TN 86 (12-17)

A. PS 18-021 Does the State of Texas Life Enrichment Trust (Life Enrichment Trust), and the accompanying Joinder Agreement for the Number Holder Qualify under the Pooled Trust Exception for Supplemental Security Income (SSI)

Date: November 22, 2017

1. Syllabus

This Regional Chief Counsel opinion concludes that the Life Enrichment Trust qualifies for the pooled trust exception because its provisions comply with all five conditions of the pooled trust exception for counting resources for SSI purposes. Furthermore, the number holder’s (NH) subaccount is exempt from the agency’s resource counting rules for SSI purposes because it is irrevocable. Therefore, the NH’s subaccount is eligible for the pooled trust exception and should not be considered a resource for SSI purposes.

2. Opinion

QUESTION PRESENTED

For purposes of identifying the number holder (NH) P~’s resources for Supplemental Security Income (SSI), you asked whether the First Restatement and Amendment of the State of Texas Life Enrichment Trust (Life Enrichment Trust), and the accompanying Joinder Agreement for the NH qualify under the pooled trust exception of section 1917(d)(4)(C) of the Social Security Act (Act), as codified at 42 U.S.C. § 1396p(d)(4)(C). If the Life Enrichment Trust qualifies under the pooled trust exception, you also inquired whether the NH’s subaccount, established with her own funds on or after January 1, 2000, would be exempt from the Social Security Administration’s (agency’s) regular resource counting rules for SSI purposes.

ANSWER

We believe that there is support for the agency to conclude that the Life Enrichment Trust qualifies for the pooled trust exception under section 1917(d)(4)(C) of the Act because its provisions comply with all five conditions for qualification for the pooled trust exception for counting resources for SSI purposes. See 42 U.S.C. § 1396p(d)(4)(C). Furthermore, we believe there is support for the agency to find that the NH’s subaccount in the Life Enrichment Trust established with the NH’s own funds on or after January 1, 2000, is exempt from the agency’s regular resource counting rules and should not be considered a resource for SSI purposes.

BACKGROUND

Life Enrichment Trust, Inc. (the Trustee), originally established the Life Enrichment Trust on June XX, 2014, as a pooled trust under 42 U.S.C. § 1396p(d)(4)(C). On March XX, 2017, the Trustee amended the Life Enrichment Trust through the First Restatement and Amendment. See Life Enrichment Trust, p. 1, Pooled Trust paragraph. The NH opened a subaccount in the Life Enrichment Trust on her own behalf on March XX, 2017, via the Joinder Agreement. See Joinder Agreement, pp. 1-3. We briefly review the primary provisions of the Life Enrichment Trust and Joinder Agreement below.

The Trustee is a nonprofit corporation, with tax-exempt status under section 501(c)(3) of the Internal Revenue Code, 26 U.S.C. § 501(c)(3). See Life Enrichment Trust, p. 1, About the Pooled Trust paragraph, p. 2, What is the Trustee’s Role paragraph; Internal Revenue Service (IRS) letter dated June 29, 2006 (determining that the Trustee has section 501(c)(3) tax-exempt status). However, the Trustee will deposit and maintain all funds in the Life Enrichment Trust with a separate court approved corporate fiduciary. See Life Enrichment Trust, pp. 2-3, What Is The Trustee’s Role paragraph. The Trustee will maintain managerial control over the Life Enrichment Trust, and the role of a for-profit entity will be subordinate to the Trustee. See Life Enrichment Trust, p. 5, Potential Conflict of Interest paragraph.

A parent, grandparent, a court, legal guardian or the individual with disabilities can establish an account in the Life Enrichment Trust. See Life Enrichment Trust, pp. 1-2, Who Can Set Up an Account paragraph. A separate account is maintained for each beneficiary but the accounts are pooled for investment and management of the funds. See Life Enrichment Trust, p. 1, About the Pooled Trust paragraph.

The purpose of the Life Enrichment Trust is to supplement, not supplant government benefits. See Life Enrichment Trust, pp. 2-3, What Is The Trustee’s Role paragraph. The Life Enrichment Trust is for the sole benefit of the beneficiary, and all distributions must be for the beneficiary’s benefit. See id. The beneficiary must be an individual who is disabled as defined by section 1382c(a)(3) of the Act. See Life Enrichment Trust, p. 2, Who Can Be a Beneficiary paragraph. If the Life Enrichment Trust becomes impossible of impractical to carry out the purposes of the trust, then the Trustee may terminate the trust and/or resign as trustee. See Life Enrichment Trust, pp. 4-5, Amendment or Termination of the Trust paragraph. However, the Trustee will attempt to first transfer the funds to another trust that qualifies under section 1917(d)(4)(C) of the Act. See id. If it is not possible to transfer the funds to such a trust, then the Trustee will reimburse the states in an amount equal to the total amount of medical assistance paid under the state’s Medicaid plan. See id. The Trustee will distribute all remaining funds to the trust beneficiary. See id.

Upon the beneficiary’s death, the Life Enrichment Trust may retain up to 50% of the assets remaining in the beneficiary’s subaccount. See Life Enrichment Trust, pp. 5-6, Residual Amounts At The Beneficiary’s Death paragraph. The Life Enrichment Trust will reimburse the amount spent on the beneficiary’s behalf, both before and after the creation of the trust, to the State of Texas and any other State. See id. The payment to the States will have priority over all other debts and administrative expenses, except those expenses permitted under Program Operations Manual System (POMS) SI 01120.203(B)(2)(g), (3). See id.

The Trustee has discretion regarding distributions, provided that all distributions are for the sole benefit of the beneficiary and may not result in reduction of governmental benefits to the beneficiary. See Life Enrichment Trust, pp. 2-3, What is the Trustee’s Role paragraph; Joinder Agreement, p. 2, Distributions paragraph. The Life Enrichment Trust’s subaccounts are irrevocable. See Life Enrichment Trust, pp. 1-2, Who Can Set Up an Account paragraph; Joinder Agreement, p. 3, acknowledgment and signature paragraph. The Life Enrichment Trust does not contain a choice-of-law provision; however, the trust documents reference the State of Texas, and the NH is from Texas. See Life Enrichment Trust, p. 1, Pooled Trust paragraph; Joinder Agreement.

ANALYSIS

I. Federal Law and Agency Policy: Trusts as SSI Resources

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 20 C.F.R. §§ 416.110, 416.202. “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 20 C.F.R. § 416.1201(a). Property held in a trust may or may not be a resource for SSI purposes. See POMS SI 01120.200.A.1.

In general, when determining a claimant’s eligibility for SSI, pursuant to section 1613(e) of the Act (codified at 42 U.S.C. § 1382b(e)), the agency considers trusts created on or after January 1, 2000, from a disabled beneficiary’s (or the beneficiary’s spouse’s) assets to be 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 to or for the benefit of the disabled beneficiary (or the beneficiary’s spouse). See 42 U.S.C. § 1382b(e)(3); POMS SI 01120.201(D). However, section 1613(e)’s general rules for counting trusts as resources do not apply to trusts that qualify under section 1917(d)(4) of the Act (as codified at 42 U.S.C. § 1396p(d)(4)). See 42 U.S.C. §§ 1382b(e)(5), 1396p(d)(4)(A), (C); POMS SI 01120.201, SI 01120.203. Section 1917(d)(4)(A) and (C) of the Act set forth the Medicaid trust exceptions, which are commonly known as the special needs trust exception and pooled trust exception. See 42 U.S.C. §§ 1382b(e)(5), 1396p(d)(4)(A), (C); POMS SI 01120.203. This legal opinion focuses upon the pooled trust exception.

A pooled trust is a trust that contains many different individuals’ assets, segregated into separate subaccounts. POMS SI 01120.203(B)(2)(a). As stated, a pooled trust that qualifies as a Medicaid trust exception under section 1917(d)(4)(C) of the Act is exempt from the Act’s normal rules for counting trust assets as a resource for SSI purposes. See 42 U.S.C. §§ 1382b(e)(5), 1396p(d)(4)(C); POMS SI 01120.203(B)(2). To qualify for the pooled trust exception under the Act, a trust must contain assets belonging to a disabled beneficiary and must satisfy all of the following conditions:

1. The trust must be established and managed by a non-profit association;

2. A separate account must be maintained for each disabled beneficiary of the trust; but, for purposes of investment and management of funds, the trust may pool these accounts;

3. Accounts in the trust must be established solely for the benefit of disabled individuals (as defined in section 1382c(a)(3) of the Act);

4. Accounts in the trust must be established by the parent, grandparent, or legal guardian of such disabled beneficiaries, by such disabled beneficiaries, or by a court; and

5. The trust must provide that to the extent that any amounts are remaining in the disabled beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust must pay to the State the amount remaining up to an amount equal to the total amount of medical assistance paid on behalf of the disabled beneficiary under the State Medicaid plan.

42 U.S.C. §§ 1382b(e)(5), 1396p(d)(4)(C); POMS SI 01120.203(B)(2).

If a trust qualifies for the pooled trust exception under 42 U.S.C. § 1396p(d)(4)(C) (such that the trust assets do not count as a resource to the beneficiary), we must also consider whether the sub-account is excluded under the agency’s regular resource counting rules. See POMS SI 01120.200, SI 01120.203. Under the regular resource counting rules, the agency considers a trust a resource, attributable to the beneficiary, if the beneficiary has the legal authority to revoke or terminate the trust and then use the funds to meet his or her food or shelter needs, if the beneficiary can direct the use of the trust principal for his or her support and maintenance under the terms of the trust, or if the beneficiary can sell her beneficial interest in the trust. See 20 C.F.R. § 416.1201(a); POMS SI 01120.200(D)(1)(a). We next apply the pooled trust exception and regular resource counting rules to the Life Enrichment Trust.

II. Application of the Pooled Trust Exception to the Life Enrichment Trust

A. Condition One: Trust established and managed by a non-profit association

The Life Enrichment Trust satisfies the first condition that the trust be established and managed by a non-profit association. See 42 U.S.C. § 1396p(d)(4)(C)(i); POMS SI 01120.203(B)(2). The Trustee, Life Enrichment Trust, Inc., established the Life Enrichment Trust. As stated above, the Trustee is a non-profit corporation and has submitted letters from the United States Internal Revenue Service documenting its non-profit status. Consequently, the Life Enrichment Trust was established by a non-profit association, as required by the first condition.

Although the Life Enrichment Trust states the Trustee will deposit and maintain all funds in the Life Enrichment Trust with a separate court-approved corporate fiduciary, the Trustee will maintain managerial control over the Life Enrichment Trust. The role of a for-profit entity will be subordinate to the Trustee. See Life Enrichment Trust, p. 5, Potential Conflict of Interest paragraph.

