Income, Medicaid, Federal Social Security Disability Insurance, and any other appropriate state or local agency.
Payments from the Trust are to be made to or for the benefit of Kevin for the provision of "supplemental services" as defined in Ohio Administrative Code 5123:2-18-01(C) for the satisfaction of Kevin's special needs. The Trustee may make expenditures so that Kevin's standard of living will be comfortable and enjoyable, but may not be obligated or compelled to make such payments. The Trustee may hold real property either as investment or as a residence for Kevin (keeping in mind the effect of such a residence on Kevin's eligibility for benefits), and the Trustee may purchase a home in the name of the Trust where Kevin may live rent free (if the Trustee has determined that he is not eligible for rent subsidy or housing assistance programs as a result of his disability and if this does not affect his level or receipt of government benefits).
Payments from the Trust are to be made in the Trustee's "sole discretion." This discretion is limited in several ways, including that the Trustee must obtain prior approval of the Probate Court and must not use the Trust income or corpus to supplant or replace public assistance benefits of any city, county, state, federal, or other governmental agency that has a legal responsibility to serve persons with disabilities. While payments from the Trust are to be made directly to persons supplying goods or services to Kevin, the Trust Agreement also permits the Trustee to periodically give Kevin spending money to the extent that his eligibility for disability related benefits is not affected.
The Trust Agreement provides that it is irrevocable, and may not be altered, amended, revoked, or terminated, but that the Trustee may amend the Trust with Court approval to carry out the intention of the parties or if the laws or regulations concerning benefit programs change. In addition, Kevin may terminate the trust and withdraw its assets in whole or in part if a court determines that Kevin is "fully competent and without any legal disability."
If the Trust is still in existence at the time of Kevin's death, (and after the Trustee has paid expenses such as Kevin's funeral expenses and has paid to the Ohio Department of Human Services up to an amount equal to the total medical assistance received), any remaining assets are to be distributed equally to Kevin's parents, Linda (the Trustee) and Jeffery L~. If Kevin's parents are deceased, the assets are to be distributed to Kevin's estate or pursuant to any valid will that Kevin has executed.
DISCUSSION
A resource, for determining whether an individual is entitled to SSI, includes cash or other liquid assets, or any real or personal property that an individual owns and could convert to cash to use for his support and maintenance. 20 C.F.R. 416.1201(a) (1998). Trust property may be such a resource for SSI purposes. Program Operations Manual Systems ("POMS") SI 01120.200A. Specifically, trust principal constitutes a resource if an individual (1) has legal authority to revoke the trust and then use the funds to meet his food, clothing, or shelter needs, or (2) can direct the use of the trust principal for his support and maintenance under the terms of the trust. POMS SI 01120.200D.1.a.
A. Kevin Lacks The Legal Authority To Revoke The Trust
Whether the Trust is revocable depends on the terms of the Trust and/or Ohio law. POMS SI 01120.200D.2. Article II of the Trust Agreement specifically states that it is irrevocable and may not be amended. Nevertheless, under Ohio law, a trust may be revoked if the grantor of the trust is also the sole beneficiary and is not under any incapacity. Mumma v. Huntington Nat'l Bank of Columbus , 223 N.E.2d 621, 624 (Ohio Ct. App. 1967) (citing Restatement (Second) of Trusts 339).
In light of this rule, the Trust Agreement remains irrevocable. Although we assume that the Trust was created with Kevin's own funds, and that he should be considered the Grantor of the Trust, see POMS SI 01120.200B.2., Kevin is not the sole beneficiary of the Trust. At Article III(C), the Trust Agreement provides that if the Trust is still in existence at the time of Kevin's death, (and after the Trustee has paid expenses such as Kevin's funeral expenses and has paid to the Ohio Department of Human Services up to an amount equal to the total medical assistance received), any remaining assets are to be distributed equally to Kevin's parents, Linda (the Trustee) and Jeffery L~. Thus, the Trust Agreement creates residual contingent beneficiaries, and we do not assume that such beneficiaries would consent to revoke the Trust Agreement. See SSI-Illinois-Review of the Caitlin N~ S~ Supplemental Care Trust SSN: ~, OGC-V (Flanagan) to Donna Y. M~, ARC-MOS (March 9, 1999), at 4. Accordingly, Kevin lacks legal authority to revoke the Trust and use the Trust property for his food, clothing, and shelter.
B. Kevin Cannot Direct The Use Of Trust Principal
Although Kevin does not have the legal authority to revoke the Trust Agreement, the Trust may still be counted as a resource in determining SSI eligibility if Kevin has the ability to direct the use of the Trust principal. POMS SI 01120.200D.1.a. Such authority may be included specifically in a trust provision allowing the beneficiary to act on his own or in a provision allowing him to order actions by the trustee. POMS SI 01120.200D.1.b. The Trust Agreement includes no such provision. Rather, Article III of the Trust Agreement expressly provides that the Trustee has "sole discretion" over payments made from the Trust. Thus, Kevin does not have the ability to direct the use of Trust assets for his support and maintenance under the terms of the Trust Agreement.
C. Certain Disbursements Or In-Kind Payments Would Constitute Countable Income
Finally, although the Trust principal is not a countable resource, disbursements from the Trust under certain circumstances would be countable income for determining Kevin's SSI eligibility and level of benefits. For instance, under certain circumstances, the Trust Agreement allows the Trustee to pay to Kevin spending money, or allows the Trust to hold the title to a home where Kevin could live rent-free. See Articles III VI. The Trust Agreement also allows payments for "supplemental services," the definition of which includes payment for food, clothing, and shelter beyond one's basic needs, and allows for payment of pocket money. See Ohio Admin. Code 5123:2-18-01(C). In all of these instances, however, the Trust Agreement expressly states, or at least suggests, that payments should not be made if Kevin's eligibility for benefits or the level of his benefits would be affected. See Articles III VI. If, despite these limitations, the Trustee were to authorize disbursements from the Trust consisting of cash paid directly to Kevin; or payments to a third party for any food, clothing, or shelter received by Kevin; or if Kevin were allowed to live in a house rent-free, such disbursements or in-kind payments would constitute income for SSI purposes. POMS SI 01120.200E.1.a. SI 01120.200E.1.b. Trust disbursements resulting in Kevin's receipt of goods or services other than food, clothing, or shelter - such as medical care - would not constitute countable income for SSI purposes. POMS SI 01120.200E.1.c.
CONCLUSION
For the foregoing reasons, we conclude that the Trust principle is not a countable resource, but that Trust disbursements under some circumstances would constitute countable income.
~~CC. PS 00-322 Review of an Ohio Children's Luxury Trust for Douglas~~
DD. PS 00-322 Review of an Ohio Children's Luxury Trust for Douglas
Date: September 22, 2000
1. Syllabus
Under Ohio law, if an individual does not have the right to revoke a trust and gain unrestricted access to the trust assets, cannot direct the use of the trust assets to meet his/her needs for food, clothing, and shelter, or cannot sell his/her beneficial interest in the trust, it is not a resource for SSI purposes. However, disbursements from the trust (such as cash paid directly to the individual or payments to a third party for any food, clothing, or shelter received by the individual) are income for SSI purposes.
CAUTION: Because of a change in the Social Security Act, this precedent may only be applicable to trusts established before 1/1/00.
2. Opinion
You have asked whether the assets of a children's luxury trust established by Carol A. M~ should be considered a countable resource for purposes of determining the eligibility of one of her children, Douglas A. M~, 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 January 20, 1999, Carol A. M~ executed a trust agreement establishing The M~ Children's Luxury Trust ("the trust"). The trust was funded with a payment of $15,000, which your cover letter indicated was the proceeds of a personal injury settlement received by Douglas A. M~. The trust names Ms. M~ as the "Grantor" and the "Trustee." The trust provides that it is irrevocable and that the "Grantor" has no power to alter, amend, revoke, or terminate any trust provision or interest. Trust, Article II.
The trust states that the Trustee shall hold and administer any trust property for the benefit of Ms. M~'s children and more remote descendants. Trust, Article IV B. The Trustee is given discretion to apply to or expend for the benefit of each of Ms. M~'s children so much of the trust's net income and principal as the Trustee deems appropriate. Trust, Article IV B(1). The trust also provides that following any contribution to the trust, each of Ms. M~'s then-living children, other than Douglas, shall have the right to withdraw a proportionate share of the contribution. Trust, Article III A.
