PS: Title XVI Regional Chief Counsel Precedents
TN 121 (08-18)
A. PS 18-104 Does the Purported Pooled Trust for Disabilities Foundation of Charleston County, Inc. (DFCC) meet the requirements for a pooled trust for SSI
Date: June 22, 2018
1. Syllabus
This Regional Chief Counsel (RCC) opinion outlines why the Disabilities Foundation of Charleston County, Inc. Pooled Fund Trust (Trust) and the number holder’s Joinder Agreement do not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act and the implementing POMS provisions. As written, the Trust is managed by a for profit organization; the Joinder Agreement allows for multiple beneficiaries under NH’s sub-account; the trust sub-accounts are not established for the sole benefit of each beneficiary; and the Trust’s termination provisions do not comply with the Medicaid reimbursement provision.
2. Opinion
QUESTION
Whether the Disabilities Foundation of Charleston County, Inc. Pooled Fund Trust (Trust) meets the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant provisions of the Program Operations Manual System (POMS).
ANSWER
For the reason discussed below, the Trust does not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and relevant provisions of the POMS.
BACKGROUND
According to the information provided, N~, the number holder (NH), has been receiving Supplemental Security Income (SSI) since 1981. NH enrolled in the Trust on August XX, 2016, and is currently a beneficiary of the Trust.
Purpose and Establishment of the Trust
In October 2007, the Disabilities Foundation of Charleston County Inc. (DFCC or Grantor), established the Trust. See Trust, Art. III, ¶ 1. The Trust states the intention of DFCC was to establish a pooled fund trust pursuant to 42 U.S.C. § 1396p (section 1917 of the Act) for the benefit of beneficiaries under the Trust. See id. In July 2016, DFCC changed its name to The Able Life Foundation, Inc. (Able Life). See State of South Carolina Secretary of State Nonprofit Corporation Articles of Amendment. A letter from the Internal Revenue Service (IRS) dated March 28, 2017, states that Able Life is an exempt organization under section 501(c)(3) of the Internal Revenue Code.1
The Trust identifies Branch Banking and Trust Company (BB&T) as the Trustee.2 See Trust, pmbl. The Grantor maintains sole discretion to change the Trustee. See Trust, Art. VIII.
The Trust provides that a separate Trust sub-account shall be maintained for each beneficiary, but for purposes of investment and management of funds, the Trust will pool the Trust sub-accounts. See Trust, Art. VII, ¶ 1. The Trustee, or the Trustee’s authorized agent, must maintain records for each Trust sub-account in the name of, and showing the contributed property for, each beneficiary. See Trust, Art. VII, ¶ 1. The Trustee must also provide an accounting, at least annually, to each beneficiary or the beneficiary’s legal representative. See Trust, Art. VII, ¶ 3.
The Trust defines “Beneficiary” as an individual who, at the time the sub-account is established or at the time additional funds are added to the sub-account, is disabled as defined in § 1614(a)(3) of the Act. See Trust, Art. II, ¶ 1. A “Sponsor” is defined as a parent, grandparent, guardian, or other legal representative of the beneficiary, the beneficiary, or any court. See Trust, Art. II, ¶ 6. A Sponsor can also be the Grantor, a person appointed by the Grantor, or any person or entity that contributes assets or property to the Trust for the benefit of a beneficiary. See id. The Trust becomes effective with respect to a beneficiary upon execution of a Joinder Agreement by the Sponsor and the Grantor. See Trust, Art. III, ¶ 1, Art. V, ¶ 1. A Sponsor must make a minimum contribution of $1000 to establish a sub-account. See Trust, Art. V, ¶ 1.
NH’s Joinder Agreement identifies NH as both the Sponsor and Beneficiary and states the agreement was entered on August 31, 2016. See Joinder Agreement, ¶¶ B, C, G. The Joinder Agreement also identifies NH as a recipient of SSI. See Joinder Agreement, ¶ C. NH’s Joinder Agreement provides that her sub-account will be administered for her benefit. See Joinder Agreement, ¶ E. NH’s Joinder Agreement also permits NH as Sponsor to enroll more than one beneficiary under the sub-account, provided there is an additional agreement between the Sponsor and Grantor. See Joinder Agreement, ¶ G.
Distribution and Powers of the Trustee
NH’s Joinder Agreement states that all distributions from her sub-account are at the Trustee’s “sole” discretion. Joinder Agreement, ¶ E. The Trust provides that a beneficiary has no entitlement to the income or corpus of the Trust except as the Trustee, in consultation with a Special Advisor, elects to disburse. See Trust, Art. III, ¶¶ 3, 5. A “Special Advisor” is defined as a person who is responsible for determining the needs of the beneficiary and the effect of distributions on the beneficiary’s eligibility for government benefits. See Trust, Art. II, ¶ 5. NH’s Joinder Agreement does not specifically identify a Special Advisor but designates Able Life (formally DFCC) as a substitute or successor Special Advisor in the event any Special Advisor the Sponsor does name is unable or unwilling to serve as a Special Advisor. See Joinder Agreement, ¶ E.
The Trust provides that Trustee, as directed by the Grantor, may make any payment directly to a beneficiary; in any form allowed by law; to any person deemed suitable by Trustee; by direct payment of a beneficiary’s expenses; or to the Grantor in reimbursement for advances made to or for the benefit of a beneficiary. See Trust, Art. VII, ¶ 6.
The Trust provides that the Trustee may pay or apply for the supplemental care of each beneficiary any principal or income from the beneficiary’s Trust sub-account as the Special Advisor may request and the Grantor shall approve for the satisfaction of the beneficiary’s supplemental care needs. See Trust, Art. III, ¶ 4. The Trust defines “supplemental needs” or “supplemental care” to include distributions that supplement and do not replace public or private benefits. See Trust, Art. II, ¶ 4. Supplemental needs may include educational, medical, and dental expenses; personal care services; equipment; travel; and recreation. See id. They may also include expenditures for travel, companionship, cultural experiences, and expenses in bringing a beneficiary’s siblings, children, and others for visitation with him or her. See id. NH’s Joinder Agreement incorporates by reference any supplemental needs plan established for NH3 and provides that pending the preparation of such a plan, the Trustee has discretion to provide NH any nonsupport items that are required for her health, safety, and welfare that are not being provided for by a public agency or by other income. See Joinder Agreement, ¶ E.
The Trust also provides that the Trustee, in consultation with the Grantor’s representative, has absolute discretion to refuse to make distributions which may disqualify the beneficiary from government benefits and may refuse to make distributions for any reason if it is determined by the appropriate advisor that such distributions are not in the beneficiary’s best interest. See Trust, Art. III, ¶ 4.
In addition to payments made for supplemental care, the Trustee also has complete and absolute discretion to make disbursements to a beneficiary that are recommended by the Special Advisor even if it reduces or eliminates benefits from one or more programs. See Trust, Art. III, ¶ 6. A beneficiary’s future needs may be considered by the Trustee in connection with disbursements made and the interests of remainder beneficiary shall be secondary to those of the primary beneficiary. See Trust, Art. III, ¶ 5.
The Trust permits payments to a beneficiary’s dependent with the consent of the beneficiary and states such payments are considered to be made for the benefit of the beneficiary. See Trust, Art. VII, ¶ 6.
In addition to any other rights, powers, authority, and privileges granted under the Trust, the Trustee has absolute discretion with respect to any property held by the Trust to engage in a variety of activities related to investing and managing the Trust property. See Trust Art. VI. Such rights include the right to invest all or part of the Trust estate. See Trust, Art. VI, ¶ 1.
The Trust also provides that the Trustee, in its discretion, has the authority to allocate assets received in kind solely to the sub-account for which the assets were contributed. See Trust, Art. VII, ¶ 2. In such cases, only the sub-account in question shall be credited or charged with its share of income, profits, gains, and losses derived from such segregated assets. See id. The Trustee also has the right to charge the sub-account for administrative services and expenses attributable to the segregated assets in addition to general administrative services and expenses. See id.
The Trust provides that the Trust’s general administrative expenses may be allocated equally among all sub-accounts. See Trust, Art. VII, ¶ 9. Any necessary expenses connected to a particular sub-account or particular sub-accounts, including attorney or accountant fees, management fees, taxes, debts, or charges may be paid by the Trustee out of the affected sub-account or sub-accounts. See id. Expenses that are not incurred for the benefit of a specific sub-account or specific group of sub-accounts may be allocated between all sub-accounts. See id. Also, the Grantor’s compensation for services may at the Trustee’s discretion be charged at a pro rata basis to all sub-accounts or between specific affected sub-accounts. See id. The charges of the Trustee will be prorated among all the sub-accounts. See Trust, Art. XIII, ¶ 3.