POMS SI 01120.225(E) states that the agency will not routinely question the relationship between a non-profit entity and contracted, for-profit entities. Under these circumstances, the Life Enrichment Trust complies with POMS 01120.225(D)’s requirement that any for-profit entity retained to help manage the trust must always be subordinate to the non-profit managers of a pooled trust. Accordingly, the Life Enrichment Trust satisfies the first condition of 42 U.S.C. § 1396p(d)(4)(C) and POMS SI 01120.203(B)(2).

B. Condition Two: Separate accounts maintained for each beneficiary

The Life Enrichment Trust satisfies the second condition, which requires that separate accounts be maintained for each beneficiary, even though funds may be pooled for investment and management purposes. See 42 U.S.C. § 1396p(d)(4)(C)(ii); POMS SI 01120.203(B)(2). The About the Pooled Trust paragraph states the Trustee must maintain separate accounts, which the Trustee may pool solely for investment and management purposes, for each beneficiary. Accordingly, this condition is satisfied.

C. Condition Three: Trust must be established solely for the benefit of disabled individuals

We also believe the Life Enrichment Trust satisfies the third condition, which requires that accounts in a trust solely benefit disabled individuals. See 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203(B)(2). The Life Enrichment Trust and the Joinder Agreement specifically state that the trust is for the sole benefit of the beneficiary, and all distributions must be for the beneficiary’s benefit. See Life Enrichment Trust, pp. 2-3, What Is The Trustee’s Role paragraph; Joinder agreement, p. 2. Only an individual with a disability may submit a Joinder Agreement and thus join the Life Enrichment Trust.

We do note that the Life Enrichment Trust permits the Trustee to amend it at any time, which under different circumstances might trigger concerns about the potential for the Life Enrichment Trust to benefit non-disabled individuals, but here amendment is permitted “to conform this agreement to the [pooled trust exception] requirements of 42 U.S.C. [§] 1396p(d)(4)(C).” See Life Enrichment Trust, pp. 4-5, Amendment or Termination of the Trust paragraph. Thus, we do not believe the Trustee has the authority to amend the trust so as to impermissibly benefit non-disabled individuals because any amendment must still qualify the trust as a pooled trust, as defined by federal law.

The Life Enrichment Trust also contains a permissible early termination provision that does not violate the sole benefit criterion. An early termination provision does not violate the sole benefit condition if the provision allows for transfer of the beneficiary’s assets from one pooled trust to another. POMS SI 01120.199(F)(2). If the early termination provision does not simply provide for transferring the beneficiary’s assets from one pooled trust to another, then the provision is permissible only if it satisfies the following three requirements:

1. Medicaid Payback - States will receive all amounts remaining in the trust at the time of termination up to an amount equal to the total amount of medical assistance paid by the State Medicaid plans;

2. Sole Benefit - With limited exceptions, no entity other than the trust beneficiary can benefit from the early termination; and

3. Power to Terminate Granted Someone Other Than the Beneficiary- The early termination clause gives the power to terminate to someone other than the trust beneficiary.

POMS SI 01120.199(F)(1).

Here, the Life Enrichment Trust early termination provision states the Trustee will first attempt to transfer the beneficiary’s assets to another pooled trust that qualifies under the pooled trust exception of section 1917(d)(4)(C) of the Act (codified at 42 U.S.C. § 1396p(d)(4)(C)). See Life Enrichment Trust, p. 4, Amendment or Termination of the Trust paragraph. A transfer from one pooled trust to another is permissible under POMS SI 01120.199(F)(2). The Life Enrichment Trust further states that if it is not possible to transfer the beneficiary’s assets to such a trust, then the Trustee will satisfy the Medicaid Payback requirement by reimbursing the states in an amount equal to the total amount of medical assistance paid under the state’s Medicaid plan. The Trustee will then distribute all remaining funds to the trust beneficiary, satisfying the sole benefit requirement. Finally, the early termination provision gives the power to terminate the Life Enrichment Trust to the Trustee, and, thus, the power to terminate is granted to someone other than the beneficiary. As a result, the early termination provision is permissible.

As a result, there is support for the agency to conclude that the Life Enrichment Trust satisfies the third condition because it provides that the trust is for the sole benefit of the beneficiary. Although the Trustee has the power to amend the Life Enrichment Trust, the power is permitted only to conform to the pooled trust exception requirements under 42 U.S.C. § 1396p(d)(4)(C). Finally, the Life Enrichment Trust contains an early termination provision that satisfies all agency requirements.

D. Condition Four: Accounts established by the individual, parent, grandparent, legal guardian, or court

The Life Enrichment Trust satisfies the fourth condition that accounts in the trust are established by the individual, a parent, grandparent, legal guardian, or the court. See 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203(a), (f). The Life Enrichment Trust only permits parents, grandparents, legal guardians, beneficiaries themselves, and courts to complete and sign a Joinder Agreement. See Life Enrichment Trust, pp. 1-2, Who Can Set Up an Account paragraph. In the instant case, the NH established the trust with her own assets. See Joinder Agreement, pp. 1-3. Thus, the fourth condition is satisfied.

E. Condition Five: State reimbursed for medical expenses upon death of beneficiary

The Life Enrichment Trust satisfies the fifth condition, which requires that upon a beneficiary’s death, a trust reimburse the State for medical expenses paid on behalf of the disabled beneficiary under the State Medicaid plan, to the extent the funds are not retained by the trust. See 42 U.S.C. § 1396p(d)(4)(C)(iv); POMS SI 01120.203(a), (g). Here, the Life Enrichment Trust states it will retain up to 50% of the beneficiary’s assets. See Life Enrichment Trust, pp. 5-6, Residual Amounts At The Beneficiary’s Death paragraph. The Life Enrichment Trust will pay to the State of Texas and any other State the amount they spent on behalf of the beneficiary’s lifetime, both before and after the creation of the trust. See id. Further, the payment to the States will have priority over all other debts and administrative expenses, except those expenses permitted under Program Operations Manual System (POMS) SI 01120.203(B)(2)(g), (3). See id. Thus, the Life Enrichment Trust contains a Medicaid payback provision that satisfies condition five.

Accordingly, we believe that there is support for the agency to conclude that the Life Enrichment Trust’s provisions comply with all five conditions under 42 U.S.C. § 1396p(d)(4)(C) and that it qualifies under the Act’s pooled trust exception to the resource counting rules. If a trust qualifies as a pooled trust under 42 U.S.C. § 1396p(d)(4)(C), we also consider whether the sub-account is excluded under the agency’s regular resource counting rules. See POMS SI 01120.203(B)(2)(a) (“CAUTION: A trust which meets the exception to counting the trust under the SSI statutory trust provisions of 1613(e) must still be evaluated under the instructions in SI 01120.200 to determine if it is a countable resource.”). Thus, we address this issue next.

III. Application of the Agency’s Regular Resource Counting Rules for SSI to the NH’s Subaccount

The NH opened a subaccount in the Life Enrichment Trust on her own behalf on March 15, 2017, via the Joinder Agreement. The NH’s subaccount is exempt from the SSI statutory trust provisions because the Life Enrichment Trust, in combination with the Joinder Agreement, qualify for the pooled trust exception, as explained above. See 42 U.S.C. §§ 1382b(e)(5), 1396p(d)(4)(C); POMS SI 01120.203(B)(2). However, we must still evaluate whether the subaccount qualifies as a countable resource under the regular resource counting rules pursuant to POMS SI 01120.200. See POMS SI 01120.203(B)(2)(a).

Under the regular resource counting rules, the agency considers a trust a resource, attributable to the beneficiary, if the beneficiary has the legal authority to revoke or terminate the trust and then use the funds to meet his or her food or shelter needs, if the beneficiary can direct the use of the trust principal for his or her support and maintenance under the terms of the trust, or if the beneficiary can sell her beneficial interest in the trust. See 20 C.F.R. § 416.1201(a), POMS SI 01120.200(D)(1)(a).

Here, the NH’s subaccount does not qualify as a resource under our regular resource counting rules. The NH’s subaccount is irrevocable once funds are deposited into the account. See Life Enrichment Trust, pp. 1-2, Who Can Set Up an Account paragraph. Thus, the NH does not have the legal authority to revoke or terminate the trust and use the funds to meet her food or shelter needs. See POMS SI 01120.200(D)(1)(a).

Furthermore, the Life Enrichment Trust contains a spendthrift provision stating that none of the principal or income of a beneficiary’s sub-account can be “pledged, assigned, transferred, or in any way anticipated, charged or encumbered . . . .” See Life Enrichment Trust, p. 3, How Are Funds Distributed paragraph. No trust property is available to the beneficiary until actually delivered to her. The Trustee is not liable for the beneficiary’s debts and may choose not to honor them. Although the beneficiary or someone on the beneficiary’s behalf may request a distribution, the Trustee is given the sole discretion to approve any distribution. Thus, the NH cannot direct the use of the trust principal for her support and maintenance under the terms of the trust and cannot sell her beneficial interest in the trust. See POMS SI 01120.200(D)(1)(a). Because the Life Enrichment Trust is irrevocable and the NH cannot direct the use of the trust principal for her support or sell her beneficial interest in the trust, the NH’s subaccount is exempt from the agency’s regular resource counting rules and should not be considered a resource for SSI purposes.

CONCLUSION

We believe that the agency may reasonably conclude that the Life Enrichment Trust qualifies under the pooled trust exception of 42 U.S.C. § 1396p(d)(4)(c) because its provisions comply with all five conditions for the pooled trust exception for counting resources for SSI purposes. Furthermore, the NH’s subaccount is not a resource under the agency’s regular resource counting rules pursuant to POMS SI 01120.200(D)(1)(a). Therefore, the NH’s subaccount is eligible for the pooled trust exception and should not be counted as a resource to the NH for SSI purposes.

B. PS 18-007 Legacy Enhancement Master Pooled Trust Agreement

Date: October 13, 2017

1. Syllabus

This Regional Chief Counsel opinion concludes that the Legacy Trust is a valid, pooled trust because its provisions comply with all five conditions of the pooled trust exception for counting resources for Supplemental Security Income (SSI) purposes. Furthermore, the number holder’s (NH) subaccount is exempt from the agency’s resource counting rules for SSI purposes because it is irrevocable. Therefore, the NH’s subaccount is eligible for the pooled trust exception and should not be considered a resource for SSI purposes.

2. Opinion

QUESTION PRESENTED

You asked whether the Legacy Enhancement Master Pooled Trust Agreement (Legacy Trust), and the accompanying Joinder Agreement for T~ (NH), qualify as a pooled trust under section 1917(d)(4)(c) of the Social Security Act (Act), as codified at 42 U.S.C. § 1396p(d)(4)(C). If the Legacy Trust qualifies as a pooled trust, you also inquired whether the NH’s subaccount, established with her own funds after January 1, 2000, would be exempt from the Social Security Administration (agency’s) resource counting rules for Supplemental Security Income (SSI) purposes.