The trust states that it was Ms. M~'s intention in creating the trust to primarily benefit her son, Douglas, and secondarily to benefit her other children; that the Trustee should reasonably attempt to ensure that the trust provides Douglas with adequate income and principal, rather than trying to maximize the funds available to other beneficiaries; that the trust funds be used to provide Douglas with such care and education as will best help him develop his maximum potential, notwithstanding his handicaps; and that the trust funds should not be distributed in a manner that would disqualify Douglas from available federal or state aid or cause the trust funds to bear all or part of the cost of his treatment or assistance. Trust, Article IV B(2).
The trust further provides that it shall terminate upon the earliest of the following events: the death of the last of the Ms. M~'s children; the earliest date upon which all of the Ms. M~'s children other than Douglas have attained the age of thirty years and Douglas has either died or been determined by the Trustee to have become capable of managing his share of the trust funds; or the date on which the Trustee determines it to be in the best interests of Douglas that the trust be terminated. Trust, Article IV A. Upon the termination of the trust, the Trustee is required to divide the trust funds and distribute equal shares to Ms. M~'s then-living children and/or the lawful descendants of each of Ms. M~'s deceased children. Trust, Article IV C.
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 01110.100B.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 01110.100B.1. Trust assets are a resource if (i) the individual can revoke 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 01120.105A.1, SI 01120.200D.1- SI 01120.200D.3.
Whether the claimant can revoke the trust or direct use of the trust assets depends upon the terms of the trust agreement and applicable state law. See id. SI 01120.200D.2. We have reviewed the documents you provided and conclude that the trust principal and accumulated income are not countable resources to Douglas. Douglas does not have the right, under the terms of the trust agreement or Ohio state law, to 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.
Douglas Does Not Have the Right to Revoke the Trust
Whether a trust is revocable depends on the terms of the trust and applicable state law. See POMS SI 01120.200D.2. Here, Douglas does not have the right to revoke the trust under its own terms or Ohio state law.
First, Douglas does not have the right to revoke the trust under the terms of the trust agreement. Article II of the trust agreement specifically states that it is irrevocable and that the "Grantor" has no power to alter, amend, revoke, or terminate any trust provisions or interest under the terms of the agreement or any statute or rule of law. Trust, Article II. The trust agreement further provides that the Trustee has authority to terminate the trust if she determines it to be in the best interest of Douglas that the trust be terminated. Trust, Article IV A(3). However, because Douglas does not have control over the ability to terminate the trust, and because the Trustee's ability to terminate the trust is not unlimited and must take into consideration Douglas' eligibility for federal and state aid, we do not believe this provision renders the trust revocable.
Second, Douglas not have the right to revoke the trust under the applicable state law. Under Ohio law, a trust, even one which purports to be irrevocable, can be revoked if the grantor and the sole beneficiary are the same person. See Mumma v. Huntington Nat'l Bank of Columbus, 223 N.E.2d 621, 624 (Ohio Ct. App. 1967) (citing RESTATEMENT (SECOND) OF TRUSTS 339). Although the trust names Ms. M~ as the "Grantor," Douglas is the actual grantor because the trust was created with the funds he received from his personal injury settlement. See POMS SI 01120.200B.2 (a grantor of a trust is the individual who furnishes the consideration that established the trust, even if another entity nominally creates the trust); POMS SI 01120.200J.3. (claimant is grantor even though trust was nominally created by claimant's guardian where the trust's funds were obtained from a settlement of the claimant's personal injury suit). Nevertheless, Douglas cannot revoke the trust because he is not the sole beneficiary. The trust provides that the Trustee may apply or expend as much of the trust's net income or principal as she deems appropriate for the benefit of each of Ms. M~'s children. Trust, Article IV, B(1). Furthermore, upon the termination of the trust, the trust provides that the Trustee shall divide its assets among each of Ms. M~'s then-living children and/or the descendants of Ms. M~'s deceased children. Trust, Article IV C. The trust thus creates present and residual beneficial interests in individuals other than Douglas. We do not assume that such beneficiaries would consent to revoke the trust agreement. Accordingly, Douglas lacks legal authority to revoke the trust and use the trust property for his need for food, clothing, and shelter.
Douglas Does Not Have the Right to Direct Use of the Trust's Assets
Although Douglas does not have the legal authority to revoke the trust agreement, the trust may still be counted as a resource in determining SSI eligibility if Douglas has the ability to direct the use of the trust principal. See POMS SI 01120.200D.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 01120.200D.1.b. Here, the trust agreement includes no such provision. Instead, the trust gives the Trustee discretion to apply to or expend for the benefits of each of Ms. M~'s children so much of the trust's net income and principal as the Trustee deems appropriate for any purpose. Trust, Article IV B(1). Although Ms. M~'s children do have the right to demand a portion of any contribution made to the trust, the trust specifically exempts Douglas from this right of demand. Trust, Article III A. Thus, Douglas has no right to direct use of the trust's assets to meet his need for food, clothing, or shelter.
Douglas' 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 Douglas' ability to transfer his beneficial interest, see Trust, Article VI, the spendthrift clause would not prevent Douglas from selling his interest in the trust because he is also the actual grantor 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). However, this is a discretionary trust in which Douglas has only the right to receive payments at the discretion of the trustee. A beneficial interest in a discretionary trust should not be considered a resource. See Zebley Trust as an SSI Resource - Wisconsin Bernard W~, OGC-V (M~) to John P. M~, ARC (February 23, 1993) at 4-6. Douglas could only sell the right to receive or have distributions made on his behalf in the sole discretion of the trustee. See id.; DRAFT RESTATEMENT (THIRD) OF TRUSTS 60. We assume this would have no significant value. See Bernard W~ Memorandum, at 5.
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 Douglas' SSI eligibility and level of benefits. If the Trustee were to authorize disbursements from the trust consisting of cash paid directly to Douglas, or payments to a third party for any food, clothing, or shelter received by Douglas, such disbursements or in-kind payments would constitute income for SSI purposes. See 20 C.F.R. 416.1102; POMS SI 01120.200E.1.a., SI 01120.200E.1.b.
CONCLUSION
Based on the documents provided to us, it is our opinion that the children's luxury trust established for the benefit of Douglas A. M~ and his siblings is not a countable resource for purposes of determining his eligibility for SSI. Douglas 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.
~~DD. PS 00-306 SSI-Ohio-Review of a Trust/Gift Annuity Agreement for Kenneth~~
EE. PS 00-306 SSI-Ohio-Review of a Trust/Gift Annuity Agreement for Kenneth
Date: March 5, 1999
1. Syllabus
Under Ohio law, an Ohio Community Pooled Trust/Gift Annuity is not a resource since the beneficiary cannot direct the trustee to make payments on his behalf for his support and maintenance, sell or otherwise transfer his interest in the trust, or revoke or terminate the trust to obtain the assets. Also, if disbursements are made pursuant to the trust agreement, those disbursements are not income to the SSI recipient. CAUTION: Because of a change in the Social Security Act, this precedent may only be applicable to trusts established before 1/1/00.
2. Opinion
You asked whether the Ohio Community Pooled Trust/Gift Annuity was a countable resource to Mr. K~, and whether disbursements from this trust would be considered income to him for SSI purposes. We conclude that the trust assets would not be a resource because the SSI beneficiary could not direct that the trustee use the trust assets for the beneficiary's support and maintenance, sell his interest in the trust, or revoke or terminate the trust to obtain the assets. In addition, if annuity payments are made directly to third parties for "supplemental services", those payments would not be income.
Background
On September 28, 1998, Mr. K~ entered into a Gift Annuity Agreement with The Disability Foundation, Inc., that was to provide him with quarterly distributions from a Gift Annuity Account to be used only for his supplemental needs. Mr. K~ died of pancreatic cancer on October XX, 1998, before receiving any benefits from the Annuity.
In order to be a qualified beneficiary under the trust agreement, an individual must be an Individual with Disabilities within the meaning of 42 U.S.C. 1396p(d)(4)(C) and Ohio Administrative Code 5101:1-39-271(C)(7)(b). To establish a Gift Annuity Account, an individual enters into a Gift Annuity Agreement whereby he transfers property to The Disability Foundation, Inc., which acts as Trustee, in exchange for a Charitable Gift Annuity to be administered in a separate account of the trust with the Annuity Amount and any Accumulated Annuity Amount to be used solely for the supplemental needs of the beneficiary. If the beneficiary is, or becomes the recipient of Supplemental Security Income (SSI, the Trustee may not, under any circumstances, make any distributions from the trust for the support and maintenance (food, clothing or shelter) of such individual, or make any payments directly to him.