Costs and expenses of defending the Trust from any claim, demand, legal or equitable action, suit, or proceeding may, in the sole discretion of the Grantor, either be apportioned on a pro rata basis to all trust sub-accounts, be charged only against the Trust sub-account of the affected beneficiary, or be charged to the sub-accounts of a group of affected beneficiaries or to a group of beneficiaries whose interests may be reasonably expected to be affected by the outcome of the action. See Trust, Art. VII, ¶ 8.
Irrevocability and Spendthrift
Upon delivery to and acceptance by the Trustee of property, the Trust, as to the Sponsor of such property and the designation of the respective beneficiary shall be irrevocable and the contributed property shall not be refundable unless a Committee established by the Grantor determines the Trust is unable to meet the needs of a beneficiary. See Trust, Art. V, ¶ 1, Art. XII, ¶ 3. A designation to transfer property to the Trust in the future that has not yet been made may be revoked by the Sponsor at any time during the Sponsor’s life and continued competence, upon prior written notice from the Sponsor to the Trustee. See Trust, Art. V, ¶ 2.
The Trust agreement is irrevocable, except that it may be amended from time to time by agreement between the Trustee and the Grantor or by the Grantor to conform with rules, regulations, and related statutes. See Trust, Art. XI. No beneficiary has the right to amend or revoke the Trust. See id.
The Trust is not available to the beneficiaries’ creditors. See Trust, Art. III, ¶ 2. The Trust also includes a provision stating that no part of the Trust principal or income shall be subject to anticipation or assignment by a beneficiary. See Trust, Art. III, ¶ 9. Also, no Trust principal or income is subject to legal or equitable process by any voluntary or involuntary creditor of any beneficiary and the beneficiary cannot compel a distribution from her sub-account. See id.
Termination
If the Trustee has reasonable cause to believe that income or principal in a Trust sub-account is or will become liable for basic maintenance, support, or care for the beneficiary, which had been or otherwise would have been provided by a local government, a state, or the federal government, the Trustee, in its sole discretion may: (a) terminate the Trust sub-account as if the affected beneficiary has died; (b) determine the Trust is impossible to implement; or (c) continue to administer the Trust sub-account under a separate arrangement with the affected beneficiary or his or her guardian or other legal representative. See Trust, Art. XII, ¶ 1.
Before or on the death of a beneficiary or within three months of a beneficiary’s death, the Trustee, upon the request of the Special Advisor, may pay all or part of the beneficiary’s funeral and estate administrative expenses, including taxes and attorney’s fees, from his or her Trust sub-account. See Trust, Art. III, ¶ 11. When a beneficiary dies, any remaining amounts in the beneficiary’s sub-account after payment of final expenses shall be deemed surplus trust property and shall be retained by the Trust to be used for operational and charitable purposes. See Trust, Art. XII, ¶ 2. To the extent that amounts are not retained by the Trust, such sums will be paid to the South Carolina Department of Health and Human Services up to an amount equal to the total amount of medical expenses paid on behalf of the beneficiary for Medicaid assistance. See id.
If the Trustee determines the Trust is impossible to implement or a Committee determines the Trust is unable to meet a beneficiary’s needs, the Trustee may pay over all or any portion of the sub-account property to a beneficiary, the probate court, another Trust for the benefit of the beneficiary, a third party as agreed upon by the beneficiary, or the beneficiary’s guardian or legal representative. See Trust, Art. XII, ¶¶ 1,3.
Governing law and Severability Clause
The validity of the Trust is determined by the laws and regulations of the United States and the State of South Carolina. See Trust, Art. XIII, ¶ 4. The Trust provides that should any provision of the Agreement be or become invalid or unenforceable, the remaining provisions of the Agreement continue to remain fully effective. See Trust, Art. III, ¶ 10.
DISCUSSION
SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Act §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2018).4 “Resources” include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to be used for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a). “If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual . . . .” 20 C.F.R. § 416.1201(a)(1); see POMS SI 01120.010.B.
Generally, SSA must consider the principal or corpus of a trust established with the assets of an individual to be a resource of the individual. See Act § 1613(e)(1)-(3); POMS SI 01120.201.A.1. However, the rules in section 1613(e) of the Act do not apply to trusts described in section 1917(d)(4) of the Act. See Act § 1613(e)(5); POMS SI 01120.201.A.1; POMS SI 01120.203.A. Trusts created in accordance with paragraphs (A) and (C) of section 1917(d)(4) are commonly known as Medicaid trust exceptions and consist of two types: Special Needs Trusts (paragraph (A)) and Pooled Trusts (paragraph (C)). See POMS SI 01120.203.A.
To satisfy the exception for pooled trusts under section 1917(d)(4)(C), a trust must contain the assets of an individual who is disabled (as defined in section 1614(a)(3)) and meet the following conditions:
(i) The trust is established and managed by a nonprofit association;
(ii) A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts;
(iii) Accounts in the trust are established solely for the benefit of individuals who are disabled (as defined in section 1614(a)(3)) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court; and,
(iv) To the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan under this title.
Act § 1917(d)(4)(C); POMS SI 01120.203.D.1. As written, the Trust does not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of Act and the implementing POMS provisions. Specifically, the Trust is not managed by a nonprofit association; the Joinder Agreement allows the NH to add multiple beneficiaries under her sub-account; the sub-accounts are not established for the sole benefit of each beneficiary; and the Trust’s termination provisions do not comply with the Medicaid reimbursement provision.
The Trust is not managed by a nonprofit association. See Act § 1917(d)(4)(C)(i). Although a nonprofit organization may employ the services of a for-profit entity, the nonprofit organization must maintain “ultimate managerial control” over the trust. POMS SI 01120.225.D. The nonprofit association must remain responsible for (among other things) determining the amount of the trust corpus to invest and making the day-to-day decisions regarding the health and well-being of the pooled trust beneficiaries. See id.
Although Able Life (formally DFCC), a nonprofit entity, established the Trust and maintains some powers as Grantor, the Trust gives Trustee BB&T, a for profit entity, significant managerial control over the Trust. BB&T has absolute discretion to engage in a variety of activities related to managing the Trust, including the power to invest all or part of the Trust estate. See Trust Art. VI, ¶ 1. NH’s Joinder Agreement also gives BB&T, as Trustee, “sole discretion” in making distributions to her from her sub-account. See Joinder Agreement, § E. Likewise, the Trust document gives BB&T significant discretion in making distributions or in refusing to make distributions to the Trust’s beneficiaries. See Trust, Art. III, ¶ 4, Art. III, ¶ 5, Art. III, ¶ 6.
NH’s Joinder Agreement also allows NH, as Sponsor, to enroll more than one beneficiary under her Trust sub-account. See Joinder Agreement, ¶ G.3; Act § 1917(d)(4)(C)(ii). The Trust document does provide that a separate Trust sub-account shall be maintained for each beneficiary. See Trust, Art. VII, ¶ 1. However, this conflicts with the language in the Joinder Agreement specifically allowing more than one beneficiary under NH’s sub-account. See Joinder Agreement, ¶ G. If NH has enrolled another individual as beneficiary in her Trust sub-account or does so in the future, a separate account would not be maintained for each beneficiary of the Trust.
The Trust sub-accounts are also not established solely for the benefit of each beneficiary. See Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.D.5. A trust is established for the sole benefit of the individual if it benefits no one but the individual, whether at the time the trust is established or at any time during the individual’s lifetime. See POMS SI 01120.201.F.1. Generally, a trust is not for the sole benefit of an individual if the trust account: (a) provides a benefit to another individual or entity during the individual’s lifetime; or (b) allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity. See POMS SI 01120.203.D.5.
Payments for goods and services to a third party are for the sole benefit of the trust beneficiary if the goods and services are for the beneficiary’s “primary benefit.” POMS SI 01120.201.F.3.a. As written, the Trust permits the Trustee to make payments to a beneficiary’s dependents with the consent of the beneficiary. See Trust, Art. VII, ¶ 6. Although the Trust states that such payments are considered for the benefit of the beneficiary, even if the beneficiary derives some benefit, such payments would appear to primarily benefit the dependent rather than the beneficiary. See POMS SI 01120.201.F.3.a (providing as an example that the purchase of a car for a beneficiary’s family member to take the beneficiary to appointments a few times a month is not for the beneficiary’s sole benefit, if the family member uses the car daily for purposes that are not benefiting the beneficiary such as driving to work).
