PS: Title XVI Regional Chief Counsel Precedents

Effective Dates: 05/29/2018 - Present

TN 115 (05-18)

A. PS 17-147 Does the Amended Utah Pooled Trust now Conform with the Pooled Trust Exception

Date: August 28, 2017

1. Syllabus

This Regional Chief Counsel (RCC) Opinion reviews the amendments to the Utah Pooled Trust (the “Amended Trust”) to determine if they remedy the deficiencies in the Trust, such that the Trust now conforms to section 1917(d)(4)(C) of the Social Security Act (the “pooled trust exception”). The RCC concluded that, assuming the Trustee agrees with the interpretation outlined by the RCC, then the Amended Trust has corrected the deficiencies previously identified in a prior RCC opinion and now complies with the requirements of the pooled trust exception.

2. Opinion

Question Presented

You asked us to review the amendments to the Utah Pooled Trust (the “Amended Trust”) to determine if they remedy the deficiencies in the Trust such that the Trust now conforms to section 1917(d)(4)(C) of the Social Security Act (the “pooled trust exception”).

Short Answer

Assuming the Trustee agrees with our interpretation of certain trust language, the Amended Trust remedies the deficiencies identified in our earlier opinion.

Background

We previously reviewed the Utah Pooled Trust to determine whether it conformed to the pooled trust exception. We determined that the Trust did not conform to our requirements for the following reasons:

The Trust allowed the Trustee to delegate investment authority to an advisor without proper oversight by the Trustee; and
Upon the death of a beneficiary, it allowed for the payment of impermissible expenses prior to the payback of state Medicaid expenses.

See Memorandum from OGC Region VIII to Deputy Assistant Regional Commissioner Region VIII, Utah Pooled Trust, July 28, 2016.

Subsequently, the Trustee, TURN Community Services, filed an Ex Parte Motion to Amend Trust Agreement in Utah state court. The court approved the motion, which amended Articles 6.1.1 and 9.2 of the Trust.

Discussion

A. The Amended Trust Satisfies the Pooled Trust Exception Under 42 U.S.C. § 1396p(d)(4)(C)

As we previously advised, irrevocable trusts created after January 1, 2000, that are established with the assets of an individual by means other than transfer by a will are considered to be a resource of that individual for SSI eligibility purposes. See 42 U.S.C. § 1382b(e)(2)(A). The purpose of the trust, the discretion of the trustee, and restrictions on distributions will not affect its status as a resource. See id. at § 1382b(e)(2)(C). There is an exception to this general rule for trusts that are established pursuant to the provisions of § 1917(d)(4)(C) of the Act, commonly known as the pooled trust exception. See 42 U.S.C. § 1396p(d)(4)(C). For this exception to apply, the pooled trust must satisfy certain requirements:

(1) The trust must be established and maintained by a non-profit association;

(2) A separate account must be maintained for each beneficiary of the trust, but the trust pools these accounts for purposes of investing and managing the trust;

(3) Accounts in the trust must be established solely for the benefit of the disabled individual;

(4) The sub-account at issue must be established by the individual, a parent, a grandparent, a legal guardian, or a court; and

(5) The trust must provide that, to the extent that amounts remaining in the beneficiary’s sub-account upon the death of the beneficiary are not retained by the trust, the state(s) will receive all amounts remaining in the trust upon the death of the individual up to an amount equal to the total medical assistance paid on behalf of the individual under the state Medicaid plans.

See id.; POMS SI 01120.203(B)(2).

In this case, we previously determined that the Trust failed to meet the first and fifth requirements.

B. The Trust Must Be Established and Maintained by a Nonprofit Association

We advised that the original Trust ran afoul of this requirement because it appeared to provide an investment advisor with authority exceeding the limits set forth in POMS SI 01120.225, which requires that a nonprofit corporation maintain ultimate managerial control over the Trust. In particular, the Trust provided that the Trustee could delegate to the investment advisor the authority to make investments on behalf of the Trust without prior approval from the Trustee. See Trust, Art. 9.2.

Article 9.2 of the Amended Trust now states:

The Trustee shall have the authority, if in its discretion it deems it advisable, to hire an investment advisor or investment counsel on behalf of the Trust, who, with the Trustee retaining ultimate managerial control over such investments, shall be authorized to make investments on behalf of the Trust.

With this change, the Amended Trust now appears to comply with this pooled trust requirement.

C. Upon the Death of a Beneficiary, Only Certain Administrative Expenses May Be Paid from the Trust Prior to Reimbursement of Medical Assistance to the State(s)

As relevant here, Article 6.1.1 of the original Trust allowed payment of the following expenses prior to Medicaid:

(1) any management and investment fees attributable to Beneficiary’s Trust
Sub-Account,

(2) Beneficiary’s estate administration expenses including attorneys’ fees and taxes, and

(3) any other outstanding bills for the benefit of the Beneficiary pursuant to the terms and conditions of the Trust.

In our analysis of the original Trust, we advised that while the first category of fees and expenses arguably qualified as allowable administrative expenses, the second and third categories, allowing for the payment of estate administration expenses and outstanding bills, appeared to be prohibited expenses. See POMS SI 01120.203(B)(3)(b) (prohibited expenses include taxes “due from the estate of the beneficiary other than those arising from inclusion of the trust in the estate” and “[p]ayment of debts owed to third parties”).

Article 6.1.1 of the Amended Trust now reads:

The Trustee may pay [1] any management and investment fees attributable to Beneficiary’s Trust Sub-Account, [2] taxes due to the State or Federal government, and [3] fees for the administration of the Trust estate related to or associated with termination of the Trust.

The first category of expenses, pertaining to management and investment fees, is unchanged from the original Trust agreement. As noted, we previously advised that this category appeared to relate to allowable administrative expenses. The third category of expenses—fees for the administration of the Trust estate related to the termination of the Trust—is likewise appropriate, and closely tracks the language used in the POMS. See POMS SI 01120.203(B)(3)(a).

The second category of expenses is questionable. The phrase “taxes due to the State or Federal government,” standing alone, would be overly broad—the taxes that can be paid prior to state Medicaid reimbursement are limited solely to “[t]axes due from the Trust to the State(s) or Federal government because of the death of the beneficiary.” POMS SI 01120.203(B)(3)(a)-(b) (emphasis added). However, if the clause related to taxes is further limited by the language at the end of the sentence, it would be acceptable—that is, the Trustee may pay “taxes due to the State or Federal government . . . related to or associated with termination of the Trust” (and termination of the Trust is due to the death of the beneficiary). The comma placement in the sentence favors the former (non-compliant) reading of the provision. But given that the Trust was amended for the specific purpose of bringing it into compliance with the requirements of the pooled trust exception, the latter (compliant) reading seems more reasonable. See Hull v. Wilcock, 285 P.3d 815, 823 (Utah Ct. App. 2012) (“When a court determines that a trust is ambiguous, it may consider extrinsic evidence in light of the trust language to determine the settlor’s intent.”). To the extent this provision is ambiguous, we recommend seeking confirmation from the Trustee that we are correct in this interpretation.

Conclusion

Assuming the Trustee agrees with the interpretation outlined above, the Amended Trust has corrected the deficiencies previously identified and now complies with the requirements of the pooled trust exception.

B. PS 17-075 Revocability of Grantor Trusts and Validity of Spendthrift Clauses in Trusts

Date: April 6, 2017

1. Syllabus

The Regional Chief Counsel (RCC) opinion examines the revocability of grantor trusts and the validity of spendthrift clauses in the six states that comprise Region VIII (Colorado, Montana, North Dakota, South Dakota, Utah, and Wyoming). The opinion states that for third party trusts all states in Region VIII recognize the validity of a spendthrift clause, however for self-settled trusts, the issue is less straightforward:

In Montana, a spendthrift clause in a self-settled trust is invalid.

In North Dakota, a spendthrift clause is valid in a special needs trust or a pooled trust meeting the criteria in POMS SI 01120.203.

In South Dakota, Utah, and Wyoming, a spendthrift clause will be valid in a self-settled trust that meets specific and detailed requirements. The requirements differ for each state.

In Colorado, the law is unclear.

The opinion also discusses the important issue of examining whether the SSI beneficiary may sell his or her beneficial interest in the trust. In the states where a spendthrift clause would be viewed as invalid, thus allowing the beneficial interest to be sold, it is necessary to determine the value of that interest. In conclusion, the RCC recommended that trusts be referred to OGC for further review for Colorado, South Dakota, Utah, and Wyoming, if the trust provides for mandatory distributions (because the beneficial value of those distributions may or may not be countable).

2. Opinion

Question Presented

You have requested a legal opinion on the revocability of grantor trusts and the validity of spendthrift clauses in the six states that comprise Region VIII (Colorado, Montana, North Dakota, South Dakota, Utah, and Wyoming).

Background

A grantor trust is a trust in which the grantor is also the sole beneficiary. The grantor is the individual who provides the trust principal. SSA considers the individual who funds the trust to be the grantor, even if the trust agreement names a person acting on behalf of the individual as the grantor. The grantor is often called the “settlor,” and these terms may be used interchangeably.