The purposes of the trust are to promote the general well being of Individuals with Disabilities by providing for their supplemental needs, in addition to and not in lieu of benefits and services otherwise provided by any local, state or federal government, agency or department, and to enable the Trustee to promote and administer Disability Programs and Services. See Agreement of Trust, 1 A. The Individual with Disabilities may not assign, alienate, encumber or otherwise transfer the Annuity Amount, or any Accumulated Annuity Amount, or any interest in the Account. See Gift Annuity Account Agreement, par. 3.
Upon the death of the beneficiary, any current Annuity Amount or Accumulated Annuity Amount may be used for the funeral expenses of that individual and to reimburse the State in an amount equal to the total amount of medical assistance paid on behalf of the individual by the State. Any remaining funds attributable to the Account are to be used by the Trustee for Disability Programs and Services. See Agreement of Trust, 1 A.
The trust provisions provide that it is irrevocable, and the settlor does not have the right or power to alter, amend or terminate the trust. See Agreement of Trust, 14. The Trustee has unrestricted discretion to disburse funds for the supplemental needs of the beneficiary. See Agreement of Trust, 2 A(3), 6. The settlor has the power to amend the provisions of the trust only to further the purposes of the trust expressed in Section 1 including, but not limited to, ensuring that the trust complies with the provisions of state and federal law. See Agreement of Trust, 14.
Discussion
Assets are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for his support and maintenance. See 20 C.F.R. 416.1201(a). If the individual has the right, authority, or power to liquidate the property, it is a resource. Id. Trust assets are a resource if the individual can revoke the trust and use the assets to meet his needs for food, clothing, and shelter, or if the individual can direct the use of the trust assets to be used for his support and maintenance. See POMS SI 01120.200D. An individual's beneficial interest in a trust may also be a resource if the individual can sell that interest. See Zebley Trust as an SSI Resource-Wisconsin, Bernard W~; OGC V (M~l) to M~, Acting ARC-POS (Feb. 23, 1993) at 5.
1. The Beneficiary Cannot Direct the Trustee to Use the Assets for His Support and Maintenance.
Under the terms of the trust, the beneficiary cannot direct the trustee to use the assets in his account for his support and maintenance. Rather, the trustee has sole discretion to disburse such funds, and disbursements are to be made only for the beneficiary's supplemental care. Gift Annuity Account Agreement, Paragraph B; Ohio Community Pooled Trust Agreement, 2, A1. In addition, if the beneficiary is eligible to receive SSI, the trustee may not disburse the funds to pay for food, clothing or shelter, or disburse funds directly to the beneficiary. Gift Annuity Account Agreement, Paragraph B.
2. The Beneficiary Cannot Liquidate His Interest In the Trust.
The trust also contains a spendthrift provision which provides that the beneficiary cannot assign, alienate, encumber or otherwise transfer the annuity amount or any interest in the account. Gift Annuity Account Agreement, Paragraph C, 3. Even if this provision were found invalid, however, the beneficiary's interest in the trust would have little or no fair market value, since the trustee is authorized to make disbursements only in his or her sole discretion, must make any disbursements for the beneficiary's benefit, and is prohibited from making any disbursements to the beneficiary directly if the beneficiary is eligible to receive SSI benefits. See 20 C.F.R. 416.1201.
3. The Beneficiary Cannot Terminate or Revoke the Trust.
The trust expressly provides that it is irrevocable and the settlor (The Dayton Foundation) cannot alter, amend or terminate the trust. Ohio Community Pooled Trust Agreement, 14.
Under Ohio law, a trust, which purports to be irrevocable, may nevertheless be terminated if the settlor is the sole beneficiary and is not under an incapacity, even if the purposes of the trust have not been accomplished. Mumma v. Huntington Natl. Bank of Columbus, 223 N.E.2d 621, 624 (10th Dist. 1967)(citing Restatement of Trusts (Second), 339). The reason behind this rule of law is that the settlor, as sole beneficiary, has the only colorable interest in the trust. Id. However, in the instant case, Mr. K~ is not the sole beneficiary to the trust. The trust expressly provides that if the beneficiary dies, the remaining property attributable to the account is to be distributed as follows: first, for the funeral expenses of the beneficiary; second, to the state as reimbursement for any payments made for support and maintenance of the beneficiary; and third, the remaining property to a separate fund of the trust to be used for disability programs and services as the trustee deems advisable. Ohio Community Pooled Trust Agreement, 2B. This provision, giving the trust itself a remainder interest, creates an irrevocable additional residual beneficiary. Therefore, the beneficiary does not possess the sole interest in the trust and he would not be entitled to revoke or terminate the trust.
4. Annuity Payments from the Trust Generally Would not be Income.
Under the SSI program, income is "any thing you receive in cash or in kind that you can use to meet your needs for food, clothing, and shelter." 20 C.F.R. 416.1102. Things that an individual receives that cannot be used for food, clothing, or shelter will not be income. 20 C.F.R. 416.1103. Here, the trustee is required to provide funds (Mr. K~ receives an annuity from the trust) only for "supplemental needs." Trust Agreement 2(A)(1). Supplemental needs for an individual entitled to SSI cannot include items of food, clothing, or shelter. Trust Agreement 4(M). Therefore, so long as distributions are made in accordance with the Trust Agreement, those distributions will not be income for SSI purposes.
Conclusion
In summary, we conclude that the gift annuity account/trust assets should not be considered a resource to the individual beneficiary of the Pooled Trust, since he cannot direct the trustee to make payments on his behalf for his support and maintenance, sell or otherwise transfer his beneficial interest in the trust, or revoke or terminate the trust to obtain the assets. In addition, if disbursements are made pursuant to the Trust Agreement, then those disbursements will not be income to the SSI recipient.
~~EE. PS 00-281 SSI-Ohio-Review of a Trust for Christi~~
FF. PS 00-281 SSI-Ohio-Review of a Trust for Christi
Date: January 12, 1999
1. Syllabus
Although a trust is generally irrevocable unless the settlor reserves the right to revoke it, in Ohio it is revocable where the grantor is the sole beneficiary. In this case, the trust was established by the beneficiary's mother as her agent. The trust has no remainder interests. Therefore it is a grantor trust and revocable under Ohio law.
2. Opinion
You have asked us to review the Trust Agreement established for Christi S. M~. We conclude that Ms. M~ can revoke the Trust Agreement and use the trust assets for her support and maintenance. Therefore, the trust assets are a countable resource to her.
FACTS
Ms. M~ will be twenty-one years old on August 25, 1999. On or about September 25, 1996, Ms. M~ received a settlement in a personal injury claim. That day, her attorney signed a draft for Ms. M~'s share of the settlement from his trust account payable to the Croghan Colonial Bank for Ms. M~. On October 1, 1996, the Bank issued a certificate of deposit to "Robbin J. B~ Agent for Christi S. M~." Ms. B~ is Ms. M~'s mother. On November 23, 1998, the Bank revised the title of the Certificate of Deposit to "Robbin J. B~ Trustee for Christi S. M~." Bank records indicate that ownership of the account was pursuant to a separate trust agreement dated October 1, 1996. We were not provided with an October 1, 1996, trust agreement. Instead, we were provided with a Trust Agreement dated December 12, 1996. In that Trust Agreement, Ms. B~ agreed to act as Ms. M~'s "agent." (The Trust Agreement does not appoint a trustee.) Ms. B~ agreed to expend not more than half of the trust for an automobile and insurance. If any additional disbursements were required, Ms. B~ agreed to consult Ms. M~'s father, and to either secure his agreement or obtain direction from the court. Ms. B~ agreed to hold the remaining funds for Ms. M~'s benefit until Ms. M~'s twenty-first birthday.
DISCUSSION
Assets are a resource for SSI purposes if the individual owns them and can convert them to cash that can be used for her support and maintenance. See 20 C.F.R. 416.1201(a). If the individual has the right, authority, or power to liquidate the property, it is a resource. See id. Assets in trust are a resource to the beneficiary of the trust if she can revoke the trust and use the assets to meet her needs for food, clothing, and shelter. See POMS SI 01120D.1.- 3.
Initially, based on the documents submitted to us, Ms. B~ was Ms. M~'s agent, not her trustee. Although the document in question is captioned "Trust Agreement" and refers to monies placed in "trust," the document designates Ms. B~ as Ms. M~'s "agent." It does not appoint a trustee, and the bank initially issued the Certificate of Deposit for Ms. B~ as Ms. M~'s agent. The Restatement (Second) of Trusts 8 (1959) provides that "[a]n agency is not a trust." As Ms. M~'s agent, Ms. B~ was required to take direction from Ms. M~. Accordingly, during the period of time that Ms. B~ was Ms. M~'s agent, the settlement funds were not held in trust, and therefore were a countable resource to Ms. M~.