The Trust also gives the Trustee discretion to allocate administrative expenses, including attorney fees and accountant fees, on a pro rata basis to all sub-accounts regardless of whether the expenses are only associated with a particular sub-account or group of sub-accounts. See Trust, Art. VII, ¶ 9. Although the Trust states necessary expenses “may” only be charged against affected sub-accounts, the Trust does not require this restriction. As such, the Trustee could potentially charge a beneficiary costs associated with investment, legal, or other services that are not rendered “on behalf of the [beneficiary] with regard to the trust.” POMS SI 01120.201.F.4.
The Trust also includes a non-exhaustive list of appropriate distributions that include expenditures for travel, companionship, cultural experiences, and expenses in bringing a beneficiary’s siblings, children, and others for visitation with him or her. See Trust, Art. II, ¶ 4. Travel expenses to a third party for visiting a beneficiary do not violate the sole benefit rule if the travel is to oversee a beneficiary’s living arrangements if the beneficiary is residing in an institution or similar facility or if the travel is for a trustee or trust advisor to ensure the beneficiary’s well-being. See POMS SI 01120.201.F.3.c. Also, the travel must be for the purpose of ensuring the “safety” and/or “medical well-being” of the individual. See id. As written, the Trust allows for travel of family, friends, and others, regardless of whether it is to oversee a beneficiary’s living arrangements where the beneficiary is residing in an institution or similar facility and regardless of whether it is for the beneficiary’s safety or medical well-being. See Trust, Art. II, ¶ 4. Thus, the Trust sub-accounts would not solely benefit each beneficiary.
The Trust also allows for termination prior to a beneficiary’s death and payment of the corpus to another individual or entity. A provision that allows a trust to terminate before a beneficiary’s death is an “early termination provision.” POMS SI 01120.199.D. A pooled trust with an early termination provision must require that any funds from an early termination either be paid to another pooled trust, see POMS SI 01120.199.F.2, or be paid first to the State(s) for medical assistance provided to the individual under the State Medicaid Plan(s), with any remaining funds used only for allowable administrative expenses, reasonable compensation to the trustee, reasonable costs for services rendered on behalf of the beneficiary, or distributions to the trust beneficiary, see POMS SI 01120.199.F.1. The Trust’s early termination provision is not acceptable because it gives the Trustee discretion to pay amounts remaining to either the Trust for operational or charitable expenses or to a third party (with the beneficiary’s agreement) depending on if the Trustee treats the beneficiary “as though” she had died or determines the Trust has become impossible to implement for the beneficiary. Trust, Art. XII. The Trust’s early termination provision does not conform to the criteria listed for an acceptable early termination clause enumerated in POMS SI 01120.199.F.
The Trust’s termination provision for when the beneficiary has died also does not comply with the Act’s Medicaid reimbursement provision. See Act § 1917(d)(4)(C)(iv). To qualify, any amounts not retained by a trust must be paid to “any State(s)” that have provided medical assistance under a Medicaid plan. POMS SI 01120.203.D.8. The trust cannot limit payback to any particular State and if the trust does not have sufficient funds to reimburse each State that had provided medical assistance, the trust must reimburse each State on a pro-rata basis. See id. As written, the Trust only permits payback to the South Carolina Department of Health and Human Services. See Trust, Art. XII, ¶ 2.
The Trust also allows for the payment of prohibited expenses upon a beneficiary’s death. Upon a beneficiary’s death, the trust may pay for taxes due from the trust because of the beneficiary’s death and reasonable fees for administration of the trust estate before reimbursement to the State(s) for medical assistance. See POMS SI 01120.203.E.1. However, some types of expenses and payments are not permitted prior to reimbursement of the States including funeral expenses and taxes due the estate of the beneficiary other than those arising from inclusion of the trust in the estate. See POMS SI 01120.203.E.2. As written, the Trust allows prohibited expenses and payments upon the Beneficiary’s death, including funeral expenses and estate taxes that are not due to inclusion of the Trust in the estate. See Trust, Art. III, ¶ 11.
The Trust contains a severability clause for severing invalid or unenforceable provisions without invalidating any remaining provisions. See Trust, Art. III, ¶ 10. For SSI purposes, however, a null and void clause or savings clause does not cure an otherwise defective trust instrument. See POMS SI 01120.227.D. To qualify for the pooled trust exception, the Trust must meet the criteria in 1917(d)(4)(C) without regard to its severability clause. See POMS SI 01120.227.D.1. Thus, the Trust’s severability clause does not nullify or sever the Trust provisions discussed above that do not comply with section 1917(d)(4)(C) of Act and the implementing POMS provisions. See POMS SI 01120.227.D.
The Trust complies with the remaining requirements of section 1917(d)(4)(C) and the implementing POMS provisions. As discussed above, the Trust was established by Able Life (formally DFCC), a nonprofit entity. See Trust, Art. III, ¶ 1; IRS Non-Profit Determination Letter; Act § 1917(d)(4)(C)(i); POMS SI 01120.203.D.3. The Trust also provides for an accounting to each beneficiary annually, unless NH has added another beneficiary to her sub-account. See Trust, Art. VII, ¶ 3; POMS SI 01120.203.D.4 (providing the Trust must be able to provide an individual accounting for each individual). Finally, NH’s sub-account was established in August 2016 by her, with her assets, at a time the agency had already determined she was disabled and she was receiving SSI. See Joinder Agreement, §§ B, C; Trust, Art. V.1; Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.D.1, 6.
CONCLUSION
The Trust and Joinder Agreement do not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions. As written, the Trust is managed by a for profit organization; the Joinder Agreement allows for multiple beneficiaries under NH’s sub-account; the trust sub-accounts are not established for the sole benefit of each beneficiary; and the Trust’s termination provisions do not comply with the Medicaid reimbursement provision.
B. PS 17-125 Resource Status of a Trust for Determining Eligibility for Supplemental Security Income
Date: August 1, 2017
1. Syllabus
The Regional Chief Counsel (RCC) opinion examines whether a trust established for a recipient of Supplemental Security Income (SSI) with the recipient’s Uniform Gifts to Minors Act account is a resource to the recipient, and if the trust is a third-party trust or a special needs trust under section 1917(d)(4)(A) of the Social Security Act (Act). It was concluded that under South Carolina law, the Trust is a self-settled trust and a resource under Section 1613(e) of the Social Security Act. The trust is not a special needs trust under section 1917(d)(4)(A) of the Act because it does not contain a Medicaid payback provision.
2. Opinion
QUESTION
For determining whether a trust established for a recipient of Supplemental Security Income (SSI) is a resource to the recipient, you asked if the trust is a third-party trust or a special needs trust under section 1917(d)(4)(A) of the Social Security Act (Act).
OPINION
The trust is not a third-party trust or a special needs trust for determining whether the trust is a resource to the recipient.
BACKGROUND
A~ (Recipient) applied for SSI on September XX, 2016, at the age of twenty-six, and the Social Security Administration (SSA) found her presumptively disabled and entitled to SSI. In connection with her application, Recipient submitted a copy of a trust agreement dated November XX, 2007, entered into when Recipient was seventeen years old. The trust agreement created the A~ Trust Agreement Dated November 8, 2007 (Trust). See Trust, art. I, ¶ (b). The trust agreement indicates that J~, Recipient’s father, as Recipient’s custodian under the South Carolina Uniform Gift to Minors Act (UGMA) and grantor, and Recipient’s father and mother, as Trustees, created the Trust. See Trust, pmbl. Recipient’s father is named as the grantor of the Trust, and he and Recipient’s mother are named as Trustees. See Trust, pmbl., art. I, ¶ (c). The material purpose of the Trust was to allow Recipient’s father and mother, as Trustees, to continue to manage assets given to Recipient by her grandfather under the South Carolina UGMA beyond Recipient attaining the age of majority. See Trust, art. I, ¶ (c). Recipient’s UGMA property, with her acknowledged, was transferred to the Trust the same day the Trust was created. See Trust, Exh. A.
The Trust states that the Trustees are to manage the trust assets and may at their discretion use the trust assets “for the medical care, education, maintenance and support in reasonable comfort of” Recipient. Trust, art. I, ¶ (c), art. III, ¶ (a). The Trust allows the Trustees to terminate the Trust if, in their sole discretion, they determine that:
(1) the size of the Trust is too small to make its continued administration efficient or economical; or
(2) a trust beneficiary, including Recipient, has reached a status of sufficient age and maturity so as to render the Trust unnecessary.