ANSWER

We believe that there is support for the agency to conclude that the Legacy Trust qualifies as a pooled trust under section 1917(d)(4)(c) of the Act because its provisions comply with all five conditions for qualification for the pooled trust exception for counting resources for SSI purposes. See 42 U.S.C. § 1396p(d)(4)(C). Furthermore, we believe there is support for the agency to find that the NH’s subaccount in the Legacy Trust established with the NH’s own funds after January 1, 2000, is exempt from the agency’s resource counting rules and should not be considered a resource for SSI purposes.

BACKGROUND

Legacy Enhancement is a Texas domestic nonprofit corporation. Legacy Enhancement created the Legacy Trust on May 18, 2016 “to establish a pooled trust fund to benefit individuals with disabilities,” as defined by 42 U.S.C. § 1382c(a)(3), pursuant to 42 U.S.C. § 1396p(d)(4)(C). Legacy Trust, introductory paragraph. Article 1(B) also states that the Trustee retained the “sole and absolute discretion” to use the principal and income in a subaccount to provide a beneficiary with “items, benefits and services that the Trustee believes are reasonable and not otherwise available to him or her from any other source.” Legacy Trust at art. 1(B). The Trust contains a choice-of-law provision indicating that it should be interpreted pursuant to the laws of Texas. See Legacy Trust, art. 11(D). T~ opened a subaccount in the Legacy Trust on her own behalf on February XX, 2017, via the Joinder Agreement.

ANALYSIS

I. Federal Law and Agency Policy: Trusts as SSI Resources

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 20 C.F.R. §§ 416.110, 416.202. “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 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).

When determining a claimant’s eligibility for SSI, in general, pursuant to section 1613(e) of the Act (codified at 42 U.S.C. § 1382b(e)), the agency considers trusts created on or after January 1, 2000, from a disabled beneficiary’s assets to be 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 disabled beneficiary. See 42 U.S.C. § 1382b(e)(3); POMS SI 01120.201. However, the rules in section 1613(e), as codified at 42 U.S.C. § 1382b(e), do not apply to trusts described in section 1917(d)(4) of the Act, as codified at 42 U.S.C. § 1396p(d)(4), the Medicaid trust exceptions, which are commonly known as special needs and pooled trust exceptions. See 42 U.S.C. §§ 1382b(e)(5), 1396p(d)(4)(A), (C); POMS SI 01120.201, SI 01120.203. This legal opinion focuses upon the pooled trust exception.

A pooled trust is a trust that contains many different individuals’ assets, segregated into separate subaccounts. POMS SI 01120.203(B)(2)(a). As stated, a pooled trust that qualifies as a Medicaid payback trust under section 1917(d)(4)(C) is exempt from the Act’s normal rules for counting trust assets as a resource. See 42 U.S.C. §§ 1382b(e)(5), 1396p(d)(4)(C); POMS SI 01120.203(B)(2). To qualify for the pooled trust exception under the Act, a trust must contain assets belonging to a disabled beneficiary and must satisfy all of the following conditions:

1. The trust must be established and managed by a non-profit association;

2. A separate account must be maintained for each disabled beneficiary of the trust; but, for purposes of investment and management of funds, the trust may pool these accounts;

3. Accounts in the trust must be established solely for the benefit of disabled individuals (as defined in section 1382c(a)(3) of the Act);

4. Accounts in the trust must be established by the parent, grandparent, or legal guardian of such disabled beneficiaries, by such disabled beneficiaries, or by a court; and

5. The trust must provide that to the extent that any amounts are remaining in the disabled beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust must pay to the State the amount remaining up to an amount equal to the total amount of medical assistance paid on behalf of the disabled beneficiary under the State Medicaid plan.

42 U.S.C. §§ 1382b(e)(5), 1396p(d)(4)(C); POMS SI 01120.203(B)(2).

If a trust qualifies as a pooled trust under 42 U.S.C. § 1396p(d)(4)(C), we also consider whether the sub-account is excluded under the regular resource counting rules. See POMS SI 01120.200, SI 01120.203. Under the regular resource counting rules, the agency considers a trust a resource, attributable to the beneficiary, if the beneficiary has the legal authority to revoke or terminate the trust and then use the funds to meet his or her food or shelter needs, if the beneficiary can direct the use of the trust principal for his or her support and maintenance under the terms of the trust, or if the beneficiary can sell her beneficial interest in the trust. See 20 C.F.R. § 416.1201(a); POMS SI 01120.200(D)(1)(a). We next apply the pooled trust exception and regular resource rules to the Legacy Trust.

II. Application of the Pooled Trust Exception to the Legacy Trust

A. Condition One: Trust established and managed by a non-profit association.

The Legacy Trust satisfies the first condition that the trust be established and managed by a non-profit association. See 42 U.S.C. § 1396p(d)(4)(C)(i); POMS SI 01120.203(B)(2). Legacy Enhancement established the Legacy Trust. As stated above, Legacy Enhancement is a non-profit corporation and has submitted letters from the United States Internal Revenue Service and the Texas Office of the Secretary of State documenting its non-profit status. Consequently, the Legacy was established by a non-profit association, as required by the first condition.

Although the Legacy Trust permits the trustee to appoint a fund manager, Article 8(C) specifies that “the Trustee shall maintain ultimate managerial control” and “[t]he use of for-profit entities is always subordinate to the non-profit Trustee.” Legacy Trust at art. 8(C). POMS SI 01120.225(E) states that the agency will not routinely question the relationship between a non-profit entity and contracted, for-profit entities. Under these circumstances, the Legacy Trust complies with POMS 01120.225(D)’s requirement that any for-profit entity retained to help manage the trust must always be subordinate to the non-profit managers of a pooled trust. Accordingly, the Legacy Trust satisfies the first condition of 42 U.S.C. § 1396p(d)(4)(C) and POMS SI 01120.203(B)(2).

B. Condition Two: Separate accounts maintained for each beneficiary.

The Legacy Trust satisfies the second condition, which requires that separate accounts be maintained for each beneficiary, even though funds may be pooled for investment and management purposes. See 42 U.S.C. § 1396p(d)(4)(C)(ii); POMS SI 01120.203(B)(2). Article 3(A) establishes that the Trustee must maintain separate accounts, which the Trustee may pool solely for investment and management purposes, for each beneficiary. Legacy Trust at art. 3(A). Accordingly, this condition is satisfied.

C. Condition Three: Trust must be established solely for the benefit of disabled individuals.

We also find that the Legacy Trust satisfies the third condition, which requires that accounts in a trust solely benefit disabled individuals. See 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203(B)(2). The Legacy Trust specifically invokes 42 U.S.C. § 1396p(d)(4)(C) and states that it is intended “to establish a pooled trust fund to benefit individuals with a disability [as defined under 42 U.S.C. § 1382c(a)(3)].” Legacy Trust at Introduction (brackets in original). Only an individual with a disability may submit a Joinder Agreement and thus join the pooled trust. Legacy Trust at art. 2.

We do note that the Legacy Trust permits the Trustee to amend it at any time, which under different circumstances might trigger concerns about the potential for the Legacy Trust to benefit non-disabled individuals, but here amendment is permitted only “to comply with changes in federal and state laws and regulations.” Legacy Trust at art. 4(B); see also art. 2 (noting that Joinder Agreements are irrevocable but subject to amendment for well-being of beneficiary or as required under federal or state law or regulations). Furthermore, the Legacy Trust specifies that such an amendment may not “change or affect the interests or rights of a sub-account beneficiary.” Id. Thus, we do not believe the Trustee has the authority to amend the trust so as to impermissibly benefit non-disabled individuals. As a result, there is support for the agency to conclude that the Legacy Trust satisfies the third condition.

D. Condition Four: Accounts established by the individual, parent, grandparent, legal guardian, or court.

The Legacy Trust satisfies the fourth condition that accounts in the trust are established by the individual, a parent, grandparent, legal guardian, or the court. See 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203(a), (f). The Legacy Trust only permits parents, grandparents, legal guardians, beneficiaries themselves, and courts to complete and sign a Joinder Agreement. See Legacy Trust at art. 2.

E. Condition Five: State reimbursed for medical expenses upon death of beneficiary.

The Legacy Trust satisfies the fifth condition, which requires that upon a beneficiary’s death, a trust reimburse the State for medical expenses paid on behalf of the disabled beneficiary under the State Medicaid plan, to the extent the funds are not retained by the trust. See 42 U.S.C. § 1396p(d)(4)(C)(iv); POMS SI 01120.203(a), (g). Here, the Legacy Trust explicitly states that it will “pay to the State(s) the amounts remaining up to an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State Medicaid plan(s)” to the extent funds are not retained by the Legacy Trust. Legacy Trust at art. 7(d). Furthermore, the expenditures that take priority over Medicaid reimbursement—taxes due to the state or federal government and reasonable administration fees—are permissible under POMS SI 01120.203(B)(3)(a) (permitting expenditures for state and federal taxes and reasonable administration fees prior to Medicaid reimbursement). See Legacy Trust at art. 7(a), (b).

Accordingly, we believe that there is support for the agency to conclude that the Legacy Trust’s provisions comply with all five conditions under 42 U.S.C. § 1396p(d)(4)(c) and that it qualifies as a pooled trust. If a trust qualifies as a pooled trust under 42 U.S.C. § 1396p(d)(4)(C), we also consider whether the sub-account is excluded under the regular resource counting rules. See POMS SI 01120.203(B)(2)(a) (“CAUTION: A trust which meets the exception to counting the trust under the SSI statutory trust provisions of 1613(e) must still be evaluated under the instructions in SI 01120.200 to determine if it is a countable resource.”). Thus, we address this issue next.

III. Application of the Agency’s Regular Resource Counting Rules for SSI to the NH’s Subaccount

The NH opened a subaccount in the Legacy Trust on her own behalf on February 26, 2017, via the Joinder Agreement. The NH’s subaccount is exempt from the SSI statutory trust provisions because the Legacy Trust, in combination with the Joinder Agreement, qualify for the pooled trust exception, as explained above. See 42 U.S.C. §§ 1382b(e)(5), 1396p(d)(4)(C); POMS SI 01120.203(B)(2). However, we must still evaluate whether the subaccount qualifies as a countable resource under the regular resource counting rules pursuant to POMS SI 01120.200. See POMS SI 01120.203(B)(2)(a). The agency applies the regular resource rules to determine whether a trust that is established with a beneficiary’s own assets is a resource. See POMS SI 01120.200(D).

Under the regular resource counting rules, the agency considers a trust a resource, attributable to the beneficiary, if the beneficiary has the legal authority to revoke or terminate the trust and then use the funds to meet his or her food or shelter needs, if the beneficiary can direct the use of the trust principal for his or her support and maintenance under the terms of the trust, or if the beneficiary can sell her beneficial interest in the trust. See 20 C.F.R. § 416.1201(a); POMS SI 01120.200(D)(1)(a).