In any case, even if the settlement funds were held in trust, they were nonetheless always available to Ms. M~. Although a trust is generally irrevocable unless the settlor reserves the right to revoke it, Restatement (Second) of Trusts 331(2) (1959), a trust is nonetheless revocable under Ohio law where the settlor is also the sole beneficiary. Six State Synopsis of Trust Laws, Memorandum to Gloria P~, ARC-POS from OGC-V (P~) (Feb. 26, 1992), relied upon in Ohio Special Needs Trust for Nathan S. R~, Memorandum to Gloria J. P~, ARC-MOS from OGC-V (S~) (Sept. 18, 1997); Ohio Special Needs Trust for Leona D~, Memorandum to Gloria J. P~, ARC-MOS from OGC-V (R~) (Aug. 1, 1997); Ohio Trust for Glenda S. W~, Memorandum to Gloria J. P~, ARC-MOS from OGC-V (M~) (July 29, 1997). We based our previous opinions on an Ohio appellate court's holding following general principles of trust law. Mumma v. Huntington Nat'l Bank of Columbus, 223 N.E.2d 621, 623-24 (Ohio App. 1967) (citing Restatement (Second) of Trusts 339 (1959)); see also Ohio Jurisprudence 3d, Trusts 3 (1989, 1997 supp.) (indicating that grantor can terminate a trust if she is its sole beneficiary). The law regarding this issue does not appear to have changed since our previous opinions.
The trust was created by Ms. B~ as Ms. M~'s agent. "[A]n action by someone in his/her capacity as an agent is equivalent to an action by the ward for whom he/she acts." POMS SI 01120.020B.1, SI 01120.020C.1. Thus Ms. M~ is the settlor of the trust. Ms. M~ is also the trust's sole beneficiary. Thus the Trust Agreement is revocable, and as such is a countable resource.
~~FF. PS 00-266 Validity of an Alleged Oral Trust in Ohio SSI Resources (Sally)~~
GG. PS 00-266 Validity of an Alleged Oral Trust in Ohio SSI Resources (Sally)
Date: February 26, 1991
1. Syllabus
This opinion concerns an allegation by an SSI recipient in Ohio that funds were being held in an oral trust for another person. It was determined that the alleged oral trust was not valid because the recipient did not provide clear and convincing evidence of its validity as required under Ohio law. Therefore, the funds were counted as a resource for determining SSI eligibility.
2. Opinion
You asked us to determine whether Sally H~, a recipient of SSI benefits, is the owner of certain certificates of deposit ("CDs") or whether she holds them in trust for her sister pursuant to an alleged oral trust. Because the facts failed to show a valid oral trust, we have determined that SSA may count the CDs as a resource of Ms. H~ for SSI purposes. Our conclusion that no valid trust exists makes it unnecessary for us to consider your additional questions regarding the alleged trust arrangement in this case.
A. Facts
Our opinion is based on the following facts provided to us in the claims file and referral letter.
Sally H~ had been receiving SSI benefits for some time when SSA discovered that she held five $1,000 CDs in a bank in Nelsonville, Ohio. Ms. H~ held the CDs in only her own name, with no further limitations or specifications regarding ownership of the CDs. SSA therefore determined that, during the period Ms. H~ held the CDs, she had exceeded the resource limitation of the SSI program and had been overpaid $7,817 of SSI benefits. Ms. H~, who has been represented by an attorney since this matter arose, disputes the overpayment. She alleges that she does not own the CDs but instead holds them in trust for her sister, Emily W~, pursuant to an oral trust.
SSA obtained an affidavit and statement by Ms. H~, an affidavit by Ms. W~, and an affidavit by Ms. H~'s son, Mr. William H~ regarding the alleged oral trust. In her affidavit, Ms. W~ stated that the CDs are "not owned by Sally H~." According to Ms. W~, Ms. W~ owned the CDs for a time, and then the CDs "were transferred to Sally H~'s name for the purpose of holding them in trust to pay for my burial expenses."
In the affidavit and statement SSA secured from Ms. H~, Ms. H~ repeatedly referred to "family" discussions and understandings about the alleged oral trust in the CDs./ Although SSA asked Ms. H~ to identify the trustor/ and the trustee, she refused to name the trustor, explaining that neither she nor her attorney knew the meaning of a "trustor." Ms. H~ did state, however, that she was the third of four trustees,/ and that the trustees were responsible for using the CDs to pay the costs of Ms. W~'s funeral and burial. According to Ms. H~, the alleged trust had no specific instructions, although the trustees "always took interest payments to Emily [W~] for her disposition or instructions" and "[t]he trustees were never asked to pay the principal to Emily or anyone else." In addition, Ms. H~ stated that she had spent about $350 of interest from the CDs on her "personal needs," excluding "reimbursements for gasoline for visiting my sister, Emily W~." Moreover, Ms. H~ explained that no party had the power to revoke the trust.
In his affidavit, Mr. H~ stated that he is the current trustee of the alleged oral trust. Mr. H~ stated that the CDs "were transferred to me from the name of my mother," that the money belongs to Ms. W~, and that he is holding it in an "informal trust" for Ms. W~.
B. Discussion
The issue in the present case is whether the CDs constitute a "resource" of Ms. H~, causing her to exceed the SSI resource limitation and thus be liable for an overpayment of SSI benefits.
If Ms. H~ had access to the money in the CDs for her own support and maintenance, SSA may consider the CDs her "resource" for SSI purposes. 20 C.F.R. 416.1201(a) (1991)/; Programs Operations Manual, SI 01120.105 (hereinafter "POMs"). On the other hand, if Ms. H~ was, as she alleges, a trustee of a valid oral trust which afforded her no access to the funds, the CDs would not be considered her resource. POMs, SI 01120.105.
Although express oral trusts in personal property are recognized under Ohio law, the party claiming that an express oral trust exists has the burden of proving it by "clear and convincing evidence." In re Hoffman's Estate, 195 N.E.2d 106 (S.Ct. Ohio 1963); Hoffman v. Vetter, 192 N.E.2d 249, 252 (Ct.App. Ohio 1962). Since the evidence Ms. H~ submitted to SSA would probably fail to persuade an Ohio court by clear and convincing evidence that a valid oral trust existed, SSA is free to determine that Ms. H~ had access to the CDs and that they were, therefore, her resource.
The evidence indicates that a valid trust does not exist. Ms. H~'s several references to her family's deliberations and understandings about the CDs suggested that she was subject to familial duties with respect to the CDs, but that she was not a trustee subject to a formal trust relationship. Although Ms. H~ may have intended to honor Ms. W~'s wishes and pay Ms. W~'s burial expenses from the CDs, the fact that Ms. W~ has confidence in Ms. H~ to carry out her wishes does not, itself, create a trust, nor does it make a trustee of Ms. H~, the person in whom Ms. W~ has placed confidence. See, e.g., State v. State Journal Co., 106 N.W. 434, motion den., 110 N.W. 763, application den., 111 N.W. 118 (S.Ct.Neb. 1905). In addition, Ms. H~ was unable to specifically describe the instructions of the alleged trust, Ms. H~ and Ms. W~ disagreed as to who was the first trustee, and Mr. W~ described the arrangement as an "informal" trust. These facts further indicate that Ms. H~ was not subject to the formal obligations and requirements of a trust.
Moreover, Ms. H~ refused to name the trustor of the alleged trust. Although a lay person may not know what a "trustor" is, Ms. H~ is represented by an attorney who, if uninformed of the term "trustor," could have obtained a definition of this term in order to fully respond to SSA's inquiry. This sort of evasiveness, particularly by a represented claimant, raises the inference that no trustor exists and, thus, no valid trust exists in the instant case. See Ulmer v. Fulton, 195 N.E. 557, 564 (S.Ct. Ohio 1935) (all essential elements of an express trust must be present,/ including a person who intends to create a trust and who transfers property with that intent).
Perhaps the most important evidence suggesting no valid oral trust is that Ms. H~ was the registered holder of the CDs. This fact indicates that Ms. H~ was the owner, and not a trustee, of the CDs. This fact also indicates that Ms. W~ did not intend to create a trust when she transferred the CDs. Under Ohio law, a person transferring property to another party must "intend" to create a trust before a trust can be established in that property. Id. Ms. W~ transferred the CDs outright to Mrs. H~ (or to whoever was the first trustee of the alleged trust), she did not inform the bank of the alleged trust when she made the transfer, and the bank appears to have had no notice that an alleged trust restricted Ms. H~'s ownership of the CDs. Accordingly, the facts surrounding the transfer suggest that Ms. W~ may have intended to make a gift, rather than a transfer of funds in trust for her own benefit.