Some states follow the general principle of trust law that if a grantor is the sole beneficiary of a trust, the trust is revocable regardless of language in the trust to the contrary. See POMS SI 01120.200(D)(3). However, many of these states also recognize that if the trust names a residual beneficiary to receive the benefit of the trust interest after a specific event, usually the death of the primary beneficiary, then the trust is irrevocable. The primary beneficiary cannot unilaterally revoke the trust because he/she would need the consent of the residual beneficiary. You asked whether states in the Denver region follow these general principles.

A spendthrift clause prohibits voluntary and involuntary transfers of a beneficiary’s interest in the trust income or principal. See POMS SI 01120.200(B)(16). A spendthrift clause is a way to protect the beneficiary’s interest from creditors, because creditors must wait until money is paid from the trust to the beneficiary before they can attempt to claim it to satisfy any debts. Likewise, spendthrift clauses prevent the beneficiary from selling or assigning his or her right to receive future trust distributions to a third party for a lump sum. Under these principles, if a trust has a valid spendthrift clause, the value of the beneficiary’s right to receive payments from the trust is not countable as a resource for SSI purposes. See id.; see also POMS SI 01120.200(D)(1)(a) & (D)(2). However, some states that recognize spendthrift clauses do not allow a grantor to establish a spendthrift trust for his/her own benefit. You asked how these rules apply in the Denver region states.

These considerations are relevant in determining whether a trust is countable as a resource. If the SSI beneficiary has the authority to revoke or terminate the trust and use the funds for support, the trust is counted as a resource. Further, if the SSI beneficiary may sell his or her beneficial interest in a trust, the amount of that interest is a resource; a valid spendthrift clause, however, would prevent such a sale, making the interest not countable.

Discussion

Revocability where Grantor is the Sole Beneficiary

(A) It is appropriate to assume that all six states in Region VIII follow the general principle that, where the settlor is the sole beneficiary of the trust (i.e., does not name any residual beneficiaries), the trust is revocable regardless of the express language of the trust. Montana, Utah, and Wyoming have directly relevant statutes or case law, and we believe the other states would follow the majority rule absent any contrary authority. See Restatement (Third) of Trusts, § 65 (majority of states find trust revocable when settlor is the sole beneficiary); Scott and Ascher on Trusts, § 34.3 (same).

(B) All six states in Region VIII follow the principle that residual beneficiaries are created when the settlor designates heirs, next of kin, or similar groups to receive remaining trust assets upon the primary beneficiary’s death.

(C) As relevant to revocability, it should also be noted that in Colorado, Montana, North Dakota, Utah, and Wyoming, the settlor may revoke a trust unless the trust expressly states that it is irrevocable (even if there are residual beneficiaries). In other words, if the trust is silent with respect to revocability, the trust is revocable. Therefore, when a trust is evaluated under these states’ laws, it is important to confirm that there is specific language in the trust expressly stating it is irrevocable.

References:

Colorado:

(A) No relevant statute or case law so assume state follows majority rule.

(B) Colo. Rev. Stat. § 15-11-710 (abolishing “doctrine of worthier title,” such that reference to heirs or next of kin does not create reversionary interest in settlor).

Montana:

(A) Mont. Code Ann. § 72-38-411 (irrevocable trust may be terminated upon consent of the settlor and all beneficiaries).

(B) Mont. Code Ann. § 72-2-720 (abolishing doctrine of worthier title).

North Dakota:

(A) N.D. Cent. Code Ann. § 59-12-11. (411) (omitting provision of Uniform Trust Code (UTC) regarding termination by consent of settlor and beneficiaries). Pursuant to Drafting Committee’s comments to UTC (2004), this omission suggests the state’s prior law controls and prior law was silent on the issue, therefore assume state will follow majority rule.

(B) N.D. Cent. Code Ann. § 30.1-09.1-10. (2-710) (abolishing doctrine of worthier title).

(C) N.D. Cent. Code Ann. § 59-14-02. (602)(1) (settlor may revoke or amend unless trust expressly states that it is irrevocable).

South Dakota:

(A) No relevant statute or case law so assume state follows majority rule.

(B) S.D. Codified Laws § 29A-2-710 (abolishing doctrine of worthier title).

Utah:

(A) Utah Code Ann. § 75-7-411 (irrevocable trust may be terminated upon consent of settlor and all beneficiaries).

Clayton v. Behle, 565 P.2d 1132, 1133 (Utah 1977) (where settlor is “sole beneficiary . . . he can terminate the trust at any time and compel the trustee to reconvey the property to him”).

(B) Utah Code Ann. § 75-2-710 (abolishing doctrine of worthier title).

Wyoming:

(A) Wyo. Code Ann. § 4-10-412(a) (termination allowed after finding by court that settlor and all qualified beneficiaries consent). Absent contrary authority, it is reasonable to assume court finding not required where settlor is the only beneficiary.

(B) Wyo. Code Ann. § 34-1-137 (abolishing doctrine of worthier title).

Validity of Spendthrift Clause

A. Validity of Spendthrift Clause in a Third-Party Trust

In a third-party trust (i.e., the trust is funded with the assets of an individual who is not the SSI beneficiary), all states in Region VIII recognize the validity of a spendthrift clause. Therefore, where a third-party trust includes a spendthrift clause, the beneficiary cannot sell his or her beneficial interest in the trust and that interest is not a resource.

References:

Colorado:

University Nat. Bank v. Rhoadarmer, 827 P.2d 561, 563 (Colo. App. 1991) (“The validity and enforceability of spendthrift provisions in this state is not disputed.”).

Montana:

Mont. Code Ann. § 72-38-502 (“A beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision . . . .”).

Lundgren v. Hoglund, 711 P.2d 809, 811 (Mont. 1985) (“We hold spendthrift provisions to be valid in Montana.”).

North Dakota:

N.D. Cent. Code Ann. § 59-13-02.(502) (“A beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision . . . .”).

In re Schauer, 246 B.R. 384, 388 (Bankr. D. N.D. 2000) (“North Dakota law generally recognizes the validity of spendthrift trust provisions.”) (citing Brownell v. Leutz, 149 F.Supp. 98, 103 n.7 (D.N.D. 1957)).

South Dakota:

S.D. Codified Laws § 55-1-34 (“A settlor may provide in the terms of the trust that a beneficiary’s beneficial interest . . . may not be voluntarily or involuntarily transferred before payment or delivery . . . by the trustee.”).

First Northwestern Trust Co. v. IRS, 622 F.2d 387, 392 (8th Cir. 1980) (interpreting South Dakota law, concluding court would enforce spendthrift provision consistent with majority rule).

Utah:

Utah Code Ann. § 75-7-502(3) (“A beneficiary may not transfer an interest in trust in violation of a valid spendthrift provision . . . .”).

Wyoming:

Wyo. Stat. Ann. § 4-10-502(c) (“[A] beneficiary may not transfer an interest in a trust in violation of a spendthrift provision . . . .”).

B. Validity of Spendthrift Clause in Trust for Grantor’s Own Benefit

In a self-settled trust (i.e., the trust is funded with the assets of the SSI beneficiary), the issue is less straightforward:

In Montana, a spendthrift clause in a self-settled trust is invalid.
In North Dakota, a spendthrift clause is valid in a special needs trust or a pooled trust meeting the criteria in POMS SI 01120.203.
In South Dakota, Utah, and Wyoming, a spendthrift clause will be valid in a self-settled trust that meets specific and detailed requirements. The requirements differ for each state.
In Colorado, the law is unclear.

For SSI purposes, the important issue is whether the SSI beneficiary may sell his or her beneficial interest in the trust. In the states where a spendthrift clause would be viewed as invalid, thus allowing the beneficial interest to be sold, it is necessary to determine the value of that interest.

Where the trust is completely discretionary, meaning the trustee has sole authority to determine when and whether distributions will be made, the beneficial interest will have little to no market value. Even if the beneficial interest may be sold and technically counts as a resource, it will have zero value.

If the trust directs any type of mandatory disbursements, the beneficial interest will generally have a market value and should be considered a resource if it can be sold. Determining whether or not the beneficial interest may be sold is unsettled or complicated in Colorado, Utah, Wyoming, and South Dakota. Therefore, if a trust is governed by the law in one of these states and directs mandatory disbursements, we recommend referring the trust to OGC for further evaluation.

References:

Colorado

Colorado law states that grantor trusts that contain a spendthrift clause do not afford the grantor protection from existing creditors—i.e., existing at the time of the trust’s creation. See Colo. Rev. Stat. § 38-10-111. It is not entirely clear whether the statute applies to future creditors. Compare Alberico v. Health Mgmt. Sys., Inc., 5 P.3d 967, 970 (Colo. App. 2000) (referencing claims at the time of the conveyance) with In re Cohen, 8 P.3d 429, 433-34 (Colo. 1999) (applying statute to future creditors). Moreover, the statute is silent with respect to assignees. Therefore, whether or not a spendthrift clause in a self-settled trust would restrict the settlor from selling his or her beneficial interest it is currently unsettled in Colorado.