See Trust, art. III, ¶ (b); see also Trust art. IX, ¶ (r) (granting Trustees discretion to terminate Trust after the grantor’s death if continuation impractical). Upon Recipient’s death (assuming the Trust has not been terminated), the Trustees must distribute any remaining trust assets to Recipient’s descendants, or if she has no descendants, to her brother or his descendants, and if he has died and has no descendants, to the final beneficiaries. See Trust, art. III, ¶¶ (c)-(f), art. IV; see also art. VII (defining final beneficiaries). The Trustees must continue to hold any remaining assets or distributed assets, after payment of any expenses or distribution under Recipient’s will, unless the descendant has reached the age of twenty-one. See Trust, art. IV, art. V, art. VI. The Trustees have the power to deal with any property held in the Trust as the grantor (Recipient’s father) might in the handling of his own affairs. See Trust, art. IX.
The Trust also grants the Trustees the discretion to establish “a separate Special Needs Trust” if a descendant of the grantor (Recipient’s father) suffers from a disability. See Trust, art. X. The intent of authorizing the establishment of a separate special needs trust is to facilitate the financial eligibility of each special needs beneficiary for means-tested public benefits, including SSI. See id. The Trust also provides that if an individual is serving as a sole trustee is also a beneficiary, the individual has no power to make discretionary distributions from the trust to himself or herself. See Trust, art. XI, ¶ (k)(1). An individual who is a beneficiary and is not serving as sole trustee has no power to make discretionary distributions from the trust to or for his or her benefit. See Trust, art. XI, ¶ (k)(2). The Trust also includes a spendthrift provision that states that neither Recipient nor any other beneficiary has any power to dispose of, encumber, or charge by way of anticipation any interest he or she may have in the Trust. See Trust, art. XII.
The Trust also states that the grantor (Recipient’s father) declared the Trust irrevocable. See Trust, art. XIV. Specifically, the grantor is “without power to revoke, change, alter, amend, vary or annul any of the provisions contained in this Trust Agreement or the trust created hereunder.” Id. A Trust Certification also declares the Trust irrevocable. The Trust provides that South Carolina law governs all questions pertaining to the validity and construction of the Trust. See Trust, art. XVI.
DISCUSSION
SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Act §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2017).*5 “Resources” include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to be used for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a); Program Operations Manual System (POMS) SI 01110.100B.1; POMS SI 01120.010B. “If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual . . . .” 20 C.F.R. § 416.1201(a)(1); see POMS SI 01110.100B.1, B.3; POMS SI 01120.010B.
Generally, SSA must consider the principal or corpus of a trust established with the assets of an individual to be a resource of the individual. See Act § 1613(e)(1)-(3); POMS SI 01120.201A.1. “[A]n individual shall be considered to have established a trust if any assets of the individual . . . are transferred to the trust other than by will.” Act § 1613(e)(2)(A); see POMS SI 01120.201B.7, C.2. If an individual establishes a revocable trust, SSA will consider the corpus of the trust to be a resource available to the individual. See Act § 1613(e)(3)(A); POMS SI 01120.201D.1.a. If an individual establishes an irrevocable trust, SSA will consider the corpus of the trust to be a resource available to the individual “if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual.” Act § 1613(e)(2)(B); see POMS SI 01120.201D.2.a. The provisions in section 1613(e) of the Act apply to a trust without regard to: (1) the purposes for which the trust is established; (2) whether the trustees have or exercise any discretion under the trust; (3) any restrictions on when or whether distributions may be made from the trust; or (4) any restrictions on the use of distributions from the trust. Act § 1613(e)(2)(C); see POMS SI 01120.201C.2.d.
However, trusts established on or after January 1, 2000, that contain only assets of third parties or the portion of a commingled trust attributable to assets of third parties are not subject to the statutory provisions in section 1613(e) of the Act. See POMS SI 01120.200A.2.b. A third-party trust is a trust established with the assets of someone other than the beneficiary. See POMS SI 01120.200B.17. A trust that may appear to be established with the assets of a third party may in reality be created with the beneficiary’s property; such a trust would be a grantor trust, not a third-party trust. See id.
The Act also provides exceptions to the statutory rules in Section 1613(e) of the Act for trusts established in accordance with section 1917(d)(4) of the Act. See Act § 1613(e)(5); POMS SI 01120.201A.1; POMS SI 01120.203A. Special needs trusts are one such exception. See Act § 1917(d)(4)(A); POMS SI 01120.203.B.1 (noting trusts established under § 1917(d)(4)(A) are commonly referred to as special needs trusts). To qualify as a special needs trust, a trust must: (1) contain the assets of an individual under age sixty-five who is disabled; (2) be established for the benefit of the individual by a parent, grandparent, legal guardian, or court; and (3) provide that the state(s) will receive all amounts remaining in the trust upon the individual’s death up to an amount equal to the total medical assistance paid on behalf of the individual under the state(s) Medicaid plan. See Act § 1917(d)(4)(A); POMS SI 01120.203B.1.a. The trust also must list the state(s) as the first payee with priority over payment of other non-exempted debts and administrative expenses. See POMS SI 01120.203B.1.h.
You asked whether the Trust is a third-party trust because Recipient’s father transferred Recipient’s assets in her UGMA account to the Trust before she reached the age of majority. The South Carolina UGMA allows an adult person to make a gift of property to a person who is a minor at the time of the gift. See S.C. Code § 63-5-520(A) (2017). A gift made under the South Carolina UGMA “is irrevocable and conveys to the minor indefeasibly vested legal title to the” property except as provided in the South Carolina UGMA. S.C. Code § 63-5-530(A) (2017); see McLeod v. Sandy Island Corp., 1216 S.E.2d 746, 749 (S.C. 1975). Such a gift also grants to the custodian the powers and rights provided in the South Carolina UGMA. S.C. Code § 63-5-530(B). The custodian has the duty to collect, hold, manage, invest, and reinvest the custodial property. S.C. Code § 63-5-540(A) (2017). The custodian must use the custodial property to cover expenditures by the minor or expend the custodial property for minor’s benefits, but the custodian has the discretion to determine how to use the custodial property for the support, maintenance, education, and benefit of the minor. See S.C. Code § 63-5-540(B). A custodian also has all powers that a guardian has with respect to property not held as custodial property. See S.C. Code § 63-5-540(I). Under South Carolina law, a guardian has the same powers “respecting a ward as a parent has respecting his unemancipated minor child.” S.C. Code § 62-5-313(a) (2017).
South Carolina law does not appear to specifically allow or prohibit a custodian of UGMA to transfer the custodial property into a trust for the minor. Given the broad powers granted custodians under the South Carolina UGMA, we see no reason why Recipient’s father could not transfer Recipient’s UGMA property to the Trust. Although Recipient’s father created the Trust, he used Recipient’s assets to create the trust. Therefore, the Trust is not a third-party trust.
You also asked whether the Trust qualifies as a special needs trust. As discussed above, the Trust contains Recipient’s assets, and SSA has found that Recipient, who is under age sixty-five, is presumptively disabled. See Act § 1917(d)(4)(A); POMS SI 01120.203B.1.a, B.1.b, B.1.d. The Trust also was established for Recipient’s benefit by her father. See Act § 1917(d)(4)(A); POMS SI 01120.203B.1.a, B.1.f. However, the Trust does not establish that, upon Recipient’s death, the assets in the Trust will be used to reimburse the state(s) for providing medical assistance under the state(s) Medicaid plan(s). See Act § 1917(d)(4)(A); POMS SI 01120.203B.1.a, B.1.h. Notably, the Trust grants the Trustees the discretion to establish a separate special needs trust if a descendant of the grantor suffers from a disability, the intent being to facilitate the financial eligibility of each special needs beneficiary for means-tested public benefits, including SSI. See Trust, art. X. The information provided, however, does not indicate that the Trustees have attempted to establish such a special needs trust for Recipient. Thus, the Trust is not a special needs trust and is not exempt from section 1613(e) of the Act.
CONCLUSION
The Trust is not a third-party trust or a special needs trust under section 1917(d)(4)(A) of the Act for determining whether the Trust is a resource to Recipient.