In sum, Ms. H~ failed to present "clear and convincing evidence" of an oral trust in this case. Since Ms. H~ held the CDs in her own name, the bank was entitled to assume that Ms. H~ was the only party with a claim to the CDs and to give her unrestricted access to them. See, e.g., Ohio Rev. Code. Ann. 1107.11. Accordingly, since no valid trust existed, and since Ms. H~ appears to have had unchecked access to the CDs, SSA may consider the CDs Ms. H~'s resource for SSI purposes. 20 C.F.R. 416.1201(a) (1991); POMs SI 01120.105.
~~GG. PS 00-263 Ohio Trust for Anthony~~
HH. PS 00-263 Ohio Trust for Anthony
Date: November 5, 1999
1. Syllabus
At issue is whether the trust is a resource of the beneficiary for SSI purposes. If the beneficiary has the legal authority to convert his interest in the trust into cash and then use the funds for his/her support and maintenance, the trust if a resource. This trust does not restrict the beneficiary's right to sell his/her interest in the trust. Therefore, his/her share of the trust is a resource for SSI purposes.
2. Opinion
You have asked whether the trust established for Anthony L. H~ ("Anthony") and Alisa L. H~ ("Alisa") is a countable resource for the purposes of determining Anthony's eligibility for Supplemental Security Income (SSI). We believe, for the reasons stated below, that the trust is a resource to Anthony, and Anthony's interest in that resource probably exceeds $2,000.
FACTS
The John L. H~ Trust ("the H~ trust" or "the trust") was created pursuant to the terms of the last will and testament of John L. H~ for the benefit of his son, Anthony, and his granddaughter, Alisa. Oliver E. M~ was named as trustee, with Phillip L~ named as successor trustee, to become trustee in the event of Mr. M~'s death during the operation of the trust.
Under the terms of the trust agreement, the trustee was directed to receive the remainder of the estate funds that existed after all other estate assets were distributed and debts paid. The trustee was to place this balance of estate funds into an interest-bearing account and to open a checking account for regular withdrawals. At the time the trust was created, on February 10, 1997, the corpus of the trust contained $17,022.17. From the trust funds and income, the trustee was directed to make monthly payments of $200 to Anthony and $100 to Alisa, as well as to pay any emergency expenses of Anthony and Alisa, as determined by the trustee. The trustee was also empowered to deduct an annual fee for his handling of the trust and any out of pocket expenses incurred for the benefit of Anthony and Alisa.
The trust expires five years from its creation or when the corpus and income are exhausted, whichever occurs sooner. If funds remain after five years, they are to be divided equally by Anthony and Alisa or continued in the trust if the two beneficiaries so agree. If either beneficiary dies during the operation of the trust, the trust agreement directs that his or her share vests in his or her heirs and next of kin.
DISCUSSION
For the purposes of SSI eligibility, a resource is "cash or other liquid assets or any real or personal property that an individual . . . owns and could convert to cash to be used for his or her support and maintenance." 20 C.F.R. 416.1201(a). If an individual "has the right, authority or power to liquidate . . . his or her share of the property, it is considered a resource." 20 C.F.R. 416.1201(a)(1). The H~ trust is a resource, for purposes of SSI, if Anthony has the legal authority to convert his interest in the trust into cash and then use the funds to meet his needs for food, clothing, or shelter.
Significantly, the H~ trust does not contain a "spendthrift" provision. A "spendthrift trust," which is valid in Ohio (see Scott v. Bank One Trust Company, N.A., 577 N.E.2d 1077, 1084 (Ohio 1991), overruling Sherrow v. Brookover, 189 N.E.2d 90 (Ohio 1963)), is a trust in which "a valid restraint on the voluntary and involuntary transfer of the interest of the beneficiary is imposed." Restatement (Second) of Trusts 152(2). Absent such a restraint, a beneficiary of a trust is free to assign his rights, in exchange for consideration, to a third party. Because the H~ trust does not restrict Anthony's right to sell his beneficial interest in the trust, Anthony can convert his beneficial interest into cash, and his share of the trust is therefore a resource for purposes of SSI eligibility.
The precise value of Anthony's resource, however, is difficult to determine. Mr. M~, the trustee, has stated that Anthony's share of the estate trust is "approximately $11,300.00." We assume that Mr. M~ based this figure on the trust provision that Anthony receive $200 for each $100 monthly disbursement to Alisa-and that Anthony's share was therefore two-thirds of the original corpus (i.e., $11,348.11). We believe that the assignable value of Anthony's share, however, is lower than the figure cited by Mr. M~. Anthony can assign no more than he owns, and a beneficiary "owns no greater interest in the trust property than the settlor has given him." Domo v. McCarthy, 612 N.E.2d 706, 713 (Ohio 1993) (citation omitted). We determine the value of a resource based on the price the item can reasonably be expected to sell for on the open market in the particular geographic area involved. 20 C.F.R. 416.1201(c)(2). For several reasons, the actual value of Anthony's resource is almost certainly lower than the trustee's figure.
First, Anthony would be selling his right to receive future payments. Because of the time value of money, a purchaser is likely to discount the amount he is willing to pay now for money that he will not receive until some future date. Second, the trust includes both mandatory and discretionary provisions. Under the terms of the trust, the trustee must distribute monthly payments to Anthony and Alisa until the trust terminates, either through the expiration of the five-year term or through the exhaustion of funds. However, the trustee also has the discretion to pay additional "emergency expenses" of the beneficiaries. If Anthony were to assign his interest to a third party, this discretionary provision would probably be applied only to Alisa (because the trustee would be unlikely to distribute emergency disbursements to an assignee if Anthony required emergency funds), and any emergency disbursements distributed to Alisa would diminish the value of Anthony's share.
Third, the trust will terminate after five years, if there is any corpus remaining, and at that time, Anthony will receive only half (not two-thirds) of any remaining assets. Fourth, Anthony's interest in monthly distributions of $200 would terminate if he were to die before the end of the five-year period. In that case, the remainder of his share would vest in his heirs and next of kin. Thus, an assignee who purchases Anthony's interest would cease receiving monthly disbursements upon Anthony's death, even if that occurred before the end of the five-year period. Finally, as the trustee pointed out, Anthony's share could be diminished by bank fees for maintaining the account or by other similar fees.
For the foregoing reasons, we believe that Anthony would be able to convert his interest in the H~ trust to cash only at a significant discount and that the value of the resource is therefore lower than the "approximately $11,300.00" identified by the trustee. Nevertheless, we believe that it is reasonable to presume that Anthony's share of the trust exceeds his $2,000 limitation for SSI eligibility under 20 C.F.R. 416.1205(c). Anthony could, of course, rebut this presumption with evidence that his interest is worth less than $2,000.
CONCLUSION
Because the H~ trust includes no spendthrift provision, we believe that it should be considered a countable resource when determining Anthony's eligibility for SSI. Further, we believe that, while the value of Anthony's interest in the trust is difficult to determine based on the information we have, it is probably less than $11,300 but greater than $2,000.
~~HH. PS 00-261 Ohio Special Needs Trust for Faith~~
II. PS 00-261 Ohio Special Needs Trust for Faith
Date: September 21, 1998
1. Syllabus
This opinion concerns a special needs trust established in 1997 in Ohio with funds from a personal injury lawsuit. The trust is countable as a resource for SSI purposes because the trust is revocable under Ohio law. The trust is revocable because the grantor is also the sole beneficiary of the trust.
2. Opinion
This is in response to your inquiry regarding whether the Ohio Special Needs Trust agreement designating Faith D. H~ as a beneficiary should be considered a resource in determining her eligibility for SSI benefits. For the reasons stated below, we believe that the trust should be considered a resource.
FACTS
Ms. Paula L. H~ (Paula), as parent and court-appointed guardian of Faith D. H~ (Faith), petitioned the Highland County Probate Court for approval of a Special Needs Trust (Trust) for the benefit of Faith. In December 1997, the court granted the petition. The trust agreement names Paula as the grantor and trustee and Faith as the beneficiary of the trust. The trust was to be funded initially with proceeds from the settlement of a personal injury lawsuit. The trust agreement provides that the trust is irrevocable and the purpose of the trust is to provide the beneficiary with "supplemental services." The trust agreement also provides that upon the death of Faith, the trust would be terminated and the trust principal distributed to pay any final costs and expenses related to the administration of the trust; any remaining principal would then reimburse the State of Ohio for amounts paid for Faith's medical assistance; and all remaining funds would be distributed to Faith's estate. See Trust, Art. III, Termination.