Here, the NH’s subaccount does not qualify as a resource under our resource counting rules. The NH’s subaccount is irrevocable. See Legacy Trust at arts. 2, 4(A); see also Joinder Agreement at art. 1. Thus, the beneficiary does not have the legal authority to revoke or terminate the trust and use the funds to meet his or her food or shelter needs. See POMS SI 01120.200(D)(1)(a).

Furthermore, the Legacy Trust contains a spendthrift provision stating that none of the principal or income of a beneficiary’s sub-account can be anticipated, assigned, encumbered, or otherwise subject to creditors’ claims; that beneficiaries have no right to direct their subaccount’s funds or compel payments from the subaccount; and that neither the principal nor income may be made available to beneficiaries. See Legacy Trust at arts. 6(A), (B), (C); see also Joinder Agreement at art. 2 & art. 2(e), (g). Beneficiaries do not have any right to mandatory, periodic payments; rather, distributions are made at the sole judgment and discretion of the Trustee. See Legacy Trust at art. 5(B), (C); see also Joinder Agreement at art. 2(e), (g). Thus, the beneficiary cannot direct the use of the trust principal for his or her support and maintenance under the terms of the trust, and cannot sell her beneficial interest in the trust. POMS SI 01120.200(D)(1)(a). Because the trust is irrevocable and the beneficiary cannot direct the use of the trust principal for her support or sell her beneficial interest in the trust, the NH’s subaccount is exempt from the agency’s resource counting rules and should not be considered a resource for SSI purposes.

CONCLUSION

We believe that the agency may reasonably conclude that the Legacy Trust is a valid, pooled trust under 42 U.S.C. § 1396p(d)(4)(c) because its provisions comply with all five conditions for the pooled trust exception for counting resources for SSI purposes. Furthermore, the NH’s subaccount is not a resource under the agency’s regular resource counting rules pursuant to POMS SI 01120.200(D)(1)(a). Therefore, the NH’s subaccount is eligible for the pooled trust exception and should not be considered a resource for SSI purposes.

C. PS 15-151 Texas State Law – Judgment Modifying Last Will and Testament After Testator’s Death (NH: M~)

Date: June 22, 2015

1. Syllabus

This Regional Chief Counsel (RCC) opinion discusses whether under Texas law, the Court had the authority to modify the trust established on M1~ H~’s behalf (H~ Trust) by the November XX, 1993, Last Will and Testament of D~. The RCC opinion also discusses whether the amended H Trust is a countable resource for the purpose of determining Supplemental Security Income (SSI) benefits. The Court had the authority to modify the H Trust under Texas law, and the September XX, 2008, Judgment validly modified the H Trust. In addition, the amended H Trust is not a countable resource for SSI purposes.

2. Opinion

QUESTIONS PRESENTED

You asked whether under Texas law the September XX, 2008, the Court had the authority to modify the trust established on M1~H~’s behalf (H~ Trust) by the November XX, XXXX, Last Will and Testament of D~. You also asked whether the amended H~ Trust is a countable resource for the purpose of determining Supplemental Security Income (SSI) benefits.¹ /

ANSWER

We conclude that the Court had the authority to modify the H~ Trust under Texas law, and that the September XX, 2008, Judgment validly modified the H~ Trust. We also conclude that the amended H~ Trust is not a countable resource for SSI purposes.

BACKGROUND

In November 1993, D~, a Texas resident, executed her Last Will and Testament (Grainger Will). Ms. G~ devised the residual estate to a trustee to be held in trust for the benefit of her daughter M1~H~. The Grainger Will, which was admitted to probate on May XX, XXXX, also included a testamentary trust to benefit Ms. G~s daughter, M1~H~. See Grainger Will at 1-5. Under the Grainger Will’s terms, upon M1~ death, the H~ Trust was to continue for the benefit of G~’s granddaughter, M2~ (NH), to provide for her “needs for health, support and maintenance in the standard of living” to which she was accustomed. See Grainger Will at 2. Following G~’s death, the Grainger Will was probated on May XX, 1995, in the Probate Court of Bexar County, Texas (the Court). The Grainger Will contains no provision stating that Texas law governs the H~ Trust or that a court retains the power to amend, modify, or revoke the H~ Trust prior to its termination.

M1~ died on March XX, XXXX. Thereafter, the NH petitioned the B~ County, Texas Probate Court (the Court) to modify the H~ Trust, a testamentary trust,² / in order to allow the NH to remain eligible for public assistance, and to conserve and protect the H~ Trust for the NH’s future use and benefit (the modification). See Judgment at 1. The Court issued a Judgment on September 8, 2008,³ / approving the modification of the testamentary trust. In modifying the H~ Trust, the Court found that the testator could not have known or anticipated the circumstances warranting the modification, and that the modification would further the trust’s purposes. See Judgment at 1-2. The Court stated that the modification was intended to “create a purely discretionary supplemental needs fund” for the NH’s benefit. See Judgment at 3. The Court further found that the modification provided that upon the NH’s death, the H~ Trust would terminate and the remaining property would be distributed “per stirpes to the then living descendants, if any, of M2~, otherwise, to my then living heirs under the laws of descent and distribution of the State of Texas. . .” See Judgment at 5.

ANALYSIS

1. The Court Had the Authority to Modify the H~ Trust and the September XX, 2008, Judgment Validly Modified the Trust.

We first analyze whether the Court had the authority to modify the H~ Trust pursuant to the NH’s request. We conclude that it did. In this case, no court order established the H~ Trust; rather, Ms. G~ created the H~ Trust through her will. Therefore, pursuant to the provisions of section 112.054(a) of the Texas Trust Code, a court may modify a trust upon a Trustee’s or beneficiary’s petition if:

(1) its purposes have been fulfilled, become illegal, or are impossible to fulfill; (2) because of circumstances not known to or anticipated by the settlor, the order will further the trust’s purposes;

(3) modification of administrative, non-dispositive terms is necessary or appropriate to prevent waste or avoid impairment of the trust’s administration;

(4) modification is necessary or appropriate to achieve the settlor’s tax objectives and is not contrary to the settlor’s intentions; or

(5) with the consent or deemed consent of all beneficiaries, continuance of the trust is not necessary to achieve any material purpose, or the order is not inconsistent with a material purpose of the trust. See Tex. Prop. Code Ann. § 112.054(a)(1)-(5).⁴ /

Pursuant to the second factor listed in section 112.054(a)(2), the Court determined that “the circumstances warranting modification of the Trust could not have been known or anticipated by the testator, D~ and modification of the Trust, as requested by the Petitioner, will further the purposes of the Trust.” Judgment at 1-2. At the time that the petition was filed to modify the H~ Trust, the NH was receiving public assistance, and the modification was sought to create a supplemental needs trust to “conserve and protect” the H~ Trust for the NH’s “future use and benefit.” See Judgment at 1. Therefore, as section 112.054(a)(2) provides, we conclude that the Court possessed the authority to modify the H~ Trust because the testator, D~, could not have known or anticipated the NH’s need for supplemental security income (SSI) benefits beginning in September 1998. Additionally, the Judgment furthers the trust’s purposes by establishing a supplemental needs trust for the NH’s benefit. Consistent with prior legal opinions,⁵ / the modification is effective from the date the Court entered the Judgment on September XX, 2008.

2. The Amended H~ Trust is not a Countable Resource for SSI Purposes.

The amended H~ Trust is a third-party testamentary trust under POMS SI 01120.200 because a will that was effective at the time of the testator’s death established it, i.e., the Grainger Will. Moreover, the H~ Trust was established solely with the assets of the third party, i.e., the “rest and residue of the property” owned by D~ at the time of her death.⁶ / See Grainger Will at 1. A third party testamentary trust, such as the amended H~ Trust, is not subject to the statutory provisions of Section 1613(e) of the Social Security Act (the Act) for special needs trusts because it was not established with the NH’s assets. See 42 U.S.C. § 1382b(e); POMS SI 01120.200.⁷ / Since the amended H~ Trust is not evaluated under Section 1613 of the Act, we consider only whether the amended H~ Trust is a resource under the regular resource rules. See POMS SI 01120.200(2)(b) (trusts established before 1/1/00 that contain the assets of third parties are not subject to the statutory trust provisions of Section 1613(e) of the Act).

The regular resource rules provide that a trust is a resource if (1) the SSI beneficiary can revoke or 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) the SSI beneficiary is entitled to mandatory disbursements and can sell the right to future disbursements. POMS SI 01120.200(D). The amended H~ Trust is not a resource under these rules. First, the NH does not have the power to terminate the amended H~ Trust and use the assets for support and maintenance. POMS SI 01120.200(D)(1). Whether a beneficiary can terminate a trust is determined by the trust’s terms and /or applicable state law. See POMS SI 01120.200(D)(2). Section (H) of the amended H~ Trust grants the authority to terminate the trust only to the Trustee. Otherwise, under section (I), the amended H~ Trust terminates upon the NH’s death. Therefore, under POMS SI 01120.200(D)(1) the amended H~ Trust does not grant the NH the power to terminate the trust.

Under Texas law, a trust terminates if by its terms it is to continue only until the expiration of a certain period, or until the happening of a certain event and that event has occurred. Tex. Prop. Code Ann. § 112.052. Judicial action may also terminate a trust under Texas law if certain requirements are met and all beneficiaries of the trust have consented. Tex. Prop. Code Ann. § 112.054. Further, a minor, incapacitated, unborn, or unascertained beneficiary is only deemed to have consented if a person representing such beneficiary's interest has consented or if a guardian ad litem appointed to represent the beneficiary's interest consents on the beneficiary's behalf. Tex. Prop. Code Ann. § 112.054(d).

In this case, the NH is not the sole beneficiary under the amended H~ Trust. The amended H~ Trust provides that upon the NH’s death the remaining property of the trust is to be distributed to the NH’s living descendants, if any, or otherwise to the living heirs of Dorothy Grainger. Therefore, under Texas law, the other beneficiaries’ consent, or the consent of a party representing their interests or a guardian ad litem, would be required for judicial termination of the trust. Thus, the NH would not have the ability to unilaterally terminate the amended H~ Trust and therefore it is not a resource under the first regular resource rule. See POMS SI CHI01120.200(D).

(“[I]f the trust names a residual beneficiary to receive the benefits of the trust after a specific event, usually the death of the beneficiary, the trust is irrevocable. The primary beneficiary cannot unilaterally revoke the trust; he needs the consent of the residual beneficiary”).

Second, the NH cannot direct the trustee to pay her funds or use the funds for her support and maintenance. See POMS SI 01120.200(D)(2). Under the terms of the amended H~ Trust, the trustee cannot make any distribution that would make the NH ineligible for public benefits. See Judgment at 3, Section IV(B). This language would preclude the NH from directing the trustee to pay her funds or use the trust funds for her support and maintenance.