Montana

Montana statutes and case law consistently indicate that a spendthrift clause in a self-settled trust is invalid. See Mont. Code Ann. § 72-38-505(1)(b) (regardless of the existence of a spendthrift provision, “a creditor or assignee of the settlor may reach the maximum amount that can be distributed to or for the settlor’s benefit”); In re Ullman, 116 B.R. 228, 231 (D. Mont. 1990) (interpreting Montana law, concluding it is “essential in creation of a spendthrift trust under Montana law that the settlor and a beneficiary be different persons . . . .”).

North Dakota

North Dakota statute indicates that a spendthrift clause in a self-settled trust is generally invalid, but provides a specific exception for “special needs trusts.” See N.D. Cent. Code Ann. § 59-13-03.(503)(2)-(3) (listing exceptions that would make spendthrift provisions unenforceable and noting such exceptions “do not apply to a self-settled special needs trust or a third-party special needs trust . . . nor to any trust that meets the qualifications of 42 U.S.C. 1396p(d)”); N.D. Cent. Code Ann. § 59-13-05.(505)(1) (regardless of the existence of a spendthrift provision, “with respect to an irrevocable trust, other than a special needs trust, a creditor or assignee of the settlor may reach the maximum amount that can be distributed to or for the settlor’s benefit”) (emphasis added). Therefore, assuming that the trust was established in compliance with the requirements of POMS SI 01120.203 (which track 42 U.S.C. 1396p(d)), the spendthrift clause is valid.

South Dakota

South Dakota statute indicates that, where the settlor is also a beneficiary of the trust, spendthrift provisions and protections apply to a “qualified transfer pursuant to chapter 55-16 . . . .” S.D. Codified Laws § 55-1-36. Therefore, some spendthrift clauses in South Dakota will be valid, even in a self-settled trust. The criteria for a “qualified transfer” are numerous. See S.D. Codified Laws §§ 55-16-1 to 55-16-16.

Conversely, if the settlor is a beneficiary and the transfer is not a “qualified transfer . . . a provision restraining the voluntary or involuntary transfer of the settlor’s beneficial interest does not prevent the settlor’s creditors from satisfying claims from the settlor’s interest in the trust estate.” S.D. Codified Laws § 55-1-36. The statute is specific to creditors and silent with respect to assignees. Therefore, whether or not the settlor is restricted from selling his or her beneficial interest appears unsettled in South Dakota. We also note that South Dakota specifically rejects certain sections of the Restatement (Third) of Trusts and the Uniform Trust Code for purposes of interpreting these statutes. See S.D. Codified Laws § 55-1-25.

Utah

Utah statute indicates that a spendthrift clause in a self-settled trust is generally invalid, but provides a specific exception for “asset protection trust” as defined in another section. See Utah Code Ann. § 75-7-505(1)(b) (regardless of spendthrift provision, “[w]ith respect to an irrevocable trust other than an irrevocable trust that meets the requirements of Section 25-6-14, a creditor or assignee of the settlor may reach the maximum amount that can be distributed to or for the settlor’s benefit.”) (emphasis added). The requirements for an asset protection trust are numerous. See Utah Code Ann. § 25-6-14(5)(a)-(m).

Wyoming

Wyoming statutes recognize the validity of spendthrift clauses in two types of self-settled trusts if certain criteria are met. See Wyo. Code Ann. § 55-10-506 (discussing creditor’s claim against settlor generally, noting creditor and assigning claims limited for discretionary trusts created in accordance with other Wyoming provisions). There are numerous criteria under both provisions. See Wyo. Code Ann. §§ 55-10-504; 55-10-510.

Conclusion

We recommend that trusts be referred to OGC for further review in the following situations:

In Colorado, South Dakota, Utah, and Wyoming, if the trust provides for mandatory distributions (because the beneficial value of those distributions may or may not be countable).

C. PS 16-170 Utah Pooled Trust

Date: July 28, 2016

1. Syllabus

This Regional Chief Counsel (RCC) opinion discusses the reasons why the Utah Pooled Trust (Trust) and Joinder Agreement do not meet the requirements for exception under Section 1917(d)(4)(C) of the Social Security Act. The RCC determined the Trust does not meet the requirements for the following two reasons:

The Trust allows the Trustee to delegate investment authority to an advisor without proper oversight by the Trustee; and

Upon the death of a beneficiary, it allows for the payment of impermissible expenses prior to the payback of state Medicaid expenses.

For these reasons, the Utah Pooled Trust counts as a resource for SSI purposes.

2. Opinion

Question Presented

You asked us to determine whether the Utah Pooled Trust (Trust) and Joinder Agreement conform to the pooled trust exception at 42 U.S.C. § 1382c(a)(3).

Short Answer

The Trust does not meet the pooled trust exception to counting assets in the Trust sub-accounts as resources because:

The Trust allows the Trustee to delegate investment authority to an advisor without proper oversight by the Trustee; and
Upon the death of a beneficiary, it allows for the payment of impermissible expenses prior to the payback of state Medicaid expenses.

But if the Trust were amended to satisfy the pooled trust exception, and assuming no other changes were made, beneficiary sub-accounts would not be countable as resources under the regular resource counting rules.

Background

Definitions, Establishment, and Purpose

A Utah nonprofit corporation, Arc of Utah, Inc. (Arc), established the Trust in 2008. The Trust was amended in September 2009 and TURN Community Services, Inc. (TURN), also a Utah nonprofit corporation, became the successor Trustee. The purpose of the Trust is to provide “extra and supplemental services and benefits for the health, care, comfort, safety, welfare, education and training of the Beneficiaries,” i.e., persons with disabilities as defined in the Social Security Act (Act) who have sub-accounts established within the Trust. Art. 1.3, 2.1, 2.9, 5.1. The Trust defines supplemental needs or supplemental care as “non-support disbursements and disbursements for in-kind support and maintenance” which include, but are not limited to, supplemental medical, dental, or nursing care, and expenditures for travel and recreation, including cultural experiences and athletic events, and other expenses authorized by the Trustee. Art. 2.10.

A “sponsor” is a parent, grandparent, legal representative or guardian of a beneficiary, a beneficiary himself or herself, or any court. Art. 2.8. It also includes “any person or entity that contributes his, her, or its own assets or property to the Trust for the benefit of a Beneficiary.” Id. TURN maintains a separate sub-account for each beneficiary, but the Trust sub-accounts are pooled for the purpose of investing and managing the funds. Art. 4.1, 4.2.

Amendment, Termination, and Distribution of Assets upon Termination

The Trust is irrevocable, except that it may be amended with court approval to conform to statutes, rules, or regulations relating to 42 U.S.C. § 1396p. Art. 3.1, 11.1, 11.2. The Trustee cannot amend the Trust in a manner that adversely affects the exempt status of the funds under federal or state law. Art. 11.2.

The Trustee will petition the court for further instructions if, due to developments in the law, the Trustee has “reasonable cause to believe that the income or principal in a Trust Sub-account maintained for any Beneficiary is or will become liable for basic maintenance, support, or care for that Beneficiary which has been or would otherwise be provided by local, state, or federal government, or an agency or department thereof, or private program.” Art. 6.2. If it becomes impossible or impracticable to carry out the Trust’s purposes with respect to all Beneficiaries, the Trustee will likewise petition the court for further instructions. Art. 6.3.

Upon the death of a beneficiary, the Trust provides that any remaining amounts in the sub-account may first be used to pay the beneficiary’s expenses, including management and investment fees, estate administration expenses such as attorneys’ fees and taxes, and other outstanding bills for the benefit of the beneficiary. Art. 6.1.1. After payment of such expenses, up to 50% of any remaining amounts shall be provided to the State of Utah or other states from which the beneficiary has received Medicaid assistance, up to an amount equal to the total amount of Medicaid assistance paid on behalf of the beneficiary. Art. 6.1.2, 6.1.3. The remaining 50% (plus any additional amounts remaining after payment of the Medicaid portion) shall be deemed “surplus Trust property” and may be retained by the Trust. Art. 6.1.2, 6.1.3.

Spendthrift Provision

The Trust provides that “[n]o part of this Trust, principal or income, shall be subject to anticipation or assignment by the Beneficiaries; nor shall it be subject to attachment or control by any public or private creditor of the Beneficiaries; nor may it be taken by any legal or equitable process by any voluntary or involuntary creditor, including those that have provided for the Beneficiary’s support and maintenance. Further, under no circumstance may any Beneficiary compel a distribution from a Beneficiary’s Sub-account.” Art. 5.5.

Governing Law

The trust documents are governed by Utah law. Art. 12.2.