ANALYSIS
For purposes of SSI eligibility, a resource is any property that an individual owns and could convert to cash to be used for her support and maintenance. See 20 C.F.R. 416.1201(a). If the person has the right, authority, or power to liquidate the property, it is considered a resource. See 20 C.F.R. 416.1201(a)(1). We apply State trust law to determine whether trust property is a resource. POMS SI 01120.200A. Ohio law appears to afford two alternative legal theories to determine whether the trust corpus is an available resource for SSI eligibility. Under Ohio Revised Code (O.R.C.) 1335.01, the trust is void if the grantor and the beneficiary are the same person and no other beneficiaries to the trust are named. Under Ohio common law, such a trust may be valid, but revocable. As we discuss below, in this trust the grantor and the beneficiary are the same person. Therefore, either of the two theories provides a defensible basis for considering Faith's trust to be an available resource.
1. Faith Is Both The Grantor And The Sole Beneficiary Of The Trust
Faith is the grantor of the trust at issue, even though the trust names Paula as the grantor. Where a beneficiary acting through her guardian establishes a trust with funds that actually belong to the beneficiary, the beneficiary can legally be considered the grantor of the trust. See POMS SI 01120.200J.3.a. Here, Faith acted through Paula, her parent and guardian, to establish a trust with proceeds Faith received from the settlement of a personal injury lawsuit. Since trusts established from personal injury settlements are considered established by the person who received the award, Faith is properly considered the sole grantor of the trust. Id.
Faith is also the sole beneficiary of the trust. A beneficiary is "[t]he person for whose benefit property is held in trust." Restatement (Second) of Trusts, 3(4); Ohio Jurisprudence 3d, Trusts 3 (1989, 1997 Supp.). Here, the trust makes it clear that Faith is the sole beneficiary. The trust provides that "the Trustee shall have no duty to preserve principal for or otherwise to consider the interests of any person or entity." Trust, Art. II, Sec. 1. Further, the trust agreement does not identify any residual beneficiaries who will receive trust proceeds upon terminating the trust. As we have previously advised, no additional beneficiaries are established by the provision allowing payments for administrative costs of the trust because these payments relate to running the trust or providing goods and services for Faith's benefit. See Ohio Special Needs Trust for Nathan S. R~, OGC-V (S~) to Gloria J. P~, ARC-MOS (September 18, 1997) at 3. Nor does the trust agreement provision requiring the trustee to reimburse the State for the cost of medical assistance provided to Faith make the State a beneficiary of the trust. The trust principal does not benefit the State, but merely repays the State for the costs of providing benefits to Faith during her lifetime. The money repaid is for the benefit of Faith, not the State. See Ohio Trust For Glenda S. W~, OGC-V (M~) to Gloria P~ ARC-MOS (July 29, 1997) at 3. Finally, the trust provision requiring that remaining funds be distributed to Faith's estate does not create residual beneficiaries. See Restatement (Second) of Trusts, 127, comment (b) (an individual who transfers trust principal to his estate upon his death is the sole beneficiary of the trust); see also Mumma v. Huntington Nat'l Bank of Columbus, 223 N.E.2d 621, 625 (Ohio Ct. App. 1967). Therefore, Faith is the sole beneficiary of this trust.
2. The Trust Is Void Under O.R.C. Section 1335.01
On February 26, 1992, our office issued a six-state survey regarding the validity of trusts in which the grantor and the beneficiary are the same person. See Six-State Synopsis of Trust Laws, OGC-V (P~) to Gloria P~-W~, ARC, POS (February 26, 1992) (Six-State Synopsis). In the survey section concerning Ohio law, we considered O.R.C. 1335.01(A), and noted that, although the statute provides that "all deeds of gifts and conveyances of real or personal property made in trust for the exclusive use of the person making the same are void," the Ohio Supreme Court had interpreted that provision and found that it only applied to debtor-creditor cases. Id. at 5 (citing , 195 N.E.2d 106, 108-09 (Ohio 1963)). O.R.C. 1335.01 was amended by adding O.R.C. 1335.01(C), effective October 10, 1991. See O.R.C. 1335.01 (Historical Note). In amending the statute, the Ohio General Assembly intended to supersede the effect of the holding of the Fifth District Court of Appeals in the decision of Mathias v. Fantine, 1990 WL 21446 (Ohio App. 5 Dist. Mar. 1, 1990). Mathias did not involve a creditor dispute, but instead involved the distribution of assets by a probate court. Neither the Mathias court nor the Ohio legislature appeared to believe O.R.C. 1335.01 was limited to debtor-creditor situations. Mr. M~ attempted to create a trust that gave himself a life interest, and a remainder interest to his son. The Mathias court found his trust instrument void, notwithstanding the remainder interest. The Ohio legislature superseded the holding in Mathias by declaring that the legal principle of "estate merger" did not render a trust document void as long as the trust document named additional beneficiaries to the trust.
In order to properly interpret the statute, we asked for clarification from the Ohio Attorney General, but she responded that she had no statutory authority to advise federal agencies regarding the effect of Ohio laws. See Supplemental Security Income - Ohio Trust- William R. Y~, OGC-V (L~) to Gloria J. P~ ARC-MOS (December 22, 1997) at 2. As a result, we proceeded with our own interpretation of the statute, and we opined that, under O.R.C. 1335.01, the trust is void if the grantor and the beneficiary are the same person, and no other beneficiaries to the trust are named. Id. at 3. Since the Revised Code was enacted, the Ohio Supreme Court has addressed a trust instrument that appears to uphold our interpretation of the statute that the plain language of the amended statute is that self-settled trusts are void under Ohio statutory law. In Dumas v. Estate of Dumas, 627 NE 2d 978 (Ohio 1994), the court upheld a trust established for the exclusive benefit of Mr. D~ and his daughters. Mr. D~'s widow challenged the transfer of assets as a creditor (they were in the midst of a divorce) and as a beneficiary of his probate estate (he died before the divorce was final). The court found the wife was not a creditor, and that, because the trust complied with O.R.C. 1335.01, it was valid and nontestamentary. D~, 627 NE 2d at 983. The reverse should also be true. If a trust does not comply with RC 1335.01, we assume the Ohio Supreme Court would find it void.
Applying O.R.C. 1335.01 to the present case, Faith's trust would be considered void because she is both the grantor and the sole beneficiary. Faith has immediate access to the trust under Ohio law, and the trust corpus is accordingly a countable resource under 20 C.F.R. 416.1201.
3. The Trust Is Revocable
The trust principal is a resource when an individual has legal authority to revoke the trust and use the funds to satisfy her food, clothing, or shelter needs. POMS SI 01120.200D.1.a. As we previously advised in our six-state survey, Ohio common law permits a grantor to terminate an otherwise irrevocable trust if she is also the sole beneficiary. Six-State Synopsis at 5, relying on Mumma v. Huntington Nat'l Bank of Columbus, 223 N.E.2d 621, 625 (Ohio Ct. App. 1967); see also In re Guardianship of Lombardo, 1998 WL 417458 (Ohio App. July 15, 1998). The grantor can terminate the trust because she is both the grantor and the sole beneficiary of the trust. Id.; see also Restatement of Second of Trusts 339; Ohio Jurisprudence 3d, Trusts 150 (1989, 1997 Supp.).
Under this analysis, Faith's trust would be "revocable" because she is both the grantor and the sole beneficiary. Because the trust is revocable, Faith has immediate access to the trust under Ohio law. The trust corpus is, accordingly, a countable resource under 20 C.F.R. 416.1201.
CONCLUSION
The trust assets at issue should be considered a resource to Faith for SSI purposes because, as grantor and sole beneficiary of the trust, the trust is void under O.R.C. 1335.01, or, alternatively, under Ohio common law, it is revocable. Therefore, she can revoke the trust and use the trust assets for her support and maintenance.
~~II. PS 00-237 Request to Review Ohio Trust or Special Needs Trust for Katelynn~~
JJ. PS 00-237 Request to Review Ohio Trust or Special Needs Trust for Katelynn
Date: May 7, 1999
1. Syllabus
The trust in this case is not a countable resource for SSI purposes. The SSI recipient does not have the authority to direct payment from the principal of the trust for her support and maintenance. She also cannot revoke or terminate the trust to obtain the funds in the trust because there are contingent beneficiaries.
2. Opinion
You asked us to review a Supplemental needs trust established for Katelynn G~ (Katelynn), an SSI recipient. We conclude that the trust assets should not be treated as a countable resource for Katelynn.