Third, under the amended H~ Trust, the NH is not entitled to any mandatory disbursements. See POMS SI 01120.200(D)(1)(b) (the beneficiary’s right to mandatory periodic payments may be a resource equal to the present value of the anticipated string of payments). Moreover, the amended H~ Trust also contains a spendthrift provision that prevents the NH from assigning or encumbering the principal or income of the trust. See Judgment at 4, Section IV(G) (“The trust is a spendthrift trust. No 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 to legal process, prior to its actual receipt by the beneficiary”). Accordingly, the amended H~ Trust is not a resource to the NH under the regular resource rules.

CONCLUSION

We conclude that the Court had the authority to modify the H~ Trust under Texas law, and that the Judgment validly modified the H~ Trust. Additionally, the amended H~ Trust is not a resource attributed to the NH for SSI purposes under the regular resource rules. POMS SI 01120.200(D).

Michael McGaughran

Regional Chief Counsel

By: Martin W. Long

Assistant Regional Counsel

D. PS 15-038 Texas State Law – Order Judicially Modifying Trust & Retroactivity (NH: N~)

Date: December 3, 2014

1. Syllabus

In This Regional Chief Counsel (RCC) discusses whether, under Texas state law, the court has the authority to modify a Special Needs Trust Agreement (Trust), and whether the court’s modification of the Trust has retroactive effect. The Trust was established on September XX, 2006 and judicial modification was granted on June XX, 2014. The Trust provides that Texas law governs the Trust and the court retains the power to amend, modify, or revoke, therefore the court had the authority to modify the Trust. Texas law does not permit the Trust modifications in this case to be given retroactive effects. The changes to the Trust do not constitute a reformation that relates back to the date of the Trust’s inception, but are a modification that is effective upon execution.

2. Opinion

QUESTION PRESENTED

You asked whether the Social Security Administration (SSA or agency) must treat a June XX, 2014, Order Judicially Modifying Trust (Order) as effective on September 7, 2006, the date the 357th Judicial District in Cameron County established the N~ Special Needs Trust Agreement (Trust). Specifically, you asked the following questions:

• Under Texas state law, does the court have the authority to modify the Trust?

• Under Texas state law and Social Security Rulings, does the court’s modification of the Trust have retroactive effect?

What effect does the Order have on SSA’s determination of whether this Trust meets the requirements in Section 1917(d)(4)(A) of the Social Security Act? ⁸ /

ANSWER

We conclude that both the Trust terms and Texas law authorized the court to modify the Trust. However, it is our opinion that Texas law does not permit the Trust modifications in this case to be given retroactive effect. Further, the Trust modifications do not constitute a reformation that relates back to the date of the Trust’s inception, nor can the Order be construed as a judgment nunc pro tunc. Consequently, it is our opinion that the Trust modifications should be considered effective as of June 9, 2014, the date the Court entered the Order.

BACKGROUND

Number Holder N~ (N~) was born in 1965. On August XX, 2006, M~, Individually and as N~’s Next Friend, filed an “Application to Create a Special Needs Trust for the Benefit of N~” in the case of M~, individually and as next friends of N~, Plaintiff and Becky Olivarez, Intervenor v. Valley Family Life, L.L.C., Angel Rogelio Cisneros, Williams Brothers Construction Co., Inc. and David Andrew Hogue, 357th Judicial District, Cameron County, Texas, Case No. 2004-09-4769-E. The information you provided does not include the court’s original Order Creating the Special Needs Trust, but the court approved the Trust on September XX, 2006. See Trust at 15. The June 2014 Order also states that the court established the Trust on September XX, 2006. See Order at 1.

The principal purpose of the Trust is “to provide a system for management, investment, and disbursement of the settlement proceeds for the benefit of the Beneficiary.” See Trust at 3. The Trust further provides that it is intended to serve as a supplemental and discretionary trust and is not intended to displace financial assistance otherwise available to N~ as a result of her disability. See Trust at 3. The Trust provides that Texas law governs the Trust and that the court retains the power to amend, modify, or revoke the Trust prior to its termination. See Trust at 3, 7.

At an unknown later date, the Trustee petitioned the court to judicially modify the Trust, which the court granted on June 9, 2014 ⁹ See Order at 1-2. Specifically, the court modified the Trust to include a provision that upon the beneficiary’s death, the Trustee shall distribute the remaining trust assets to the State of Texas (or such other state that provides Medicaid benefits to the Beneficiary) up to an amount equal to the total medical assistance paid on behalf of the Beneficiary under the state’s Medicaid plan. The court also modified the Trust to read as follows: “This trust is being established at the specific direction of the court as authorized at 42 U.S.C. §1396(d)(4)(A) and the Social Security Programs Operations Manual System (POMS) paragraph SI 01120.203.” See Order Modifying Trust at 2. The court ordered that the modifications shall be retroactive to September 7, 2006, the date of the Trust’s creation.

ANALYSIS

1. The Court Had the Authority to Modify the Trust.

We first analyze whether the court had the authority to modify the Trust as the Trustee requested. We conclude that the court had the authority to modify the Trust.

The court established the Trust under section 142.005 of the Texas Property Code. See Order at 1; see also Tex. Prop. Code Ann. § 142.005. A court that creates a trust pursuant to section 142.005 of the Texas Property Code retains continuing jurisdiction to modify the trust. See Tex. Prop. Code Ann. § 142.005(d). Article III of the Trust also gave the court jurisdiction to modify the Trust. See Trust at 3. A trust created pursuant to section 142.005 is also subject to the general Texas Trust Code to the extent that such general Texas Trust Code provisions are not in conflict with or inconsistent with section 142.005. See Tex. Prop. Code Ann. § 142.005(h)-(i), citing Title 9, Subtitle B; see Tex. Prop. Code Ann. § 111.001 (Title 9, Subtitle B is the Texas Trust Code).

Section 112.054 of the Texas Trust Code provides that upon a Trustee or beneficiary’s petition, the court may modify a trust if (1) its purposes have been fulfilled, become illegal, or are impossible to fulfill; (2) because of circumstances not known to or anticipated by the settlor, the order will further the trust’s purposes; (3) modification of administrative, non-dispositive terms is necessary or appropriate to prevent waste or avoid impairment of the trust’s administration; (4) modification is necessary or appropriate to achieve the settlor’s tax objectives and is not contrary to the settlor’s intentions; and (5) with the consent or deemed consent of all beneficiaries, the order is not inconsistent with a material purpose of the trust. See Tex. Prop. Code Ann §§ 112.054(a)(1)-(4), (5)(B).

Both section 142.005(d) of the Texas Property Code and section 112.054 of the Texas Trust Code support the court’s modification of the Trust. Here, the Trust states that it remains subject to court modification prior to its termination --authorizing the court to amend, modify, or revoke the trust at any time before its termination. See Trust at 3. Therefore, based on the Trust terms and relevant Texas statutory provisions, we conclude that the court properly had the authority to modify the Trust.

2. The Court Did Not Have the Authority to Order that the Trust Modifications Applied Retroactively as of the Trust’s creation date of September 7, 2006.

Having concluded that the court had the authority to modify the Trust, we next analyze whether the court had the authority to order that the Trust modifications applied retroactively as of the Trust’s creation date of September 7, 2006.

We first look to the Trust terms to determine whether the Trust modifications could properly have retroactive effect. See Runyan v. Mullins, 864 S.W.2d 785, 788-89 (Tex. App.—Fort Worth 1993, writ denied) (noting that generally, when a trust specifies the manner to amend the trust, the trust is controlling and must be followed). Here, the Trust terms describing the proper procedures for modification do not specify whether modifications are retroactive or prospective. Accordingly, we must look to Texas Trust law to determine whether the modifications in this case have retroactive effect.

As stated, the court established the Trust under section 142.005 of the Texas Property Code. See Trust at 3. While section 142.005 does not specify whether the court’s modification may be applied retroactively, the general Trust Code provisions under section 112.054 of the Texas Trust Code provide insight as to when the court has power to give a trust modification retroactive effect. See Tex. Prop. Code Ann. § 142.005(h)-(i) (the Texas Trust Code applies to trusts created under section 142.005 to the extent that the Texas Trust Code provisions are not in conflict or inconsistent with section 142.005); Tex. Prop. Code Ann. § 112.054.

As discussed, section 112.054 of the Texas Trust Code enumerates five specific circumstances when a court may modify a trust, only one of which the Texas Legislature gave specific retroactive effect. See Tex Prop. Code Ann. §§ 112.054(a)(1)-(4), (5)(B), (c). Section 112.054(c) specifically provides that a court may order that a modification that is necessary or appropriate to achieve the settlor’s tax objectives and is not contrary to the settlor’s intentions has retroactive effect. See Tex Prop. Code Ann. § 112.054(a)(4), (c). Thus, under Section 112.054(c), only modifications relating to a settlor’s tax objectives are given retroactive effect.

In an unpublished decision, the Fifth Circuit Court of Appeals applied the doctrine of inclusio unius est exclusio alterius and interpreted section 112.054(c)’s express language allowing a retroactive modification for the purpose of achieving tax objectives as prohibiting a court from ordering retrospective relief to modifications pursuant to the remaining four methods. See Fisher v. Miocene Oil & Gas Ltd., 335 F. App’x 483 (5th Cir. July 2, 2009), citing section 112.054 (a)(1)-(5) (unpublished) (“Of the five exclusive grounds for permitting an otherwise prohibited transaction, the statute singles out only the tax-objective provision, subsection(a)(4), for such post hoc relief. . . . Under the doctrine of inclusio unius est exclusio alterius, only subsection (a)(4)’s tax provision may be given retroactive effect; relief under all other subsections must be requested and obtained prospectively. . . .”). Texas courts also appear to endorse the doctrine of inclusio unius est exclusio alterius as a tenet of statutory interpretation. See, e.g., PPG Industries v. JMB/Houston Centers Partners Ltd., 146 S.W.3d 79, 84 (Tex. 2004) (“A statute’s silence can be significant. When the Legislature includes a right or remedy in one part of a code but omits it in another, that may be precisely what the Legislature intended. If so, we must honor that difference.”).

In its Order, the court cited section 142.005(d) as the applicable law permitting modification. See Order Modifying Trust at 1; Tex Prop. Code Ann § 142.005(d). Although section 142.005(d) allowed the court to modify the terms of the Trust, this section does not address whether a court’s modification has retroactive effect. Section 142.005(d) provides that section 112.054 applies to the extent it is not inconsistent with section 142.005(d). As discussed, section 112.054 provides only one circumstance where a court may give a trust modification retroactive effect -- where the modification is necessary or appropriate to achieve the settlor’s tax objectives and is not contrary to the settlor’s intentions. See Tex Prop. Code Ann § 112.054(a)(4), (c). Significantly, we have no evidence that the Trustee sought, or that the court authorized, modification pursuant to section 112.054(a)(4) . See Order; see also Tex Prop. Code Ann § 112.054(a)(4).