Joinder Agreement

The Trust is effective as to a beneficiary upon: (1) execution of a Joinder Agreement by a Sponsor or court order, (2) acceptance of the Joinder Agreement by the Trustee, and (3) a Sponsor’s delivery to, and Trustee’s acceptance of, property. Art. 3.1 The Trust is irrevocable upon delivery and acceptance of the property, and the Sponsor’s property shall not be refundable except as provided in Article V (Distributions). Id.

Discussion

(A) The Trust Does Not Meet the Pooled Trust Exception Under 42 U.S.C.

§ 1396p(d)(4)(c)

In general, irrevocable trusts created after January 1, 2000, that are established with the assets of an individual by means other than transfer by a will are considered to be a resource of that individual for SSI eligibility purposes. See 42 U.S.C. § 1382b(e)(2)(A). The purpose of the trust, the discretion of the trustee, and restrictions on distributions will not affect its status as a resource. See id. at § 1382b(e)(2)(C). There is an exception to this general rule for trusts that are established pursuant to the provisions of § 1917(d)(4)(C) of the Act, commonly known as the pooled trust exception. See 42 U.S.C. § 1396p(d)(4)(C). For this exception to apply, the pooled trust must satisfy certain requirements:

1) The trust must be established and maintained by a non-profit association;

2) A separate account must be maintained for each beneficiary of the trust, but the trust pools these accounts for purposes of investing and managing the trust;

3) Accounts in the trust must be established solely for the benefit of the disabled individual;

4) Accounts must be established by the individual, a parent, a grandparent, a legal guardian, or a court; and

5) The trust must provide that, to the extent that amounts remaining in the beneficiary’s sub-account upon the death of the beneficiary are not retained by the trust, the state(s) will receive all amounts remaining in the trust upon the death of the individual up to an amount equal to the total medical assistance paid on behalf of the individual under the state Medicaid plans.

See id.; POMS SI 01120.203(B)(2). As discussed below, the Trust does not meet the last pooled trust requirement.

(1) The Trust Is Established and Maintained by a Nonprofit Association, But it Potentially Provides Excess Authority to a an Investment Advisor

The Trust was established by ARC and is now maintained by TURN, a nonprofit corporation. But the Trust allows the Trustee to hire investment counsel and delegate investment authority to that counsel. Art. 9.2. More specifically, the Trust provides that the Trustee can delegate to the investment advisor the authority to make investments on behalf of the Trust without prior approval from the Trustee. Art. 9.2.

Pursuant to POMS SI 01120.225(D), a nonprofit corporation may employ a for-profit entity as an investment advisor if the nonprofit corporation maintains ultimate managerial control over the Trust. For example, the nonprofit corporation must remain responsible for determining the amount of the trust corpus to invest, removing or replacing the trustee, and making the day-to-day decisions regarding the health and well-being of the pooled trust beneficiaries. See id. Here, the investment advisor provision does not contain any such restricting language, and, assuming the investment advisor is a for-profit entity, it raises the possibility that the investment advisor would have authority exceeding the limits set forth in POMS SI 01120.225. For example, the provision does not make clear that TURN, as Trustee, must be responsible for determining the amount of the Trust corpus to invest. Art. 9.2; see POMS SI 01120.225(D).

(2) Separate Accounts Are Maintained for Each Beneficiary of the Trust

Consistent with the second requirement, each beneficiary has a separate sub-account and TURN pools these accounts for the purpose of investing and managing the funds. Art. 4.1, 4.2.

(3) The Trust Accounts Are Established Solely for the Benefit of the Disabled Individual, and Early Termination Is Only Possible with a Court Order

Each beneficiary’s sub-account must be established for the sole benefit of the disabled individual in order to meet the third requirement. See POMS SI 01120.203(B)(2)(a), (e). The sub-account cannot benefit any other individual or entity during the disabled individual’s lifetime, or allow for termination of the account prior to the individual’s death and payment of the corpus to another individual or entity. Id. Exceptions are permitted for certain administrative expenses and payments to a third party for goods, services, and limited travel expenses. POMS SI 01120.201(F)(2)(b)-(c).

In the event that a trust can be terminated during a beneficiary’s lifetime, the trust must provide that:

(1) Upon early termination, the trust must reimburse the state(s) in an amount equal to the total amount of medical assistance paid under state Medicaid plan(s);

(2) After reimbursement to the state(s) and payment of allowed expenses, all remaining funds must be given to the trust beneficiary; and

(3) The early termination power is provided to someone other than the trust beneficiary.

See POMS SI 01120.199(F). Here, the Trust does not contain any provision expressly providing for early termination, but it does state that the Trustee should petition the court for further instructions if it becomes impossible or impracticable to effectuate the purpose of the Trust with respect to all beneficiaries. Art. 6.3. A related provision states that the Trustee should also petition the court for further instructions where developments in the law give the Trustee reasonable cause to believe the purpose of a Trust sub-account can no longer be effectuated. Art. 6.2. In these two circumstances, it appears that a court could order the termination of a

sub-account prior to the death of a beneficiary.

These provisions do not themselves provide for any impermissible third-party benefit during the disabled individual’s lifetime, and we assume that if a court of competent jurisdiction did order a Trust sub-account terminated prior to the death of a beneficiary, it would do so in a manner consistent with the purpose of the Trust and in accordance with the payback requirements of POMS SI 01120.199(F). Because it is too speculative to assume a court would do otherwise, the Trust appears to satisfy the third requirement of the pooled trust exception.

(4) The Trust Properly Provides that Individuals Authorized by Statute May Establish a Sub-Account

To meet the fourth requirement, the accounts in the Trust must be established by a parent, grandparent, legal guardian of an individual, individual himself, or by a court. See 42 U.S.C.

§ 1396p(d)(4)(C); see also POMS SI 01120.203(B)(2)(f). This requirement is satisfied in the present case as the sub-account at issue was established by the disabled individual. See Art. 2.8; Joinder Agreement §§ B-C. We note, however, that the Trust also provides that a Sponsor includes “any person or entity that contributes his, her, or its own assets or property to the Trust for the benefit of a Beneficiary, by gift, will, contract, or agreement.” See Art. 2.8. If an individual beneficiary sub-account was established by anyone other than a parent, grandparent, legal guardian, disabled individual, or court, it would still be a countable resource.

(5) The Trust Does Not Properly Provide for Medicaid Reimbursement

The Trust contains specific language providing that, to the extent that amounts remaining in a beneficiary’s account after their death are not retained by the Trust, the Trust pays to the state(s) an amount equal to the total amount of medical assistance paid on behalf of the individual under the State Medicaid plans(s). Art. 6.1.2-.1.3. The Trust does not limit payment to any particular state or time-period. See Art. 6.1.2-.1.3; see also POMS SI 01120.203(B)(2)(g).

But the Trust does not appear to satisfy the fifth requirement of the pooled trust exception because it provides for the payment of impermissible expenses prior to the payback of state Medicaid expenses. See Art. 6.1.1; POMS SI 01120.203(B)(2)(g), (B)(3). To the extent amounts remaining in a beneficiary’s account are not retained by the Trust following the beneficiary’s death, states that provided medical assistance must have priority of payment over other debts and administrative expenses subject to a few exceptions. POMS SI 01120.203(B)(2)(g). The types of administrative expenses that may be paid from the Trust prior to reimbursement of medical assistance to the state(s) include:

Taxes due from the Trust to State(s) or Federal government because of the death of the beneficiary; and
Reasonable fees for administration of the Trust estate such as an accounting of the Trust to a court, completion and filing of documents, or other required actions associated with termination and wrapping up of the Trust.

POMS SI 01220.203(B)(3).

The Trust agreement provides that prior to state reimbursement for medical assistance, the Trustee may pay “(1) any management and investment fees attributable to Beneficiary’s Trust Sub-Account, (2) Beneficiary’s estate administration expenses including attorneys’ fees and taxes, and (3) any other outstanding bills for the benefit of the Beneficiary pursuant to the terms and conditions of the Trust.” Art. 6.1.1. While the first category of fees and expenses arguably qualifies as an allowable administrative expense, the second and third categories, allowing for the payment of estate administration expenses and outstanding bills, appear to be prohibited expenses. See POMS SI 01120.203(B)(3)(b) (prohibited expenses include taxes “due from the estate of the beneficiary other than those arising from inclusion of the trust in the estate” and “[p]ayment of debts owed to third parties”).

(B) Assuming the Trust Were Amended to Comply with 42 U.S.C. § 1396p(d)(4)(C), the Sub-Account Would Not Be a Resource Under the Regular Resource Counting Rules

Even if the Trust is amended to address the issue noted above, the sub-accounts must still be evaluated under the regular resource rules where a trust is established with a beneficiary’s own assets. See POMS SI 01220.203(B)(1)(A); POMS SI 01120.200(D)(2). Pursuant to these rules, trust property may be a resource for SSI purposes if the individual: (1) has the authority to revoke the trust and then use the funds to meet her basic needs for food or shelter; (2) can direct the use of the trust principal for her support and maintenance; or (3) can sell her beneficial interest in the trust. See POMS SI 01120.200(D)(1)(a)-(b).