BACKGROUND
Betsy J. G~ (Mrs. G~), Katelynn's parent and Court appointed guardian for her estate, sought leave from the Champaign County Ohio Probate Court to establish a trust for Katelynn. The trust names Mrs. G~ as the grantor and as the trustee of trust assets. Katelynn is named as the beneficiary of the trust (Article 1, Section 1). Katelynn is a minor and, according to the cover letter enclosed with the copy of the trust, is receiving SSI from the Social Security Administration. The trust was to be initially funded with $90,000, which are assets from a personal injury settlement. The trust gives the trustee discretion whether to make disbursements for Katelynn's benefits, and to determine what the disbursements should be. However, the trustee is directed to make disbursements only for Katelynn's "supplemental services needs," which do not include food, shelter, or clothing. Art. II Section 1. In addition, the trustee may not distribute any portion of the trust if it would render Katelynn ineligible for a government assistance program. Id.
The trust continues until Katelynn dies. Art. III. At that point, the trustee is directed (1) to pay the final costs and expenses of trust administration, (2) to repay the State for any medical assistance received and (3) to distribute any remaining assets to Katelynn's parents, or if they are not living, to Katelynn's lineal descendants.
DISCUSSION
In determining whether or not trust assets should be considered a resource, the pertinent SSI regulation provides 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.
20 C.F.R. 416.1201.
Trust assets are a resource to an SSI recipient if she can revoke the trust and access the principal thereafter, whether or not she actually does so. Trust assets are also a resource if the individual can direct use of trust assets to meet her needs for food, clothing, and shelter. Thus, if Katelynn is able to direct the trustee to use the funds in the trust for her 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. 20 C.F.R. 416.1201; Programs Operation Manual System (POMS) SI 01120.105, SI 01120.200D.1.-SI 01120.200D.3.
1. Katelynn cannot direct the use of the trust assets.
Here the trust states that it is irrevocable and that the funds in the trust can be used for supplemental services only. The trust also states that, upon approval of the probate court, the trustee (Mrs. G~) shall have absolute discretion to distribute the principal, though she may not distribute the principal in such a way as to render Katelynn ineligible for her government assistance program(s) (Article II, Section 1). The stated purpose of the trust is to supplement Katelynn's needs. Because the trustee, Mrs. G~, has sole and absolute discretion to use the trust funds for Katelynn's benefit, Katelynn cannot direct the use of the trust funds. Article II, Sections 1 2.
2. Katelynn cannot revoke the trust.
As a general rule, funds in irrevocable trusts are not going to be countable resources. POMS SI 01120.200D.2.b. The general law of trusts recognizes that a trust is revocable when the grantor is also the sole beneficiary of the trust. In such instances, the trust is revocable regardless of the language found in the document. Restatement (Second) of Trusts, 339 (1959). In addition, we have previously advised that Ohio appears to follow the rule that even if a trust purports to be irrevocable, it can nevertheless be revoked if the subject of the trust - Katelynn is both the settlor or grantor and the sole beneficiary of the trust. Six-State Synopsis of Trust Laws, OGC V (P~) to Gloria P~, ARC (Feb. 26, 1992)(relying on Mumma v. Huntington Nat'l Bank of Columbus, 223 N.E.2d 621 (Ohio Ct. App. 1967)); see also Restatement (Second) of Trusts 330; Ohio Jurisprudence 3d, Trusts 150 (1989, 1997 Supp.).
A grantor or settlor of a trust is the individual who actually furnishes the consideration that establishes the trust, even if another entity nominally creates the trust. Here, Katelynn, acting through her guardian, Mrs. G~, is the settlor or grantor of the trust. See Article 1, Section 1 that states Katelynn's personal injury settlement is the basis for creating and funding this trust.
Katelynn is the only beneficiary of the trust during her lifetime. Thus, the question to be answered is whether, on Katelynn's death, the trust creates an interest in any residual beneficiaries. Art. III section A requires the trustee to pay any final costs and expenses of the trust. Because this section merely repays Katelynn's debts, it does not create any interest in any other beneficiaries. Art. III section B repays the state of Ohio and/or other states of the Unites States for medical expenses paid on behalf of Katelynn. We have advised in previous opinions that such a provision does not make the State of Ohio or any other state a beneficiary of the trust. Rather it requires, in accordance with applicable Medicaid provisions, that the remaining trust assets be used to reimburse the state(s) for benefits already conferred on Katelynn during her lifetime. The money paid to the state of Ohio or any other state, therefore, is for Katelynn's benefit and does not create any contingent interests.
Art. III section C, however, creates interests in two classes of contingent beneficiaries (parents and lineal descendants). The first class consists of Katelynn's parents (if living). This provision makes Katelynn's parents residual beneficiaries. Request To Review Minnesota Trust for Elizabeth P~, SSN: ~, OGC V (M~) to M~, ARC-MOS (December 17, 1997), at 4 (In directing that any residual amount be delivered to grantor's parents, the trust agreement established identifiable residual beneficiaries with an interest in the trust).
The creation of a remainder interest in "lineal descendants" also creates an interest in contingent beneficiaries. We have advised that the presence of such residual or contingent beneficiaries, despite the use of a class term, like the one above, preserves the irrevocability of the trust. See Clarification of Regional SSA Program Circular 94-05 Concerning Trusts OGC-V (K~) to L~ ARC-MOS (May 24, 1995) (it is not necessary that the residual or contingent beneficiary be specifically named, and in some cases a trust can create residual or contingent beneficiaries by reference to a class such as children, issue, or descendants). Thus, this trust is not a countable resource to Katelynn, because the trust instrument has created remainder interests in specifically named beneficiaries (her parents) and in a class (her lineal descendants).
Katelynn, then, is the settlor, but, she is not the sole beneficiary of the trust and the trust is irrevocable. Restatement (Second) of Trusts, 127, comment b (1959) (the additions of residual or contingent beneficiaries generally make the trust irrevocable). As such, Katelynn does not have the power to revoke the trust and the trust assets are not a resource for her.
CONCLUSION
In summary, we conclude that the trust assets should not be considered a resource to Katelynn. She cannot direct the trustee to make payments on her behalf for support and maintenance. She cannot sell her beneficial interest in the trusts asset. In addition, she cannot revoke or terminate the trust and obtain the assets, due to the presence of residual or contingent beneficiaries.
~~JJ. PS 00-198 Ohio Special Needs Trust for Leona~~
KK. PS 00-198 Ohio Special Needs Trust for Leona
Date: August 1, 1997
1. Syllabus
The issue is whether a special needs trust is a resource for SSI purposes when the grantor of the trust is also the sole beneficiary.
In Ohio, a grantor may terminate an otherwise irrevocable trust if he/she is the sole beneficiary. If the grantor is also the sole beneficiary, he/she can revoke the trust and use it for his/her support and maintenance. Thus, the funds in the trust are a resource for SSI purposes.
2. Opinion
You asked whether the trust designating Leona D~ as a beneficiary should be considered a resource when determining her eligibility for SSI. For the reasons below, we believe the trust should be considered a resource.
FACTS
Ms. D~, a legally competent adult, petitioned the probate court in Marion County, Ohio, through counsel, for approval of a Special Needs Trust. The trust named Ms. D~ as beneficiary and was to be funded with proceeds from the settlement of a personal injury lawsuit. On April 10, 1997, the probate court granted Ms. D~'s petition.
The trust authorizes the trustee to pay "third party providers" for Ms. D~'s "miscellaneous expenses and needs" and for "supplemental services" as approved by the Marion County Probate Court. Payment is not permissible if it would make Ms. D~ ineligible for or reduce her benefits under SSI (or other programs).
Upon Ms. D~'s death, the trustee is required to reimburse the State of Ohio, pursuant to 42 U.S.C. 1396p(d)(4)(A), for amounts paid for Ms. D~'s medical assistance. Any remaining funds are to be distributed as directed in Ms. D~'s will or under the intestacy statutes. The trust states that its terms are irrevocable and can be amended only by the acting judge of Marion County Probate Court.
DISCUSSION
A resource, for SSI purposes, includes property an individual owns and could convert to cash for use in her support and maintenance. 20 C.F.R. 416.1201(a). A trust is a resource when the individual has legal authority to revoke it and use the funds to pay for food, clothing and shelter. POMS SI 01120.200D.1.a.