Because section 112.054(c) provides for retroactive effect in only one particular instance, the remaining methods to modify a trust under section 112.054 have prospective effect. See Fisher, 335 F. App’x at 491-492 (interpreting section 112.054(c)’s express language as allowing retroactive application only for the purpose of achieving tax objectives, relief under other subsections of section 112.054 is prospective). The doctrine of inclusio unius est exclusio alterius and Fisher, support our conclusion that the court did not have the authority to order that the modifications in this case be given retroactive effect as of September 7, 2006, the Trust’s creation date.

The general common law distinction between the terms modification and reformation also support the position that the Trust modifications in this case do not have retroactive effect. A modification or amendment to an instrument changes the agreement. See, e.g., Brinker v. Wobaco Trust Ltd., 610 S.W.2d 160, 166 (Tex. App.–Texarkana, 1980, writ ref’d n.r.e. April 1, 1981). In contrast, reformation of an instrument “correct[s] a mutual mistake made in preparing a written instrument, so that the instrument truly reflects the original agreement of the parties.” Cherokee Water Co. v. Forderhause, 741 S.W.2d 377, 379 (Tex. 1987) (citing Brinker, 610 S.W.2d at 163) (emphasis in original). The distinction between a reformation and a modification is significant: reformation of an instrument relates back to the time the instrument was originally executed, whereas a modification generally becomes effective at the time of its execution.¹⁰ See Restatement (Third) of Property, § 12.1 comment (f), Reporter’s Note; see also Restatement (Third) of Trusts § 62, Reporter’s Note.¹¹ Thus, for the court’s Order to apply retroactively to the Trust’s creation date, the Trust modifications must constitute a reformation.

We find no reformation occurred in this case. In order to reform a written instrument, there must be sufficient proof of (1) an original agreement and (2) a mutual mistake in reducing the original agreement to writing. See Cherokee Water Co., 741 S.W.2d at 379 (“A court is without power to make a contract that the parties did not make; an actual agreement reached prior to the drafting of the instrument involved is a requisite to an action for reformation.”) (citing Continental Oil Co. v. Doornbos, 402 S.W.2d 879, 883 (Tex. 1966)). Here, neither the Trustee nor the court purports that a mutual mistake occurred in the execution of the Trust or that the Trust did not reflect the parties’ original agreement. Thus, the court did not reform the trust. ¹² Instead, the court modified the Trust under Texas Property Code Section 142.005(d) and Article III of the Trust, which gave the court jurisdiction to modify the trust. See Order Modifying N~ Trust at 1. A modification generally becomes effective at the time of its execution. See Restatement (Third) of Property, § 12.1 comment (f), Reporter’s Note; see also Restatement (Third) of Trusts § 62, Reporter’s Note. Because the court modified the Trust, as opposed to reforming it, the Trust modifications do not relate to the Trust’s creation date.

We also considered whether the Order could be construed as a judgment nunc pro tunc. Pursuant to Texas Rule of Civil Procedure 329b(d), a trial court retains plenary power to vacate, modify, correct, or reform a judgment within 30 days of signing the judgment. See Tex. R. Civ. P. 329b(d). After a court’s plenary power expires, the court retains the power to correct clerical, but not judicial, errors by entering a judgment nun pro tunc. See Tex. R. Civ. P. 316, 329b(f). A clerical error involves a discrepancy between judgment rendered and judgment entered, whereas a judicial error involves an error in the rendering of a judgment and requires judicial reasoning to correct. See Hernandez v. Lopez, 288 S.W.3d 180, 184-85 (Tex. App.—Houston [1st Dist.] 2009, no pet.) (“When deciding whether an error is clerical or judicial, the court must look to the judgment actually rendered and not to the judgment that should or might have been rendered). A judgment nunc pro tunc relates back to the date of the original judgment and thus is deemed effective as of the date of the original judgment. See, e.g., Daniels v. Comm’r for Lawyer Discipline, 142 S.W.3d 565, 573 (Tex. App.—Texarkana 2004, no pet.).

In this case, the Order, dated nearly eight years after the Trust’s creation, does not purport to correct a clerical error. Rather, it serves to correct errors in rendition of the Trust itself, and thus does not meet the requirements of a judgment nunc pro tunc. See Hernandez, 288 S.W.3d at 188 (noting that an error in the rendition of judgment is always judicial error). Accordingly, the Order cannot be construed as a judgment nunc pro tunc that relates back to the Trust’s creation date.

In conclusion,

We conclude that both the Trust terms and Texas law authorized the court to modify the Trust. However, it is our opinion that Texas law does not permit the Trust modifications in this case to be given retroactive effect. Further, the Trust modifications do not constitute a reformation that relates back to the date of the Trust’s inception, nor does the Order effectively function as a judgment nunc pro tunc. Consequently, it is our opinion that the Trust modifications should be considered effective as of June 9, 2014, the date the court entered the Order Judicially Modifying Trust.

Michael McGaughran
Regional Chief Counsel
By: Una McGeehan
Assistant Regional Counsel

E. PS 10-065 Irrevocable Trust Agreement and Early Termination Provision in the A~ Special Needs Trust

Date: February 26, 2010

1. Syllabus

This opinion examines whether or not a trust established after January 1, 2000 with the assets of an individual is a resource for Supplemental Security Income (SSI) purposes. 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 an individual or the individual’s spouse are considered resources for SSI purposes, unless an exception applies. The trust in this case is excluded from resources under Section 1917(d)(4)(A) as a special needs trust, even though the trust allows for termination prior to the individual’s death. The individual, however, lacks the authority to terminate the trust. Additionally, upon termination preceding death, the trust provides for reimbursement first to any State that has provided medical assistance. If any assets remain, the trust provides that the remainder shall be distributed to the beneficiary. Therefore, no other entity benefits from the trust during the beneficiary’s lifetime. In this case, the trust is excluded from resources.

2. Opinion

This memorandum responds to your request for an opinion regarding whether the special needs trust agreement for A~ (A~) qualifies as a special needs trust under section 1917(d)(4)(A) of the Social Security Act (Act) (42 U.S.C. § 1396p(d)(4)(A)), and if so, whether the assets would be exempt from our resource-counting rules for purposes of determining the beneficiary’s eligibility for Supplemental Security Income (SSI). After reviewing the facts and relevant law, we have determined that the trust, even though it includes an early termination clause, qualifies as a special needs trust under section 1917(d)(4)(A) of the Act because it is for A~’s sole benefit during his lifetime. Further, the trust meets the requirements for a special needs trust under section 1917(d)(4)(A) of the Act, and thus, is not a countable resource under the regular resource rules.

A~ was born in June and began receiving SSI in September 2003. In August 2003, A~ was a named plaintiff in a lawsuit before the 334th District Court of Harris County, Texas. See Kristina Kiddy, Individually and as Next Friend of A~ Hall, Her Minor Son, and Norman Hall v. Christus Health Gulf Coast, D/B/A Christus St. Catherine Hospital, et al, No. 2003-48397, 334th District Court, Harris County, Texas. After the parties settled the case, on December XX, 2004, the Court established the special needs trust for A~’s benefit pursuant to 42 U.S.C. § 1396p, et seq., and Section 142.005 of the Texas Property Code. See Exhibit “A,” Special Needs Trust Agreement (Trust) at 1-3. The Court directed that the net proceeds of the settlement were to be made available for the benefit of the trust, subject to the terms and conditions of the trust agreement. Id.

The trust states that A~, a minor incapacitated person, is presently disabled and may be disabled in the future. See Trust at 2. One of the primary purposes of the trust is to serve as a supplemental and emergency fund to public assistance and provide for A~’s non-support needs, over and above those that an agency of any local, state, or federal government pays, such as basic medical care; health and nursing care; dental care; developmental services; rehabilitation therapies; devices; recreation and transportation; programs of training, education, and social opportunities; assistive devices; and personal attendant care. Id. at 2-4. The trust is intended to provide supplemental benefits for A~ without interfering with or reducing any benefits to which he would be entitled from any local, state, or federal agency. Id. at 4. The trust specifies that the trust assets should not be deemed to have been or to be available to A~. Id. at 3. The trust provides that it is irrevocable and that A~ or any person acting on A~’s behalf may not revoke or modify the trust. Id. at 6. The trust designated the Southwest Guaranty Court Trust as the Trustee of the trust. Id. at 1.

The trust contains an early termination clause, which is a clause that allows for termination of the trust prior to the beneficiary’s death. Specifically, the trust states, “[t]he Trust shall terminate when [A~] regains capacity as determined by the Court (provided [he] has attained the age of twenty-five (25) years), or upon [A~’s] death prior to regaining capacity.” See Trust at 5. Upon termination, the trust provides that the Trustee shall first pay the State of Texas (or other states) “up to an amount equal to the total medical assistance paid on behalf of [A~] in accordance with the Medicaid plan of the state or states involved.” Id. The trust then provides that, if any assets remain, the Trustee shall distribute the remainder to A~, provided that he has attained the age of twenty-five years upon regaining capacity. Id. If A~ dies before receiving all the trust assets, the trust will terminate, and the Trustee shall pay the State of Texas (or other states) “up to an amount equal to the total medical assistance paid on behalf of [A~] in accordance with the Medicaid plan of the state or states involved.” Id. at 5-6. If any assets remain, the Trustee shall distribute the remaining trust assets to the personal representative of A~’s estate. Id. 6.

The trust is subject to the statutory provisions of section 1613(e) of the Act for trusts established on or after January 1, 2000. See 42 U.S.C. § 1382b(e); Program Operations Manual System (POMS) SI 01120.200, SI 01120.201. Generally, under these provisions, trusts established with an individual’s or the individual’s spouse’s assets are considered resources for SSI purposes even if they are irrevocable. See id. However, trusts are exempt from the Act’s above statutory provision if they qualify under the provision of section 1917(d)(4)(A) of the Act, commonly known as the special needs trust exception. See 42 U.S.C. §§ 1382b(e)(5), 1396p(d)(4)(A); POMS SI 01120.203(B)(1). To qualify for the special needs trust exception, the trust must satisfy the following requirements:

1. The trust must contain the assets of a disabled individual under age 65;

2. The trust must be established for the sole benefit of such individual through the actions of a parent, grandparent, legal guardian, or court; and

3. The trust must provide that the state (or states) will receive all amounts 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.

See 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203(B)(1).

In the case at hand, the trust meets the first requirement for the special needs trust exemption: it contains the assets of a disabled individual under age 65. The trust contains A~’s assets, which he obtained from settlement of a lawsuit. See Trust at 1; 42 U.S.C. § 1396p(d)(4)(A). A~ was born in 2003; thus, when the trust was established in 2004, he was under the age of 65. Id. In addition, A~ had been a disabled individual for SSI purposes under section 1614(a)(3) of the Act since 2003. Id.Consequently, the trust meets the first requirement for the special needs trust exception.