C. PS 16-200 Resource Status of a Trust Governed by South Carolina law – Supplemental Opinion
Date: September 21, 2016
1. Syllabus
This Regional Chief Counsel opinion examines whether the amended Babcock Center Foundation, Inc., Pooled Fund Trust (Master Trust) meets the requirements for a pooled trust exception under section 1917(d)(4)(C) of the Social Security Act (Act). As of August 17, 2016, the amended Master Trust meets all the requirements for the pooled trust exception. The amended Master Trust does not count as a resource for SSI purposes.
2. Opinion
QUESTION
Whether the amended Babcock Center Foundation, Inc., Pooled Fund Trust (Master Trust) complies with the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant provisions of the Program Operations Manual System (POMS).
OPINION
The amended Master Trust complies with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS.
BACKGROUND
In a memorandum dated June 10, 2016, we advised that the Master Trust established by the Babcock Center Foundation, Inc. (Babcock) did not comply with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS.6 We explained that the Master Trust was not managed by a nonprofit association. We noted that although Babcock is a nonprofit organization, Security Federal Bank, a for-profit organization, served as Trustee and retained managerial control under the Master Trust. We also explained that the sub-accounts were not established for the sole benefit of disabled individuals. In particular, we explained that Babcock could apportion costs and expenses in defending the Master Trust to all trust sub-accounts regardless of whether all sub-accounts were affected by the action, and the Master Trust allowed the Trustee to use trust funds to pay the income taxes that a beneficiary’s parent or parents owed on any payment to or on behalf of a beneficiary. We also noted that the Master Trust’s early termination provision allowed the Trustee to pay the amount remaining in a sub-account to a special needs trust, in violation of POMS SI 01120.199. Finally, we explained that the Master Trust did not require that sub-accounts contain the assets of disabled individuals or that the sub-accounts be established by the disabled individual, his or her parent, grandparent, or legal guardian, or a court.
On August 17, 2016, Babcock amended the Master Trust. See Sixth Amendment and Restatement of Pooled Fund Trust Agreement of Babcock Center Foundation, Inc. (6th Trust Decl.). The amended Master Trust includes several revisions to its Article II Definitions. In particular, the Master Trust redefines “Beneficiary” and “Sponsor” and includes definitions for “Sub-accounts” and “Manager.” Compare Fifth Amendment and Restatement of Pooled Fund Trust Agreement of Babcock Center Foundation, Inc. (5th Trust Decl.), Art. II, with 6th Trust Decl., Art. II. The amended Master Trust defines “Beneficiary” as any person who “is disabled as defined in § 1614(a)(3)” of the Act and qualified under 42 U.S.C. § 1396p (section 1917 of the Act) to receive services and benefits under the Master Trust.7 6th Trust Decl., Art. II, § 1. A “sub-account” is a “financial account within the Pooled Trust maintained for the benefit of an individual disabled [b]eneficiary and established with the funds of that individual disabled [b]eneficiary.” 6th Trust Decl., Art. II, § 9. “Sponsor” is defined as a parent, grandparent, legal guardian, a beneficiary himself or herself, or any court.8 6th Trust Decl., Art. II, § 8. The amended Master Trust also identifies Babcock as the “Manager.” 6th Trust Decl., Art. II, § 5.
The amended Master Trust includes new Articles VII and VIII, identifying and distinguishing the roles of the Manager and the Trustee. See 6th Trust. Decl., Art. VII, VIII. The Master Trust provides that, as Manager, Babcock:
shall manage the Trust and shall have full power and authority in its sole discretion to do all acts and things necessary to accomplish the purposes of this Trust and to do such other acts concerning the Trust as may be advisable, including but not limited to determining the amount of the trust corpus to invest, removing or replacing the Trustee, and making the day-to-day decisions regarding the health and well-being of the pooled trust beneficiaries.
6th Trust Decl., Art. VII; see also 6th Trust Decl., Art. III, §§ 2, 3, 4, 6, 9, 10, Art. VI, §§ 2, 3, 5, 6, 7, Art. VIII, §§ 3, 4 (describing further the powers and duties of the Manager). The Trustee, Security Federal Bank, is employed by the Manager to provide certain investment and accounting functions, but the Manager “retains full discretion as to disbursements to be made from the Trust.” 6th Trust Decl., Art. VIII. “Subject to the control and direction of the Manager,” the Trustee is authorized to take several actions including investing and reinvesting trust property and selling or disposing of trust property. 6th Trust Decl., Art. IX. Babcock may also designate another non-profit corporation as a successor Manager, who would succeed in all the rights, powers, and privileges accorded to the Manager. See 6th Trust Decl., Art. VII.
The Master Trust also includes some revisions related to the administration of the trust and payment of trust property. The Manager may direct the Trustee to pay or apply for the supplemental care needs of each beneficiary. See 6th Trust Decl., Art. III, § 2. Babcock amended the Master Trust to limit payment of third party travel expenses to: (a) those that are necessary for a beneficiary to obtain medical treatment; or (b) for visiting a beneficiary, who resides in an institution, nursing home, other long-term care facility, or other supported living arrangement in which a non-family member or entity is being paid to provide or oversee the beneficiary’s living arrangement and the travel is for ensuring the safety and/or medical well-being of the beneficiary. See 6th Trust Decl., Art. II, § 6. The Manager will charge against all sub-accounts on a pro rata basis fees for its services and the Trustee is entitled to reasonable compensation for its services which will be agreed on from time to time between the Trustee and Manager. See 6th Trust Decl., Art. VII, Art. VIII, § 6. The Manager may also only charge the costs and expenses of defending the Master Trust from any claim, demand, legal or equitable action, suit, or proceeding to the sub-account of an affected beneficiary or sub-accounts of a group of affected beneficiaries. See 6th Trust Decl., Art. VI, § 7. The amended Master Trust omits language from the prior version that permitted the Trustee to reimburse the parent or parents of a beneficiary for any federal, state, and municipal income taxes, which he/she or they may be required to pay because of payments of trust income to or on behalf of the beneficiary.
Compare 5th Trust Decl., Art. III, §10, with 6th Trust Decl., Art. VI.
The Master Trust’s early termination clause was revised as follows to permit the Manager to direct the Trustee to pay remaining amounts in the sub-account:
either (a) to another Pooled Trust, which meets the requirements of 42 U.S.C. § 1396p(d)C or (b) to the State(s) the amount remaining up to an amount equal to the total of medical assistance paid on behalf of the [b]eneficiary under the State Medicaid Plan(s), and if there are funds remaining, to pay for allowable expenses including taxes due from the Trust to the State(s) or federal government due to the termination and reasonable fees and administrative expenses associated with the termination and, if there are funds remaining after reimbursement to the State(s) and payment of allowable expenses, any balance shall be distributed to the affected [b]eneficiary.
6th Trust Decl., Art. XIII, § 1.
The Master Trust was also revised to provide that, upon a beneficiary’s death, the Manager may direct the Trustee to pay allowable administrative expenses including taxes due from the trust to the State(s) or federal government because of the beneficiary’s death and reasonable fees for administration of the trust estate, such as an accounting of the trust to a court, and completion and filing of documents or other required actions associated with termination and wrapping up the trust. See 6th Trust Decl., Art. III, § 9, Art. XIII, § 2. Any amounts remaining will be retained by the Master Trust. See 6th Trust Decl., Art. XIII, § 2. However, to the extent amounts remaining are deemed not to be retained by the Master Trust, such sums will be paid to the State(s), up to the amount equal to the total amount of medical expenses paid on behalf of the beneficiary under the State Medicaid Plan(s). See id.
DISCUSSION
As discussed in the June 10, 2016 memorandum, to satisfy the exception for pooled trusts under section 1917(d)(4)(C), a trust must contain the assets of an individual who is disabled (as defined in section 1614(a)(3)) and meet the following conditions:
The trust is established and managed by a nonprofit association.
A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts.
Accounts in the trust are established solely for the benefit of individuals who are disabled (as defined in section 1614(a)(3)) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court.
To the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan under this subchapter.
Act § 1917(d)(4)(C); POMS SI 01120.203.B.2.a.
The amended Master Trust complies with the requirement that it be managed by a nonprofit association. See Act § 1917(d)(4)(C)(i); POMS SI 01120.203.B.2.a; POMS SI 01120.225.B. Babcock, a nonprofit association,9 now retains managerial control over the Master Trust. See 6th Trust Decl., Art. VII; see also 6th Trust Decl., Art. III, §§ 2, 3, 4, 6, 9, 10, Art. VI, §§ 2, 3, 5, 6, 7, Art. VIII, §§ 3, 4. Although Security Federal Bank remains as the Trustee and still manages many of the Master Trust’s financial activities, Babcock, the current Manager, “retains full discretion as to disbursements to be made from the Trust” and any action the Trustee takes is “[s]ubject to the control and direction of the Manager.” 6th Trust Decl., Art. VIII, Art. IX. A nonprofit association may employ a for-profit entity to manage some of the trust’s financial activities, provided the nonprofit association, as here, retains “ultimate managerial control” over the trust. See POMS SI 01120.225.D. Babcock, as the Manager, is ultimately responsible for determining the amount of the Master Trust corpus to invest, removing or replacing the trustee,10 and making the day-to-day decisions regarding the health and well-being of the Master Trust’s beneficiaries. See 6th Trust Decl., Art. VII; POMS SI 01120.225.D (providing list of actions for which the non-profit association must be responsible).
The amended Master Trust also complies with the requirement that the trust sub-accounts be established for the sole benefit of the beneficiary. See 6th Trust Decl., Art. II, § 9, Art. VI, § 1. A trust is established for the sole benefit of the individual if it benefits no one but the individual, whether at the time the trust is established or at any time during the individual’s lifetime. See POMS SI 01120.201.F.2.a. As amended, the Master Trust no longer allows Babcock to apportion to all sub-accounts any costs and expenses of defending the Master Trust from any claim, demand, legal or equitable action, suit, or proceeding regardless of whether all the sub-accounts are affected. Compare 5th Trust Decl., Art. VII, § 8, with 6th Trust Decl., Art. VI, § 7. Rather, the amended Master Trust now provides that costs and expenses of defending the Master Trust may be charged only against the sub-account of the affected beneficiary or the sub-accounts of a group of affected beneficiaries. See 6th Trust Decl., Art. VI, § 7; POMS SI 01120.201.F.2.c (limiting legal costs to those rendered on behalf of the individual with regard to the trust). The amended Master Trust also deleted the provision that permitted the Trustee to reimburse the parent or parents of the beneficiary for any federal, state, and municipal income taxes, which he/she or they may be required to pay because of payments of trust income to or on behalf of the beneficiary. Compare 5th Trust Decl., Art. III, §10, with 6th Trust Decl., Art. VI.
Further, the amendments limiting payments of third party travel expenses to those necessary for a beneficiary to receive medical treatment or to visit beneficiaries residing in supported living arrangements is consistent with permissible third party travel payments under the POMS. See 6th Trust Decl., Art. II, § 6; POMS SI 01120.201.F.2.b. A pooled trust may also provide for reasonable compensation for a trustee(s) to manage the trust, as well as costs associated with investment or other services rendered on behalf of the individual with regard to the trust. See POMS SI 01120.201.F.2.c. Thus, the provisions permitting the Manager to charge against all sub-accounts on a pro rata basis fees for its and the Trustee’s services are permissible. See 6th Trust Decl., Art. VII, Art. VIII, § 6.
The Master Trust’s termination provisions also comply with the relevant provisions of the POMS interpreting section 1917(d)(4)(C) of the Act. A pooled trust with an early termination provision must require that any funds from an early termination either be paid to another pooled trust, see POMS SI 01120.199.F.2, or be paid first to the State for medical assistance provided to the individual under the State Medicaid Plan, with any remaining funds used only for allowable administrative expenses, reasonable compensation to the trustee, or distributions to the trust beneficiary, see POMS SI 01120.199.F.1. The Master Trust’s early termination clause as amended now provides that if the Manager determines that the Trust has become impossible to implement to the affected beneficiary, the Manager may direct the Trustee to pay the amount remaining in the account under one of the two scenarios outlined in POMS SI 01120.199.F. Specifically, the Manager has discretion to direct the Trustee either to: (a) pay the amount remaining to another pooled Trust; or (b) pay the amounts remaining first to the State(s) that provided medical assistance under the State Medicaid Plan(s), and if there are funds remaining, to pay allowable expenses and any balance to the affected beneficiary. See 6th Trust Decl., Art. XIII, § 1. Further, upon a beneficiary’s death, the amendments permit the Manager to direct the Trustee to pay for allowable administrative expenses, prior to reimbursement of medical assistance to the State(s), including taxes due from the trust to the States(s) or Federal government because of a beneficiary’s death and reasonable fees for administration of the trust estate. See 6th Trust Decl., Art. III, § 9, Art. XIII, § 2. This provision is permissible. See POMS SI 01120.203.B.3.a.
Finally, the Master Trust was amended to require the sub-accounts contain the assets of disabled individuals and that a sub-account be established by a disabled individual, his or her parent, grandparent, or legal guardian, or a court. See Act § 1917(d)(4)(C); POMS SI 01120.203.B.2.a. Under the Master Trust’s terms, a sub-account is established when a sponsor contributes property and Babcock accepts it. See 6th Trust Decl., Art. V. A sponsor must be a parent, grandparent, legal guardian, a beneficiary himself or herself, or any court. See 6th Trust Decl., Art. II, § 8. The amended Master Trust also defines sub-account to be the “financial account within the Pooled Trust maintained for the benefit of an individual disabled [b]eneficiary and established with the funds of that individual disabled [b]eneficiary.” 6th Trust Decl., Art. II, § 9. Thus sub-accounts must contain the funds of disabled individuals and be established by a disabled individual, his or her parent, grandparent, or legal guardian, or a court.
CONCLUSION
The amended Master Trust complies with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions.
D. PS 16-184 State Law for Empty and Dry Trusts in Atlanta Region
Date: April 25, 2016
1. Syllabus
This Regional Chief Counsel opinion provides the State law related to trusts established with no funds (i.e., dry or empty trusts), for the States in Region IV to assist field offices in addressing questions regarding how such purported trusts should be considered under the Social Security Administration’s (agency) Supplemental Security Income (SSI) resource rules.
2. Opinion
QUESTION
You asked us to provide the State law related to trusts established with no funds (i.e., dry or empty trusts), for the States in Region IV to assist field offices in addressing questions regarding how such purported trusts should be considered under the Social Security Administration’s (agency) Supplemental Security Income (SSI) resource rules.
BACKGROUND
SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Social Security Act (Act) §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2015).*11 “Resources” include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to use for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a). “If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual . . . .” 20 C.F.R. § 416.1201(a)(1); see Program Operations Manual System (POMS) SI 01120.010.B. Even if property has no current market value, it may still be considered a resource if it is property that an individual owns and has the right to convert to cash, and the individual is not legally restricted from using the property for his or her support and maintenance. See POMS SI 01110.100.B.2, B.3.
Property held in a trust may or may not be considered a resource for SSI purposes. See POMS SI 01120.200.A.1. Generally, the agency must consider the principal or corpus of a trust established with the assets of an individual to be a resource of the individual. See Act § 1613(e)(1)-(3); POMS SI 01120.201.A.1. Trust principal is a countable resource if the individual (claimant, recipient, deemer) has legal authority to revoke or terminate the trust and use the funds to meet his or her food or shelter needs, or if the individual can direct the use of the trust principal for his or her support and maintenance under the terms of the trust. See POMS SI 01120.200.D.1.a. Also, if an individual can sell his or her beneficial interest in the trust, that interest is a resource. See POMS SI 01120.200.D.1.a. Conversely, if an individual does not have legal authority to revoke or terminate the trust or to direct the use of the trust assets for his own her own support and maintenance, the trust principal is not a resource for SSI purposes. See POMS SI 01120.200.D.2. The revocability of a trust and the ability to direct the use of trust principal depends on the terms in the trust agreement and on State law. See POMS SI 01120.200.D.2.
DISCUSSION
Alabama:
Alabama statutory law indicates a trust may be established through the conveyance of property but does not otherwise explain the property requirements to establish a trust. See Ala. Code § 19-3B-401, comment (2016). Alabama case law, however, has clarified that the existence of property held by a trustee for the benefit of a trust as an essential element of a trust. See Corretti v. First Nat’l Bank of Birmingham, 276 So. 2d 141, 147 (Ala. 1973); Gordon v. Central Park Little Boys League, 119 So. 2d 23, 27 (Ala. 1960). Thus, Alabama law does not appear to recognize a trust that is established with no funds.