We previously advised that in Ohio, a grantor may terminate an otherwise irrevocable trust if she is the sole beneficiary. Six-State Synopsis of Trust Laws, OGC V (P~) to Gloria P~, ARC (Feb. 26, 1992). Our prior opinion relied on the general principles of trust law and on an appellate court decision, Mumma v. Huntington Nat'l Bank of Columbus, 223 N.E.2d 621 (Ohio Ct. App. 1967). See Restatement Second of Trusts 339; Ohio Jurisprudence 3d, Trusts 150 (1989, 1997 Supp.). The law regarding this issue does not appear to have changed since our 1992 opinion. We believe that if Ms. D~ is the grantor and the sole beneficiary of the trust, she can revoke it and use the funds to pay for her basic needs.
Ms. D~ is the grantor of the trust. The trust is funded with money she obtained through settlement of a personal injury lawsuit and was created by the court at her request. See POMS SI 01120.200J.3.a.
Ms. D~ is also the sole beneficiary of the trust. The trust provision requiring reimbursement of the state does not make the state a beneficiary. A beneficiary is "[t]he person for whose benefit property is held in trust." Restatement (Second) of Trusts, 3(4); Ohio Jurisprudence 3d, Trusts 3 (1989, 1997 Supp.). The settlement proceeds were placed in trust to benefit Ms. D~. Upon Ms. D~'s death, the trustee is required to reimburse the State of Ohio, pursuant to 42 U.S.C. 1396p(d)(4)(A), for amounts paid for Ms. D~'s medical assistance. This trust provision does not benefit the state, but merely repays it for the costs of providing benefits to Ms. D~ during her lifetime. See Illinois OBRA '93 Trust for Dominick J. G~, ~, OGC-V (D~) to Gerald K~, Center Director (Apr. 17, 1997) at 4; Supplemental Security Income-Wisconsin Trust- Michelle J. L~, OGC-V (M~) to Gloria P~ ARC-MOS (June 9, 1997); Grantor Trusts - General Policy and Responses to Specific Inquiries, OGC-I (K~) to Barbara B~, Deputy ARC (Aug. 21, 1995).
The trust provision requiring that remaining funds be distributed as directed in Ms. D~'s will or under the intestacy statutes does not create additional beneficiaries. According to the Restatement (Second) of Trusts, 127, comment (b), when an individual "transfers property in trust to pay the income to himself for life and on his death to pay the principal to his estate, or to his personal representatives," he is the sole beneficiary of the trust. This language was cited with approval in Mumma v. Huntington Nat'l Bank of Columbus, 223 N.E.2d 621, 625 (Ohio Ct. App. 1967). Because Ms. D~ is both the grantor and the sole beneficiary of the trust, she has the capacity to revoke it and use the proceeds for her support and maintenance.
The provision for amendment only by the probate court should not prevent Ms. D~ from revoking the trust. We see no legal basis for the court to prevent Ms. D~ from revoking a trust that was created with her money and at her request.
CONCLUSION
For the above reasons, we believe the trust principal and income should be considered a resource when determining Ms. D~'s eligibility for SSI.
~~KK. PS 00-195 Ohio Tuition Trust for Robert~~
LL. PS 00-195 Ohio Tuition Trust for Robert
Date: July 3, 1997
1. Syllabus
A contract made with the Ohio Tuition Trust Authority (OTTA) to purchase tuition credits creates a tuition trust. Ohio law provides that tuition credits already purchased with OTTA can be refunded and the contract terminated in limited circumstances. For example, if the OTTA determines the beneficiary of a trust becomes disabled and incapable of participating in higher education, the contract may be terminated and the credits refunded. A physician's statement that the beneficiary of the trust is disabled is generally sufficient to establish the disability. Also, Ohio law imposes no restrictions on the use of the money once it's refunded.
Therefore, in those limited circumstances where a contract can be terminated, the trust can be considered revocable. However, if the OTTA does not permit termination of the contract, the trust would be considered irrevocable.
2. Opinion
This is with reference to your request for advice as to whether a tuition trust account established by Douglas D~ ("D~") for the beneficiary, Robert D. D~ ("Robert"), constitutes an irrevocable trust or is a countable resource to Robert. You also asked us whether Robert or his parents would have unrestricted access to the trust principal and if the principal could be used for his support and maintenance if we determined that the trust is revocable. We have concluded that the trust is most likely revocable, and the trust assets could be subject to deeming and therefore a resource countable to Robert. In addition, we have identified no restrictions on the use of the trust assets if the trust were revoked.
Robert D~ was born on February XX, 1989. His father, Douglas, entered into a contract on June 19, 1990 with the Ohio Tuition Trust Authority ("OTTA") to purchase tuition credits, thereby creating a tuition trust naming Robert as the beneficiary. The contract designates Douglas as the individual to whom any refund would be made under the contract.
Ohio law provides that the value of tuition credits already purchased and held by the OTTA may be refunded if the contract is terminated, and provides for termination of the contract in limited circumstances. See Ohio Rev. Code Ann. 3334.10 (A~ 1997). The relevant provision here allows for termination of the tuition payment contract if the beneficiary becomes permanently disabled. See id. 3334.10(A)(1). Upon termination of the tuition payment contract due to disability, the OTTA will refund the value of the tuition credits already purchased, computed using one of two methods, to the person designated in the contract to receive the refund (here, Douglas). The statute imposes no restrictions on the use of money refunded.
The OTTA defines disability as a "limitation of an individual's learning ability that results from an injury or disease which renders the individual incapable of participating in higher education, as determined by the OTTA." The OTTA informed us that a physician's statement that a beneficiary is disabled is generally sufficient to establish disability.
The trust Douglas established is therefore revocable if Robert is "disabled" as defined by the OTTA. The medical reports you sent indicate that Robert is autistic and has a carnitine deficiency. Other information you provided shows that Robert was found entitled to Supplemental Security Income in 1993 because he met listing 112.05D. That listing requires a full scale IQ score between 60 and 70. Individuals with IQ scores in this range fall within the mild mental retardation category. See Amer. Psychiatric Assoc., Diagnostic and Statistical Manual of Mental Disorders (DSM-IV) 41 (4th ed. 1994). Such individuals can generally "acquire academic skills up to approximately the sixth-grade level" by their late teens. Id. Given these intellectual limitations and the additional impairments noted above, it is unlikely that Robert will progress academically beyond the sixth grade level by his late teens, when most individuals enter college. It therefore appears that he would likely be disabled as OTTA defines that term. We believe Robert's physician would provide a statement that Robert is disabled and that the OTTA would allow Douglas to terminate the tuition payment contract. Accordingly, the trust appears to be revocable, and Douglas would be entitled to a refund of the value of the tuition credits already purchased calculated by one of the two methods set forth above.
Based on the foregoing, we conclude that the trust established by Douglas for Robert is most likely revocable, and the money that would be refunded to Douglas upon termination of the contract could be subject to deeming under the applicable regulations and a countable resource to Robert. Because the contract can only be terminated (and the trust revoked) if the OTTA is satisfied that Robert is disabled unable to participate in higher education the agency should consider any evidence the D~s may provide demonstrating that the OTTA will not permit them to terminate the contract, which would, of course, make the trust irrevocable.
Footnotes:
[1]
. The MTA does not explicitly provide that Ohio law governs the Pooled Trust, but both the MTA and the Joinder Agreement identify the State of Ohio in their titles, and make specific reference to the State of Ohio within their provisions. See MTA, par. 1, 11; Joinder Agreement.
. . [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]
~~. . . According to the introductory paragraph to Article Seven, the Arc of Indiana is an organization that provides services to developmentally disabled individuals.~~
. . . The MTA does not explicitly provide that Ohio law governs the Pooled Trust, but both the MTA and the Joinder Agreement identify the State of Ohio in their titles, and make specific reference to the State of Ohio within their provisions. See MTA, par. 1, 11; Joinder Agreement.
[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.
. . . . . According to the introductory paragraph to Article Seven, the Arc of Indiana is an organization that provides services to developmentally disabled individuals.
[4]
. . . . . POMS SI 01120.199.F.2 permits an exception for transfer of a beneficiary’s trust account from one pooled trust to another. See POMS SI 01120.199.F.2 (the trust need not meet the above criteria to be excepted as a resource if the early termination clause (1) “solely allows for transfer of the beneficiary’s assets from one [pooled] trust to another [pooled] trust,” and (2) contains specific language precluding disbursements other than to the secondary trust (or for the payment of taxes or reasonable administrative expenses). Under this exception, the State(s) need not receive reimbursement prior to transfer of the beneficiary’s trust account. See id. However, no such exception exists for the transfer of a beneficiary’s trust corpus from a special needs trust to a qualifying pooled trust. See id.

POMS Reference

PS 01825.039: Ohio