The trust meets the second requirement that it must be established through the actions of a parent, grandparent, legal guardian, or court, and the trust must be for the beneficiary’s sole benefit. Here, the trust was established through the actions of the 334th District Court of Harris County, Texas. For trusts established though a court’s action, the creating of the trust must be required by a court order; approval of a trust by a court is not sufficient. See POMS SI 01120.203(B)(1)(f). In the trust at hand, the Court issued an “Order Creating Special Needs Trust for the Benefit of A~ H~,” specifically ordering that the funds awarded to A~ “shall be held” in a special needs trust for A~’s benefit. See Order at 1; Trust at 2-3. Thus, the trust was properly established through the actions of a court.

Further, the trust was established for A~’s sole benefit. See 42 U.S.C. § 1396p(d)(4)(A). A trust is considered established for the sole benefit of a disabled 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 lifetime. See POMS SI 01120.201(F)(2). A trust will not qualify for the special needs trust exception if the trust allows for termination of the trust prior to the individual’s death and allows payment of the corpus to another individual or entity. See POMS SI 01120.203(B)(1)(e). However, payment to the state or to a third party or creditor for payment for goods or services provided to the individual is allowed. Id. Here, the trust is for A~’s sole benefit because only A~ benefits from the trust during his lifetime, and it is only upon termination of the trust that the State of Texas (or other states) will receive reimbursement for medical assistance paid on behalf of A~ under a state Medicaid plan. See Trust at 5-6. Thus, the trust meets the second requirement for special needs trusts.

The trust also meets the third requirement that a special needs trust must contain specific language providing that upon the death of the individual, the state (or states) will receive all amounts remaining in the trust, up to an amount equal to the total medical assistance paid on behalf of the individual under a state Medicaid plan (or plans). See 42 U.S.C. § 1396p(d)(4)(A). As noted, the trust contains a state Medicaid reimbursement requirement both upon A~’s death and upon early termination. See Trust at 5-6. The trust specifically states that it must pay the State of Texas (or other states) that furnished medical assistance to A~ so that the state receives all amounts remaining in the trust, up to an amount equal to the total amount of medical assistance paid. Id. Thus, the trust’s state Medicaid reimbursement provision complies with the third requirement for the special needs trust exception.

We note that the trust contains an early termination clause. The Office of the General Counsel has recently determined that section 1917(d)(4)(A) trusts may contain early termination clauses provided Medicaid payback occurs before the individual is paid and provided no other entity benefits from the early termination. See Early Termination of Section 1917(d)(4)(A) Trusts, dated January 26, 2010, by Gwen J. K~, Associate General Counsel, Office of Program Law. In this case, the trust provides that termination shall occur when the Court determines that A~ is fully capable to manage his financial affairs without any significant impairment, but no earlier than age 25. See Trust at 5. In that event, the Trustee must first pay the State of Texas (or other states) that furnished medical assistance to A~. Id. at 5-6. Then, if any assets remain, the Trustee shall distribute the remainder to A~, provided, however, that if A~ has not reached the age of 25 upon regaining capacity, then the trust shall not terminate until he reaches age 25. Id. at 5. Thus, the early termination clause in the trust does not disqualify the trust as a special needs trust because it allows funds to be distributed to A~ during his lifetime only after Medicaid payback, and no other entity benefits from the early termination. See 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203(B)(1).

For the above reasons, the trust meets the special needs trust exception to counting the trust as a resource under the Act because it contains the assets of a disabled individual under the age of 65, is solely for the benefit of A~ during his lifetime, and it provides that the State of Texas (or other states) will receive all amounts 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. See 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203(B)(1).

Although the trust satisfies the special needs trust exception requirements, we must also evaluate the trust under the regular resource rules to determine if the trust is a countable resource for SSI eligibility. See POMS SI 01120.200, SI 01120.201, SI 01120.203(B)(1)(a). Under the regular resource rules, a trust will be a resource if the individual can (1) revoke or terminate the trust and use the assets to meet his needs for food and shelter; or (2) direct the use of the trust principal for his support and maintenance under the terms of the trust. See 20 C.F.R. § 416.1201(a); POMS SI 01120.200(D)(1)(a). Also, if the individual can sell the right to his beneficial interest in the trust, the trust is a resource. See POMS SI 01120.201(D)(1)(a). An evaluation of A~’s trust as detailed below, demonstrates that the trust would not be a resource under these rules.

A~ cannot revoke the trust or direct the use of the trust principal for his support and maintenance. Whether a trust can be revoked or terminated depends on the terms of the trust or applicable state law. See POMS SI 01120.200(D)(2). According to section 142.005 of the Texas Property Code, under which the trust was created, “a trust created under this section is not subject to revocation by the beneficiary or a guardian of the beneficiary’s estate.” Tex. Prop. Code Ann. § 142.005(d). Texas trust law further provides that a settler may not revoke a trust if “it is irrevocable by the express terms of the instrument creating it,” except it may be judicially terminated under proper circumstances. Tex. Prop. Code Ann. § 112.051(a). In this case, the trust specifically states that it is irrevocable and that A~ “shall have no power or right to alter, amend, revoke, or terminate” the trust or any terms of the trust agreement. See Trust at 6. Thus, the trust is irrevocable, and A~ cannot revoke or terminate the trust or use the assets to meet his needs for food and shelter.

In addition, A~ cannot direct the use of the trust’s principal for his support and maintenance or sell the right to his beneficial interest in the trust. See Trust at 6; 20 C.F.R. § 416.1201(a). The trust specifically states that assets in the trust shall at no time become available to A~, be placed in his possession, or come within the control of A~’s parents or guardians. See Trust at p. 3. Hence, A~ cannot direct the use of the trust’s principal. See POMS SI 01120.200(D)(1)(a), SI 01120.203(B)(1)(a). Therefore, the trust would not be a countable resource under the regular resource rules.

The Office of the General Counsel has determined that for trusts with early termination clauses, when the trust indicates that the individual holds the power to terminate the trust early, the trust would be countable as a resource for SSI eligibility. See Early Termination of Section 1917(d)(4)(A) Trusts, at 4. Here, the power to terminate the trust early resides only with the Court and only when it determines that A~ has regained capacity, provided he has attained the age of 25 years. See Trust at 5. A~ does not have the power to terminate the trust early; therefore, the early termination clause does not make the trust a countable resource.

In conclusion, we believe that the trust in this case qualifies as a special needs trust under section 1917(d)(4)(A) of the Act. Further, we believe that the trust is not a countable resource to A~ for purposes of SSI eligibility.

Very Truly Yours
Michael McGaughran
Regional Chief Counsel
By: Carolyn E. Whitson
Assistant Regional Counsel

F. PS 05-166 SSI-Review of the D~ R~ Trust, ~- REPLY Your Ref.: S2D5G6, SI 2-1-3 (R~) Our Ref.: 05-0097

Date: May 31, 2005

1. Syllabus

A special needs trust was established for the benefit of an SSI eligible child on January XX, 2005. The trust was executed and approved by a court and the corpus was formed with a lump sum malpractice award. Trust language restricted the use of the funds by the third party trustee and contained a spendthrift provision preventing anticipation or transfer of the beneficiary's interest in the trust. Terms of the trust stated that termination of the trust would provide that any remaining assets be used for reimbursement of Medicaid expenses incurred after the establishment of the trust. Since the trust was established in Texas, state law dictates that Medicaid agencies are considered residual beneficiaries, resulting in an irrevocable trust. The trust meets the special needs trust requirements of age, disability, and being court-established. However, the third requirement is not met. The trust only provides that Medicaid expenses incurred after the trust was established will be reimbursed. Regulations require that the trust language provide for repayment of all incurred medical expenses, regardless of occurrence before or after trust establishment. Since the special needs trust exemption requirements are not met, the trust is determined to be a countable resource. An additional question regarding child support deposited into the trust is not evaluated due to a lack of sufficient information.

2. Opinion

You have asked whether D~ R~'s trust account is a resource to D~ for purposes of Supplemental Security Income (SSI) eligibility and whether child support payments into the trust should be considered income. We believe that the trust is a resource to D~. We do not have sufficient information to render an opinion regarding the child support payments.

FACTS

As we understand the facts, a Trust Agreement ("trust") was executed and approved by the A-14th District Court ("court") of Dallas County, Texas, on January 11, 2005. The trust was established as a result of a settlement agreement in a medical malpractice case, which resulted in the payment of $2,109,561.45 for the benefit of D~. An "SSID" query print-out included in the materials you provided indicates that D~ SSI benefits have been suspended as a result of his receipt of the settlement, pending establishment and approval of a special needs trust. The same SSID printout shows D~ date of birth as February XX, 1994, which places him at the age of five on his application date. D~ is a minor and an incapacitated person, as defined in section 142.007 of the Texas Property Code, and a disabled person, as defined in section 1614(a)(3) of the Social Security Act. The trustee is Morgan Chase Trust Company.

The agreement indicates that it is intended to comply with the requirements of a special needs trust pursuant to 42 U.S.C. § 1396p (d)(4)(A), as amended August 10, 1993, by the Revenue Reconciliation Act of 1993, Pub. L. 103-66. The agreement further indicates that the settlement proceeds are transferred and assigned to the trustee by the court to be held, invested, administered, and distributed by the trustee for D~ benefit, but that the funds shall at no time become available to or placed in D~ possession or come within the control of his guardians, except as provided by the agreement. No transfer or ownership of the settlement funds has been made to D~ or his legal guardians. The agreement also specifies that the court may amend, modify, or revoke the trust, but neither D~ nor the guardian of his estate may do so.

The primary purpose of the trust is to provide a system for management, investment, and disbursement of the settlement proceeds for D~ benefit. The secondary intention is to provide for the continuing conservation and enhancement of the proceeds to supplement any benefits that D~ might receive from any governmental or non-governmental agency. The agreement specifies that the trust is explicitly intended to be a discretionary trust and not a basic support trust, and that the intent is to provide benefits to D~ without interfering with any other benefits he might receive or excusing the obligations of any person to provide for D~ continuing maintenance and support. The trustee has complete discretion to pay or use so much or all of the net income and/or corpus of the trust as it deems appropriate, and any undistributed income shall be accumulated and added to the corpus of the trust.

The express purpose of the trust is to provide for D~ "extra and supplemental needs, over and above the benefits he otherwise receives" from other sources. The court provided a non-exclusive itemization of the types of needs the trustee may meet through the trust funds. These include: dental care; unreimbursed medical expenses; ophthalmic and auditory care; psychological support services; recreational and cultural experiences; expenditures for persons to accompany D~ on vacations and transportation of persons visiting him; expenditures related to D~ hobbies and interests; personal property and services that will enhance D~ life without defeating his eligibility for public assistance; funeral and burial costs; personal care needs and companionship; supplemental nursing care; physical therapy or rehabilitation; private room costs; entertainment items; nutritional and similar services; and payment for D~ care and the training of caregivers.