Florida:
Florida statutory law indicates a trust may be created when property or a property interest is transferred to a trustee, but does not further explain the property requirements to establish a trust. See Fla. Stat. Ann. § 736.0401 (West 2016). Florida case law, however, indicates an express trust is not created until property is conveyed for the purpose of the trust. See McLemore v. McLemore, 675 So. 2d 202, 205 (Fla. Dist. Ct. App. 1996); In re Herskowitz’s Estate, 338 So. 2d 210, 212 (Fla. Dist. Ct. App. 1976). Thus, Florida law does not appear to recognize a trust that is established with no funds.
Georgia:
Georgia statutory law requires express trusts to include trust property. See Ga. Code Ann. § 53-12-20 (West 2016). Georgia case law also holds that an essential element of an express trust is the existence of trust property. See Hayes v. Clark, 530 S.E.2d 38, 39 (Ga. Ct. App. 2000); Lummus Supply Co. v. Fidelity Fed. Sav. & Loan Ass’n, 234 S.E.2d 671, 672 (Ga. Ct. App. 1977). Thus, Georgia law does not appear to recognize a trust that is established with no funds.
Kentucky:
Kentucky statutory law indicates a trust may be created through the transfer of property to a trustee or by a declaration that an owner of property has made that the owner holds identifiable property as trustee, but does not further explain the property requirements to establish a trust. See Ky. Rev. Stat. Ann. § 386B.4-010 (West 2016). Kentucky case law clarifies that a fundamental element of a trust is the devotion of trust property to the benefit of the trust beneficiaries. See Siter v. Hall, 294 S.W. 767, 770 (Ky. Ct. App. 1927). Such property must be in existence and identified to establish the trust. See DeLeuil’s Ex’rs v. DeLeuil, 74 S.W.2d 474, 477 (Ky. Ct. App. 1934). Thus, Kentucky law does not appear to recognize a trust that is established with no funds.
Mississippi:
Under the Family Trust Preservation Act of 1998, Mississippi statutory law defines trusts to mean an express trust, private or charitable, or a trust created or determined by a judgment or decree under which the trust is to be administered in the manner of an express trust. See Miss. Code Ann. § 91-9-501(a) (West 2016). Mississippi excludes from this definition of a trust the following: constructive trusts, other than those created by a judgment or decree under which the trust is to be administered in the manner of an express trust, and resulting trusts; guardianships and conservatorships; executors and administrators of decedent's estates; totten trust accounts; custodial arrangements pursuant to the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act of any state; business trusts that are taxed as partnerships or corporations; investment trusts subject to regulation under the laws of this state or any other jurisdiction; common trust funds; voting trusts; security arrangements; transfers in trust for purpose of suit or enforcement of a claim of right; liquidation trusts; or any arrangement under which a person is nominee or escrowee for another. See Miss. Code Ann. § 91-9-501(b). Mississippi statutory law does not appear to contain any additional definition of a trust or further explanation regarding any property requirements to establish a trust.
Mississippi case law also does not appear to address whether there are property requirements to establish a trust. Cases that describe the essentials of an express trust do not address this question. See, e.g., Smiley v. Yllander, 105 So. 3d 1171, 1175 (Miss. Ct. App. 2012) (identifying two types of trusts, express and implied, and noting express trusts or any trust holding real property must be written, while implied may either be constructive or resulting, without addressing whether property is a prerequisite to establishing any type of trust); Sligh v. First Nat’l Bank of Holmes Cty., 735 So. 2d 963, 974 (Miss. 1999) (describing a trustee’s duties and noting guarantorships and conservatorships are not trusts); I, 77 So. 2d 688, 691-92 (Miss. 1955) (explaining that real property that was devised to a survivor in a will with condition of splitting the income of said property with another survivor did not create trust, but instead created an equitable charge). Thus, we found no Mississippi statute or case law authorizing the establishment of a trust with no funds.
North Carolina:
North Carolina statutory law indicates a trust may be established when property is transferred to or held by a trustee, but does not further describe the property requirements to establish a trust. See N.C. Gen Stat. Ann. § 36C-4-401 (West 2016). North Carolina case law, however, requires the conveyance of property in order for a trust to be created. See Bissette v. Harrod, 738 S.E.2d 792, 799 (N.C. Ct. App. 2013). Thus, North Carolina law does not appear to recognize a trust that is established with no funds.
South Carolina:
South Carolina statutory law indicates a trust may be established when property is transferred to a trustee or through a written, signed declaration from an owner of property that the owner is holding the property as a trustee, but does not further explain the property requirements to establish a trust. See S.C. Code Ann. § 62-7-401 (2016). South Carolina case law, however, indicates that a trust generally can exist only if it is funded. See Foster v. Foster, 682 S.E.2d 312, 314 (S.C. Ct. App. 2009) (listing trust res as a necessary element to establish a trust); Mayer v. M.S. Bailey & Son, 555 S.E.2d 406, 410 (S.C. Ct. App. 2001) (noting a trust generally can exist only if it is funded). Thus, South Carolina law does not appear to recognize a trust that is established with no funds.
Tennessee:
Tennessee’s Uniform Trust Code includes a provision identifying the requirements for creating a trust particularly with respect to identifying a settlor with the requisite capacity and intention, a trustee with duties to perform, and a definite beneficiary. See Tenn. Code Ann. § 35-15-402 (West 2016). However, neither this provision nor other provisions of Tennessee statutory law appear to discuss whether the trust must contain property. Under Tennessee case law, however, for an express trust to exist, the trust must contain a corpus, or property. See Myers v. Myers, 891 S.W.2d 216, 218 (Tenn. Ct. App. 1994). Thus, Tennessee law does not appear to recognize a trust that is established with no funds.
CONCLUSION
If you have any questions regarding this memorandum, please contact the undersigned at (404) 562-1094.
E. PS 16-141 Revocability of Special Needs Trust Under South Carolina Law- SSI
Date: June 3, 2016
1. Syllabus
This legal opinion discusses whether a valid special needs trust (Trust) identifies residual beneficiaries and whether the trust is revocable under South Carolina law. The Trust establishes that the trust beneficiary’s mother and father have a future contingent beneficial interest in the Trust. Thus, the Trust Agreement identifies definite beneficiaries, other than the current trust beneficiary, per POMS SI ATL01120.201.B. The Trust is irrevocable under South Carolina law.
2. Opinion
QUESTION
For determining a number holder’s resources and eligibility for Supplemental Security Income (SSI), you asked whether a valid special needs trust established for the number holder is revocable under South Carolina law.
SHORT ANSWER
Because the trust identifies beneficiaries other than the number holder, the trust is irrevocable under South Carolina law.
BACKGROUND
According to the information provided, the field office determined that D~, the number holder (NH), is no longer eligible for SSI because a special needs trust established for him is a countable resource under Program Operations Manual System (POMS) SI 01120.200. Specifically, the field office believes that pursuant to POMS SI ATL01120.201.C.2, the trust is revocable under South Carolina law because it does not sufficiently identify a beneficiary who will receive property held by the trust upon NH’s death.
In February 2007, the “Irrevocable Supplemental Care Trust for the Benefit of [NH]” (Trust) was established for NH with assets he received from the settlement of a court case. The trust instrument (Trust Agreement) identifies NH as the Trust’s settlor. See Trust Agreement, pmbl. The Trust Agreement also indicates that the Trust is irrevocable and that “neither the Settlor, nor any beneficiary of the Trust, shall have any right to alter, amend, revoke or terminate the Trust or any of its provisions.” Trust Agreement, Item I(a). The Trust Agreement states that NH is the sole beneficiary of the Trust for and during his lifetime. Trust Agreement, Item II. The Trust Agreement further provides that upon NH’s death, the property remaining in the Trust will be used to reimburse the entities who paid medical assistance benefits on behalf of NH during his lifetime and are required to be reimbursed pursuant to 42 U.S.C. § 1396p(d)(4)(A), that is, Section 1917(d)(4)(A) of the Social Security Act (Act). See Trust Agreement, Item IV(i). If any property remains after the foregoing reimbursement, the trustee may use it to pay “any transfer, estate, inheritance, succession or other death taxes which shall become payable by reason of [NH’s] death, as well as any and all debts and expenses of administration of the [NH’s] estate.” Trust Agreement, Item IV(j). If any property remains after the trustee takes the foregoing action, then M~ (NH’s Mother) and J~ (NH’s Father) will receive $500 if they are living. See Trust Agreement, Item IV(k)(1). The balance of the property will then be distributed in accordance with the terms of NH’s will. See Trust Agreement, Item IV(k)(2). If NH dies without a valid will or his will does not identify who should receive the remaining property in the Trust, then the balance of the property will be distributed to NH’s estate. See Trust Agreement, Item IV(k)(2).
The Trust Agreement indicates that it should be construed in accordance with the laws of South Carolina. See Trust Agreement, Item X.
DISCUSSION
SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Act §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2016). “Resources” include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to be used for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a). “If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual . . . .” 20 C.F.R. § 416.1201(a)(1); accord POMS SI 01120.010.B.
Pursuant to section 1613(e) of the Act, the agency generally must consider the principal or corpus of a trust established with the assets of an individual to be a resource of the individual. See Act § 1613(e)(1)-(3); POMS SI 01120.201.A.1. However, certain exceptions are provided for trusts established in accordance with section 1917(d)(4) of the Act. See Act § 1613(e)(5); POMS SI 01120.201.A.1; POMS SI 01120.203.A. Special needs trusts are one such exception. See Act § 1917(d)(4)(A); POMS SI 01120.203.B.1 (describing an exception in accordance with § 1917(d)(4)(A) as a “special needs trust”). The agency has already determined that the Trust Agreement created a valid special needs trust.
Although a valid special needs trust is excepted from counting as a resource under section 1613(e) of the Act, the agency still applies its regular resource counting rules to determine if the trust is a resource affecting eligibility for SSI. See POMS SI 01120.203B.1.a. Under the agency’s regular resource counting rules, a trust is a countable resource if the individual has legal authority to revoke or terminate the trust and use the funds to meet his or her food or shelter needs, or if the individual can direct the use of the trust principal for his or her support and maintenance under the terms of the trust. See POMS SI 01120.200.D.1.a. Also, if an individual can sell his or her beneficial interest in the trust, that interest is a resource. See POMS SI 01120.200.D.1.a. Conversely, if an individual does not have legal authority to revoke or terminate the trust or to direct the use of the trust assets for his or her own support and maintenance, the trust principal is not a resource for SSI purposes. See POMS SI 01120.200.D.2.
“If the individual at issue . . . is the grantor of the trust, the trust will generally be a resource to that individual if that individual can revoke the trust and reclaim the trust assets.” POMS SI 01120.200.B.19. The “general principle of trust law [is] that if a grantor is also the sole beneficiary of a trust, the trust is revocable regardless of language in the trust to the contrary.” POMS SI 01120.200.D.3; see also POMS SI ATL01120.201.B (“Laws for each state in the Atlanta Region follow the general principle of trust law that if a grantor is also the sole beneficiary of a trust, the trust is revocable regardless of language in the trust document to the contrary.”). “However, many of these States recognize that the grantor cannot unilaterally revoke the trust if there is a named ‘residual beneficiary’ in the trust document who would, for example, receive the principal upon the grantor's death or the occurrence of some other specific event.” POMS SI 01120.200.D.3. “A residual beneficiary . . . is not a current beneficiary of a trust, but will receive the residual benefit of the trust contingent upon the occurrence of a specific event, e.g., the death of the primary beneficiary.” POMS SI 01120.200.B.12. “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. In such case, the trust is considered to be irrevocable.” POMS SI 01120.200.D.3.
To determine whether the Trust is revocable, the agency must look at the terms of the Trust Agreement and applicable State law. See POMS SI 01120.200.D.2 (“The revocability of a trust . . . depend[s] on the terms of the trust agreement and/or on State law.”). The Trust Agreement states that the Trust is irrevocable. See Trust Agreement, Item I(a). The Trust agreement also states that NH can neither direct the use of the Trust principal for his support and maintenance nor sell his beneficial interest in the Trust. In addition, the Trust Agreement appears to identify acceptable “residual beneficiaries” - NH’s Mother and NH’s Father. See Trust Agreement, Item IV(k)(1). Thus, the issue is whether the trust is revocable under applicable State law. The Trust Agreement indicates that it should be construed in accordance with the laws of South Carolina. See Trust Agreement, Item X. Pursuant to the South Carolina Trust Code, this designation of applicable law is controlling. See S.C. Code Ann. § 62-7-107(1) (2016).
Under South Carolina law, a trust is revocable unless the trust agreement expressly provides that the trust is irrevocable. See S.C. Code Ann. § 62-7-602(a). Here, as previously stated, the Trust Agreement expressly provides that the Trust is irrevocable. See Trust Agreement, Item I(a).
However, in South Carolina, a purportedly irrevocable trust can be revoked if the settlor and all beneficiaries consent to the revocation. See S.C. Code Ann. § 62-7-411(a). Thus, under South Carolina law, a trust whose only definite beneficiary is the settlor is effectively revocable even if the terms of its trust agreement indicate that it is irrevocable. See id.; accord POMS SI 01120.200.D.3; POMS SI ATL01120.201.B. The Trust Agreement identifies NH as the settlor of the Trust and the sole beneficiary of the Trust for and during his lifetime. See Trust Agreement, pmbl., Item II. Accordingly, whether the Trust is revocable depends on whether the Trust Agreement identifies a definite beneficiary other than NH.
Under South Carolina law, a beneficiary is one who “has a present or future beneficial interest in a trust, vested or contingent.” S.C. Code Ann. § 62-7-103(2)(A). A beneficiary is definite if he or she “can be ascertained now or in the future, subject to any applicable rule against perpetuities.” S.C. Code Ann. § 62-7-402(c). “The definite beneficiary requirement does not prevent a settlor from making a disposition in favor of a class of persons. Class designations are valid as long as the membership of the class will be finally determined within the applicable perpetuities period.” S.C. Code Ann. § 62-7-402 (Reporter’s Comment).
The Trust Agreement establishes that NH’s Mother and NH’s Father have a future contingent beneficial interest in the Trust because they will receive $500 upon NH’s death if they are living and there is property remaining in the Trust after the trustee reimburses the state Medicaid agency(ies) under section 1917(d)(4)(A) of the Act and pays the expenses he is authorized to pay upon NH’s death. See Trust Agreement, Item IV(k)(1). Thus, NH’s Mother and NH’s Father are definite beneficiaries identified in the Trust Agreement. Because the Trust Agreement identifies definite beneficiaries other than NH, the Trust is irrevocable under South Carolina law.
CONCLUSION
For the reasons discussed above, the Trust is irrevocable under South Carolina law for determining whether the Trust is a countable resource and assessing NH’s eligibility for SSI.
Footnotes:
. Websites for the IRS and South Carolina Secretary of State also list Able Life as a non-profit corporation. See IRS, https://apps.irs.gov/app/eos/pub78Search.do?ein1=59-3705979&names=&city=&state=FL&country=US&deductibility=all&dispatchMethod=searchCharities&submitName=Search (last visited June 8, 2018); Able Life Foundation, https://www.scsos.com/index.asp?n=46&p=0&s=46&char_id=3652 (last visited June 8, 2018).
. BB&T is a for-profit banking corporation that provides financial services. See BB&T, About Us, https://www.bbt.com/about-us/default.page (last visited June 7, 2018).
. Region IV’s Office of General Counsel has not received any Supplemental Needs Plan.
. All references to the C.F.R. are to the 2018 edition.
. All references to the Code of Federal Regulations are to the 2017 edition.
. We incorporate the previous memorandum by reference except for the updates specifically set forth in this Supplemental Opinion.
. The amended Master Trust deletes previous language authorizing Babcock to accept beneficiaries who had not been found disabled by the Social Security Administration. See 5th Trust Decl., Art. II, § 1.
. The amended Master Trust becomes effective with respect to a beneficiary upon execution of a Joinder Agreement between a sponsor and Babcock. See 6th Trust Decl., Art. III, § 1. The amended version deletes previous language providing that a sponsor could also include “any person or entity” that contributed assets to the Master Trust. See 5th Trust Decl., Art. II, § 6.
. The Internal Revenue Service (IRS) lists Babcock as a tax-exempt organization. See Exempt Organizations Select Check, https://apps.irs.gov/app/eos/pub78Search.do?ein1=57-0868290&names=Babcock+&city=&state=SC&country=US&deductibility=all&dispatchMethod=searchCharities&submitName=Search (last visited June 6, 2016).
. Although the Master Trust provides that if the Manager does not appoint a successor Trustee within ninety (90) days after either the Trustee gives notice of its intent to resign or after the Trustee receives notice of removal “a Successor Trustee shall be selected and appointed by the Richland County Probate Court,” the Manager retains the authority to replace or remove the Trustee selected by the court when it is ready to make a decision. See 6th Trust Decl., Art. VIII, §§ 3, 4.
. . . * All references to Code of Federal Regulations are to the 2015 edition.