The Trust provides that the sub-accounts are irrevocable as to the grantor (sponsor) and the beneficiary. Art. 3.1, 11.1, 11.2. But Utah follows the general principle of trust law that if a grantor is also the sole beneficiary of a trust, the trust is revocable regardless of language to the contrary in the trust document. See Restatement (Second) of Trusts § 339 (1959); Clayton v. Behle, 565 P.2d 1132, 1133 (Utah 1977) (recognizing that “where the settlor is the sole beneficiary . . . he can terminate the trust at any time and compel the trustee to reconvey the property to him”). Here, however, the Trust is a contingent residual beneficiary because it retains at least 50% of any funds left over after the beneficiary’s death (after payment of administrative expenses). Art. 6.1.1-.1.3; Joinder Agreement § F. The Trust therefore has an identifiable residual beneficiary and is irrevocable. See POMS 01120.200(D)(3).

Further, beneficiaries do not have the right to direct the use of the Trust principal for their support and maintenance; rather the Trustee has the sole and absolute discretion to elect to disburse such funds for the benefit of the beneficiary. See Art. 1.3, 5.1. With respect to selling a beneficiary’s interest in a sub-account, the Trust contains a spendthrift clause that prohibits beneficiaries from anticipation, assignment, attachment, or compelling a disbursement from the Trust. Art. 5.5; see also POMS SI 01120.200(D)(1)(a). Where the grantor is also the beneficiary, such spendthrift provisions are generally invalid. See Restatement (Third) of Trusts § 58 cmt. e (2003); POMS SI 01120.200(B)(16). Even so, the beneficiary’s interest in the Trust has no significant market value because disbursements are within the sole discretion of the Trustee. See Art. 1.3, 5.1. Thus, the beneficiary’s interest in the Trust should be considered a resource with zero market value. See POMS SI 01140.44.

Conclusion

In sum, we conclude that the Trust does not satisfy the pooled trust exception to counting assets in the sub-account as resources. The Trust allows for an investment advisor to have excess authority and, upon the death of the beneficiary, the Trust allows for the payment of impermissible expenses prior to the payback of state Medicaid expenses. If TURN were to amend these problematic provisions to satisfy the pooled trust exception, and assuming no other modifications were made, the sub-accounts would not be countable as resources under the regular resource counting rules.

D. PS 16-122 Treatment of Trust for SSI Resource Purposes.

Date: May 5, 2016

1. Syllabus

This Regional Chief Counsel (RCC) opinion discusses a third party trust that counts as a resource to a co-trustee prior to the trust dissolution. If a trustee has the legal authority to withdraw and use the trust principal for his or her own support and maintenance, the principal is the trustee’s resource for SSI purposes in the amount that can be used. POMS SI 01120.200(D)(1)(b). Upon the death of A~’s last surviving parent, A~ became a Co-Trustee of the Trust along with her two siblings. Although her disabled status meant she was no longer a direct beneficiary of the Trust, the Trust provided that the funds that would have been her share of the estate were still to be used for her maintenance at the sole discretion of the Trustee. Therefore, A~, as a Co-Trustee, could direct the use of trust principal for her own support and maintenance. Therefore, the RCC determined the Trust was a resource until it was dissolved.

2. Opinion

Questions Presented

You asked us to review the D and C B~ Family Trust (the “Trust”) to determine if the Trust is a resource for purposes of determining A~’s eligibility for Supplemental Security Income (SSI).

Short Answer

We learned that the Trust was dissolved in May 2015. Prior to this time, we conclude the Trust should have been counted as a resource. While A~ was no longer a direct beneficiary of the Trust because of her disabled status, the Trust provided that the funds that otherwise would have been her share of the estate should still have been used for her maintenance at the sole discretion of the Trustee. A~ was a Co-Trustee with her two siblings, and thus had some control over the Trust disbursements. Although A~ could not act independently, we think it is reasonable to assume (absent evidence to the contrary) that at least one of her siblings, as Co-Trustee, would have agreed to make funds available for A~’s maintenance. However, if A~ were to provide evidence to the contrary, that might affect our conclusion.

Once the Trust was dissolved in May 2015 and the assets disbursed to the beneficiaries, who did not include A~, there was nothing remaining of the Trust that could count as a resource for purposes of A~’s SSI eligibility.

Background

In February 1992, D and C B~ established the Trust, with themselves designated as initial Settlors and Co-Trustees. The Trust was formed to hold title to real and personal property for their benefit and to provide for the orderly use and transfer of these assets upon their death. Pursuant to § 5.01 of the Trust, amended on August 28, 2009, A~ and her two siblings were to become the successor Co-Trustees upon the death of their last surviving parent. Based on the information provided, A~ became a Co-Trustee of the Trust on February 6, 2014, upon the death of her father, D~. A letter from Deseret First Credit Union states that the Trust was fully dissolved and closed out as of May XX, 2015, with all funds disbursed to the qualifying beneficiaries, which did not include A~.

Discussion

Resource Rules
- For purposes of SSI, resources include any assets such as cash and personal or real property that the individual (1) owns, (2) has the right, authority, or power to convert to cash (if not already cash), and (3) is not legally restricted from using for his/her support and maintenance. See POMS SI 01110.100(B)(1). A trust will be a resource if: (1) the SSI beneficiary can revoke the trust and use the assets for her support and maintenance; (2) the individual can direct the trustee to pay her the funds or use the funds for her support and maintenance; or (3) the individual can sell her beneficial interest in the trust. See POMS SI 01120.200(D)(1)(a)-(b).
Trust Analysis—Prior to Dissolution in May 2015
- The Trust provided that upon the death of the surviving spouse (D~), the Trust assets were to be evenly distributed to three beneficiaries, consisting of A~ and her two siblings. See Trust §§ 5.02-.03 & Trust Distribution Instructions. But § 5.04 of the Trust was also relevant, and stated in part: “[A]ny beneficiary who is diagnosed, for the purpose of governmental benefits, (as hereinafter delineated), as being not competent or as being disabled, and who shall be entitled to governmental support and benefits by reason of such incompetency or disability, shall cease to be a beneficiary of this trust.” Because A~ has been a recipient of SSI since 2008, § 5.04 meant that A~ was no longer a beneficiary of the Trust. Based on this language, A~ was excluded as a beneficiary when the Trust was dissolved in May 2015.
- But the Trustees appear to have ignored the next paragraph of § 5.04, which went on to say that “[t]he portion of the Trust Estate which, absent in the provisions of this section, would have been the share of such incompetent or handicapped person shall be retained in trust for as long as that individual lives. The Trustee, at his or her sole discretion, shall use such funds for the maintenance of that individual.” (Emphasis added.) Upon the death of the disabled individual, their share would pass to any children equally.
- While A~’s disability removed her as a direct beneficiary of the Trust, it did not change her status as a Co-Trustee. As such, prior to the Trust’s dissolution in May 2015, A~ was both a beneficiary of the Trust and a trustee—with potential authority to direct support to herself as beneficiary. Indeed, “[i]f the trustee has the legal authority to withdraw and use the trust principal for his or her own support and maintenance, the principal is the trustee’s resource for SSI purposes in the amount that can be used.” POMS SI 01120.200(D)(1)(b) (emphasis in original). Thus, if A~ had been the sole trustee, the Trust would clearly have counted as a resource because she could have directed the use of the trust principal for her support and maintenance under the terms of the Trust.
- But because A~ was a Co-Trustee with her two siblings, it is not clear whether she could have independently directed disbursements to herself. The Trust agreement itself was silent on that issue. Whereas the agreement expressly stated that the initial Co-Trustees, D and C, “shall serve jointly and severally and either shall have full authority to act for the trust independently,” see Trust § 1.03, that provision is specific and limited to those initial Co-Trustees. There was no comparable provision addressing the relationship between successor Co-Trustees. And under Utah’s Uniform Trust Code (UTC), where the trust instrument is silent, the default rule is that “Co-trustees who are unable to reach a unanimous decision may act by majority decision.” Utah Code. Ann. § 75-7-703(1) (2015); see Frederick & Dorothy Westling Family Trust v. Westling, 242 P.3d 805, 808 (Utah Ct. App. 2010) (“[T]he provisions of the UTC are primarily ‘default’ provisions that must ordinarily give way to conflicting terms in a trust instrument.”). Thus, it appeared that A~ could not have acted independently but instead needed the agreement of at least one other Co-Trustee.
- To be considered a resource, an individual must have a legal right to access property. Here, as outlined above, A~ had the legal right to access the property only if one other Co-Trustee consented. The POMS does not directly address how such a restriction affects the resource analysis, but the answer may be informed by POMS examples involving other types of restrictions on access to property. For example, if a co-owner legally blocks the sale of jointly-owned property or a binding agreement between co-owners restricts the sale of property, the property is not a resource. See POMS SI 01120.010(C)(2), (D)(3). Similarly, if a court order or state law restricts access or use of the property, or if the property can be accessed only through litigation, it is not a resource. See POMS SI 01120.010(C)(2), (D)(2), (D)(6), (D)(7). On the other hand, if an individual is merely required to petition a court to access property, and based on state law we can assume the court will grant such access, that property is a resource. See POMS SI 01120.020(C)(3), (D)(8); POMS SI 01140.215 (discussing “conservatorship accounts”).
- In light of these examples, whether the Trust counted as a resource might have depended on whether there was any evidence that both Co-Trustees would have withheld consent and blocked distributions for A~’s support. We have no information suggesting that the Co-Trustees blocked such distributions, and the Trust itself provided that the Trustee[s] “shall use such funds for the maintenance” of A~—which suggests the Co-Trustees would not have had any basis to withhold such consent. We think these circumstances are most analogous to the conservatorship account—where we assume that access will be granted absent evidence to the contrary. See POMS SI 01140.215.
- If, however, A~ were to provide evidence that the Co-Trustees did, in fact, withhold consent and block distributions for her support, the circumstances might be more analogous to a co-owner who restricts the sale of property, or where property can be accessed only through litigation. If A~ were to provide such evidence, we recommend you submit to OGC for further evaluation.