The trustee has complete discretion as to expenditures during times when D~ is neither receiving nor applying for public assistance. The court, however, imposed a specific prohibition against use of the trust assets or income for any property or services that would be available from any governmental or insurance source during periods of time that D~ has applied for or is receiving means-tested governmental public assistance benefits. At the same time, the trust allows that there may be circumstances during the existence of this trust "wherein it may be in the best interests of the Beneficiary to forfeit or forego the receipt of means-tested governmental public assistance benefits."

The trust is to terminate on the earlier of the date of D~ death or the date the court determines that D~ has regained capacity and is no longer an incapacitated person, except that if D~ regains capacity before age 25, the trust will not terminate until he is age 25. Upon termination of the trust, the trustee shall distribute the remaining trust assets to the State of Illinois or any other State that provides Medicaid benefits to D~, up to an amount equal to the total medical assistance paid on D~ behalf under the state's Medicaid plan for services furnished after the establishment of the trust. Any remaining assets shall be distributed to D~ if he is living, otherwise to the personal representative of his estate to be administered as part of his general probate estate.

The agreement contains provisions for changes of trustees, compensation of trustees, and accountings. It also contains provisions describing various types of investments and describing the powers and liabilities of the trustee. Among the general trust provisions is a spendthrift provision, which specifies that D~ shall not have the power to anticipate, encumber, or transfer his interest in the corpus of the trust in any manner and that neither the income nor the corpus of the trust shall be liable for or charged with any obligations incurred by D~.

The materials you provided include an "SSID" query print-out, which indicates that D~ is receiving child support, apparently in the sum of $300 per month. Your memorandum requesting our opinion indicates that the child support payments are made into the trust. We have no information as to the State of residence of D~ father or whether the child support payments are court-ordered and, if so, in what State the order was issued or the terms of the court order.

DISCUSSION

The trust provides that it is governed by Texas law. In a suit in Texas in which a minor without a legal guardian or an incapacitated person is represented by a next friend or guardian ad litem, the court may, on application of the next friend or guardian ad litem, and on a finding that a creation of a trust would represent the individual's best interests, order delivery of funds accruing to the individual under the judgment to a trust company or bank having trust powers in Texas. Tex. Prop. Code Ann. § 142.005(a) (West 2005). The decree shall provide for the creation of a trust for the benefit of the individual, in which the individual is the sole beneficiary and the trustee has sole discretion with regard to disbursements for the individual's benefit. Tex. Prop. Code Ann. § 142.005(b)(1), (2). If the individual is a minor, the trust terminates on his death, attainment of an age stated in the trust, or age 25, whichever is earlier. If the individual is an incapacitated person, the trust terminates on his death or when he regains capacity. Tex. Prop. Code Ann. § 142.005(b)(4). A trust created under this section may be amended, modified, or revoked by the court at any time, but is not subject to revocation by the individual or the guardian of his estate. Tex. Prop. Code Ann. § 142.005(d). If the court finds that it would be in the best interests of the individual to do so, the trust may contain provisions determined by the court to be necessary to establish a special needs trust pursuant to 42 U.S.C. § 1396p(d)(4)(A). Tex. Prop. Code Ann. § 142.005(g).

An incapacitated person is a person who is impaired because of mental illness or deficiency, physical illness or disability, advanced age, chronic drug use or intoxication, or any other cause except status as a minor to the extent that the person lacks sufficient understanding or capacity to make or communicate responsible decisions concerning his person. Tex. Prop. Code Ann. § 142.007.

The trust created for D~ meets the requirements of the Texas Property Code. The court determined that D~ is a minor and an incapacitated person and that creation of the trust would be in his best interest. The trustee has sole discretion with regard to expenditures from the trust funds. The trust terminates upon D~ death or his regaining capacity, but not earlier than age 25. Only the court may amend, modify, or revoke the trust. Further, the court found that it would be in D~ best interest to establish the trust as a special needs trust pursuant to 42 U.S.C. § 1396p(d)(4)(A). Tex. Prop. Code Ann. § 142.005.

Turning to the resource issue, the trust indicates that it is irrevocable. Article II. However, despite the terms of a trust, if an individual is both the settlor and the sole beneficiary, he can revoke the trust. The settlor is one who creates a trust or furnishes the consideration for the creation of a trust, which, in this case, would be D~. Restatement (Third) Trusts, § 3(1). D~, however, is not the sole beneficiary, since, pursuant to POMS SI DAL01120.200, State Medicaid agencies are considered residual beneficiaries in Texas. Accordingly, the Trust is irrevocable.

Pursuant to POMS SI 01120.201(D)(2), the principal of an irrevocable trust established with the assets of an individual (on or after January 1, 2000) is a resource if payments from the trust principal could be made to or for the benefit of the individual or the individual's spouse (which is the case here, since D~ is a beneficiary), unless one of the exceptions in POMS SI 01120.203 (listing Medicaid trust exceptions for individual and pooled trusts, and the waiver for undue hardship) applies. Here, however, it does not appear that any exception applies.

Specifically, the trust is not a pooled trust, so POMS SI 01120.203(B)(2) (Medicaid pooled trust exception) would not apply, and the undue hardship waiver would not be applicable because the trust does not prohibit disbursements for D~ support and maintenance, when no other source of funds is available, POMS SI 01120.203(C)(2)(a). The final exception, the Medicaid trust exception for individual trusts, applies where the trust is: (1) established with the assets of an individual under age 65 who is disabled; (2) established for the benefit of such individual by a parent, grandparent, legal guardian or a court; and (3) provides that, on the death of the individual, any funds remaining in the trust will be used to reimburse the State for Medicaid payments made for the benefit of the individual during his lifetime. POMS SI 01120.203(B)(1). Here, it appears that D~ is under age 65 and disabled, and the trust was established for his benefit by the Court, when the funds were ordered transferred. However, the third element is not satisfied, since the trust only provides for reimbursement of Medicaid for services furnished after the establishment of the trust. POMS SI 01120.203(B)(1)(a), (f) (State must 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."). Accordingly, it does not appear that any of the exceptions in POMS SI 01120.203 apply, and thus the trust should be considered a resource under POMS SI 01120.201(D)(2).

We do not have sufficient information to offer an opinion regarding the child support payments raised in your request. We do not know whether the child support payments made to D~ are made directly into the trust, what the terms are of any court order regarding the child support, or in what State the payments are made. Therefore, more detailed information as to the child support payments appears necessary before we can issue an opinion on this matter.

CONCLUSION

We believe that the trust in this case is a resource because it does not meet any of the exceptions under the statutory trust resource rules, as discussed above. Further development is needed regarding child support payments that may be made into D~ trust before their treatment as possible income can be determined, pursuant to the law of the pertinent State, depending on the State in which the payments are made or court ordered.

Footnotes:

[1]

^. / Your original Memorandum of January 14, 2015, asked whether under Texas State law the September XX, 2008, Judgment modifying the Grainger Will is valid, and if so whether the H~ Trust is legally binding. After consultation with your office, we have clarified the questions to be answered.

[2]

^. / A testamentary trust is a trust established by a will and effective at the time of the testator’s death. POMS SI 01120.200(A)(15). Texas law provides that a testamentary trust is created by a property owner’s testamentary transfer to another person as trustee for the transferor or a third person. Tex. Prop. Code Ann. § 112.001(3).

[3]

^. / At all times prior to the modification, the assets of the Hemmen Trust had been held for the NH’s benefit, and the NH remained under the age of thirty-five the age that would have triggered a mandatory distribution under the original trust’s terms. See Grainger Will at 2.

[4]

^. / We would note for clarity that the Texas Trust Code, referred to above, is a subsection contained within the Texas Probate Code.

[5]

^. / See POMS PS 01825.048 Texas, PS 15-038 Texas Law-Order Judicially Modifying Trust & Retroactivity, http://policynet.ba.ssa.gov/poms.nsf/lnx/1601825048.

[6]

^. / As noted above, POMS SI 01120.200(B)(15) provides that a “testamentary trust is a trust established by a will and effective at the time of the testator’s death.” Additionally, POMS SI 01120.200(B)(17) provides that a “third party trust is a trust established with the assets of someone other than the beneficiary” (emphasis added). Further, Texas law provides that a testamentary trust is created by a property owner’s testamentary transfer to another person as trustee for the transferor or a third person. Tex. Prop. Code Ann. § 112.001(3).

[7]

^. / A special needs trust is subject to the provisions of Section 1613 of the Act if it is established with any assets of the individual (or of the individual’s spouse) that are transferred to the trust other than by will. 42 U.S.C. § 1382b(e)(2)(A). Additionally, POMS SI 01120.200(2)(b) provides that Section 1613 of the Act does not apply to trusts established prior to 1/1/2000 that contain the assets of third parties.

[8]

^. / 1. With respect to your third question, in an email dated September 4, 2014, you clarified that you are not seeking an opinion regarding whether the Trust qualifies under the special needs exception or whether it qualifies as a resource under the regular resource rules. Therefore, we address only whether the court had the authority to modify the trust and whether the court’s modification had retroactive effect.

[9]

^. / The information you provided does not include the Trustee’s Motion to Modify the N~ Trust. However, the Order references the Trustee’s Motion to Modify. See Order at 1.

[10]

^. In order to reform an instrument, “such remedy must be properly raised by pleadings and if not done the remedy is not available.” Rattan v. Dicker, 373 S.W.2d 306, 310 (Tex. Civ. App. 1963). Here, the NH did not “present any pleading alleging fraud, accident, or mistake to explain why the written indorsement [sic] was not properly restricted according to the verbal agreement claimed by him, and asked for reformation on such ground.” Horton v. Bolding, 67 S.W.2d 435, 437 (Tex. Civ. App. 1933). Accordingly, the Court could not exercise the equitable remedy of reformation, even if the remedy were otherwise available.

[11]

^. Other regional offices have also relied on the Restatement principles when determining that trust modifications did not apply retroactively to the trust’s creation date. See, e.g., Memorandum from Regional Chief Counsel, Chicago, to Ass’t Reg. Comm., Ohio—SSI Review of Special Needs Trust for J~ (March 12, 2009), at 5; Memorandum from Regional Chief Counsel, Chicago, to Ass’t Reg. Comm.—MOS, SSI—Illinois Review of the A~ Irrevocable Discretionary Supplemental Care Pay Back Trust (November 14, 2008), at 6.

[12]

^. Had the court reformed the Trust, the reformation would relate back to the time the instrument was originally executed. See Restatement (Third) of Property, § 12.1 comment (f), Reporter’s Note; see also Restatement (Third) of Trusts § 62, Reporter’s Note.