Trust Analysis — After Dissolution in May 2015

Under our analysis of the Trust agreement, the May 2015 dissolution was improper because it did not appear to honor the language in § 5.04 stating that what would have been A~’s one-third share was still to be retained in trust during her lifetime and used for her maintenance at the discretion of the Trustee. Nevertheless, the dissolution of the Trust, with none of the funds going to A~, appears to have rendered the resource question moot after May 2015. For an asset or property to qualify as a resource, the individual must have an ownership interest in it. See POMS SI 01110.100(B)(1). At this point, there is nothing left to own, unless A~ could be said to have an ownership interest in a lawsuit to challenge the improper dissolution of the Trust. But SSA rules do not require an individual to litigate to obtain access, see POMS SI 01120.010(C)(2), and nothing in the POMS suggests that something so speculative as an ownership interest in a lawsuit could count as a resource.

Conclusion

Prior to May 2015, while the Trust was still in existence, it should be counted as a resource unless A~ can provide evidence that both Co-Trustees denied distributions for her maintenance.

But once the Trust was dissolved, A~ no longer had any ownership interest in, or access to, the Trust absent litigation. As such, it should cease to count as a resource at that point.

E. PS 15-041 Treatment of Trust for SSI Purposes (J)

Date: December 5, 2014

1. Syllabus

This opinion discusses whether the trust complies with Social Security Act (Act) § 1917(d)(4)(A) such that the trust assets are excepted from resource counting for Supplemental Security Income (SSI) eligibility purposes. The trust was established by the beneficiary’s parents and states that it is irrevocable. The trust does not meet the provision of being for the sole benefit of the beneficiary because it (a) provides benefits to other individuals or entities during the disabled individual’s lifetime; or (b) allows for early termination without meeting SSA’s early termination requirements. The Trust does not contain medical assistance payback provisions. In fact, it contains a provision that could be read to prohibit any such pay back. Since the trust does not meet the sole beneficiary and State Medicaid reimbursement requirements of the special needs trust exception, the trust is a countable resource.

2. Opinion

QUESTION PRESENTED

You asked us to review the ALJQ Special Needs Trust (the “Trust”) to determine whether the Trust is a resource for purposes of determining eligibility for SSI, i.e., whether the Trust meets the special needs trust exception.

SHORT ANSWER

The Trust does not meet the requirements of Section 1917(d)(4)(A) of the Social Security Act (the “special needs trust exception”). Although labeled as a “Special Needs Trust,” the Trust does not contain the required provision for reimbursement to Medicaid and, therefore, the Trust is considered a resource for determining SSI eligibility. In addition, because the Trust has been defunded, amendment would appear to be moot.

BACKGROUND

The ALJQ Special Needs Trust was created in September 2002. According to the trust document, A~ and L~ are the “Trustmakers” and J~ is the beneficiary. At the time of the creation of the trust, J~ was a minor and was purported to have a number of conditions that might qualify him as disabled. The trust was funded, according to Schedule A of the trust, with “Ten Dollars Cash” (presumably from his parents) and $10,582.62 in assets bequeathed to J~ by his uncle. ¹ The trust contains a provision stating that the trust is irrevocable (Section 1.05).

The stated purpose of the trust is to provide for the “supplemental special needs” of J~ (Article 2 – Trust Purpose). The trustee has, under the terms of the trust, complete discretion to distribute the income and principle of the trust to meet the stated purpose of the trust, including the power to terminate the trust (Article 3-6). The trustee has the power to terminate the trust and distribute the trust property if the trust has become uneconomical to administer (Section 6.02). Upon J~’s death, the trustee is authorized to pay various expenses and taxes, and must distribute the balance of trust assets to the descendants and charities designated by J~ pursuant to his will (Article 7). The trust contains a provision that prohibits reimbursement for expenses incurred prior to J~’s death if the trustee decides that such expenses were the obligation of governmental entities responsible to serve person with disabilities (Section 7.02).

A court order dated January 2, 2003, instructs the trustee that withdrawals from the trust are permitted only pursuant to court order.

DISCUSSION

Whether the Trust Is a Resource for Purposes of SSI Eligibility

1. Special Needs Trust Exception

For the special needs trust exception to apply, a trust (established on or after 1/1/00 with assets of the disabled individual) must meet the following three requirements:

1. Contain the assets of an individual under age 65 and who is disabled; and

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

3. Provide that the state(s) will receive all amounts remaining in the trust upon the death of the individual up to the amount equal to the total medical assistance paid on behalf of the individual under a state(s) Medicaid plan.

POMS SI 01120.203(B)(1)(a)-(h).

In this case, the Trust (established in 2002) does not meet the Special Needs Trust exception requirements because it does not contain a provision allowing for repayment to the applicable state Medicaid plan(s), and it allows for early termination without meeting SSA’s early termination requirements.

Contains the Assets of an Individual Under Age 65 and Disabled

First, in order for a trust to meet the special needs trust exception, it must contain the assets of an individual under age 65 who is disabled. See POMS SI 01120.203(B)(1)(a). Here, J~ is under age 65 and disabled. The Trust contains his assets. As such, the first requirement of the special needs trust exception has been met.

Established for the Sole Benefit of the Disabled Individual

Second, the Trust must be established for the “sole benefit” of an individual through the actions of a parent, grandparent, legal guardian or court. See POMS SI 01120.203(B)(1)(e)-(f). In this case, the Trust was established for J~’s benefit by A~ and L~, his parents, while he was a minor.

However, a trust is not considered to be for the “sole benefit” of the disabled individual if it (a) provides benefits to other individuals or entities during the disabled individual’s lifetime; or (b) allows for early termination without meeting SSA’s early termination requirements. See POMS SI 01120.199; SI 01120.203(B)(1)(e).

Here, the Trust contemplates the possibility of termination prior to J~’s death (Section 6.02). Where a trust can be terminated during a beneficiary’s lifetime, the trust must provide that:

Upon early termination, the trust must reimburse the state(s) in an amount equal to the total amount of medical assistance paid under the state Medicaid plan(s);

After reimbursement to the state(s) and payment of allowed expenses, all remaining funds must be disbursed to the trust beneficiary; and

The early termination power is given to someone other than the trust beneficiary.

POMS SI 01120.199(F). Here, although the power of early termination has been given to someone other than the trust beneficiary, the Trust has no provision for payback to the applicable state Medicaid plan. For this reason, the Trust does not meet the second requirement of the special needs trust exception. See POMS SI 01120.203(B)(1)(e).

Medicaid Payback

Third, to qualify for the special needs trust exception; a trust must contain specific language providing that, upon the death of the individual, the state(s) will receive all amounts remaining in the trust, up to the amount equal to the total amount of medical assistance paid on behalf of the individual under the state Medicaid plan(s). The trust must provide for payback to any state(s) that may have provided medical assistance under the state Medicaid plan(s) and not be limited to any particular state(s). See POMS SI 01120.203(B)(1)(h). Additionally, the states must be listed as first payee(s) and have priority over payment of other debts and administrative expenses, with limited exceptions. Id.

Here, the Trust contains no such payback provision. In fact, it contains a provision that could be read to prohibit any such pay back. Specifically, section 7.02 prohibits reimbursement for expenses incurred prior to J~’s death, if the Trustee determines the payment is the obligation of a government entity, which has a legal responsibility to serve persons with disabilities.

Because the Trust contains no payback provision, the Trust fails to meet the third requirement for the special needs trust exception to apply. See POMS SI 01120.203(B)(1)(h).

2. Court Order Requiring Approval of Withdrawals

The court order requiring approval of withdrawals from the Trust does not change our analysis. Under the applicable provisions of the Social Security Act, if there are any circumstances under which payment from the trust could be made to or for the benefit of J~, the Trust must be counted as a resource—unless an exception applies. See 42 U.S.C. § 1382b(e)(3)(A), (e)(5). As we have explained, the Special Needs Trust exception does not apply. Even if the court order limits the trustee’s discretion, the Act makes clear that such trusts are countable regardless of any restrictions on the trustee’s discretion regarding distributions. See 42 U.S.C. § 1382b(e)(2)(C). ²

3. Effect of Defunding

According to the information received from the field office, proof was provided on June 30, 2014 that all the trust funds were withdrawn on May 7, 2014. Had this event not occurred, it might have been possible to amend the trust so that it would not be considered a countable resource. However, since the trust has been defunded, suggestions as to how the trust might be amended would be moot.

Most importantly, the defunding of the Trust, under its own terms, appears to have effectively terminated the Trust (Section 6.01-6.02). Since the Trust no longer exists, as of 5/7/14, it should not be considered a countable resource for future eligibility. However, from the time it was created, through 5/7/14, it should have been considered as a countable resource for SSI eligibility purposes, since it did not qualify, as a special needs trust. In addition, we recommend that the field office inquire about what was done with the trust proceeds, once the trust was defunded, to determine whether the trust was converted to another countable resource or transferred for less than fair market value. See generally POMS SI 01150.001.

CONCLUSION

The trust, although it appears to be the intent, does not meet the criteria of the special needs trust exception, and therefore must be counted as a resource.

John J. Lee
Regional Chief Counsel, Region VIII

By: Paul R. Ritzma

Assistant Regional Counsel

F. PS 15-024 Treatment of the Life Enrichment Pooled Trust

Date: November 4, 2014

1. Syllabus

This RCC opinion discusses whether the Life Enrichment Master Trust Agreements (MTAs or “the Trusts”) and blank Joinder Agreements (JAs) for Montana, North Dakota, South Dakota, Utah, and Wyoming meet the requirements of section 1917(d)(4)(C) of the Social Security Act. The trust's early termination provision states that the trustee “will first try to transfer the sub account assets only to another trust that meets the requirements of 42 USC 1396p(d)(4)(C).” However, it does not address what will happen to the assets if it is not possible to transfer the assets into another pooled trust. This faulty early termination language leaves room for the Trustee to terminate the Trust and transfer trust sub-accounts to someone other than the State(s) or the trust beneficiary; or to refund the assets to the beneficiary without first reimbursing the state(s) for medical assistance.

This opinion also points that in South Dakota, Utah, and Wyoming if a grantor is also the sole beneficiary of a trust, the trust is revocable regardless of language in the trust document. In addition, the RCC believes that the courts in Montana and North Dakota would take the same position. However, we consider the sub accounts as irrevocable because the Master Trust is a residual beneficiary per SI 01120.200D.3.

2. Opinion

Questions Presented

You asked us to review the Life Enrichment Master Trust Agreements (MTAs or “the Trusts”) and blank Joinder Agreements (JAs) for Montana, North Dakota, South Dakota, Utah, and Wyoming to determine whether they conform to section 1917(d)(4)(C) of the Social Security Act (the “pooled trust exception”).

Short Answer

The Trust documents do not meet the pooled trust exception to counting assets in the Trust sub-accounts as resources. The MTAs allow for the possibility that a sub-account could be terminated prior to the death of the beneficiary and the assets could be given to someone other than the beneficiary. If, however, the Trustee were to amend the Trust to satisfy the pooled trust exception (as recommended below), and assuming no other modifications to the MTAs or JAs are made, trust sub-accounts established under the amended trust documents would not be countable as resources under the regular resource counting rules.

Background

Life Enrichment Pooled Trusts and the Joinder Agreement

Life Enrichment offers trusts for Montana, North Dakota, South Dakota, Utah, and Wyoming. ³ Except for references to different state statutes in the “Pooled Trust” introductory section of the MTAs, the trust documents are identical. Relevant provisions of the MTAs are discussed below.

Definitions, Establishment, and Purpose

Life Enrichment Trust, a non-profit corporation, established and manages the MTAs and serves as Trustee. MTAs, pp. 4, 5. The purpose of the MTA is to provide for the supplemental needs of the Beneficiary of each Trust sub-account. Id. The Trusts define “Beneficiary” as an individual who is disabled pursuant to the Social Security Act, 42 U.S.C. § 1382c(a)(3). Id. at 5. The Trustee maintains a separate sub-account for each Beneficiary and pools the sub-accounts for the purpose of investing and managing the funds. Id. at 4. Only a disabled individual or his or her parent, grandparent, legal guardian, or the court may establish a trust sub-account. Id. Third parties may contribute funds to an established trust sub-account. Id.

Distribution of Assets and Spendthrift Provisions

The MTA and JA documents provide that each trust sub-account is for the Beneficiary’s sole benefit. Id. at 5; JAs, p. 2. The court or individual who establishes the trust sub-account may designate persons permitted to request distributions for the Beneficiary. Id. The Trustee decides whether to honor distribution requests and is prohibited from making any distributions that will reduce any benefits to the Beneficiary or result in his or her ineligibility for benefits. Id.

Except as permitted by law, a Beneficiary may not pledge, assign, transfer, anticipate, charge, or encumber any trust sub-account property or money for any purpose while in the Trustee’s possession. MTAs, p. 5. The Trustee is not liable for unapproved debts but may, in its sole discretion, choose to pay them. Id. The Trustee is permitted to pay administrative fees to administer the trusts and taxes due on funds deposited in a trust sub-account. Id. at 6.

Irrevocability and Termination

The MTAs and JAs provide that trust sub-accounts are irrevocable. MTAs, p. 4; JAs, p. 3. During a Beneficiary’s lifetime, the Trustee may terminate a trust sub-account by spending down all of the assets. MTAs, p. 4. Further, if it becomes impossible or impractical to carry out the Trust’s purpose, the Board, in its sole and absolute discretion, may choose to terminate the Trust or resign as Trustee. Id. at 6. In either event, the Trustee “will first try to transfer the sub account assets only to another trust that meets the requirements of 42 USC 1396p(d)(4)(C).” Id.

Upon the death of a Beneficiary, the Trust is authorized to retain all residual funds. Id. at 7. All of the funds retained by the Trust are to be used for the benefit of “individuals with disabilities.” Id. To the extent the Trust does not retain funds remaining in a sub-account, the Trust is directed to pay the “state(s) from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the individual under the state Medicaid plan.” Id.

Discussion

(A) The Master Trust Does Not Meet the Pooled Trust Exception Under 42 U.S.C.

§ 1396p(d)(4)(C).

In general, irrevocable trusts created after January 1, 2000, that are established with the assets of an individual by means other than transfer by a will are considered to be a resource of that individual for SSI eligibility purposes. See 42 U.S.C. § 1382b(e)(2)(A). The purpose of the trust, the discretion of the trustee, and restrictions on distributions will not affect its status as a resource. See id. at (e)(2)(C). There is an exception to this general rule for trusts that are established pursuant to the provisions of § 1917(d)(4)(C) of the Act, commonly known as the pooled trust exception. See 42 U.S.C. § 1396p(d)(4)(C). For this exception to apply, the pooled trust must satisfy certain requirements:

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

(2) A separate account must be maintained for each beneficiary of the trust, but the trust pools these accounts for purposes of investing and managing the trust;

(3) Accounts in the trust must be established solely for the benefit of the disabled individual;

(4) Accounts must be established by the individual, a parent, a grandparent, a legal guardian, or a court; and

See id.; POMS SI 01120.203(B)(2). In this case, as discussed below, the MTAs fail to meet the third pooled trust exception requirement.

(1) The Trust is Established and Maintained by a Non-Profit Association and Separate Sub-Accounts are Maintained

The Trust documents meet the first requirement, because Life Enrichment is a nonprofit corporation that established and manages the Trust. MTAs, p. 4. Consistent with the second requirement, each beneficiary has a separate sub-account and Life Enrichment pools these accounts for purposes of investing and managing the funds. Id.

(2) The Trust Allows for Possible Early Termination and Transfer of Assets to Someone Other than the Beneficiary; Thus, the Trust Accounts are not Established Solely for the Benefit of the Disabled Individual

To meet the third requirement, the trust must be established for the sole benefit of the disabled individual, which means that the trust must not benefit anyone but that individual during his or her lifetime (other than reasonable compensation for a trustee and reasonable costs associated with managing the trust). See 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203(B)(2)(a), (e); POMS SI 01120.201(F)(2).

In the event that a trust can be terminated during a beneficiary’s lifetime, the trust must provide that:

(1) Upon early termination, the trust must reimburse the state(s) in an amount equal to the total amount of medical assistance paid under state Medicaid plan(s);

(2) After reimbursement to the state(s) and payment of allowed expenses, all remaining funds must be given to the trust beneficiary; and

(3) The early termination power is provided to someone other than the trust beneficiary.

See POMS SI 01120.199(F). An exception to this policy is if the early termination provision provides, solely, that a beneficiary’s assets will be transferred to another pooled trust meeting the requirements of 42 U.S.C. § 1396p(d)(4)(C). POMS SI 01120.199(F)(2). This is sometimes referred to as a “trustee-to-trustee” transfer.

Here, the Trust allows for early termination, and the early termination provision does not limit the distribution of Trust property to the State(s) and the Beneficiary. Specifically, the Trust permits the Trustee to terminate a trust sub-account before a beneficiary’s death if it becomes “impossible or impractical” to carry out the purpose of the Trust. MTAs, p. 6. The Trustee must “first try to transfer the sub account assets only to another trust that meets the requirements of 42 USC 1396p(d)(4)(C).” Id. However, the Trust does not specify what will happen to the assets if it is not possible to transfer the funds into another pooled trust. This language is not sufficient to meet the “trustee-to-trustee” transfer exception. Given the vagueness of the early termination language, it is possible the Trustee could terminate the Trust and transfer trust sub-accounts to someone other than the State(s) or the trust beneficiary; or that assets could be refunded to the beneficiary without first reimbursing the state(s) for medical assistance. See POMS SI 01120.199(F)(1). Thus, this section does not comply with the early termination requirements. See id.

(3) The Trust Limits Establishment of an Account to Those Individuals Permitted by Statute

To meet the fourth requirement, the accounts in the Trust must be established by the parent, grandparent, or a legal guardian of such individual, by such individual, or by a court. See 42 U.S.C. § 1396p(d)(4)(C); see also POMS SI 01120.203(B)(2)(f). The Trust documents comply with this requirement. MTAs, p. 4.

(4) The Trust Properly Provides for Medicaid Reimbursement

Except for the early termination problem identified above, the Trust documents otherwise satisfy the fifth requirement because the Trust contains specific language providing that, to the extent that amounts remaining in an beneficiary’s account after their death are not retained by the Trust, the Trust pays to the State(s) an amount equal to the total amount of medical assistance paid on behalf of the individual under the State Medicaid plan(s). See MTAs, p. 7. The Trust does not limit payment to any particular State(s) or any particular period of time. See id.; see also POMS SI 01120.203(B)(2)(g).

(B) Assuming the Trust Documents Met the Criteria for an Exception under 42 U.S.C.

§ 1396p(d)(4)(C), Which They Currently Do Not, the Sub-Accounts Would Not Be a Resource under the Regular Resource Counting Rules. 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). Pursuant to these rules, trust property may be a resource for SSI purposes if the individual: (1) has the authority to revoke the trust and then use the funds to meet his basic needs for food or shelter; (2) can direct the use of the trust principal for his support and maintenance; or (3) can sell his beneficial interest in the trust. See POMS SI 01120.200(D)(1)(a)-(b).Here, the Trust documents provide that the sub-accounts are irrevocable. See MTAs, p. 4; JAs, p. 2. Nonetheless, South Dakota, Wyoming, and Utah follow the general principle of trust law that if a grantor is also the sole beneficiary of a trust, the trust is revocable regardless of language in the trust document to the contrary. See Restatement (Second) of Trusts § 339 (1959); see also Farmers State Bank v. Janish, 410 N.W.2d 188, 190 (S. D. 1987) (“[w]here a person creates for his own benefit a trust with a provision restraining the voluntary or involuntary transfer of his interest, his transferee or creditors can reach his interest.”); Spratt v. Security Bank of Buffalo, Wyo., 654 P.2d 130, 136 (Wyo. 1982) (same); Clayton v. Behle, 565 P.2d 1132, 1133 (Utah 1977) (recognizing that “where the settlor is the sole beneficiary . . . he can terminate the trust at any time and compel the trustee to reconvey the property to him.”). We have found no Montana or North Dakota cases or statutes that specifically address the question of the revocability of settlor trusts. We believe that the courts in these States would take the position taken by the majority of the States that “where the settlor of the trust is also the sole beneficiary and is not incapacitated, the trust is revocable.” Memorandum from OGC Region VIII to ARC, SSA VIII, Validity and Accessibility of Three Trusts in Colorado; State Law in Region VIII, Regarding the Revocability of Grantor or Settlor Trusts (Nov. 30, 1994). Here, however, the Trust is a contingent residual beneficiary because the Master Trust generally retains any funds left over after the beneficiary’s death. MTAs, p. 7. Therefore, the sub-accounts have an identifiable residual beneficiary and are irrevocable. See POMS SI 01120.200(D)(3) (providing that “residual beneficiaries are assumed to be created, absent evidence of a contrary intent, when a grantor names heirs, next of kin, or similar groups to receive the remaining assets in the trust upon the grantor’s death. In such case, the trust is considered to be irrevocable.”).

Further, while a Beneficiary or individual previously designated by the Beneficiary may appeal the Trustee’s refusal to make a distribution, a Beneficiary cannot compel the Trustee to make a distribution of trust sub-account assets to the Beneficiary. MTAs, p. 5. With respect to selling a Beneficiary’s interest in a sub-account, the MTAs contain a spendthrift clause which precludes a Beneficiary from assigning his or her interest. Id.; see also POMS SI 1120.200(D)(1)(a). Where the settlor is also the beneficiary, such spendthrift provisions are generally invalid. See Restatement (Third) of Trusts § 58, cmt. e (2003); see also POMS SI 01120.200(B)(16). However, a Beneficiary’s interest in the Trust has no significant market value because disbursements are within the sole discretion of the Trustee. Thus, a Beneficiary’s interest in the Trust should be considered a resource with zero market value. See Memorandum from Reg. Chief Counsel, Chicago, to Ass’t Reg. Comm-MOS, Chicago, SSI-WI-Review of the WisPACT Pooled Trust I for Kyle (Jan. 10, 2011); 20 C.F.R. § 416.1201(a)(1) (“[i]f a property right cannot be liquidated, the property will not be considered a resource of the individual (or spouse).”).⁴

CONCLUSION

In sum, we conclude that the Trust documents do not satisfy the pooled trust exception to counting assets in the sub-account as resources. If, however, the Trustee were to amend the MTAs to satisfy the pooled trust exception, and assuming no other modifications are made, trust sub-accounts established under the amended MTAs and JAs would not be countable as resources under the regular resource counting rules.

Footnotes:

[1]

^. ^. ^. ^. ^. The actual check endorsed and presumably transferred to the trust was in the amount of $8,522.75.

[2]

^. ^. ^. Because a trust is at issue, the rules regarding conservatorship accounts do not apply. See POMS SI 01140.215.

[3]

^. ^. ^. Life Enrichment also manages pooled trusts in the State of Colorado. In September 2012, we reviewed the Colorado Life Enrichment Master Trust Agreement (“CMTA”) and determined that it did not meet the pooled trust exception for several reasons. See Memorandum from OGC Region VIII to ARC-MOS Region VIII, Treatment of Trust for the SSI Program – Colorado Life Enrichment Trust (September 26, 2012). In October 2012, the Life Enrichment Trust Administrator submitted proposed amendments to the CMTA, and in November 2012, we determined that the proposed amendments addressed our previous concerns and that the CMTA, as amended, would satisfy the pooled trust exception. In February 2013, we reviewed another set of amendments and determined that the CMTA, as amended, continued to satisfy the pooled trust exception. Life Enrichment has not submitted any updated documents related to the Colorado trust. Assuming that they have not made any changes to the CMTA since the February 2013 amendments, we believe that the CMTA continues to meet the pooled trust exception. In addition, we note that the version of the CMTA reviewed in February 2013 appears to have an identifying mark in a box at the end of the signature page, R013013.

[4]

^. ^. ^. Although not related to our analysis of the resource issue, it should also be noted that representative payees may not transfer Title II or Title XVI benefits to the Life Enrichment pooled trusts, because the trust could be viewed as prohibiting expenditures for current maintenance such as food and housing. See POMS GN 00602.075(3). Specifically, the MTAs provide that “distributions will not be made that make the Beneficiary ineligible [for SSI]” and “Trust funds will not be distributed if the distribution would cause the Beneficiary to lose eligibility for benefits.” MTAs, p. 5. Because distributions for food and housing are considered in-kind income, such distributions could affect SSI eligibility; as such, we interpret the trust as potentially prohibiting expenditures for food and housing.

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POMS Reference

PS: Title XVI Regional Chief Counsel Precedents

A. PS 17-147 Does the Amended Utah Pooled Trust now Conform with the Pooled Trust Exception

1. Syllabus

2. Opinion

B. PS 17-075 Revocability of Grantor Trusts and Validity of Spendthrift Clauses in Trusts

1. Syllabus

2. Opinion

C. PS 16-170 Utah Pooled Trust

1. Syllabus

2. Opinion

D. PS 16-122 Treatment of Trust for SSI Resource Purposes.

1. Syllabus

2. Opinion

E. PS 15-041 Treatment of Trust for SSI Purposes (J)

1. Syllabus

2. Opinion

F. PS 15-024 Treatment of the Life Enrichment Pooled Trust

1. Syllabus

2. Opinion

Footnotes: