PS 01825.055: Wisconsin

changes
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~~Effective Dates: 09/27/2017 - Present~~
Effective Dates: 01/16/2018 - Present
~~TN 83 (09-17)~~
TN 88 (01-18)
PS 01825.055 Wisconsin
~~A. PS 17-003 SSI—Regional Survey on Revocability of Grantor Trusts~~
A. PS 17-062 Review of Life Navigators, Inc. Master Trust Agreement for Trust II Pooled Trust
Date: March 14, 2017
1. Syllabus
This Regional Chief Counsel opinion concludes that the sub-accounts in the Life Navigators pooled trust must be counted as resources for Supplemental Security Income (SSI) purposes because the master trust fails to meet one of the conditions to qualify for the pooled trust exception; it is managed by a for-profit company. While the master trust agreement indicates that a non-profit “Trust Manager” employs the services of a for-profit entity, in reality the for-profit entity has managerial control over the trust and is not subordinate to the non-profit organization. This violates the Agency policy regarding the management of pooled trusts in POMS SI 01120.225D.
2. Opinion
BACKGROUND
According to the MTA, Life Navigators, Inc. (“Life Navigators”), a non-profit corporation, manages Trust II, and the Prairie Financial Group of Waukesha State Bank serves as the Trustee for Trust II. Decl. of Life Navigators, Inc. Master Trust Agreement for Trust II (“MTA”), Art. I(E), Art. II & Art. XII; Instrument of Adoption, June 22, 2016 Amendment. Under Trust II, a beneficiary is an individual with a developmental or related disability who meets the definition of “disabled” under 42 U.S.C. § 1382c(a)(3). MTA, Art. I(A). The primary purpose of Trust II is to supplement available government benefits to ensure the beneficiary’s comfort and happiness during his or her lifetime. MTA, Art. VII(B). Payments from Trust II are made on behalf of the beneficiary from Trust II assets at the sole discretion of the Trust II Trustee. MTA, Art. VII(A). The MTA specifies that Trust II is established for the sole benefit of each individual beneficiary and that it is an irrevocable trust. Id.; MTA, Art. X; Instrument of Adoption, Art. I.
Life Navigators Trust II was established with the intention that it qualify as a pooled trust under 42 U.S.C. § 1396p(d)(4)(C). MTA, Art. IX(D), Art. X, & Art. XIV(B). Trust II consists of separate self-funded sub-accounts, or “trust shares,” that are maintained for the sole benefit of each trust share beneficiary, but the trust share assets are pooled for purposes of management and investment. MTA, Art. VI. Each trust share is funded entirely by the beneficiary’s own assets, which are transferred to Trust II by the beneficiary or by the “Settlor,” a person authorized to act on behalf of the beneficiary such as a parent, grandparent, or legal guardian. MTA, Art. I(D) & Art. V. The individual trust shares are established by executing a separate “Instrument of Adoption.” MTA, Art. I(H).
The Trustee is obligated under the MTA to provide regular accountings—at least quarterly—to the beneficiary or his legal representative, as directed by the Instrument of Adoption. MTA, Art. IV(C); Instrument of Adoption, Art. VI. The MTA for Trust II makes clear the discretionary nature of Trust II and the contingent nature of the beneficiary’s interest in the trust. MTA, Art. VII(A). The MTA specifies that beneficiaries do not have any right to receive payments out of the income or principal of Trust II and that all distributions made from Trust II are at the sole and absolute discretion of the Trustee. Id. Because Trust II is intended to supplement available government benefits, the MTA states that the Trustee has an obligation to consider the effect that any distribution will have on a beneficiary’s entitlement to those government benefits. MTA, Art. VII(B). However, the Trustee may use its discretion to make distributions that may reduce a beneficiary’s government benefits if the Trustee determines that such a distribution will increase the beneficiary’s comfort and happiness. Id.
Life Navigators, Inc. has asked the Agency to review their MTA for Trust II to determine if it complies with the Agency’s policies regarding pooled trusts. The original MTA for Trust II was executed on January 29, 2011, but Life Navigators issued a restatement of their MTA on June 22, 2016, appointing Waukesha State Bank as Trustee of Trust II. As such, they amended their MTA for Trust II pursuant to Article X.
DISCUSSION
* Self-Funded Individual Trust Shares in Life Navigators Trust II
Under the Social Security Act (“Act”), a trust created on or after January 1, 2000, from the assets of an individual generally will be considered a resource to the extent that the trust is revocable or, in the case of an irrevocable trust, to the extent that any payments could be made from the trust to or for the benefit of the individual. See 42 U.S.C. § 1382b(e); POMS SI 01120.201(D). However, if a trust meets the criteria of either an individual special needs trust under 42 U.S.C. § 1396p(d)(4)(A) or a pooled trust under § 1396p(d)(4)(C), the trust is excluded from this rule. See POMS SI 01120.203.
We must first determine the revocability of the self-funded trust shares in Life Navigators Trust II. Here, the express terms of the MTA and the Instrument of Adoption state that the individual trust shares are irrevocable. MTA, Art. X; Instrument of Adoption, Art. I. Notwithstanding these provisions, the trust shares would be still be considered revocable if the grantor is also the sole beneficiary. See POMS SI CHI01120.200(C). In this case, however, the grantor would not be the sole beneficiary. Rather, Life Navigators Trust II creates a contingent remainder interest in Life Navigators, Inc. MTA, Art. IX(A) & (B); Instrument of Adoption, Art. VII. Further, the self-funded trust shares in Trust II create contingent remainder interests in the remaindermen designated by the beneficiary or grantor in Article VII of the Instrument of Adoption. Because there are residual beneficiaries, the grantor could not revoke his trust share unilaterally, but would need the consent of the remaindermen. See POMS SI CHI01120.200(C) (“[I]f the trust names a residual beneficiary to receive the benefit of the trust interest after a specific event, usually the death of the primary beneficiary, the trust is irrevocable. The primary beneficiary cannot unilaterally revoke the trust; he needs the consent of the residual beneficiary.”); Wis. Stat. § 701.0411 (irrevocable trust may be modified or terminated only upon consent of grantor and all beneficiaries). Thus, we consider self-funded trust shares in Trust II to be irrevocable.
As stated above, an irrevocable trust generally will be considered a resource to the extent that any payments could be made from the trust to or for the benefit of the individual. Here, the Trustee of Trust II has the sole discretion to use the income and the principal in the individual trust shares for the benefit of the beneficiary for whom the trust share was established. MTA, Art. I & II, Art. VII. Thus, self-funded trust shares in Trust II would be resources under these provisions, unless an exception applies.
A. Life Navigators Trust II: Pooled Trust Exception
In order to qualify for the pooled trust exception, Trust II must contain the assets belonging to a disabled individual and satisfy the following conditions:
* The trust is established and managed by a nonprofit association.
* The trust maintains a separate account for each beneficiary, but pools these accounts for purposes of investment and management of funds.
* Accounts in the trust are established solely for the benefit of the disabled individual by the individual, parent, grandparent, legal guardian, or court.
* To the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust will pay to 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 beneficiary under the State Medicaid plan.
See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203(B)(2).
Here, Life Navigators Trust II does not appear to meet the first condition of the pooled trust exception.
B. Trust II Is Not Managed By Non-Profit Life Navigators
Though the MTA indicates that Trust II is managed by non-profit Life Navigators, serving as the “Trust Manager,” in reality Trust II is managed by a for-profit Trustee—the Prairie Financial Group of the Waukesha State Bank. MTA, Art. IV(A); Instrument of Adoption, June 22, 2016 Amendment. Because the pooled trust exception requires that qualifying trusts be managed by a non-profit association, Life Navigators Trust II does not meet the first condition of the exception.
According to the MTA, as Trust Manager, Life Navigators provides “advice and counsel to the Trustee with regard to both the Beneficiary’s qualification for government benefits and the effect that any distribution from the Trust will have on the Beneficiary’s qualification for such benefits.” MTA, Art. I(E) & Art. II. Under no circumstances is Life Navigators, as the Trust Manager, to be considered a co-trustee of Trust II. MTA, Art. I.
In contrast, the Trustee—not Life Navigators—retains the sole and absolute discretion to make distributions from Trust II. Id.: see also MTA, Art. IV(D), Art. VII(B) & (C), and Art. XII. While the Trustee receives advice from Life Navigators as the Trust Manager, and from a “Personal Needs Advisor” appointed by the Settlor, it is the Trustee who makes discretionary payments out of Trust II for the stated purpose of ensuring each individual beneficiary’s “comfort and happiness.” Id. Article XII of the MTA enumerates the powers of the Trustee, which include: selling assets; investing funds; retaining property; holding cash; arbitrating claims against Trust II; employing and compensating agents, brokers, attorneys, advisors, and assistants that the Trustee deems necessary; borrowing money; leasing real estate held by Trust II, permitting beneficiaries to lease real property; purchasing insurance, dealing with governmental agencies; and paying taxes. MTA, Art. XII. Only twice in this list of enumerated powers is consultation or consent of Life Navigators mentioned. Id. First, the Trustee must consult with Life Navigators before transferring some or all of a beneficiary’s assets to another trust. MTA, Art. XII(U). And, second, the Trustee may establish policies limiting investments and distributions from Trust Shares “[w]ith the consent” of Life Navigators. MTA, Art. XII(N). Aside from these two exceptions, for-profit Trustee Waukesha State Bank exercises its Trustee powers at its sole and absolute discretion, with only the advice of Life Navigators as Trust Manager.
While Agency policy allows a non-profit pooled trust manager to employ the services of a for-profit entity, the policy dictates that the non-profit association must maintain ultimate managerial control over the trust. See POMS SI 01120.225(D). For example, non-profit Life Navigators must maintain ultimate control over determining the amount of the trust corpus to invest and making the day-to-day decisions regarding the health and well-being of the pooled trust beneficiaries. Id. The use of a for-profit entity must always be subordinate to the non-profit manager. Id.
Here, the MTA assigns ultimate responsibility for these obligations to for-profit Trustee Waukesha State Bank. MTA, Art. VII & XII. As noted above, particularly concerning is the fact that the for-profit Trustee has “sole and absolute discretion” to make payments out of Trust II on behalf of the beneficiaries and “[u]nder no circumstances may the Trustee be compelled [by anyone else] to make any distributions to the [b]eneficiary.” Id. While Life Navigators acts as an advisor and consultant in its role as Trust Manager, the MTA is structured in such a way that ultimate managerial control of Trust II is given to the for-profit Trustee. This is in direct violation of Agency policy prohibiting a for-profit entity from determining whether to make discretionary disbursements from the trust. See POMS SI 01120.225(E). Thus, we recommend that the language in the MTA giving ultimate managerial control for disbursements and other day-to-day decisions to the Trustee be changed to comply with Agency policy.
C. Trust II Satisfies The Other Criteria Of The Pooled Trust Exception
If the above issue regarding trust management is corrected, Life Navigators Trust II satisfies the remaining three criteria for the pooled trust exception. Trust II maintains separate sub-accounts, or “trust shares,” for each beneficiary but pools the trust shares for purposes of investment and management. MTA, Art. VI. The MTA also specifies that individual Trust II trust shares are maintained for the sole benefit of the individual beneficiaries. Id. Although Trust II contains early termination provisions, the provisions comply with the requirements of POMS SI 01120.199(F)(2) because they solely allow for a transfer of the beneficiary’s assets from one § 1396p(d)(4)(C) trust to another such trust. MTA, Art. IX(C)-(E). Further, the MTA provides that each trust share is established by the individual, parent, grandparent, legal guardian, or court. MTA, Art. I(D); Instrument of Adoption, Art. III.
Finally, the MTA for Trust II provides that, upon the death of a beneficiary, any remaining funds in the trust share are disbursed according to the MTA and in accordance with the Instrument of Adoption. MTA, Art. IX; Instrument of Adoption, Art. VII. Specifically, to the extent the trust share’s remaining assets are not retained by Trust II, they must be used to pay back any State which provided medical assistance benefits to the beneficiary up to an amount equal to the total medical assistance paid on behalf of the beneficiary under the State plan. Id. The MTA for Trust II also provides for payment of reasonable fees for the administration and taxes due from the trust share because of the beneficiary’s death prior to reimbursement of medical assistance to the State(s). MTA, Art. IX(B). This is permitted under POMS SI 01120.203(B)(3)(a).
D. If Management Defect Is Cured, Trust II Would Not Be Considered A Countable Resource
If Life Navigators is able to cure the above defect regarding the management of the trust and qualify Trust II for the pooled trust exception, the regular resource rules in POMS SI 01120.200 apply to determine whether an individual trust share would be considered a resource. See POMS SI 01120.203(B)(2)(a). Under Agency rules, the trust principal will be a resource if the individual can (1) revoke or terminate the trust and use the assets to meet his needs for food or shelter, or (2) direct the use of the trust principal for his support and maintenance under the terms of the trust. See POMS SI 01120.200(D)(1)(a). In addition, the individual’s beneficial interest in the trust is a resource if it can be sold. Id.
As discussed above, the trust share—a grantor trust—would be considered irrevocable because the beneficiary cannot revoke it without the consent of Life Navigators or the other residual beneficiaries identified in Article VII of the Instrument of Adoption. See MTA, Art. IX(B); Instrument of Adoption, Art. VII; POMS SI CHI01120.200(C); Wis. Stat. § 701.0411. In addition, the beneficiary can neither demand payments nor expect to receive mandatory disbursements, as (currently) the Trustee for Trust II has “sole and absolute discretion” in making all distributions. MTA, Art. VII(A)-(C). Thus, the principal of a Life Navigators Trust II individual trust share would not be considered a resource under Agency policies.
Further, the MTA contains a spendthrift clause, which provides that no beneficiary’s interest in principal or income shall be subject to voluntary or involuntary alienation. MTA, Art. VIII. Generally, states that allow spendthrift trusts do not allow a grantor to establish a spendthrift trust for his own benefit. See POMS SI 01120.200(B)(16). However, it appears that Wisconsin does allow a spendthrift trust provision for an individual with a disability regardless of whether the beneficiary is also the grantor. See Wis. Stat § 701.0502(1)(b). Accordingly, the beneficiary’s interest in Trust II should not be considered a resource under the regular resource rules.
CONCLUSION
For the reasons discussed above, we conclude that the trust shares in Life Navigators Trust II would be considered resources under the Act due to language in the MTA that violates Agency policy regarding the management of pooled trusts.
B. PS 17-003 SSI—Regional Survey on Revocability of Grantor Trusts
Date: October 5, 2016
1. Syllabus
This Regional Chief Counsel (RCC) opinion provides a survey of state law in Region V concerning the revocability of grantor trusts. Specifically, examining whether a distribution to the grantor’s estate creates a residual beneficiary interest such that the grantor is not the sole beneficiary. The opinion reexamines each state’s law on a grantor’s ability to unilaterally modify or revoke a self-settled trust.
2. Opinion
QUESTION
You asked whether the A~ Irrevocable Trust (the Trust) is excepted as a special needs trust under section 1917(d)(4)(A) of the Social Security Act (the Act). Additionally, even should the agency determine that the exception applies, you asked if the Trust is a countable resource for purposes of determining A~’s eligibility for supplemental security income (SSI).
The Trust is not excepted from resource counting under section 1917(d)(4)(A) of the Act because it contains an improper early termination provision. Furthermore, even if the Trust met the special needs trust exception it still constitutes a countable resource because, as the settlor and sole beneficiary, A~ has power to revoke the Trust and use the Trust assets to meet her basic needs.
FACTS
R~, A~’s mother and guardian, executed the Trust on A~’s behalf on July XX, 2005, pursuant to order of the Marion County Superior Court. A~’s settlement from medical malpractice litigation funded the Trust.
Article Three of the Trust provides that the Trust is irrevocable, except a court may amend or revoke the Trust in order to accomplish its stated purpose. Article Four of the Trust gives the trustee sole discretion to spend or retain the Trust income or principal for A~’s benefit.
Article Five provides that, upon the A~’s death, any remaining balance in the Trust will be used to reimburse Indiana and other applicable state(s) for Medicaid assistance paid on the A~’s behalf, with any remainder paid to “the Personal Representative of the Beneficiary’s probate estate.”
Article Seven provides that, should the trustee determine that the Trust is not economical or if it is in A~’s best interest to receive services through the Arc Pooled Trust, then the trustee may distribute the entire trust principal and undistributed trust income to the Arc Pooled Trust for A~’s benefit, enrolling her in that pooled trust.
Article Ten provides that Indiana law shall govern the Trust.
DISCUSSION
Generally, a trust established after January 1, 2000, with the assets of an individual will be a countable resource to that individual for purposes of determining his or her SSI eligibility. See Social Security Act § 1613(e), 42 U.S.C. § 1382b(e); POMS SI 01120.201.A. However, pursuant to section 1917(d)(4)(A) of the Act, commonly referred to as the Special Needs Trust exception, a trust will be excepted as a resource if:
* It contains the assets of a disabled individual under the age 65;
* It is established for the individual’s benefit by the individual’s parent, grandparent, legal guardian, or a court; and
* It contains language that the State(s) will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan.
Social Security Act § 1917(d)(4)(A), 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203.B.1. The agency has interpreted section 1917(d)(4)(A)(ii) to require that the trust be for the sole benefit of the individual. POMS SI 01120.203.B.1.e. The trust will not be for the individual’s sole benefit if it (1) provides benefits to other individuals or entities during the disabled individual’s lifetime, or (2) allows for termination of the trust prior to the individual’s death and payment of the trust corpus to another individual or entity (other than the State(s) for reimbursement of medical assistance). Id.
Accordingly, if a trust contains an early termination clause, it will only meet the requirements of section 1917(d)(4)(A)(ii) of the Act if: (1) the State is designated to receive all amounts remaining in the trust at the time of termination up to the total amount of medical services paid on behalf of the beneficiary by the State, (2) after reimbursement to the State, all remaining funds are to be distributed to the beneficiary with the exception of certain specified expenses, and (3) the beneficiary does not have the power to terminate the trust. POMS SI 01120.199.F.1.
Article Seven of the A~ Trust violates the sole benefit requirement of section 1917(d)(4)(A) of the Act. Specifically, Article Seven provides that, should the trustee determine that the Trust is not economical or if it is in A~’s best interest to receive services through the Arc Pooled Trust,1 then the trustee may distribute the entire trust principal and undistributed trust income to the Arc Pooled Trust for A~’s benefit, enrolling her in that pooled trust. Article Seven, therefore, allows termination of the Trust during A~’s lifetime and distribution of the Trust corpus without reimbursement to the State(s) for medical services paid on A~’s behalf. Such a provision is in direct violation of POMS SI 01120.199.F.1, which requires that any early termination and distribution to or for the beneficiary may occur only after the State(s) receive reimbursement.2
Agency policy provides a 90-day period during which an SSI recipient may have his or her trust amended without the agency counting the trust as a resource. This 90-day period applies where the agency previously determined that a trust was an excepted resource under 1917(d)(4)(A) or (C), and the trust is currently non-compliant because of an invalid early termination clause. See POMS SI 01120.199.A.
This 90-day amendment period shall begin upon the SSI recipient receiving notice that the trust is non-compliant with the criteria for a special needs trust. Id. If the trust still fails to meet the special needs trust requirements upon expiration of the 90-day period, the agency will begin counting the trust as a resource. Id. Each previously excepted trust is permitted only one 90-day amendment period. Id.
Here, the agency previously determined that the Trust was not a countable resource when A~ applied for SSI as a minor. The agency later determined that the Trust was not excepted under section 1917(d)(4)(A) of the Act due to an improper early termination provision. However, A~ is not entitled to a 90-day amendment period to remove the improper early termination provision because the Trust is otherwise a countable resource, as explained below.
Even if a trust is excepted under section 1917(d)(4)(A) of the Act, it is still subject to regular resource counting rules. See POMS SI 01120.203.B.1.a (“A trust which meets the exception to counting the trust under the SSI statutory trust provisions of Section 1613(e) must still be evaluated under the instructions in SI 01120.200, to determine if it is a countable resource”).
Under the regular resource counting rules, trust property is a resource for SSI purposes if the individual (1) has the authority to revoke the trust and then use the funds to meet his or her basic needs for food or shelter; or (2) can direct the use of the trust principal for his or her support and maintenance. See POMS SI 01120.200.D.1.a. Additionally, if the individual can sell his or her beneficial interest in the trust, that interest is a resource. See id.
Whether a trust can be revoked or terminated depends on the terms of the trust and applicable State law. See POMS SI 01120.201.D.3. Here, Article Three provides that the Trust is irrevocable, except that a court may order revocation or amendment of the trust terms in order to accomplish the trust’s stated purpose. To the extent a trust purports to be irrevocable, most states follow the general principle of trust law that if a grantor is also the sole beneficiary of the trust, the trust is revocable regardless of language in the trust to the contrary. See POMS SI 01120.200.D.3; SI CHI01120.200.C; Rest. (Second) of Trusts § 339 (“If the settlor is the sole beneficiary of a trust and is not under an incapacity, he can compel the termination of the trust, although the purposes of the trust have not been accomplished”); Bogert's The Law of Trusts and Trustees, § 1004 (“Numerous courts have found a trust to be terminated or terminable at the instance of the settlor who is also the sole beneficiary”).
Here, Indiana law governs the Trust. Neither Indiana statute nor case law addresses the revocability of self-settled trusts where the settlor is the sole beneficiary. However, Indiana courts have followed the Restatement (Second) of Trusts, particularly concerning a settlor’s powers of revocation. See Breeze v. Breeze, 428 N.E.2d 286 (Ind. Ct. App. 1981) (finding opinion consistent with Restatement (Second) of Trusts § 330 regarding a settlor’s mode of revocation); Hinds v. McNair, 413 N.E.2d 586, 594 (Ind. Ct. App. 1980) (citing Restatement (Second) of Trusts § 330 on for general principal related to a settlor’s power to amend or revoke an irrevocable trust); see also Zoeller v. East Chicago Second Century, Inc., 904 N.E.2d 213, 221 (Ind. 2009) (following general notion of a constructive trust as outlined in Restatement (Second) of Trusts); Kesling v. Kesling, 967 N.E.2d 66, 81-82 (Ind. Ct. App. 2012) (citing to Restatement (Second) of Trusts and Restatement (Third) of Trusts for evolving legal status of trusts). Likewise, Indiana’s legislature has followed the Restatement (Second) of Trusts in drafting several sections of Indiana’s Trust Code. See e.g., Ind. Code Ann. §§ 30-4-3-2, 30-4-3-7, 30-4-3-10, 30-4-3-11, 30-4-3-26. It follows that, should the scenario arise, an Indiana court would adopt the general trust principle that a settlor could revoke a trust for which he or she is the sole beneficiary regardless of any terms in the trust to the contrary. See POMS SI CHI01120.200.C.
Thus, the only remaining question is whether the Trust contained any identifiable residual beneficiaries. Article Five provides that, upon the beneficiary’s death, any remaining balance in the Trust will be used to reimburse Indiana and other applicable state(s) for Medicaid assistance paid on the beneficiary’s behalf, and then pay any remaining amount to “the Personal Representative of the Beneficiary’s probate estate.”
Under the common law doctrine of worthier title, when a settlor designated his children, issue, heirs, or next of kin as remainder beneficiaries, such successors of the settlor’s estate were regarded as taking through the settlor and not as remaindermen; thus, the settlor was treated as the sole owner of the equitable interest in the trust. See Bogert's The Law of Trusts and Trustees, § 1004. Indiana has followed the modern view, and abolished the doctrine of worthier title. Ind. Code Ann. § 30-4-2-7; see also POMS SI 01120.200.D.3 (“Under the modern view, residual beneficiaries are assumed to be created, absent evidence of a contrary intent, when a grantor names heirs, next of kin, or similar groups to receive the remaining assets in the trust upon the grantor's death.”). However, even with the abolishment of the doctrine of worthier title, designating the settlor’s estate as recipient of a remainder share of the trust corpus does not create an identifiable residual beneficiary. See POMS SI CHI01120.200.D.2 (“Where the trust states only that the grantor’s own estate will receive any remaining trust assets on the grantor’s death, and names no other beneficiaries to the trust, the trust should be considered revocable.”). Here, an Indiana court would likely construe any conveyance to A~’s estate as no more than her retention of a future reversionary interest.
As there are no identifiable remainder beneficiaries, A~ is the sole beneficiary of the Trust. As such, under Indiana law, A~ has power to terminate the Trust and use the Trust funds to meet her basic needs. The Trust, therefore, is a countable resource. See POMS SI 01120.200.D.1.a.
CONCLUSION
The Trust is not excepted from resource counting under section 1917(d)(4)(A) of the Act because it contains an improper early termination provision. Additionally, modification of the Trust to meet the foregoing exception would not result in an exclusion from resource counting. As settlor and sole beneficiary, A~ has power to revoke the Trust and use the Trust assets to meet her basic needs. Therefore, even with removal of the improper early termination provision, the Trust is a countable resource.
Kathryn Caldwell
Regional Chief Counsel, Region V
By: Francesco P. Benavides
Assistant Regional Counsel
~~B. PS 16-202 REVISED - Review of WisPACT Trust I and WisPACT Trust II Amendments~~
C. PS 16-202 REVISED - Review of WisPACT Trust I and WisPACT Trust II Amendments
Date: September 27, 2016
* Syllabus
* The Regional Chief Counsel (RCC) opinion examines whether the amended Master Trusts (MT) and Contribution Agreements (CA) of WisPACT Trust I and WisPACT Trust II are in compliance with the procedures governing the Agency’s pooled trust policy. In sum, the RCC concluded that the sub-accounts in WisPACT Trust I would be considered resources due to language in the MT that could violate Agency policy regarding the management of pooled trusts, while the sub-accounts in WisPACT Trust II would not be considered resources.
* Opinion
* QUESTION
* You asked whether the amended Master Trusts (“MT”) and Contribution Agreements (“CA”) of WisPACT Trusts I and II are in compliance with the procedures governing the Agency’s pooled trust policy. For the reasons discussed below, we conclude that the sub-accounts in WisPACT Trust I would be considered resources due to language in the MT that could violate Agency policy regarding the management of pooled trusts. The sub-accounts in WisPACT Trust II would not be considered resources. This memorandum supersedes our previous memorandum regarding the WisPACT Trusts I and II Amendments dated August 26, 2016.
* BACKGROUND
* WisPACT, Inc., a non-profit corporation, manages WisPACT Trusts I and II. The primary purpose of the Trusts is to help each beneficiary develop his or her full potential and enjoy as comfortable and happy a life as possible. Declaration of Trust for WisPACT Trust I (“MT I”), Art. III(A); Declaration of Trust for WisPACT Trust II (“MT II”), Art. III(A). If a beneficiary is receiving public benefits, the Trusts are intended to supplement those benefits. Id. Under both Trusts, a beneficiary is an individual with a disability to whom or on behalf of whom payments from Trust assets are or may be made. MT I & II, Art. II(B). The Trusts define a disabled person consistent with Section 1614(a)(3) of the Act, 42 U.S.C. § 1382c(a)(3). MT I & II, Art. II(E)(1).
* WisPACT Trust I was established with the intention that it qualify as a pooled trust under 42 U.S.C. § 1396p(d)(4)(C). MT, Art. V(D). The Trust consists of separate self-funded sub-accounts that are maintained for the sole benefit of each sub-account beneficiary, but the sub-account assets are pooled for purposes of management and investment. Id.; Contribution Agreement – Application to Establish A Sub-Account in WisPACT Trust I, Beneficiary-Funded Pooled Special Needs Trust (“CA I”).
WisPACT Trust II appears to consist of two types of sub-accounts: self-funded sub-accounts and third party pooled sub-accounts. WisPACT has asked the Agency to review their self-funded sub-accounts that are designed to qualify as individual special needs trusts under 42 U.S.C. § 1396p(d)(4)(A). MT II, Art. V(D); Contribution Agreement to Establish A Sub-Account WisPACT Trust II Self-Funded Account (“CA II-S”). However, it is unclear whether WisPACT actually offers self-funded sub-accounts to prospective clients.3 WisPACT has also asked the Agency to review their third party pooled sub-accounts. Contribution Agreement Establishing A WisPACT Trust II – Third-Party-Funded Sub-Account (“CA II-T”).
* Within both WisPACT Trusts, individual sub-accounts are created and maintained for each beneficiary. MT I & II, Art. II(G). An individual sub-account is defined as an account containing assets held for the benefit of a beneficiary with a disability during his or her lifetime. Id. A sub-account is created when an individual or entity executes a CA naming the beneficiary, or a court enters an order incorporating the Trust by reference. MT I & II, Arts. II(M), VI(A)(1). Both Trusts explain that a sub-account creator, or his or her legal representative, must execute the CA in order to set up a sub-account. MT I & II, Art. VI(A)(1).
* WisPACT’s board of directors voted and approved a change from the previous Trustee, Associated Trust Company, to successor Trustee, Chemical Bank, effective October 1, 2015. As such, they amended their MTs for WisPACT Trusts I and II, as well as the relevant CAs.
* DISCUSSION
* I. Self-Funded Sub-Accounts in WisPACT Trusts I and II
* Under the Social Security Act (“Act”), a trust created on or after January 1, 2000, from the assets of an individual generally will be considered a resource to the extent that the trust is revocable or, in the case of an irrevocable trust, to the extent that any payments could be made from the trust to or for the benefit of the individual. See 42 U.S.C. § 1382b(e); POMS SI 01120.201(D). However, if a trust meets the criteria of either an individual special needs trust under 42 U.S.C. § 1396p(d)(4)(A) or a pooled trust under § 1396p(d)(4)(C), the trust is excluded from this rule. See also POMS SI 01120.203.
* We must first determine the revocability of the self-funded sub-accounts in WisPACT Trusts I and II. Here, the express terms of the amended MTs and the CAs state that the sub-accounts are irrevocable. MT I & II, Art. VI(A)(2); CA I, Art. I(A)(6); CA II-S, Art. II(A). Notwithstanding these provisions, the sub-accounts would be still be considered revocable if the grantor is also the sole beneficiary. See POMS SI CHI01120.200(C). In this case, however, the grantor would not be the sole beneficiary. Rather, WisPACT Trust I creates a contingent remainder interest in WisPACT. CA I, Art. II(B)(5). And the self-funded sub-account in WisPACT II creates a contingent remainder interest in the grantor’s heirs at law. CA II-S, Art. V(C); see POMS SI CHI01120.200(D) (“heirs at law” are considered residual beneficiaries). Since there are residual beneficiaries, the grantor could not revoke his sub-account unilaterally, but would need their consent. See POMS SI CHI01120.200(C) (“[I]f the trust names a residual beneficiary to receive the benefit of the trust interest after a specific event, usually the death of the primary beneficiary, the trust is irrevocable. The primary beneficiary cannot unilaterally revoke the trust; he needs the consent of the residual beneficiary.”); Wis. Stat. § 701.0411 (irrevocable trust may be modified or terminated only upon consent of grantor and all beneficiaries). Therefore, we consider self-funded sub-accounts in WisPACT Trusts I and II to be irrevocable.
* As stated above, an irrevocable trust generally will be considered a resource to the extent that any payments could be made from the trust to or for the benefit of the individual. Here, for both trusts, WisPACT has the sole discretion to use the income and the principal in the trust sub-account for the benefit of the beneficiary for whom the sub-account was established. MT I & II, Art. VII. Therefore, self-funded sub-accounts in both trusts would be resources under these provisions, unless an exception applies.
* A. WisPACT Trust I: Pooled Trust Exception
* In order to qualify for the pooled trust exception, the trust must contain the assets belonging to a disabled individual and satisfy the following conditions:
* The trust is established and managed by a nonprofit association.
* The trust maintains a separate account for each beneficiary, but pools these accounts for purposes of investment and management of funds.
* Accounts in the trust are established solely for the benefit of the disabled individual by the individual, parent, grandparent, legal guardian, or court.
* To the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust will pay to 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 beneficiary under the State Medicaid plan.
See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203(B)(2).
* Here, WisPACT Trust I does not appear to meet the first condition of the pooled trust exception:
* The Trust is established and managed by WisPACT, a nonprofit organization. MT I, Arts. II(O), X. However, the trust could violate Agency policy which dictates that, if a non-profit association employs the services of a for-profit entity, the non-profit association must maintain ultimate managerial control over the trust, including the day-to-day decisions regarding the health and well-being of the pooled trust beneficiaries. See POMS SI 01120.225(D). According to the MT, WisPACT may contract for or hire staff to perform duties such as directing distributions. MT I, Art. X(D). In the event that the contracted or hired staff is a for-profit entity, we believe this language could violate Agency policy that a for-profit entity cannot determine whether to make discretionary disbursements from the trust. See POMS SI 01120.225(E). The MT also provides that the contracted or hired staff may “carry out such other activities as are necessary to accomplish the purposes of the Trust.” MT I, Art. X(D). Again, if WisPACT uses a for-profit entity, we believe that this broad language could violate Agency policy that the non-profit must maintain ultimate managerial control over the pooled trust. See POMS SI 01120.225(D). Therefore, we recommend that the language noted above be removed from the MT to comply with Agency policy.
* The Trust maintains a separate sub-account for each beneficiary but pools the accounts for purposes of investment and management. MT I, Art. V(D); CA I, Art. I.
* The MT and CA indicate that the WisPACT Trust I sub-account is maintained for the sole benefit of the individual. MT I, Arts. V(D), VII; CA I, Art. I(A)(1). Although the Trust contains early termination provisions, MT I, Art. XIV(B), (C), it complies with the requirements of POMS SI 01120.199(F)(2) because it solely allows for a transfer of the beneficiary’s assets from one § 1396p(d)(4)(C) trust to another § 1396p(d)(4)(C) trust. Also, WisPACT Trust I sub-accounts are established by the individual, parent, grandparent, legal guardian, court, or individual’s agent. MT I, Arts. II(M), VI(A)(1); CA I, Art. I(A)(2). In the case of an individual’s agent, the CA I form requires the agent to provide a durable power of attorney with express authority or a certified court order permitting the agent to create and fund the sub-account. CA I, Art. I(A)(2)(a)(ii). This appears to be consistent with Agency policy on pooled trusts, as indicated by the Office of Income Security Programs.
* The Trust provides that, upon the death of a beneficiary, to the extent the sub-account’s assets are not retained by the Trust, they must be used to pay back any State which has provided Medicaid benefits to the beneficiary up to an amount equal to the total medical assistance paid on behalf of the beneficiary under the State plan. MT I, Art. XIV(A); CA I, Art. II(A)(2). The Trust also provides for payment of reasonable fees for the sub-account’s administration and taxes due from the sub-account to the State or Federal government because of the beneficiary’s death, prior to reimbursement of medical assistance to the state(s); this is permitted under POMS SI 01120.203(B)(3)(a). MT I, Art. XIV(A).
* If WisPACT is able to cure the above defect and qualify WisPACT Trust I for the pooled trust exception, the regular resource rules in POMS SI 01120.200 apply to determine whether a sub-account would be considered a resource. See POMS SI 01120.203(B)(2)(a). Under Agency rules, the trust principal will be a resource if the individual can (1) revoke or terminate the trust and use the assets to meet his needs for food or shelter, or (2) direct the use of the trust principal for his support and maintenance under the terms of the trust. POMS SI 01120.200(D)(1)(a). In addition, the individual’s beneficial interest in the trust is a resource if it can be sold. Id.
* As discussed above, the sub-account, a grantor trust, would be considered irrevocable because the claimant/beneficiary cannot revoke it without the consent of WisPACT, the residual beneficiary. CA I, Art. II(B)(5); POMS SI CHI01120.200(C); Wis. Stat. § 701.0411. In addition, the claimant/beneficiary can neither demand payments nor expect to receive mandatory disbursements, as WisPACT has “absolute discretion” in making all distributions. MT I, Arts. III, VII(A), (D), (F). Thus, the principal of a WisPACT I sub-account would not be considered a resource.
* Regarding selling a claimant/beneficiary’s interest, the Trust contains a spendthrift clause which provides that no beneficiary’s interest in principal or income shall be subject to alienation. MT I, Art. XVIII. Generally, states that allow spendthrift trusts do not allow a grantor to establish a spendthrift trust for his/her own benefit. See POMS SI 01120.200(B)(16). However, it appears that Wisconsin does allow a spendthrift trust provision for an individual with a disability regardless of whether the beneficiary is also the grantor. See Wis. Stat § 701.0502(1)(b). Accordingly, the claimant/beneficiary’s interest in the Trust should not be considered a resource.
* B. WisPACT Trust II: Special Needs Trust Exception
* As mentioned above, it is not clear whether WisPACT even offers self-funded sub-accounts that are intended to qualify for the special needs trust exception under 42 U.S.C. § 1396p(d)(4)(A) to prospective clients. Moreover, such accounts appear to essentially function as a pooled trust, as individual sub-account assets may be pooled for purposes of investment and management. MT II, Art. V(D). Nevertheless, we analyze the self-funded sub-accounts of WisPACT Trust II under the special needs trust exception. In order to qualify for this exception, a trust must contain the assets of a disabled individual under the age of 65 and satisfy the following conditions:
* It must be established for the benefit of the individual by a parent, grandparent, legal guardian or a court; and
* It must provide that 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 a State plan.
See 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203(B)(1). In the case of a legally competent, disabled adult, a parent or grandparent may establish a “seed” trust using a nominal amount of the parent’s or grandparent’s own money, or if state law allows, an empty or dry trust. See POMS SI 01120.203(B)(1)(f). And where a trust is established through the actions of a court, the creation of the trust must be required by a court order; approval of a trust by a court is not sufficient. See id.
* Here, the self-funded sub-accounts of WisPACT Trust II appear to satisfy the requirements of a special needs trust:
The sub-accounts are established and maintained for the benefit of a disabled individual. MT II, Arts. II(G), V(D). And they are established by a parent, grandparent, legal guardian or court. MT II, Arts. II(M), VI(A)(1); CA II-S, Art. I(D). Moreover, effective July 1, 2014, Wisconsin allows dry trusts.4 See Wis. Stat. § 701.0401(2) (trust may be created by a “declaration by any person who intends to create a trust with the expectation that property of the person or others will be transferred to the trust”). However, we recommend that WisPACT include the requirements for a court order in the MT.
* Upon the death of the individual, a sub-account’s assets must first be used to pay back any State which has provided Medicaid benefits to the individual up to an amount equal to the total medical assistance paid on behalf of the individual under the State plan. MT II, Art. XIV; CA II-S, Art. V(A). The Trust also provides for payment of reasonable fees for the sub-account’s administration and taxes due from the sub-account to the State or Federal government because of the individual’s death, prior to reimbursement of medical assistance to the state(s); this is permitted under POMS SI 01120.203(B)(3)(a). MT II, Art. XIV(A).
Having determined that the WisPACT Trust II self-funded sub-accounts would satisfy the special needs trust exception, the regular resource rules in POMS SI 01120.200 apply. See POMS SI 01120.203(B)(2)(a). As discussed above, the sub-account, a grantor trust, would be considered irrevocable because the claimant/beneficiary cannot revoke it without the consent of his “heirs at law,” who are residual beneficiaries. CA II-S, Art. V(C); POMS SI CHI01120.200(C), (D); Wis. Stat. § 701.0411. In addition, the claimant/beneficiary can neither demand payments nor expect to receive mandatory disbursements, as WisPACT has “absolute discretion” in making all distributions. MT II, Arts. III(B), VII(A), (D), (F). Therefore, the sub-account principal would not be considered a resource.
* With respect to selling a claimant/beneficiary’s interest, the Trust contains a spendthrift clause which provides that no beneficiary’s interest in principal or income shall be subject to alienation. MT II, Art. XVIII. As noted above, it appears that Wisconsin allows a spendthrift trust provision for an individual with a disability regardless of whether the beneficiary is also the grantor. See Wis. Stat § 701.0502(1)(b). Accordingly, the claimant/beneficiary’s interest in the Trust should not be considered a resource.
* II. Third Party Sub-Account in WisPACT Trust II
* In the case of a trust established solely with the assets of a third party, as in the third party sub-account in WisPACT II, the regular resource rules set forth in POMS SI 01120.200 apply to determine whether the assets in the trust are a resource. As with a self-funded sub-account, a third party sub-account would not be a resource under the regular resource rules. Here, neither the MT nor the CA give the claimant/beneficiary the right to terminate a third party sub-account. Moreover, under Wisconsin law, the claimant/beneficiary would not be able to unilaterally terminate his sub-account, but would need the consent of the grantor and WisPACT, the residual beneficiary. CA II-T, Art. V(E); Wis. Stat. § 701.0411. In addition, the claimant/beneficiary can neither demand payments nor expect to receive mandatory disbursements, as WisPACT has “absolute discretion” in making all distributions. MT II, Arts. III(B), VII(A), (D), (F). Therefore, the sub-account principal would not be considered a resource.
* With respect to the claimant/beneficiary’s power to otherwise sell his beneficial interest in the Trust, the MT contains a spendthrift provision in which the claimant/beneficiary’s interest in the assets of the Trust is not subject to alienation. MT II, Art. XVIII. Wisconsin allows spendthrift provisions in third party trusts. See Wis. Stat. § 701.0502(1)(a). Accordingly, the claimant/beneficiary’s interest in the Trust should not be considered a resource.
* CONCLUSION
* For the reasons discussed above, we conclude that the sub-accounts in WisPACT Trust I would be considered resources under the Act due to language in the MT that could violate Agency policy regarding the management of pooled trusts. We also conclude that the sub-accounts in WisPACT Trust II would not be considered resources under the Act.
~~C. PS 09-123 Wisconsin - SSI Review of Special Needs Trust for P~~~
D. PS 09-123 Wisconsin - SSI Review of Special Needs Trust for P~
DATE: June 24, 2009
1. SYLLABUS
This opinion analyzes a special needs trust to determine whether the criteria are met to be exempted from SSI resource counting. The subject trust was established in 2004 with the assets of a disabled individual under age 65. The trust fails to meet the sole benefit criteria to be exempted from SSI resource counting due to an early termination provision that would distribute trust assets as though the beneficiary had died. The provision thus allows that, subsequent to Medicaid reimbursement, the beneficiary's heirs could receive benefit from the trust while he is still alive. The trust also contains a potentially problematic provision stating that member's of the beneficiary's family may benefit from distributions of the trust if the trustee determines that such distributions promote the purpose of the trust. The language in that provision is imprecise and does not specify that such benefits to family members are strictly collateral and subordinate to trust distributions made on behalf of the beneficiary.
2. OPINION
You asked us to review the Paul J. V~ Special Needs Trust and annuity to determine whether the trust is a resource for purposes of determining Paul's eligibility for Supplemental Security Income (SSI). We conclude that the trust is a resource for SSI purposes because it is not for the sole benefit of Paul during his lifetime. Specifically, in Article V(B)(5), the trust includes an early termination clause that may result in other people receiving trust assets during Paul's lifetime. This makes the trust a resource. In addition, Article II(C) could raise issues about whether the trust is for the sole benefit of Paul, because it states that other family members may benefit from trust distributions.
BACKGROUND
Paul J. V~ was born in 1980. He began receiving Supplemental Security Income (SSI) benefits in 1982. On September 30, 1983, the Circuit Court of Cook County issued an order (1983 Order) approving a settlement and distribution in the amount of $1,237,000 (Settlement) to Paul's estate. Harris Trust and Savings (Harris Trust) was appointed the guardian of Paul's estate. The Settlement stated that Paul would require twenty-four hour nursing care, including help feeding, clothing, and cleaning himself, for the rest of his natural life, and that Victoria V~, Joseph V~, and Marjorie V~ (Paul's mother, father, and paternal grandmother) would care for Paul in their home. The Settlement included a lump sum payment of $750,000, of which $400,000 was designated for legal fees; $200,000 to reimburse Victoria, Joseph and Marjorie for care given to Paul from the time of his birth until the date of the Settlement; $20,000 to purchase an accessible van for Paul's transportation; and the remaining $130,000 to be invested by Harris Trust. The Settlement also directed that annuity payments be made for Paul to Harris Trust from the Life Insurance Company of North America. The annuity payments, in an amount of $4,000 a month, would begin in October 1983, and continue for twenty-five years. The 1983 Order directed that Harris Trust pay $2500 of the monthly annuity payments to Victoria, Joseph and Marjorie for Paul's care and maintenance.
On March 15, 2000, the Sawyer County (Wisconsin) Circuit Court appointed attorney Michael K~ as Paul's guardian ad litem. In December 2003, SSA reported Paul's mother for not disclosing countable trust resources to SSA since 1982. Victoria and Marjorie were subsequently convicted of mail fraud, and ordered to pay restitution to SSA in the amount of $100,918.
On August 27, 2004, the Sawyer County Circuit Court issued an order establishing the Paul J. V~ Irrevocable Supplemental Needs Trust Dated August 27, 2004. By that date, Paul was an adult, and he had been placed in an adult foster care residence. The stated purpose of the trust was to be a special needs trust described in 42 U.S.C. § 1396p(d)(4)(A) and Wisconsin Statutes §§ 49.454(4), 701.06(5m). See Trust, Art. I(B), I(D), II(F). The Trust states that it is the intent of the court that Paul remain eligible at all time for public assistance. See Trust, Art. I(B), (I)(D)(1). The Trust also states that the Trust is for Paul's sole benefit, and that the purpose of the Trust is to provide funds to make Paul's life "as pleasant, comfortable and happy . . . as possible" by supplementing those primary services and support provided by public aid. See Trust Art. II(D)(2).
The trust was funded with approximately $629,666 in assets remaining from the Settlement, which at Mr. K~'s request were transferred from Harris Trust and placed in trust with Marshall & Isley Trust Co., N.A. (M&I Trust). M&I Trust was named as Trustee of the Trust. See Trust, Art. IV(A). The trust also allows the Trustee to accept additional assets and add them to the trust estate, as long as the additions are consistent with the purpose of the Trust. See Trust, Preamble, Art. V(A)(7). The Trustee must make an annual accounting of the trust assets both to the guardian of Paul's estate and to the Sawyer County Probate Court. See Trust, Art. VI. The trust establishes that M&I Trust may resign as Trustee by notifying Paul and his guardian in writing. See Trust, Art. IV(B). The Trustee also has the discretion to appoint a substitute trustee, to act under the Trustee's supervision. See Trust, Art. IV(C).
The Trustee has sole discretion to make such distributions as the Trustee considers necessary and advisable and consistent with the purpose of the Trust. See Trust, Art. II(A)(1), II(B)(13), II(D), II(G). Paul has the sole right to use, possess and enjoy any tangible personal property held by the Trust, and any Trust-owned real estate that Paul occupies for residential purposes, unless the Trustee considers such use impractical or inadvisable. See Trust, Art. II(B)(4)-(7), VII. The Trustee does not require leave of the court to exercise its powers. See Trust, Art. IV(F), V(A)(9). However, the Trustee is directed not to make any expenditure which would cause Paul to become ineligible for public or government support. See Trust, Art. II(A)(2), II(F).
In addition to providing supplemental services not available through public assistance, including insurance, medical, educational, vocational, and legal services, see Trust, Art. II(B)(1)-(2), (9)-(12), II(D), the Trustee may make payments for household items, living expenses, an accessible automobile or van, and miscellaneous items "by which [Paul's] life will be enriched and made more enjoyable. See Trust, Art. II(B)(4)-(7). The Trustee may also use trust assets to help Paul maintain contact with friends and family, and to pay the expenses for caregivers and members of Paul's immediate family to accompany him on or visit him for holidays, vacations, entertainment and "miscellaneous treats." See Trust, Art. II(B)(3), (8). The Trust specifically states that members of Paul's family may benefit from distributions of the Trust if the Trustee determines that such distributions promote the purpose of the Trust and are in Paul's best interest. See Trust, Art. II(C).
The Trust expressly states that it is irrevocable. See Trust, Art. I(C)(1). However, the Trustee may petition the court to amend or terminate the Trust in order to maintain Paul's eligibility for public assistance, or to conform the Trust to any changes in the laws relating to public assistance. See Trust, Art. I(C)(2)(a). In addition, if Paul becomes ineligible for public assistance, or if the Trustee considers the benefits available to Paul too insubstantial to continue the Trust, the Trustee may terminate the Trust, reimburse the state for any benefits that Paul has received, and then distribute any remaining assets to Paul or his guardian. See Trust, Art. I(C)(2)(b). The Trustee may also terminate the Trust if it determines that the Trust's market value makes administering the Trust uneconomical or the Trustee determines it is in Paul's best interest to terminate the Trust. See Trust Art. V(B)(5). In that case, the Trust assets are to be distributed to the remainder beneficiaries as if Paul had died. Id.
Unless terminated by the Trustee as stated above, the trust terminates upon Paul's death. See Trust, Art. III(A). After Paul's death, the Trustee is directed to reimburse any amounts that a state paid to Paul for medical assistance or other benefits during his lifetime. See Trust, Art. III(B). After the reimbursement of those claims, the Trustee has the discretion to pay for Paul's funeral, burial and related expenses. See Trust, Art. III(C). If any more assets remain in the Trust, the Trustee may pay any death, inheritance, and estate taxes, and then distribute any remaining assets to Paul's heirs. See Trust, Art. III(D)-(E).
The Trust has anti-assignment and spendthrift provisions which state that no beneficial interest in the principle or income of the trust shall be subject to transfer, assignment, anticipation, pledge or seizure by legal process, and is not subject to claims from creditors. See Trust, Art. II(F), VIII, X. The Trust is governed by Wisconsin law. See Trust, Art. I(B)(1).
DISCUSSION
I. The Trust.
The Trust is subject to the statutory provisions of Section 1613(e) of the Social Security Act for trusts established on or after January 1, 2000. See 42 U.S.C. § 1382(b)(e); POMS SI 01120.201. Generally, under these provisions, trusts established with the assets of the individual or the individual's spouse are considered resources for SSI purposes even if they are irrevocable. However, there is an exception for certain trusts that are established under 42 U.S.C. § 1396p(d)(4)(A), commonly known as the special needs trust exception. See POMS SI 01120.203. For this exception to apply, the trust must be
Established with the assets of a disabled individual under age 65, or the disabled individual's spouse;
Established for the sole benefit of the individual by a parent, grandparent, legal guardian, or court; and
Provide that the state will receive all amounts remaining in trust upon the death of the individual up to an amount equal to the total medical assistance paid on behalf of the individual under a state Medicaid plan.
POMS SI 01120.203(B)(1)(a). If the trust contains provisions that provide benefits to other individuals or entities, or allow for termination of the trust prior to the individual's death and payment of the trust corpus to another individual or entity (other than to the State as payment for goods and services rendered to the individual), the trust is not for the sole benefit of the individual and cannot qualify for the special needs trust exception. POMS SI 01120.203(B)(1)(e). If the trust meets an exception to counting it as a resource under § 1613(e) of the Act, we still must evaluate it under the regular resource rules. See POMS SI 01120.203(B)(1)(a).
A. Special Needs Trust Exception
The Trust does not meet the requirements for the special needs trust exception to counting it as a resource under Section 1613(e). The trust meets the first requirement for the special needs trust exception, because Paul was born in 1980, and thus is under the age of 65. The Trust also meets the third requirement of the special needs trust exception. The Trust's termination clause provides that the entire amount remaining in the trust at Paul's death may be paid to reimburse the appropriate state for medical services provided to Paul during his lifetime. Expenses that are prohibited for purposes of meeting the Medicaid payback trust exception, such as funeral expenses, See POMS SI 01120.203(B)(3)(a)-(b), may not be paid until after all Medicaid services have been reimbursed.
However, the Trust does not meet the second requirement for the special needs trust exception, because it permits other people to benefit from the Trust during Paul's lifetime, and therefore was not established for Paul's sole benefit. The trust was established for Paul's benefit by the Sawyer County Probate Court, and was funded primarily with assets that derive from proceeds of the settlement of his lawsuit. However, the Article V(B)(5) of the Trust contains an early termination clause, under which the Trustee may terminate the Trust during Paul's lifetime and distribute the Trust assets "to the remainder beneficiaries set forth in Article III" as if Paul had died. Under this clause, in the event of early termination the Trust would properly reimburse the state for medical assistance provided to Paul. See Trust, Art. III(B), V(B)(5). However, any funds remaining after the state was reimbursed would be distributed to other persons or entities, while Paul was still alive. See Trust Art. III(C)-(E), V (B)(5). For that reason, the Trust does not meet the special needs trust exception to counting it as a resource under the Act, because it is not for the sole benefit of the disabled individual. POMS SI 01120.203(B)(1)(e).
In addition, the provision in Article II(C) could raise issues about whether the trust is for the sole benefit of the disabled individual, because that provision states that family members may also benefit from trust distributions. Although the Trust states that such distributions must promote the purpose of the Trust and be in Paul's best interests, it does not specify that such benefits to family members are strictly collateral and subordinate to trust distributions made on Paul's behalf.
B. Regular Resource Rules
If the Trust were amended so that it satisfied the Medicaid Trust exception requirements, we would also evaluate the trust under the regular resource rules. See POMS SI 01120.200. Under the regular resource rules, a trust will be a resource if it is unilaterally revocable, or if the individual can direct the use of the trust principal for his support. 20 C.F.R. § 416.1201(a). Also, if the individual can sell the right to his beneficial interest in the trust, the trust is a resource. POMS SI 01120.200(D)(1)(a), SI 01120.203(B)(1)(a). The Trust would not be a resource under these rules.
First, the trust is irrevocable. As a general rule, a trust is presumed to be irrevocable unless the grantor explicitly reserves the power to revoke the trust at the time of its creation. Restatement (Second) of Trusts, § 330(2); see generally Zastrow v. Journal Communications, Inc., 718 N.W.3d 51, 66-67 (Wis. 2006) (Wisconsin follows the Restatement (Second) of Trusts). Here, the Trust specifically states that it is irrevocable. Trust, Art. I(C). However, where a person is both the grantor and sole beneficiary of a trust, the trust may be unilaterally revocable even though the explicit terms of the trust state that the trust is irrevocable. Wis. Stat. 701.12(1); Restatement (Second) of Trusts § 339, comment a; POMS SI 01120.200(B)(2), 01120.200(D)(3), 01120.201(B)(7), CHI01120.200. Paul is a grantor of the Trust because the Sawyer County Probate Court, following a request by Paul's guardian ad litem, ordered the establishment of the Trust with the assets of Paul's estate. See In re Guardianship of Scott G.G., 659 N.W.2d 438, (Wis. App. Ct. 2003), citing Wis. Stat. §§ 49.454(4), 54.20(2)(c). However, Paul is not the sole beneficiary of the Trust, because there are remainder beneficiaries, namely Paul's heirs at law, whose consent would be required if he wanted to revoke the Trust. See Trust, Art. III(E); Wis. Stat. § 701.12(1); POMS SI CHI 01120.200(D).
Paul also cannot compel the Trustee to use the trust funds for his support and maintenance. See Trust, Art. II(A)(1), II(G). Paul may, however, be able to sell his beneficial interest in the Trust. It seems likely, however, that the Trust's spendthrift provision, see Trust Art. X, would not be effective against Paul. Wisconsin recognizes spendthrift trusts as valid and not subject to voluntary or involuntary alienation only where the beneficiary is a person other than the settlor. Wisc. Stat. Ann. § 701.06(1)-(2). Because the Trust is self-settled with the proceeds of Paul's Settlement, it appears that the spendthrift provision would not prevent him from selling his beneficial interest in the trust. Wisc. Stat. Ann. § 701.06(1)-(2). However, we believe that Wisconsin is likely to follow the approach set forth in the Restatement (Third) of Trusts, namely that a transferee would receive only the rights the settlor had to mandatory or discretionary disbursements under a trust. See POMS PS 0182.055 (PS 09-104 SSI - Wisconsin - Request for Six State Legal Opinion on Spendthrift Clauses - Reply); see also In re Walters Family Trust, 685 N.W.2d 172 (Wis. Ct. App. 2004) (unpublished) (recognizing Restatement (Third) of Trusts as controlling law). Because Paul, and therefore his transferee, cannot compel the Trustee to make disbursement from the Trust, Paul's interest in the Trust is not likely to be of any significant market value. Therefore, the Trust would not be a countable resource under the regular resource rules.
II. The Annuity Contract.
We have not been provided with an annuity contract. However, annuity payments under the Settlement apparently ended in 2008. Because the Trust was a resource from 2004 to 2008, when annuity payments were made into the Trust, those annuity payments were income when they were paid. POMS SI 01120.200(G)(2)(b).
CONCLUSION
In sum, we conclude that this trust is a resource for SSI purposes.
~~Donna L. C~Regional Chief Counsel, Region VBy: Julie L. B~Assistant Regional Counsel~~
Donna L. C~ Regional Chief Counsel, Region V By: Julie L. B~ Assistant Regional Counsel
~~D. PS 09-104 SSI - Request for Six State Legal Opinion on Spendthrift Clauses - REPL Your Reference: S2D5G6, SI 2-1-3 (Spendshift) Our Reference: 08-0141~~
E. PS 09-104 SSI - Request for Six State Legal Opinion on Spendthrift Clauses - REPL Your Reference: S2D5G6, SI 2-1-3 (Spendshift) Our Reference: 08-0141
DATE: May 8, 2009
1. SYLLABUS
This opinion addresses whether spendthrift clauses are recognized in the six states that compose the Chicago region and whether these states allow for a settler to establish a spendthrift trust for his or her own benefit. A spendthrift clause prohibits both involuntary and voluntary transfers of the beneficiary's interest in the trust income or principle. All states in the Chicago region recognize a spendthrift provision in a third-party trust. Likewise, all states in the Chicago region recognize that a beneficial interest in a self-settled discretionary trust would typically not be a countable resource as it would have little, if any, market value. In Illinois, Michigan, Minnesota, and Wisconsin, the beneficiary of a self-settled trust can sell the right to future mandatory disbursements, regardless of whether the trust has a spendthrift provision. Due to a lack of precedent, self-settled trusts with a spendthrift provision in Indiana or Ohio should be submitted to the Regional Chief Counsel's office for evaluation.
2. OPINION
You have asked whether spendthrift clauses are recognized in the six states in the Chicago Region and, if so, whether these states allow for a settlor to establish a spendthrift trust for his or her own benefit. Each of the six states in Region V recognizes spendthrift clauses as valid when they are established by a settlor for a third party. Therefore, the beneficiary of a third party trust could not sell the beneficial interest in that trust if it has a spendthrift provision. The validity and effect of a spendthrift provision in a self-settled trust varies somewhat from state to state. However, in all six states, the settlor's interest in a discretionary trust would not be a countable resource, regardless of any spendthrift provision, because in the laws of those states, even if the settlor can sell the interest, it would have no significant market value, since the transferee could not demand any payments. In Illinois, Michigan, Minnesota and Wisconsin, the settlor could sell the right to receive future mandatory disbursements, even if the trust includes a spendthrift clause, and the current market value of those disbursements would be a resource. In Indiana and Ohio, it appears that a spendthrift clause may effectively prevent a settlor from selling future mandatory disbursements such that the right to those future disbursements would not be a resource. However, since the law has not yet been interpreted clearly, we recommend that you send any self-settled trusts with mandatory disbursements and spendthrift provisions to our office for evaluation if they are governed by Indiana or Ohio law.
DISCUSSION
A spendthrift clause prohibits both involuntary and voluntary transfers of the beneficiary's interest in the trust income or principal. POMS SI 01120.200(B)(16). If a state recognizes the validity of a spendthrift clause, the beneficial interest in the trust, or the right to payments as a beneficiary, is not a countable resource because the beneficiary may not sell his or her beneficial interest in the trust. 1_/ Id. In the Chicago Region, all of the states recognize the validity of a spendthrift clause where the trust is established by a settlor for a third party.
However, if a settlor creates a trust for the settlor's own benefit and inserts a spendthrift clause, the spendthrift clause may be considered invalid. All of the states in the Chicago Region view such self-settled spendthrift trusts to be invalid with respect to creditors. However, in determining whether an interest in a trust is a resource, the focus is on whether the individual can sell his or her beneficial interest in the trust. The states vary with respect to whether a spendthrift clause would prevent a settlor from selling his or her beneficial interest in the trust. The majority of states in the region, namely Illinois, Michigan, Minnesota and Wisconsin, are likely to follow the Restatement (Third) of Trusts, which indicates that a spendthrift clause in a self-settled trust is invalid with respect to any interest retained by the settlor. RESTATEMENT (THIRD) OF TRUSTS § 58, cmt. e. Under the Restatement, the spendthrift clause would not prevent the settlor's interest from being reached by the creditors or from being sold. Id. However, the most a transferee could receive are the rights the settlor has under the trust. See RESTATEMENT (THIRD) OF TRUSTS § 60, cmts. b, f. Therefore, we would typically not consider a discretionary interest in a self-settled spendthrift trust to be a countable resource, since such an interest would have little, if any, market value. However, the right to receive mandatory disbursements from such trusts would generally be considered a resource, since the spendthrift clause would not prevent the individual from selling the interest and that interest would generally have market value.
In contrast, Indiana and Ohio law could be read to view self-settled spendthrift clauses to be invalid only with respect to the rights of creditors. Therefore, a spendthrift clause governed by the laws of those states may effectively prevent a settlor from selling his or her interest in the trust. If that is the case, then the right to both mandatory and discretionary disbursements from such trusts may not be considered a resource for SSI purposes in those states. However, we have not encountered any cases actually interpreting these provisions to prevent a settlor from selling the right to mandatory disbursements from a trust. Therefore, we recommend that self-settled trusts with spendthrift provisions that are governed by the law of Indiana and Ohio be referred for an opinion at least where the settlor has a right to mandatory disbursements.
Illinois
In Illinois, a spendthrift clause in a trust established by a third party will effectively prevent the beneficiary from selling his or her beneficial interest. 2_/ See Danning v. Lederer, 232 F.2d 610, 612 (7th Cir. 1956); Hopkinson v. Swaim, 119 N.E. 985, 990 (Ill. 1918). However, a settlor may not establish a spendthrift trust for his or her own benefit. In re Marriage of Chapman, 297 Ill. App. 3d 611 (Ill. App. 1998). Therefore, in a self-settled trust, the settlor could sell the right to mandatory future disbursements for their current market value, despite any spendthrift provision. However, the settlor's beneficial interest in a discretionary trust would not be a countable resource, even though the spendthrift clause would not prevent the settlor from selling the interest because the right to receive discretionary disbursements would have no significant market value. Although we were unable to find any case law which directly addressed this issue, we found that the Illinois courts have relied upon the Restatement (Third) of Trusts as persuasive authority in interpreting trusts. See In Re Estate of Feinberg, 891 N.E.2d 549 (Ill. App. 2008) (generally recognizing Restatement (Third) of Trusts as persuasive authority). Therefore, we believe that Illinois would adopt the Restatement (Third) approach --that a transferee would receive only the rights the settlor had under the trust, i.e., to receive mandatory or discretionary disbursements when the trust is self-settled and contains a spendthrift provision. See RESTATEMENT (THIRD) OF TRUSTS § 58(2), cmt. e. Therefore, the right to receive discretionary disbursements would not be considered a countable resource, as it is unlikely the right to discretionary disbursements would have any significant market value.
Indiana
Indiana law recognizes spendthrift trusts as generally valid against both voluntary and involuntary transfers. Ind. Code § 30-4-3-2(a). When the settlor is also the beneficiary of the trust, Indiana law recognizes an exception to this rule with respect to the rights of creditors. Ind. Code § 30-4-3-2; see also Matter of Cook, 43 B.R. 996 (N.D. Ind. 1984) (recognizing that if a settlor is also the beneficiary of the spendthrift trust, creditors may reach the trust corpus). Because Indiana law expressly addresses only the validity of a spendthrift clause in a self-settled trust with regard to creditors' rights, it is possible that Indiana would recognize a spendthrift provision to be valid to the extent that it would prevent the settlor from selling his beneficial interest in a self-settled trust. See POMS PS 01825.01 (PS 09-015 SSI - Review of the Trust and Annuity for Savanna R. W~) (concluding that even if the settlor could sell the interest, it would have no value because the trust was discretionary). However, the comments to the section state that it follows the rule in the Restatement (Second) of Trusts section 156, which states that a self-settled spendthrift clause is ineffective against both creditors and transferees. See Ind. Code § 30-4-3-2(b); see also RESTATEMENT (SECOND) OF TRUSTS § 156(2). If you encounter a self-settled trust governed by Indiana law with a spendthrift provision and with the right to future mandatory disbursements, we recommend that you refer the case to our office for a legal opinion, since the law is not clear at this time.
Michigan
Michigan recognizes the validity of spendthrift trusts, in general, by statute and common law. Mich. Comp. Laws Ann. § 700.2902(2); Matter of Estate of Edgar, 389 N.W.2d 696 (Mich. 1986). However, under Michigan law, a person cannot create a true spendthrift trust for himself. See In re Hertsberg Intervivos Trust, 578 N.W.2d 289, 291 (Mich. 1998) (adopting RESTATEMENT (SECOND) OF TRUSTS § 156). In Hertsberg Intervivos Trust, the Michigan Supreme Court adopted Restatement (Second) of Trusts section 156, which states that a creditor or transferee could reach the entire amount of the trust that the trustee could, in his or her discretion, pay to or for the benefit of the settlor of the trust. See id. at 291. However, that case involved only the rights of a creditor, and we have previously advised that we think it likely that Michigan would adopt the Restatement (Third) approach--that a transferee, unlike a creditor, would receive only the rights the settlor had under the trust, i.e., mandatory or discretionary disbursements. See POMS PS 01825.025 (PS 09-062 Michigan - SSI-Review of the Annuity and Special Needs Trust for Jeri L. K~) (citing RESTATEMENT (THIRD) OF TRUSTS § 60 and cmts. e, f (2003)). Therefore, the right to future mandatory disbursements from a self-settled trust would be considered a resource despite any spendthrift clause; however, the right to discretionary disbursements would not be considered a resource as it is unlikely the right to discretionary disbursements would have any market value.
Minnesota
Minnesota recognizes the validity of spendthrift trusts though common law; there is no Minnesota statute which expressly deals with spendthrift provisions. See Morrison v. Doyle, 582 N.W.2d 237, 240 (Minn. 1998); In re Mack, 269 B.R. 392 (D. Minn. 2001). Under Minnesota law, cases involving enforcement of spendthrift provisions have always involved protection of the interest of a beneficiary who is not the settlor of the trust; therefore, in Minnesota, it appears that a spendthrift clause in a self-settled trust would likely be considered void and unenforceable. In re Mack, 269 B.R. at 399 (citing Simmonds v. Larison, (B.A.P. 8th Cir. 1999)). In reaching its holding in Mack, the court looked to the Restatement (Second) of Trusts § 156. 3_/ While there is no Minnesota case specifically adopting the Restatement (Third) of Trusts on this issue, we believe it is likely that a Minnesota court would follow the Restatement (Third) approach in determining the extent to which the settlor's interest can be transferred. See Norwest Bank Minnesota North, N.A. v. Beckler, 663 N.W.2d 571 (Minn. Ct. App. 2003) (relying upon Restatement (Third) of Trusts in determining the role of a trustee); compare In re Syverson Trust, 2003 WL 22016795 (Minn. Ct. App. 2003) (unpublished) (declining to adopt the Restatement (Third) of Trusts where doing so would change existing law in Minnesota, noting such change was reserved for the Minnesota Supreme Court or the legislature). Therefore, the settlor's right to mandatory disbursements would be considered a resource; however, the right to discretionary disbursements would not be considered a resource as it is unlikely the discretionary disbursements would have any significant market value. See RESTATEMENT (THIRD) OF TRUSTS § 58(2), cmt. e.
Ohio
Ohio recognizes the validity of a spendthrift clause through statute and case law. See Ohio Rev. Code Ann. § 5805.01; see also Scott v. Bank One Trust, 577 N.E.2d 1077 (Ohio 1991). Ohio adopted the Uniform Trust Code in 2007, and the controlling provisions are applicable to spendthrift trusts created before and after 2007. See Ohio Rev. Code Ann. §§ 5805.01(A), 5805.06(A)(2), and 5811.03(A)(1). Ohio law recognizes the validity of spendthrift provisions in general, and states that "[a] beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision and, except as otherwise provided in this chapter and in section 5810.04 of the Revised Code, a creditor or assignee of the beneficiary may not reach the interest or a distribution by the trustee before its receipt by the beneficiary." Ohio Rev. Code Ann. § 5801.01(C). This suggests that, even in a self-settled trust, a spendthrift provision will prevent the settler from transferring his or her interest in the trust. The only exceptions to the effectiveness of a spendthrift provision relate to when a creditor or assignee of the beneficiary can reach an interest in or a distribution from the trust. Ohio law further states that whether or not a trust contains a spendthrift provision, the settlor's creditor or assignee may reach the maximum amount that can be distributed to or for the settlor's benefit. See Ohio Rev. Code Ann. §§ 5805.06(A)(2), 5811.03(A)(1). Indeed, the official comment notes, "[W]hether the trust contains a spendthrift provision or not, a creditor of the settlor may reach the maximum amount that the trustee could have paid to the settlor-beneficiary. If the trustee has discretion to distribute the entire income and principal to the settlor, the effect of this subsection is to place the settlor's creditors in the same position as if the trust had not been created." Id. Because Ohio law allows such liberal access to the trust assets by "assignees," section 5805.06 could be read to suggest that the beneficiary of a self-settled trust could sell his beneficial interest in the trust and the purchaser could obtain the maximum amount that the trustee could distribute to or for the settlor's benefit. However, the Office of General Counsel has determined that the better reading of this provision presumes that only an assignee who is a creditor, not a purchaser for value, could reach the maximum amount the trustee could distribute for the settlor's benefit. See POMS 01825.039 Ohio (PS 08-159 SSI Review of the Trust and Annuity for Dustin J. E~). Therefore, it appears that spendthrift provisions in self-settled trusts governed by Ohio law may be fully valid with respect to the limitation on selling the settlor's beneficial interest in the trust. This interpretation of Ohio law would not have a significant impact where a trust is wholly discretionary. Even if the settlor could sell that interest, it would have no significant value. However, this interpretation would also mean that even the right to future mandatory disbursements could not be sold and therefore would not be a resource. This would be a significant departure from the Restatement (Third) of Trusts, as well as the Restatement (Second) of Trusts, both of which state that a spendthrift provision restraining the voluntary and involuntary alienation of the settlor's interest in the trust is invalid. See RESTATEMENT (SECOND) OF TRUSTS § 156(1), RESTATEMENT (THIRD) OF TRUSTS § 58(2). In fact, Ohio adopted the comment to Uniform Trust Code provision, which specifically cites to the Restatement (Second) of Trusts § 58(2) and states that "[a] spendthrift provision is ineffective against a beneficial interest retained by the settler." Ohio Rev. Code Ann. § 5805.01, cmt.; Unif. Trust Code § 502, cmt. It would seem odd, therefore, if the Ohio code (and the uniform code) intended to deviate from the Restatement in this important way. Since the law is not entirely clear, and since there are not yet any cases interpreting the Ohio provisions, we recommend that you refer to our office any self-settled trust governed by Ohio with a spendthrift provision and provisions for mandatory disbursements.
Wisconsin
Wisconsin recognizes spendthrift trusts as valid and not subject to voluntary or involuntary alienation only where the beneficiary is a person other than the settlor. Wisc. Stat. Ann. § 701.06(1)-(2). Therefore, it appears that a spendthrift provision would not prevent a settlor from selling his beneficial interest in the trust when he is also the settlor of the trust. Wisc. Stat. Ann. § 701.06(1)-(2)._4 However, we believe that Wisconsin would likely follow the Restatement (Third) approach--that a transferee would receive only the rights the settlor had under the trust, i.e., mandatory or discretionary disbursements. See In re Walters Family Trust, 685 N.W.2d 172 (Wis. Ct. App. 2004) (unpublished) (parties recognizing Restatement (Third) of Trusts as controlling law); see also POMS PS 01825.055 (PS 08-156 - Wisconsin - Review of the Trust for Brian G~) (citing to Restatement (Third) of Trusts as controlling authority in Wisconsin)). Therefore, the right to future mandatory disbursements from a self-settled trust would be considered a resource; however, the right to discretionary disbursements would not be considered a resource, as it is unlikely the right would be of any significant market value.
CONCLUSION
In sum:
* All states in the Chicago region would recognize the validity of a spendthrift provision in a third party trust.
* In all states in the Chicago Region, the beneficial interest in a self-settled discretionary trust would not be a countable resource because even if the individual can sell the interest, it would have no significant market value.
* In Illinois, Michigan, Minnesota, and Wisconsin, the beneficiary of a self-settled trust can sell the right to future mandatory disbursement, regardless of whether the trust has a spendthrift provision.
* Trusts governed by Indiana or Ohio law should be referred for a legal opinion if the trust is self-settled and provides for mandatory disbursements and has a spendthrift clause.
~~Donna L. C~Regional Chief Counsel, Region VBy: Anne M~Assistant Regional Counsel~~
Donna L. C~ Regional Chief Counsel, Region V By: Anne M~ Assistant Regional Counsel
_1/ The trust may still be a resource for other reasons.
_2 / In Matter of Perkins, 902 F.2d 1254 (7th Cir.1990), the Seventh Circuit Court of Appeals noted the following considerations in determining whether a trust under Illinois law qualifies as a spendthrift trust: "(1) whether the trust restricts the beneficiary's ability to alienate and the beneficiary's creditors' ability to attach the trust corpus; (2) whether the beneficiary settled and retained the right to revoke the trust, and (3) whether the beneficiary has exclusive and effective dominion and control over the trust corpus, distribution of the trust corpus and termination of the trust." See, e.g., In re Silldorff, 96 B.R. 859, 864 (C.D.Ill.1989). The degree of control which a beneficiary exercises over the trust corpus is the principal consideration under Illinois law.
_3 / This provision states: (1) Where a person creates for his own benefit a trust with a provision restraining the voluntary or involuntary transfer of his interest, his transferee or creditors can reach his interest. (2) Where a person creates for his own benefit a trust for support or a discretionary trust, his transferee or creditors can reach the maximum amount which the trustee under the terms of the trust could pay to him or apply for his benefit.
_4 / Wisconsin law indicates that where a settlor is a beneficiary of a trust regardless of whether it has a spendthrift provision, a creditor may, at the discretion of the court, receive payments from the income or principal of the trust to satisfy a judgment. Wisc. Stat. Ann. 701.06(6)(a).
~~E. PS 09-088 SSI-Review of the Testamentary Trust for the Benefit of Cassie A~, Ineligible Spouse of Erik A~, REPLY Your Ref: S2D5G6, SI-2-1-3 WI (A~) Our Ref: 09-0042-NC~~
F. PS 09-088 SSI-Review of the Testamentary Trust for the Benefit of Cassie A~, Ineligible Spouse of Erik A~, REPLY Your Ref: S2D5G6, SI-2-1-3 WI (A~) Our Ref: 09-0042-NC
DATE: 4/23/09
1. SYLLABUS
This opinion examines whether or not a claimant's interest in a testamentary trust (i.e. a trust established by a will and effective at the time of the testator's death) is a resource for Supplemental Security Income (SSI) purposes. The opinion also examines whether or not the spendthrift clause is valid. If an individual does not have the legal authority to revoke or terminate the trust or to direct the use of the trust assets for his or her own support and maintenance, the trust principal is not the individual's resource for SSI purposes. If a trust is irrevocable by its terms and under State law and cannot be used by an individual for support and maintenance (e.g. it contains a valid spendthrift clause), it is not a resource. In this case, the claimant's interest in the trust is not a resource because the trust is irrevocable and cannot be used by the claimant for support and maintenance due to a valid spendthrift clause that complies with Wisconsin law. However, certain distributions from the trust may be income to the claimant.
2. OPINION
You asked whether the interest of claimant Cassie A~ (formerly M~) in a testamentary trust would be a resource for SSI purposes. Specifically, you want to know whether the sentence in paragraph 4(a), stating that the trust shall be considered a spendthrift trust, would prevent the claimant from selling her interest in the trust. For the reasons discussed below, we conclude that the spendthrift provision is valid, and thus the claimant's interest in the trust would not be a resource. However, certain distributions from the trust would be income.
BACKGROUND
On December 5, 2002, Betty M~, a resident of Wisconsin, executed her Last Will and Testament. On December 17, 2002, M~ executed a codicil in which she modified paragraph 3 of her will.
The will and codicil state, in relevant part, that the claimant will receive 20 percent of the remainder of M~'s estate (after payment of her final illness and funeral expenses and debts and certain specific bequests to other individuals). Will 1-2; codicil 3.
Paragraph 4 of the will states that the amounts bequeathed to the claimant and to Adam M~, another beneficiary, will be held in trust. Will 4(a). Deborah M~, M~'s daughter, is named as the Trustee, and Robert B~ is named as the successor Trustee. Will 4(a), (b).
Paragraph 4 also states that, when each beneficiary attains the age of 30, the entire amount of each beneficiary's share of the corpus shall be paid to him or her. Will 4(a). The claimant will turn 30 years old in June 2014.
In addition, the Trustee has discretion to pay each beneficiary from his or her share of the trust as needed if the Trustee determines that the beneficiary's necessities of life are insufficient. Id. Moreover, the will directs that the income from each beneficiary's share of the trust will be paid to him or her annually in the discretion of the Trustee. Id.
Paragraph 4 further states that the trust "shall be considered as a spendthrift trust." Id.
DISCUSSION
Initially, we note that the trust established by M~'s will is a third party trust, since M~ is the grantor. Accordingly, we apply the regular resource rules in POMS SI 01120.200. Under the regular resource rules, an individual's beneficial interest in a trust is a resource if it can be sold. See POMS SI 01120.200(D)(1)(a).
Here, the trust provides for a mandatory disbursement of the claimant's entire share of the trust principal when she turns 30 years old. The Trustee also has the discretion to invade the principal and make a disbursement before the claimant turns 30 if the Trustee determines that the claimant's necessities of life are not sufficient. And, although the language appears somewhat confusing, we believe that the provision in 4(a) of the will directing the income from the claimant's share of the trust to be paid to her annually is discretionary.
You asked specifically about the provision stating that the trust "shall be considered as a spendthrift trust." Will 4(a). Based on Wisconsin state law and general trust principles, we conclude that this spendthrift provision is valid, and would thus prevent the claimant from selling her beneficial interest in the trust. Wisconsin explicitly recognizes spendthrift provisions in the case of third party trusts. See Wis. Stat. Ann. § 701.06(1)-(2). This is consistent with general trust principles. See Restatement (Third) of Trusts § 58(1) (2003) (restraint on voluntary and involuntary alienation of beneficial interest in a third party trust is valid). Moreover, the Restatement explains that no particular form of wording is necessary to create a spendthrift trust, as long as the requisite intention can be discerned from the terms of the trust. "It is sufficient if a settlor simply provides that the trust 'is to be a spendthrift trust.'" Id. § 58 cmt. b(3). That is the case here. Thus, since the spendthrift provision is valid, the claimant's beneficial interest in the trust is not a resource.
Finally, as noted above, upon reaching the age of 30, the claimant is entitled to payment of her entire share of the trust principal. This amount would be considered unearned income in the month it is received and a countable resource in subsequent months if it is retained. See 20 C.F.R. §§ 416.1123(a), 416.1207(d); POMS SI 00810.030(A), SI 01110.600(B)(3). These rules would also apply to any actual distributions of principal or income from the trust that the claimant receives before she turns 30.
Conclusion
For the reasons discussed above, we conclude that the claimant's interest in the trust is not a resource for SSI purposes (although certain distributions from the trust may be income).
~~Donna L. C~Regional Chief Counsel, Region V~~
Donna L. C~ Regional Chief Counsel, Region V
~~By: Cristine B~Assistant Regional Counsel~~
By: Cristine B~ Assistant Regional Counsel
~~F. PS 08-156 SSI- Wisconsin-Review of the Trust for Brian G~, ~ Our Reference: 08-0168-NC~~
G. PS 08-156 SSI- Wisconsin-Review of the Trust for Brian G~, ~ Our Reference: 08-0168-NC
DATE: July 23, 2008
1. SYLLABUS
This opinion examines a third-party trust and whether or not it is a countable resource for SSI purposes. The trust in this case is not a resource because the claimant cannot revoke the trust and obtain the assets, nor does he have the authority to direct use of the trust principal for his support and maintenance. Moreover, under the terms of the trust, the claimant cannot assign or sell his right to future payments. It should be noted that the trust may be terminated when the claimant reaches age 60 and thus the trust should be re-evaluated at that time to determine whether it should be counted as income or a resource.
2. OPINION
You asked whether the trust for Brian G~ ("Brian") is a resource for SSI purposes. Specifically, you inquired as to whether Brian can sell his right to the trust, which can terminate on his sixtieth birthday in 2025. We conclude that the trust is not currently a resource to Brian because a spendthrift clause prevents him from selling his right to receive the trust assets on his sixtieth birthday. However, the trust funds should be re-examined when Brian reaches age sixty (or before that if the trustee terminates the trust) to determine whether, after that time, it is income or a resource to Brian.
BACKGROUND
Gerald D. G~ ("Mr. G~") established a revocable Living Trust with his property on March 12, 2003. Mr. G~ was the beneficiary of the trust during his lifetime, and he retained the power, personally, to use, possess, enjoy, and withdraw any or all of the trust property, principal or income for his own benefit. Trust at I(B), XI. Mr. G~ also retained the power to revoke or amend the trust at any time. Trust at VII, X.
On January 12, 2004, Mr. G~ amended the trust, specifically replacing the section which designated beneficiaries and provided for distribution of the trust upon his death. The amended trust now names Brian as the main residual beneficiary. Trust Amendment at II(C). After payment of Mr. G~'s death expenses, the remaining trust corpus is to remain in trust for Brian's benefit. Trust Amendment at II(C).The trustee has "sole and complete discretion" to "make any distributions to the Beneficiary from the Trust that the Trustee deems appropriate for the support, health, welfare and education of the Beneficiary." Trust Amendment at II(D). But, the Trustee is restricted from taking action which jeopardizes Brian's eligibility for Social Security or Medicare benefits. Trust Amendment at II(D).
Brian's trust terminates when he reaches age 60, but may be extended upon mutual agreement of Brian and the trustee, if termination will negatively affect Brian's eligibility for public benefits. Trust Amendment at II(F). Upon termination, the remaining trust corpus would be distributed to Brian. Id.
Under the terms of the trust (which were not amended), the trustee also has the power to terminate the trust if its value is insufficient to carry out its purposes. Trust at V(8).
The trust includes a spendthrift clause, stating that "[n]o interest under this agreement shall be assignable by any beneficiary, or be subject to claims of his or her creditors . . . ." Trust at IV. And the trust states that it is governed exclusively by Wisconsin law. Trust at IX.
Mr. G~ died on January XX, 2004 (just ten days after amending the trust). The value of the corpus of the trust is currently about $101,040.
DISCUSSION
The Social Security Act provides that an individual is not eligible for SSI if his resources exceed $2,000.00. See 42 U.S.C. § 1382(a)(1)(B)(ii), (3)(B) (designating allowable resource cap for an individual not living with a spouse). A resource is cash or other liquid assets or real or personal property that an individual owns and can convert to cash to be used for support and maintenance. 20 C.F.R. § 416.1201(a). Trust property may be a resource for SSI purposes. POMS SI 01120.200(A)(1).
Because this is a third party funded trust of which Brian is a beneficiary, only the regular resource rules apply in determining whether the trust is a resource to Brian. POMS SI 01120.200(A)(1), (2)(b). Under these rules, a trust is a resource to an individual if he has the right to revoke or terminate the trust and use the funds for his food or shelter; if he can direct the use of the trust principal for his support and maintenance; or if the trust provides for mandatory disbursements to the individual and he is not prohibited from anticipating, assigning, or selling his right to those future payments. 20 C.F.R. § 416.1201(a); POMS SI 01120.200(A)(2)(b), (D)(1)-(2). Brian's trust is not a resource under these rules.
First, Brian cannot revoke or terminate the trust and obtain the assets. Although the trust permitted the grantor, Mr. G~, to revoke the trust during his lifetime, there is no provision in the trust permitting Brian to terminate the trust and obtain the assets. The trustee has a limited power to terminate the trust if he determines that the value of the trust assets is insufficient to carry out the purpose of the trust. Trust at V(8). If the trustee terminates the trust pursuant to this provision, the trust corpus and certain income would be distributed to Brian. However, Brian does not have the power or authority to terminate the trust under this provision.
Second, Brian does not have the power to direct the use of trust principal for his support and maintenance. The trust does not give Brian, as the beneficiary, any direct power to act with regard to the trust principal or any power to order the trustee to distribute the trust principal on his behalf. See POMS SI 01120.200(D)(1)(b). The trust gives the trustee "sole and complete discretion" with regard to distributions. Trust Amendment at II(D). The trust also provides that the trustee is prohibited from taking any actions which could "jeopardize or negatively affect" Brian's eligibility for other resources, including, particularly, any Social Security or other public benefits. Id. Thus, if Brian were to challenge the trustee with regard to a request that the trustee distribute trust principal on his behalf while he is receiving or otherwise eligible for public benefits, it is likely that the Wisconsin courts would construe the trust according to the settlor's intent and not allow any distributions by the trustee that would jeopardize Brian's Social Security or Medicare benefits. See In re Catherine H. B~ Charitable Trust, 622 N.W.2d 471, 474 (Wis. App. 2000) (settlor's intent controls, especially as expressed in trust document where settlor is deceased). Thus, so long as Brian is receiving or may be eligible for SSI or other public benefits, such as Medicare, he cannot compel the trustee to use the funds in a manner that would make him ineligible for benefits.
Finally, the trust did not provide for any mandatory distributions to Brian which he could anticipate and assign, due to the trust's valid spendthrift provision. See POMS SI 01120.200(A)(2)(b), (B)(16), (D)(1)(a). Wisconsin law upholds the validity of a trust settlor's expressly provided-for spendthrift provision imposed upon the trust's beneficiary. Wis. Stat. Ann. § 701.06(1)-(2). However, after Brian reaches age sixty, the trust should be evaluated to determine whether the funds should be considered income or a resource to him at that time.
Conclusion
In sum, until it is terminated - either on Brian's sixtieth birthday or pursuant to the trustee's limited power to terminate based on insufficient value - the trust corpus is not a resource to Brian because he cannot terminate the trust and obtain the assets; he cannot compel the trustee to provide for his support and maintenance; and he cannot assign his interest in the trust. After Brian reaches age 60, however (and before that if the trustee terminates the trust), the trust should be re-evaluated to determine whether it should be counted as income or a resource.
~~Donna L. C~Regional Chief Counsel, Region V~~
Donna L. C~ Regional Chief Counsel, Region V
~~By: Sara E. Z~Assistant Regional Counsel~~
By: Sara E. Z~ Assistant Regional Counsel
~~G. PS 08-133 SSI- Wisconsin-Review of the Irrevocable Life Insurance Trust Agreement for Nancy S~, ~ Our Reference: 08-108-NC~~
H. PS 08-133 SSI- Wisconsin-Review of the Irrevocable Life Insurance Trust Agreement for Nancy S~, ~ Our Reference: 08-108-NC
DATE: June 18, 2008
1. SYLLABUS
This decision highlights the fact that a life insurance policy purchased under the auspices of a revocable trust can also be revoked and, therefore is countable. Unlike many life insurance policies which are the basis of burial contract funding, this revocable policy has no connection to any funeral home.
2. OPINION
BACKGROUND
On December 26, 2007, the Nancy J. S~ Irrevocable Trust (the Trust) entered into a contract with National Mutual Benefit, a life insurance company (National), for a Simple Premium Whole Life insurance policy. The Trust is the policy owner, and Nancy J. S~ (Ms. S~), is the insured. See Sections I, III. Also, on November 7, 2007, Ms. S~ executed an Irrevocable Assignment which purports to make an irrevocable assignment of ownership of the policy to the Trust, with Thomas P. S~ acting as trustee (but with the option of assigning his duties to a third party administrator other than National). Thomas accepted the assignment on behalf of the Trust, and an officer of National consented to the assignment on December 26, 2007. Ms. S~ funded the policy with a cash surrender from a policy with Prudential Financial, who issued a check on December 20, 2007, payable to National. The surrender was a "1035 exchange," surrender date November 26, 2007.
The life insurance policy is to pay death benefits upon the death of Ms. S~. Section I. The single premium paid for the policy was $3,982.56, and the death benefit amount is $4,127.00. Death benefit proceeds would consist of the face amount less any indebtedness, plus any insurance additions or dividends left on deposit. Section IV § 1.
The policy states on its face that it could be cancelled it within twenty days of receipt of the policy. The policy also has a cash surrender value that can be obtained at any time, although National may defer payment for up to six months. Section VI § 4. The beneficiary will receive the proceeds when Ms. S~ dies. Section VIII §§ 17-18.
The Trust Agreement was dated November 7, 2007, with Ms. S~ listed as the Grantor and Insured and the Trust listed as Owner and Beneficiary of the life insurance policy. Ms. S~'s estate is listed as the secondary Beneficiary of the Trust. The Trust directs that the policy and the proceeds payable thereunder are the "Trust Estate" and shall be held until Ms. S~'s death and distributed in accordance with the Trust Agreement, by the Trustee for the purposes of paying for the "property …and … services for the final disposition of the insured's body." If the policy proceeds exceed the funeral and burial costs, the excess shall be paid to Ms. S~'s estate. The Trust Agreement directs the Trustee not to surrender the policy, take a loan against the proceeds, change the beneficiaries, or act other than in accordance with the Agreement.
The Agreement includes Spendthrift Provisions which state that (1) no title in the Trust Estate or income therefrom shall vest in Ms. S~'s heirs; (2) no principal or income of the Trust shall be liable to be reached by Ms. S~'s creditors or her heirs creditors; (3) neither Ms. S~ nor her heirs may alienate, encumber, anticipate, or dispose of any interest in the Trust Estate or income therefrom except for the purpose of arranging for the final disposition of Ms. S~'s body.
The Trust and Agreement are stated to be irrevocable, with Ms. S~ as Grantor having "no power to alter, amend, or modify this agreement in any way," and with Ms. S~ further irrevocably assigning the Trustee all rights under the policy. The Trust Agreement was executed in, and is governed by, the laws of Wisconsin. The Trust states it is effective and valid as of November 7, 2007. Ms. S~ signed the Agreement, as did an officer of National and a witness, with a date of December 26, 2007.
DISCUSSION
In general, assets are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for her support and maintenance. See 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate property, it is a resource. Id. A life insurance policy constitutes a resource if the individual can surrender it for cash or recover premiums paid. See 20 C.F.R. § 416.1230. Trusts may also constitute a resource under these rules. See POMS SI 01120.200. And for trusts established after January 1, 2000, trusts must also be evaluated under special rules. See 42 U.S.C. § 1382b(e) (addressing trusts created on or after January 1, 2000); POMS SI 01120.203.
We note that the policy here does not appear to be a "funeral policy" under Wisconsin law, see Wis. Stat. Ann. § 632.415(2), since Ms. S~ has not entered into a prearranged funeral plan. See id. at 23.30(1)(g); POMS SI CHI 011-30.426(C)(5). Indeed, no funeral home has been identified in any of the documents submitted. see also Wis. Stat. Ann. § 632.415. Therefore, it must be evaluated as an ordinary insurance policy.
Here, the policy is a resource for the first 20 days after it was issued. During this time Ms. S~ could have cancelled the policy and recovered the $3.982.56 initial premium paid for the policy. Thereafter, the cash surrender value of the policy is a resource to Ms. S~ unless she effectively and irrevocably assigned it to a trust that is not a resource. In this case, however, the trust is a resource.
Under the regular resource rules, a trust is a resource if the individual has the legal authority to revoke a trust and then use the funds to meet her food and shelter needs; if the individual can direct the use of the trust principle for her support and maintenance under the terms of the trust; or if the individual is entitled to mandatory disbursements and can sell the right to receive future disbursements. 42 U.S.C. § 1382b(e); POMS SI 01120.201(D)(1)(a)-(2)(a). Ms. S~'s trust is a resource under these rules because it is revocable, despite language indicating that the trust is irrevocable.
Ms. S~ is the grantor of the trust, since she provided the consideration by assigning the life insurance policy. Ms. S~ named the trust as the beneficiary, and her estate as secondary beneficiary. Since Ms. S~ will receive the benefit of the funeral goods and services and named no other beneficiary, she is the sole beneficiary of the trust as well. As grantor and sole beneficiary of the trust, Ms. S~ generally would have the power to revoke the trust at will, despite any language in the trust suggesting otherwise. See Wis. Stat. Ann. § 710.12(1); POMS SI CHI 01130.427(B)(1) confirms this, stating that "the funds held in a burial trust meet the definition of a resource, unless the trust names a beneficiary in addition to the SSI applicant or beneficiary." This renders the policy a resource, even after the right to cancel expires, since Ms. S~ could revoke the trust and access the cash surrender value of the policy.
Even if Ms. S~ were to identify an additional beneficiary, such that the trust would not be revocable unilaterally, this trust would still be a resource under the special statutory rules for trusts. See 42 U.S.C. § 1382b(e). These provisions do not apply to certain burial trusts where, among other things, the individual irrevocably contracts with a provider of funeral goods and services. POMS SI 01120.201(H)(1). Here, however, as noted, Ms. S~ did not enter into any contract with a provider of funeral goods and services. Thus, this burial trust exception does not apply. See POMS SI 01120.201(H)(2). Under the statutory rules, a self-settled trust will be considered a resource, even if it is irrevocable, unless certain exceptions are met. To meet these exceptions the trust must, among other things, provide that any remaining funds in the trust at the death of the individual will be used first to reimburse the state(s) or Medicaid payments. See 42 U.S.C. §§ 1382b(e)(5), 1396p(d)(4). This trust would not meet an exception to counting it under the statute.
CONCLUSION
In sum, the policy was a resource, valued at $3,982.56 for the first twenty days after it was issued, and it continued to be a resource thereafter, with a value of the cash surrender value of the policy, because the trust to which it was assigned is revocable and also would be counted as a resource under the special statutory trust rules.
~~Donna L. C~Regional Chief Counsel, Region V~~
Donna L. C~ Regional Chief Counsel, Region V
~~By: Sara E. Z~Assistant Regional Counsel~~
By: Sara E. Z~ Assistant Regional Counsel
~~H. PS 08-081 SSI-Review of the William S~ Irrevocable Trust, ~ - REPLY Your Ref: S2D5G6, SI 2-1-3 WI (S~) Our Ref: 08-059-NC~~
I. PS 08-081 SSI-Review of the William S~ Irrevocable Trust, ~ - REPLY Your Ref: S2D5G6, SI 2-1-3 WI (S~) Our Ref: 08-059-NC
DATE: March 17, 2008
1. SYLLABUS
This decision illustrates that a pre-01/01/00 countable Trust can be reformed under its own terms and Wisconsin law to be made non-countable. The court in Wisconsin restated and replaced the older trust framework within the body of a new trust that retained enough of the original to allow it to remain under our pre-01/01/00 rules. This restated Special Needs Trust now contains all the elements to be a non-countable trust.
2. OPINION
You asked whether the William S~ Irrevocable Trust is a resource for SSI purposes. For the reasons discussed below, we conclude that the trust is not a resource.
BACKGROUND
In June 1995, the William M. S~ Trust was created with proceeds from the settlement of a lawsuit filed on his behalf. The trust named William's parents, Elizabeth H~ and Scott S~, as grantors, and First Bank, N.A., as trustee. In September 2007, we advised that this trust was a resource to William because of his right to future payments under the mandatory distribution provisions of the trust and because of his unlimited right to change any administrative or ministerial provision of the trust. See Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, SSI-Wisconsin-Review of the William S~ Trust (September 24, 2007) [hereinafter William S~ Trust].
Subsequently, Elizabeth H~, through her attorney, obtained a court order authorizing the establishment of the William S~ Irrevocable Trust as a restatement of, and replacement for, the William M. S~ Trust. The court order also directed U.S. Bank, N.A., to transfer the funds held in the William M. S~ Trust to the William S~ Irrevocable Trust.
On November 30, 2007, the same date as the court order, the William S~ Irrevocable Trust was created. The trust names Elizabeth H~ as grantor and U.S. Bank, N.A., as trustee. See Trust Preamble. The trust provides that it is to be held, administered, and distributed for William's benefit. See Art. III. Property may be added to the trust from any source. See Art. I § 2.
The trust is a special need trust, with its purpose to provide for William's supplemental care, and "not to displace public or private financial assistance that may otherwise be provided to him." See Art. III § 1. The trust is governed by Wisconsin law. See Art. VIII § 2.
The trust provides that it is irrevocable. See Art. II. However, the trustee has power to amend the administrative provisions of the trust under certain circumstances. See Art. V § 2.
The trustee has sole and absolute discretion in making distributions. See Art. III §§ 1, 3; Art. V § 12. Moreover, William does not have the right to liquidate the trust or compel distributions from the trust. See Art. III §§ 3, 7.
The trust contains a spendthrift provision which states that no interest in the principal or income shall be anticipated, assigned, or encumbered or subject to any creditor's claims or any legal process prior to the actual receipt by or on behalf of William. See Art. III § 7.
The trust terminates upon William's death. After payment of allowable expenses (i.e., death taxes and fees for administration of the trust estate) and reimbursement to the State for Medicaid benefits, any remaining trust assets shall be distributed to William's then living siblings or their surviving issue per stirpes. See Art. III § 5.
DISCUSSION
Initially, we must determine the legal relationship between the William M. S~ Trust ("1995 Trust") and the William S~ Irrevocable Trust ("2007 Trust"). According to the court order, the 2007 Trust is considered to be merely a restatement of the 1995 Trust, with all assets in the 1995 Trust transferred to the 2007 Trust on the date the latter was created--November 30, 2007. Based on the court order, we believe that the 2007 Trust is a modification of the original 1995 Trust. This modification appears to be valid, both under the terms of the original 1995 Trust and under Wisconsin law. As noted in our previous memorandum, the 1995 Trust gave William the unlimited right to change any "administrative or ministerial" term. See William S~ Trust at 4. Interpreted broadly, this provision could allow the types of changes reflected in the 2007 Trust. Such a modification is permitted by statute in Wisconsin. See Wis. Stat. Ann. § 701.12(3) (revocation, modification, and termination of a trust is permitted pursuant to its terms or otherwise in accordance with law); see also Restatement (Third) of Trusts § 64(1) (2003).
Because we do not consider the 2007 Trust to be a new trust but, rather, a continuation of the 1995 Trust, it is considered to be a trust established prior to January 1, 2000, and is evaluated under the regular resource rules in POMS SI 01120.200. Under the regular resource rules, the trust principal will be a resource if the individual can (1) revoke or terminate the trust and use the assets to meet his needs for food or shelter; or (2) direct the use of the trust assets for his support and maintenance. See POMS SI 01120.200(D)(1)(a). In addition, the individual's interest in the trust will be a resource if he is entitled to mandatory disbursements from the trust and he can sell the right to future disbursements. See id.
Here, the 2007 Trust document states that it is irrevocable. See Art. II. Under Wisconsin law, however, an otherwise irrevocable trust may be revoked by written consent of the settlor and all beneficiaries. See Wis. Stat. Ann. § 701.12; see also Restatement (Third) of Trusts § 65 & comment a & Reporter's Note (2003). While the 2007 Trust names Ms. H~ as the settlor, it appears that William is the true settlor of the trust since it was initially funded in 1995 with the proceeds of the settlement of his personal injury lawsuit. Thus, William is the settlor and beneficiary of the 2007 Trust. However, William is not the sole beneficiary, since residual beneficiaries are also named in the trust. Specifically, the trust creates contingent remainder interests in his living siblings or their surviving issue per stirpes. Since there are residual beneficiaries, William cannot unilaterally revoke the trust. See Art. III § 5; see also POMS SI CHI01120.200(C) ("[I]f the trust names a residual beneficiary to receive the benefit of the trust interest after a specific event, usually the death of the primary beneficiary, the trust is irrevocable. The primary beneficiary cannot unilaterally revoke the trust; he needs the consent of the residual beneficiary."). Accordingly, the 2007 Trust is irrevocable.
The 2007 Trust can also be resource to William if he can direct the use of the trust assets for his support and maintenance under the terms of the trust. Here, the trust states repeatedly that the trustee has absolute discretion to make distributions, and that William has no right to compel the trustee to make a distribution of principal or income to him or for his benefit. See Art. III §§ 1, 3, 7; Art. V § 12. This language would preclude William from directing the use of the trust assets. Therefore, the trust principal is not a resource. In addition, the trust does not provide for mandatory disbursements to William.
~~Donna L. C~Regional Chief Counsel, Region V~~
Donna L. C~ Regional Chief Counsel, Region V
~~By: Cristine B~Assistant Regional Counsel~~
By: Cristine B~ Assistant Regional Counsel
~~I. PS 08-060 SSI-Wisconsin-Review of the Amended Testamentary Trust for the Benefit of Sharon C~, ~ - Reply Your Reference: S2D5G6, SI 2-1-3 WI (C~) Our Reference: 08-053-nc~~
J. PS 08-060 SSI-Wisconsin-Review of the Amended Testamentary Trust for the Benefit of Sharon C~, ~ - Reply Your Reference: S2D5G6, SI 2-1-3 WI (C~) Our Reference: 08-053-nc
DATE: February 11, 2008
1. SYLLABUS
This opinion evaluates whether the amended third party testamentary trust in question is a countable resource for SSI purposes. The original trust was created and funded solely with third party funds upon the grantor's death in 2006. The original terms mandated regular distributions of trust interest and principal to the SSI beneficiary. The trust was subsequently amended such that the trustee was prohibited from making distributions that would make the beneficiary ineligible for SSI and/or Medicaid benefits.
The trust cannot be terminated by the beneficiary due to the presence of a residual beneficiary. Additionally, the SSI beneficiary cannot direct the trustee to make distributions, and a spendthrift provision prevents the beneficiary from anticipating or otherwise encumbering the future distributions. For these reasons, the amended trust is not a countable resource for SSI purposes.
2. OPINION
You asked us whether the amended testamentary trust for the benefit of Sharon C~ would be a resource for SSI purposes. For the reasons discussed below, we conclude that the amended testamentary trust is not a resource.
BACKGROUND
In July 1984, Alice M. C~ executed her Last Will and Testament. The third section of Ms. C~ will concerned Sharon P. C~, the SSA beneficiary and Ms. C~'s niece. This section of the will provided that, in the event that Bernard C~, Ms. C~'s husband, predeceased her, fifty percent of her estate would be given to her trustee to be held in trust for the purpose of providing maintenance and support for Ms. C~. Will, Third Section, Paragraph B. The will instructed the trustee to pay all of the interest income plus the sum of $5,000 per year from the principal to Ms. C~ until she died or the trust proceeds were expended. Will, Third Section, Paragraph B1a. The will further provided that income and principal distributions would be made at least quarterly, and that if Ms. C~ died before the trust proceeds were expended, then the trust would terminate and the remaining trust assets would be distributed to Ms. C~'s nieces, Mary A. W~ and Alice C. W~, or the survivor. Will, Third Section, Paragraph B1b, B2. The will indicated that the interest of any beneficiary shall not be subject to claims, creditors, or legal process, and may not be alienated or encumbered. Will, Third Section, Paragraph B3.
Ms. C~ died on July XX, 2006; she was predeceased by her husband. Upon Ms. C~ death, the Sharon P. C~ Trust was created and funded with approximately $83,000 from Ms. C~'s estate. In April 2007, an attorney for Ms. C~'s estate filed a Motion to Amend the Testamentary Trust. In this Motion, the trustee and Ms. C~ expressed concern that Ms. C~ will mandated distributions that would render Ms. C~ ineligible for SSI and Medicaid benefits. The trustee and Ms. C~ argued that this result would be inconsistent with Ms. C~ intent to provide supplementary assistance to Ms. C~. In an effort to resolve this controversy, the trustee and all of the beneficiaries of the Trust asked the court to amend the Trust.
Later that month, the Court entered an Order, amending the Trust. The order explained that the Trust should be reformed to operate as a special needs trust, prohibiting distributions which would make Ms. C~ ineligible for SSI benefits. The Order added the following language in italics to the Trust:
1. The trustee shall retain the principal; manage, invest and reinvest, collect all income; and make distributions to or for the benefit of my niece, SHARON P. C~.
a. The trustee shall pay all of the interest income plus the sum of $5,000 per year from the principal to or on behalf of SHARON P. C~ for as long as she lives or until the trust proceeds have been expended.
b. Income and principal distributions shall be made at least quarterly. However, the Trustee may make no distribution regardless of the age of the beneficiary if such distribution would make the beneficiary ineligible for benefits available from any public or private means tested benefit program, including, without restriction, Supplemental Security Income (SSI) or Medicaid.
See Order. The Order did not alter any other language in the Trust.
DISCUSSION
As an initial matter, we note that the amendment to the Trust was permitted under Wisconsin law. In the Motion to Amend the Testamentary Trust, the trustee and Ms. C~ argued that the language in Ms. C~'s will would render Ms. C~ ineligible for SSI benefits - a result which would be inconsistent with the intent of Ms. C~ to provide supplementary assistance to Ms. C~. Since the trustees and all affected beneficiaries agreed to the amendment, the Court properly "reformed" the trust in order to operate as a special needs trust, prohibiting distributions that would make Ms. C~ ineligible for SSI benefits. See Wis. Stat. Ann. § 879.59(1); Estate of McCoy v. Wis. Academy of Sciences, 345 N.W.2d 519 (Ct.App. 1984).
The Amended Trust is a third party trust, under POMS SI 01120.200(A)(2)(b), because it was established by a third party, with only assets of the third party. Therefore, the Amended Trust is not subject to the statutory provisions of Section 1613(e) of the Social Security Act for special needs trusts, because it was not established with the proceeds of the disabled individual. See 42 U.S.C. § 1382b(e); POMS SI 01120.201. Since the Amended Trust is not evaluated under § 1613(e) of the Act, we consider only whether it is a resource under the regular resource rules. See POMS SI 01120.203(B)(1)(a).
Under the regular resource rules, 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).
Under these rules, the Amended Trust is not a resource. First, Ms. C~ does not have the power to terminate the Amended Trust and use the assets for support and maintenance. Whether a trust can be terminated by a beneficiary depends on the terms of the trust and/or applicable state law. See POMS SI 01120.200(D)(2). Here, Ms. C~ does not have the right to terminate the Amended Trust under its own terms or under the terms of Wisconsin state law. The Fifth Section of Ms. C~ will (which was not amended by the court) only permits the trustee to terminate the trust. Under Wisconsin law, a trust may be revoked, terminated or modified by written consent of the grantor and all beneficiaries. See Wis. Stat. Ann. § 701.12. Ms. C~ (the grantor) is deceased and thus she cannot consent to the termination of the trust. See POMS PS 01825.055 (EE. PS 00-247) (Wisconsin); see also Restatement (Second) of Trusts, § 338 and comment a. In addition, there are other beneficiaries whose consent would need to be obtained in order for the Amended Trust to be terminated. POMS SI CHI01120.200(D) ("[I]f the trust names a residual beneficiary to receive the benefit of the trust interest after a specific event, usually the death of the primary beneficiary, the trust is irrevocable. The primary beneficiary cannot unilaterally revoke the trust; he needs the consent of the residual beneficiary.").
Second, Ms. C~ cannot direct the trustee to pay her the funds or use the funds for her support and maintenance. Under the terms of the Amended Trust, the trustee cannot make any distribution if the distribution would make Ms. C~ ineligible for SSI or Medicaid benefits. Amended Trust, Third Section, B(1)(b). This language would preclude Ms. C~ from directing the trustee to pay her funds or use the funds for her support and maintenance.
Finally, under the terms of the Amended Trust, Ms. C~ is entitled to at least quarterly distributions of income and principal, provided such distribution would not make her ineligible for SSI or Medicaid benefits. Amended Trust, Third Section, B1b. However, a spendthrift provision prevents Ms. C~ from alienating or encumbering her interests in those payments. Will, Third Section, Paragraph B3. Accordingly, the Amended Trust is not a resource to Ms. C~.
CONCLUSION
In sum, under the ordinary resource rules applicable to third party trusts, the Amended Trust is not a resource for SSI purposes.
~~Donna L. C~Regional Chief Counsel, Region VBy: Karen S~Assistant Regional Counsel~~
Donna L. C~ Regional Chief Counsel, Region V By: Karen S~ Assistant Regional Counsel
~~J. PS 07-118 SSI-WISH-Review of Treatment of Rental Arrangements in the Wisconsin Initiatives in Sustainable Housing Trust - REPLY Your Ref: SI 2-1-3 WI (WISH)Our Ref: 06-0087~~
K. PS 07-118 SSI-WISH-Review of Treatment of Rental Arrangements in the Wisconsin Initiatives in Sustainable Housing Trust - REPLY Your Ref: SI 2-1-3 WI (WISH)Our Ref: 06-0087
DATE: April 24, 2007
1. SYLLABUS
This opinion discusses changes to the Wisconsin Initiatives in Sustainable Housing ("WISH") Pooled Trust and the Asset Contribution Agreements ("ACA") pertinent thereto. SSA previously advised that self-settled sub-accounts in the WISH trust were countable resources due to failure to meet the Medicaid payback requirements of Section 1917(d)(4)(C) of the Act. WISH, Inc. has now modified the ACA for a self-settled account and provides that after termination of the trust and payment of allowable death expenses, amounts not retained by the trust will be used to reimburse Medicaid. This modified language resolves the prior defect and sub-accounts with the new language meet the requirements for the pooled trust exception. The opinion further concludes that home property transferred to a sub-account establishes an equitable ownership interest for the beneficiary. As a result, distributions from the sub-account to pay the mortgage or other household bills would constitute ISM in the form of shelter, though limited by the presumed maximum value (PMV).
2. OPINION
You asked us to review proposed revisions to the Asset Contribution Agreements ("ACA") to the Wisconsin Initiatives in Sustainable Housing ("WISH") Trust and provide a response to the arguments of Mr. F~, attorney for the Trust. We previously advised that self-settled sub-accounts in the WISH Trust did not qualify for the pooled trust exception for counting the sub-accounts as resources under the Social Security Act. See POMS PS 01825.055 [hereinafter "WISH Trust I Opinion"]. We also advised that certain trust distributions would be income to the beneficiary. For the reasons discussed below, we conclude that neither self-settled nor third party sub-accounts in the WISH Trust would be resources if the proposed revised language in the ACA is used. However, consistent with our previous opinion, certain trust distributions would still be considered income to the beneficiary.
DISCUSSION
Mr. F~ has submitted legal arguments and two revised proposed ACAs (one for self-settled sub-accounts and one for third party sub-accounts) in support of his request for reconsideration of the WISH Trust I Opinion. In his letter, Mr. F~ raises two issues. First, he addresses our conclusion that a self-settled sub-account in the WISH Trust would not qualify for the pooled trust exception under 42 U.S.C. § 1396(d)(4)(C) because it did not contain the required language regarding reimbursement to the State for Medicaid, and would thus be considered a resource. See WISH Trust I Opinion at 4. We assume that the version of the Declaration submitted in connection with the WISH Trust I Opinion has not been amended, since no new Declaration was submitted with Mr. F~'s reconsideration request. That document still states that the ACA "shall provide that all Assets remaining in the Sub-account beyond the lifetime of the Sub-account Beneficiary, after payment of allowable expenses, shall be applied to the charitable purposes of the Trust." Decl. Art. 5.3. However, WISH, Inc. has modified the relevant provision in the ACA for a self-settled sub-account. Article XIII now provides that the sub-account terminates upon the death of the sub-account beneficiary ("SB") and that, after payment of allowable expenses of death taxes due from the trust to the State or Federal government and reasonable fees for the administration of the trust estate, any amount remaining in the sub-account that is not retained by the trust will be paid to the State up to an amount equal to the total amount of medical assistance paid on behalf of the SB under the State Medicaid plan. See ACA (self-settled) Art. XIII. This modified language sufficiently cures the defect noted in our previous opinion that the WISH Trust did not meet the fourth requirement for the pooled trust exception. See POMS SI 01120.203(B)(2)(g).
In the second issue Mr. F~ raises, he seeks reconsideration of our conclusion that, when the SB lives in a home in which title to the home was transferred to the SB's sub-account (either by the SB or a third party) or that was purchased by the Trust out of the SB's sub-account assets, the SB is considered to have an equitable ownership interest in that home and that any mortgage payments paid by the Trust (minus the SB's monthly occupancy fee) would be in-kind support and maintenance ("ISM") up to the presumed maximum value ("PMV"). WISH Trust I Opinion at 7. Mr. F~ requests "modification of this opinion to find that the relationship between the Trust and sub-account beneficiaries is a landlord-tenant relationship, and that the beneficiary has no ownership interest of the kind that would or should cause him or her to be considered a homeowner for purposes of determining whether or not a business relationship exists between the WISH Trust and the beneficiary." F~ Letter at 2.
Here, the ACA provides that the creator of a sub-account may transfer title to his/her house, which may be subject to a mortgage, to the SB's sub-account. See ACA Art. 3.1(a). The ACA also provides that sub-account assets may be used to purchase housing for the SB. See ACA Art. 8.12(a) (second sentence). The POMS states that when a trust purchases and holds title to a house as a home for the beneficiary, the beneficiary is considered to be living in his/her own home based on having an "equitable ownership under a trust." See POMS SI 01120.200(F)(1). In other words, the purchase of a house by a trust for the beneficiary establishes an equitable ownership interest for the beneficiary of the trust. Accordingly, we apply POMS SI 01120.200(F), which sets forth trust resource and income rules pertaining to the ownership of a home. As we explained in our previous opinion, we believe POMS SI 01120.200(F) also applies when a sub-account creator transfers title to his/her house to the SB's sub-account, as the SB would retain an equitable ownership interest in the home in that case. See WISH Trust I Opinion at 7 n.4.
Mr. F~ challenges the "blanket provision that a trust beneficiary has an equitable ownership interest in all property held in the trust." F~ Letter at 5. However, the creation of a trust inherently gives rise to a beneficial (i.e., equitable) interest for the beneficiary. It is a fundamental principle of trust law that a trust beneficiary holds equitable title to the trust property, while the trustee generally holds legal title. See Restatement (Third) of Trusts §§ 2 comt. d, 43 cmt. a (2003). The Agency's policy set forth in the POMS recognizes this principle. See POMS SI 01110.515(C)(2) (in a trustee-beneficiary relationship, beneficiary does not have legal title to trust property but does have equitable ownership interest), SI 01120.200(B)(4) ("A beneficiary does not hold legal title to trust property but does have an equitable ownership interest in it….The beneficiary owns the benefits of the trust while the trustee holds the title and duties."). Mr. F~ argues that the intention of the donor governs the nature of a property interest. In support, he cites Restatement (Third) of Property § 10.1 (2003). However, this provision, concerning donative documents, deals with the disposition of property by gift and not by trust. See id. § 6.1 cmt. a ("The creation of a trust, however, is within the province of the Restatement of Trusts."). Mr. F~ also cites Restatement (Third) of Trusts § 49, which states: "Except as limited by law or public policy…the extent of the interest of a trust beneficiary depends upon the intention manifested by the settlor." This section is consistent with other sections of the Restatement which state that a trust beneficiary has an equitable interest in trust property. The settlor's intention may determine the extent of the beneficiary's interest, but that presupposes that the beneficiary in fact has an equitable interest. Mr. F~ further argues that an SB does not have an ownership interest in a house held in his/her sub-account because the SB's beneficial interest lacks the "incidents" of ownership. However, in listing the "incidents" of ownership, Mr. F~ describes the characteristics of fee simple ownership, not equitable ownership under a trust. See POMS SI 01110.515(A) (fee simple ownership is "absolute and unqualified legal title to real property," whereas equitable ownership is "a form of ownership that exists without legal title to property").
Thus, we conclude that there is no legal basis for granting Mr. F~'s request to treat an SB who is living in a house that is held in his/her own sub-account as a renter with no ownership interest. We strongly disagree with Mr. F~'s assertion that "[t]he beneficiary's situation is the same as that of any renter attempting to rent property from a homeowner." F~ Letter at 7. As discussed above, this position is directly contrary to general trust principles and the POMS, which establish that such an SB does in fact have an equitable ownership interest in the house and is not merely a renter. A renter does not have any ownership interest in the home that is provided to him by the Trust because the home is not held in trust for him. As such, it would not be appropriate to consider the renter as equal to an SB whose sub-account assets do include a house. WISH, Inc. has made revisions to the ACA, such as stating that the SB has no equitable ownership interest, labeling the provision of every home as a rental arrangement, and changing the term "monthly occupancy fee" to "monthly rent." See ACA Art. 8.1, 8.2, 8.11. However, merely changing the wording of the document does not alter the inherent beneficial interest a beneficiary has in the trust property.
Even if we agreed with Mr. F~ that an SB does not have an equitable ownership interest in a home held in his sub-account, we still would not find that the J~ business arrangement exception applies to the SB, as he suggests. Based on the Seventh Circuit's holding in J~ v. S~, 683 F.2d 107 (7th Cir. 1982), the Agency amended 20 C.F.R. § 416.1130(b), which provides in relevant part:
You are not receiving in-kind support and maintenance in the form of room or rent if you are paying the amount charged under a business arrangement. A business arrangement exists when the amount of monthly rent required to be paid equals the current market rental value (see § 416.1101). Exception: In the States in the Seventh Circuit (Illinois, Indiana, and Wisconsin), a business arrangement exists when the amount of monthly rent required to be paid equals or exceeds the presumed maximum value described in § 416.1140(a)(1).
See also 51 Fed. Reg. 13487 (1986). This regulation explicitly states that the business arrangement rule and the J~ exception apply only to "room or rent." However, in the case of a house that is subject to a mortgage, the applicable shelter expense is mortgage payments, not rent. Mr. F~ contends that J~ applied to all forms of shelter, but that the regulation limited the ruling only to rental situations. To the contrary, we believe that the Agency's interpretation of J~ is correct. J~ dealt only with rental situations and did not go so far as to apply to mortgage payments. As the court stated in the first paragraph of the decision, "The specific issue presented by this appeal concerns the validity of the Secretary's regulations governing SSI eligibility which impute as unearned income to SSI recipients the difference between the fair market rental value and the rent actually paid for shelter." J~, 683 F.2d at 1077. Moreover, an analysis of current market rental value is only appropriate in the context of rent, not mortgage payments. For these reasons, Mr. F~'s arguments are not persuasive and do not provide any basis for changing the Agency's longstanding policy.
Thus, consistent with our previous opinion, we conclude that when the Trust provides to the SB as a primary residence a house in which title to the house was transferred to the SB's sub-account (either by the SB or a third party) or that was purchased by the Trust out of the SB's sub-account assets, the SB is considered to have an equitable ownership interest in that house. Accordingly, in determining whether certain distributions from the sub-account (ACA Art. 9.2) would constitute ISM in the form of shelter, we apply the rules in POMS SI 01120.200(F) pertaining to home ownership, and not the J~ exception in 20 C.F.R. § 416.1130(b), which applies only to rental arrangements. Specifically, the purchase of a home would be ISM up to the PMV in the month of purchase, if the SB lives in the home that month. See POMS SI 01120.200(F)(3). And if there is a mortgage, each monthly mortgage payment would be ISM up to the PMV. See POMS SI 01120.200(F)(3)(b); 20 C.F.R. § 416.1130(b) (ISM includes shelter in form of mortgage payments). But since the SB is required to pay a "monthly rent" for using the home (ACA Art. 8.2), for purposes of determining ISM, the amount of this rent would serve as an offset for the mortgage payment made by the trustee (but this offset would not have any effect on the ISM if the resulting net mortgage payment equals or exceeds the PMV). Moreover, to the extent that the trustee pays for the SB's additional shelter expenses including property taxes, heating fuel, gas, electricity, water, sewer, and garbage removal, such expenses would be considered ISM in the month payment is made (but the total ISM will not be more than the PMV). See POMS SI 00835.350, 00835.465(D), 01120.200(F)(3)(c); 20 C.F.R. §§ 416.1130(b), 416.1140. And if the monthly rent is not used up in offsetting a mortgage payment, the remainder would serve as an offset for any other shelter expense distributions.
CONCLUSION
For the reasons discussed above, we conclude that neither self-settled nor third party sub-accounts in the WISH Trust would be resources. However, consistent with our previous opinion, certain trust distributions would still be considered income to the beneficiary.
~~K. PS 06-104 SSI-Wisconsin-Review of the Request for Reconsideration on the Sub-Account of Robert G~, ~ , in the WisPACT Trust II - REPLY Your Ref: S2D5G6, SI 2-1-3-WI (G~) Our Ref: 06-0003~~
L. PS 06-104 SSI-Wisconsin-Review of the Request for Reconsideration on the Sub-Account of Robert G~, ~ , in the WisPACT Trust II - REPLY Your Ref: S2D5G6, SI 2-1-3-WI (G~) Our Ref: 06-0003
DATE: March 29, 2006
1. SYLLABUS
In August, 2005 an SSI beneficiary's parents created a sub-account in the WisPACT II Trust for the benefit of the SSI eligible individual.
The sub-account was created with an unspecified transfer of cash to the WisPACT II pooled trust. The WisPACT II Master Trust has been previously evaluated and it has been determined that sub-accounts created after May 17, 2004 can be excluded as a resource if either Medicaid trust exception is met. This opinion discusses that the sub-account in question does not meet the criteria to be excluded under 42 USC 1396p(d)(4)(A) because the parents established the sub-account with the beneficiary's own funds. They failed to establish a "seed trust" and the state of Wisconsin does not recognize "dry" or "empty" trusts.
However, the sub-account does meet the criteria to be excluded under the pooled trust exception described at SI 01120.203(B)(2).
Additionally, the sub-account is irrevocable since the SSI beneficiary is not the sole beneficiary of the sub-account. Since the trust meets the criteria of the pooled trust exception and is irrevocable it is not a resource for SSI purposes.
2. OPINION
You asked whether Robert G~ sub-account in the WisPACT Trust II is a resource to Robert for SSI purposes. We conclude that the sub-account is not a resource.
BACKGROUND
The WisPACT Trust II ("the Master Trust") is a pooled trust containing individual sub-accounts for individual beneficiaries. We have previously reviewed this Master Trust in detail, and therefore do not revisit the details here. See Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, SSI - Wisconsin - Review of the WisPACT II Trust" (March 4, 2005).
On August 5, 2005, Robert's parents, Bernard and Barbara G~, signed several documents to establish the "Robert L. G~ Self-Funded Sub-Account in the WisPACT Trust II" (the "sub-account"). The documents included an "Application to Establish Sub-Account," a "Contribution Agreement" and an "Asset Transfer and Designation of Sub-Account Record." Bernard and Barbara G~ are identified in the Contribution Agreement as the account's "creator[s]." According to the Asset Transfer document, the trust was funded with an unspecified transfer of "cash."
Upon Robert's death, any remaining trust assets will be distributed first to any state to repay Medicaid benefits. Contribution Agreement ("CA") Article V(A). Any trust assets remaining after such repayment may, in the trustee's discretion, be used to pay funeral, burial and related expenses and inheritance or estate taxes, and will thereafter be distributed to Robert's heirs at law or other beneficiaries (limited to immediate family; relatives by blood, marriage or adoption; or charities) as appointed by will or trust. CA Article V(B), V(C), V(D). The Application specifies Robert's heirs by name, Bernard and Barbara G~.
On August 9, 2005, Robert signed a "Durable Power of Attorney - Financial of Robert L. G~," in which he named his parents as co-agents authorized to "perform . . . any act in the management, supervision, and care of my estate and affairs that I personally have authority to perform." According to Robert's attorney, Bernard G~ endorsed a check (issued to him as custodian for Robert) which was used to fund the sub-account. The attorney further indicates that the funds were accepted by the trustee (Associated Bank) on August 23, 2005.
The sub-account was previously determined to be a resource and Robert has requested reconsideration.
DISCUSSION
A trust established with the assets of an individual (on or after January 1, 2000) is a resource if it is revocable or if payments from the trust could be made to or for the benefit of the individual, unless an exception applies. See POMS SI 01120.201(D)(1)-(2); 42 U.S.C. § 1382b(e)(2)-(3). Two exceptions are those outlined in 42 U.S.C. §§ 1396p(d)(4)(A) and (d)(4)(C), commonly referred to as "Medicaid trust exceptions." See also POMS SI 01120.203. We address these exceptions in turn.
A. Robert's Sub-Account Does Not Meet the Criteria for an Exception Under 42 U.S.C. § 1396p(d)(4)(A).
A trust is not counted as a resource if it meets the criteria outlined in 42 U.S.C. § 1396p(d)(4)(A). These criteria are as follows:
(1) the trust contains the assets of an individual under age 65 who is disabled;
(2) the trust is established for the benefit of the individual by a parent, grandparent, legal guardian or court; and
(3) the trust provides that any funds remaining in the trust upon the death of the individual will be first used to reimburse any state having paid medical assistance on behalf of the individual during his lifetime.
42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203(B)(1).
Here, the WisPACT II Master Trust is "intended [to] comply with all requirements of 42 U.S.C. § 1382b(e)(5) and 42 U.S.C. § 1396p(d)(4)(A)." Master Trust, Article V(D). We previously reviewed the Master Trust document and concluded that sub-accounts created after May 17, 2004, could be excluded as a resource under 42 U.S.C. § 1396p(d)(4)(A). See Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, SSI - Wisconsin - Review of the WisPACT II Trust" (March 4, 2005).
After reviewing Robert's sub-account, however, the Agency concluded in October 2005 that it did not meet all of the criteria outlined in 42 U.S.C. § 1396p(d)(4)(A). Specifically, the trust did not satisfy the second requirement, i.e., that the trust be established by a parent, grandparent, legal guardian or court. Although Robert's parents are identified as the sub-account creators, the trust was funded with Robert's own funds (and we assume Robert is a competent adult since there is no evidence of guardianship proceedings). And, we have advised that, where a parent creates a trust with a competent adult's funds, the parent must either (1) create a "seed trust," i.e., contribute some amount of funds not belonging to the individual prior to transferring the individual's funds to the trust; or (2) the state must recognize the existence of a "dry" or "empty" trust, i.e., a trust containing no property. Further, we have advised that Wisconsin does not recognize the existence of "dry" or "empty" trust. Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, Six State Survey on "Dry" or "Empty" Trusts, (November 30, 2004). We reaffirmed this opinion in August 2005. Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, SSI - Wisconsin - Review of the Reconsideration Request on Dean D. Irrevocable Trust Agreement, (August 19, 2005). Because Robert's parents did not create a seed trust prior to funding the sub-account with Robert's own assets, the sub-account was not "established . . . by a parent" and did not qualify as an excepted trust pursuant to 42 U.S.C. § 1396p(d)(4)(A).
Robert's attorney, Mark R~, disputes our position regarding empty trusts in Wisconsin. Mr. R~ contends that unfunded trusts are considered valid trusts under Wisconsin law "[a]s long as there is an expectancy that the trust will be funded at some later time." R~ letter at [unpaginated] 2. In support of this contention, Mr. R~ cites several sources of authority, including (1) various Wisconsin statutes; (2) a comment to the 2003 Uniform Trust Code; and (3) a Wisconsin workbook for estate planners. We find Mr. R~'s arguments unpersuasive.
First, Mr. R~'s citation to various Wisconsin statutes do not support his position. Wisconsin statute defines a "trust" as "an express living or testamentary, private or charitable trust in property which arises as a result of a manifestation of intention to create it." Wis. Stat. Ann. § 701.01(7) (West 2001). Focusing on the second clause of this definition ("which arises as a result of a manifestation of intention to create it"), Mr. R~ contends that an empty trust could be created if Robert's parents had the intention to create it. See R~ letter at [unpaginated] 4. Mr. R~'s interpretation overlooks the first and equally salient clause requiring a "trust in property." Id. (emphasis added). As we have advised in the above-referenced opinions, the Wisconsin statute plainly requires the existence of property to create a valid trust. Wisconsin caselaw is in accord. For example, in McMahon v. Standard Bank and Trust Co., 202 Wis.2d 564, 550 N.W.2d 727 (Wis. Ct. App. 1996), a Wisconsin appellate court reviewed several basic principles of trust law. The court observed that "[a] trust is a fiduciary relationship involving property," and that a trust has three elements: a trustee, a beneficiary and trust property. McMahon, 202 Wis.2d at 568, 550 N.W.2d at 729 (emphasis added). Because both statute and caselaw clearly identify property as an essential element of a trust, we continue to believe that Wisconsin will not recognize as valid a trust that contains no property.
Mr. R~ also cites Wis. Stat. Ann. § 701.07(1)(a) as evidence that Wisconsin recognizes trusts with no property. This section states:
A living trust, otherwise valid, shall not be held invalid as an attempted testamentary disposition, a passive trust under § 701.03, or a trust lacking a sufficient principal because:
(a) It contains any or all of the following powers, whether exercisable by the settlor, another person or both: * * *
5. To add property . . . to the trust at any time.
(b) The principal consists of a designation of the trustee as a primary or direct, secondary or contingent beneficiary under a will, employee benefit plan, life insurance policy or otherwise; or
(c) the principal consists of assets of nominal value.
Mr. R~ does not clearly explain why he believes this section authorizes a trust with no property, but in any event we are not persuaded. In fact, this section reinforces our conclusion that Wisconsin does not recognize an empty trust. This section explains that an otherwise valid living trust "shall not be held invalid as . . . a trust lacking a sufficient principal because . . . (c) The principal consists of assets of nominal value." Wisc. Stat. Ann. § 701.07(1)(c). This provision indicates that the Wisconsin legislature considered the issue of what constituted a sufficient trust principal; and had the legislature intended to validate empty trusts, we think this section would read differently. Mr. R~'s interpretation would supplant "nominal value" with "no value," contrary to the legislature's intent.
Mr. R~ also cites the statutory definition of "settlor" (a person who directly or indirectly creates a trust or adds property to an existing trust) as further evidence that Wisconsin would consider a trust valid even where it contains no property. See Wis. Stat. Ann. § 701.01(5). Because the definition recognizes the settlor as someone who "creates a . . . trust" or "adds property to an existing trust," Mr. R~ suggests that Robert's parents could create an empty trust to which Robert later added property. See R~ letter at [unpaginated] 4. Mr. R~'s logic is faulty because, as we have explained, Wisconsin statute and caselaw plainly require the existence of property to "create" a valid trust. The definition of settlor does not alter this plain law.
In addition to statutory language, Mr. R~ also cites from "commentary to the Uniform Trust Code," as amended in 2003. This authority is not persuasive for two reasons. First, Wisconsin has not adopted the Uniform Trust Code. Second, to the extent the Uniform Trust Code's commentary can be considered persuasive authority regarding the interpretation of trust law, the cited provision does not support Mr. R~'s argument. Mr. R~ cites a section of the "Comment" to § 401, which explains that a self-funded trust can be created by declaring the trust and attaching a list of assets subject to the trust, without expressly transferring those assets to the trust. This comment does not indicate, however, that a trust can be created with no assets at all. In fact, the Uniform Trust Code clearly indicates the opposite: "[u]nder the methods specified for creating a trust in this section, a trust is not created until it receives property" or an adequate property interest. Uniform Trust Code (Last Revised or Amended in 2005), § 401, comment, available at http://www.law.upenn.edu/bll/ulc/uta/2005final.htm.
Finally, Mr. R~ cites a Wisconsin estate planning workbook, which does seem to support his position. Citing Wis. Stat. § 701.07(1)(b)-(c), the workbook states that trusts "may be funded or unfunded . . . The principal of an unfunded trust may consist of assets of nominal value (e.g., $10 in cash), an insurance policy, or merely the expectancy of transfers during the settlor's life or at death." Ch. 7, pg. 5. Further, in a section discussing trust funding and "minimum corpus," this workbook states that "the expectancy of a later transfer during the settlor's lifetime or at death is sufficient to satisfy the requirements of a valid trust." Ch. 7, pg. 21.
The guidance in this workbook does not alter our conclusion that Wisconsin does not recognize as valid a trust with no property. As explained, the above-referenced statutes and caselaw plainly and unambiguously indicate that an identifiable property interest is a required element of a trust. In suggesting that a trust may funded by "merely the expectancy" of later transfers, we think the workbook interprets the Wisconsin statute too broadly. The statute does recognize that a trust is valid if the principal consists only of a future or contingent property interest (such as naming the trustee as beneficiary under a will, employee benefit plan, life insurance policy "or otherwise"). Wis. Stat. Ann. § 701.07(1)(b). This statute merely recognizes that property can take many forms, including intangible, contingent and future interests (such as the expectancy of payment as the beneficiary of a will). These types of property interests may never materialize (and may thus be mere expectancies), but they are nonetheless identifiable property interests that can form the corpus of a trust. And when read in conjunction with the statutory provisions previously discussed, we do not think the legislature intended to recognize trusts with no identifiable property interests whatsoever.
In sum, we are unconvinced by Mr. R~'s arguments, and maintain our position that Wisconsin does not recognize a trust with no property. Thus, Robert's sub-account was not "established . . . by a parent" and does not qualify as an excepted Medicaid trust pursuant to 42 U.S.C. § 1396p(d)(4)(A).
B. Robert's Sub-Account Meets the Criteria for an Exception Under 42 U.S.C. § 1396p(d)(4)(C).
Pooled trusts established under 42 U.S.C. § 1396p(d)(4)(C) are also excluded as a resource. To be excluded, pooled trusts must meet the following criteria:
(1) the pooled trust must be established and maintained by a nonprofit association;
(2) separate accounts are maintained for each beneficiary, but assets are pooled for investing and management purposes;
(3) accounts are established solely for the benefit of the disabled individual;
(4) accounts are established by the individual, a parent, grandparent, legal guardian or a court; and
(5) upon death of the beneficiary, any funds not retained by the trust will be used to reimburse any state for Medicaid payments made for the benefit of the beneficiary during his lifetime.
42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203(B)(2). Here, Robert's Sub-Account meets each of these criteria.
1. Established and maintained by a non-profit association
First, the WisPACT II Trust was established on August 13, 2003, by WisPACT, Inc., a non-stock, not-for-profit corporation organized under Wisconsin law. The WisPACT Inc. Articles of Incorporation were filed with the state of Wisconsin on August 22, 2002. On June 9, 2004, the IRS determined that WisPACT is exempt from federal income tax under section 501(a) of the Internal Revenue Code as an organization described in section 501(c)(3). This exemption is effective retroactive to the date of organization, i.e, August 22, 2002. Thus, the WisPACT II Trust was established and is maintained by a nonprofit organization. See POMS SI 01120.203(B)(2)(c) (nonprofit association is an organization defined in section 501(c) of the Internal Revenue Code and that also has tax-exempt status under section 501(a) of the Code).
2. Separate accounts maintained
Second, the WisPACT II Trust maintains separate accounts for each beneficiary, although the trustee may pool individual sub-account assets for purposes of investment and management. Master Trust, Article V(D).
3. Established solely for the benefit of the disabled individual
Third, as we previously advised, self-funded sub-accounts in the WisPACT II Trust that were created after the May 2004 amendment are "solely for the benefit of the disabled individual." See Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, SSI - Wisconsin - Review of the WisPACT II Trust" (March 4, 2005). Because the check was accepted by the trustee on August 23, 2005, Robert's sub-account was created after the May 2004 amendment.
4. Established by the disabled individual
Fourth, the sub-account was "established by the individual," i.e., Robert himself. As explained, the Contribution Agreement lists Robert's parents as the sub-account creators, but (we assume) Robert is a competent adult and the trust was funded with his own assets. As such, Robert's parents acted as his agent and established the sub-account on his behalf.
We initially questioned whether Robert's parents had the authority to establish the sub-account and transfer funds on his behalf. See POMS SI 01120.203(B)(2)(f) ("[a] third party establishing the trust account on behalf of the individual must have legal authority to act with regard to the assets of the individual . . . [otherwise the transaction] may result in an invalid trust."). On August 9, 2005, Robert signed a "Durable Power of Attorney - Financial" naming his parents as agents with authority to "perform . . . on my behalf any act in the management, supervision, and care of my estate and affairs that I personally have authority to perform." The power of attorney enumerates powers that the agents may exercise, "which are intended to illustrate, and not to limit, the scope of this power." Among the specifically enumerated powers, the agents may transfer Robert's assets to a revocable trust already in existence (or created by Robert at a later date), provided that the trust agreement contains certain provisions. This enumerated power does not authorize creation of the WisPACT II sub-account, as it allows a transfer or assets to an existing trust that is revocable; the WisPACT II sub-account was not existing and is irrevocable. Although the power of attorney states that the enumerated powers are only intended to illustrate (and not limit) the agent's powers, Wisconsin courts have held that an agent's powers should be strictly construed, and limited only to those powers that are clearly delineated or specified. See Losee v. Marine Bank, 703 N.W.2d 751, 755 (Wis. App. 2005). The courts have typically applied this rule in cases where the agent cited broad powers as a defense to the agent's self-dealing (e.g., where agent used the power to make a gift to himself or to secure a mortgage for himself using principal's property as collateral). Here, because Robert's parents are potential residual beneficiaries of the trust, we think a court might find that creating the sub-account involved an element of self-dealing not authorized by the power of attorney.
We need not definitely answer this question, however, because we are satisfied that Robert gave his parents oral authority to create the WisPACT II sub-account. According to Mr. R~, Robert and his parents jointly met with the attorney in early August 2005 to discuss his financial affairs in general and more specifically to create the WisPACT II sub-account. Mr. R~ indicated that Robert was present when his parents signed the Contribution Agreement and transfer of funds document and assented to their doing so. We have no reason to doubt the accuracy of Mr. R~'s account, and thus conclude that Robert's parents had express oral authority to create the WisPACT II sub-account on his behalf. And Wisconsin courts have recognized the validity of transactions based on oral authority. E.g., Krause v. Holand, 147 N.W.2d 33 (1967) (recognizing that parol authority may create an agency relationship permitting agent to bind principal, but in the case of realty such parol authority must be clear and express); Zuhak v. Rose, 58 N.W. 2d 693, 697 (Wis. 1953) (enforcing contract for land sale negotiated by agent even though agent's authority was not in writing).
5. Contains Medicaid payback provision
Finally, both the Master Trust and Robert's Contribution Agreement direct that, upon Robert's death, any amounts remaining in the sub-account (after payment of administration fees and taxes) shall be first distributed to any State which provided Medicaid benefits to Robert, up to an amount equal to the total amount of benefits paid on his behalf. Master Trust, Article XIV(A)(1); Contribution Agreement Article V(A).
In sum, the sub-account meets all of the criteria outlined in 42 U.S.C. § 1396p(d)(4)(C). As such, the sub-account should be excluded as a resource if it is irrevocable, or evaluated under the regular resource rules if it is revocable. See POMS SI 01120.203(B)(2)(a) and (D)(2)(steps 7-8)
C. Robert's Sub-Account is Irrevocable and Therefore Is Not a Resource.
The Master Trust agreement indicates that sub-accounts are irrevocable unless specifically stated otherwise in a contribution agreement. Master Trust agreement, Article VI, § A(2). Robert's Contribution Agreement also provides that the sub-account is irrevocable, and Robert is not the sole beneficiary of the sub-account because there are contingent remainder beneficiaries. Upon Robert's death, any remaining trust assets (after reimbursement to any state having paid Medicaid and payment of fees, taxes and certain expenses) will be distributed to his heirs at law (Robert's current heirs are identified by name as Bernard and Barbara G~) or other beneficiaries as appointed by will or trust. CA Article V(B), V(C), V(D). Absent a contrary intent, a residual interest in heirs at law creates a contingent remainder interest in those heirs, and thus the settlor is not the sole beneficiary of the trust. See POMS SI CHI01120.200. Thus, Robert is not the sole beneficiary of the sub-account and does not have the power to revoke the sub-account. (We further note that Robert has no right to direct the use of trust principal for his support, and that Robert has no right to mandatory disbursements from the trust. See POMS SI 01120.200(D)(1).)
Because the trust meets the criteria of a Medicaid trust exception and is irrevocable, it is not a resource. See POMS SI 01120.203(B)(2)(a) and (D)(2)(step 7). Of course, any disbursements from the trust should be evaluated to determine whether or not such payments should be counted as income.
CONCLUSION
Wisconsin does not recognize the validity of a dry or empty trust, i.e., a trust with no property. Because Robert's parents did not create a seed trust, the sub-account was not "established by a parent" and does not qualify as an excepted Medicaid trust under 42 U.S.C. § 1396p(d)(4)(A). However, the sub-account meets all of the criteria to be an excepted Medicaid trust under 42 U.S.C. § 1396p(d)(4)(C), and the sub-account is irrevocable. Therefore, the sub-account is not a resource.
~~L. PS 06-081 SSI-Wisconsin-Review of the Declaration of the Wisconsin Initiatives in Sustainable Housing Trust - REPLY Your Ref: SI 2-1-3 WI (WISH) Our Ref: 06-0004~~
M. PS 06-081 SSI-Wisconsin-Review of the Declaration of the Wisconsin Initiatives in Sustainable Housing Trust - REPLY Your Ref: SI 2-1-3 WI (WISH) Our Ref: 06-0004
DATE: February 28, 2006
1. SYLLABUS
The Wisconsin Initiatives in Sustainable Housing Trust (WISH) and the subaccounts contained therein are discussed in this opinion. The WISH Trust is a pooled trust established and managed by a nonprofit organization. The Trust is designed to hold assets for the purpose of meeting the housing and other supplemental needs of subaccount beneficiaries. The Trustee has sole discretion regarding disbursements from the Trust, but is required to make a home available for subaccount beneficiaries as a primary residence. The subaccounts are irrevocable, contain a spendthrift clause, and cannot be amended or revoked by the subaccount beneficiary.
The current language contained in the Trust permits that initial post-mortem disbursements from the Trust may be made to creditors other than the State Medicaid agency. As such, self-settled subaccounts contained in the WISH Trust do not meet the pooled trust exception. Subaccounts established solely with the assets of third parties are determined to be excluded from resource counting. Still, disbursements made from the Trust may be countable income in the form of cash unearned income or ISM depending on the circumstances surrounding the disbursement. Whether the subaccount beneficiary has an equitable ownership interest in the home being held by the Trust is also a controlling factor in determining whether ISM in the form of shelter may be received by the beneficiary.
2. OPINION
You asked us whether a sub-account in the Wisconsin Initiatives in Sustainable Housing Trust would be considered a resource for an SSI recipient or applicant. For the reasons discussed below, we conclude that under the current version of the Trust documents, a self-settled sub-account would not qualify for the pooled trust exception and would be a resource for SSI purposes. However, assuming that WISH, Inc. cures the disqualifying defects, neither self-settled nor third party sub-accounts would be resources. However, certain trust distributions would be considered income to the beneficiary.
BACKGROUND
Wisconsin Initiatives in Sustainable Housing ("WISH"), Inc., a Wisconsin nonprofit organization, has established the WISH Housing Trust ("Trust"), which is a pooled trust designed to hold assets for the purpose of meeting the housing and other supplemental needs of disabled persons. WISH has submitted the WISH Housing Trust Declaration ("Declaration") and a sample Asset Contribution Agreement ("ACA") for our review.
Trust Declaration
The Declaration provides that the Trustee, with the consent of WISH, Inc., may accept a contribution of property to be held in a sub-account for the use and benefit of a particular sub-account beneficiary ("SB") during his lifetime consistent with the charitable purpose of the Trust, "provided that each Asset Contribution Agreement shall provide that all Assets remaining in the Sub-account beyond the lifetime of the Sub-account Beneficiary, after payment of allowable expenses, shall be applied to the charitable purposes of the Trust." Decl. Art. 5.3.
For self-settled sub-accounts (i.e., sub-account funded with assets of the SB), the Trust is intended to comply with the requirements of 42 U.S.C. §§ 1382b(e)(5) and 1396p(d)(4)(C) and Wis. Stat. § 49.454(4) (pooled trust exception). Decl. Art. 15.2.
Within the Trust, separate sub-accounts are maintained for each SB, but the assets of the sub-accounts are pooled for investment and management purposes, consistent with 42 U.S.C. § 1396p(d)(4)(C)(ii). Decl. Art. 9.4.
The Declaration states that it is irrevocable, except that it may be amended by agreement of the Trustee and WISH, Inc. or by court order pursuant to Wis. Stat. § 701.10 if, due to changes in the law or other reasons, amendment is necessary to accomplish the purposes of the Trust. Decl. Art. XII.
The Declaration is governed by the laws of the State of Wisconsin. Decl. Art. 15.1.
Asset Contribution Agreement
The ACA declares that the primary purpose of the sub-account is "to provide safe, decent, accessible, stable and sustainable housing for SB at affordable rental rates." ACA Art. 6.1.
Also, the Trust is intended to supplement, and not replace or make unnecessary, any public benefits the SB is qualified to receive. ACA Art. 6.2. In the case of a self-settled sub-account, language is inserted that the sub-account is intended to comply with the requirements of 42 U.S.C. §§ 1382b(e)(5) and 1396p(d)(4)(C) and Wis. Stat. § 49.454(4). Id.
The ACA provides that the Trustee shall make a home available to the SB as a primary residence. ACA Art. 8.1. The SB, in turn, must pay a monthly occupancy fee which does not exceed the larger of the presumed maximum value or another amount based on the anticipated total annual expenses of owning and maintaining the home. ACA Art. 5.8, 8.2.
Upon the acceptance of property by the Trustee, the ACA and the sub-account created by it are irrevocable and may not be amended or revoked by the sub-account creator, and the property is nonrefundable. ACA Art. II, 3.3. Once they become irrevocable, WISH, Inc. and the Trustee may amend or terminate the ACA and the sub-account only in certain circumstances. ACA Art. II, XI, XII.
During the SB's lifetime, the Trustee must hold all contributed assets and income earned from such assets in a sub-account used for the benefit of the SB (or, in the case of a self-settled sub-account, for the sole benefit of the SB). ACA Art. 4.1. An individual sub-account shall be maintained for the SB, but assets other than the home will be pooled with assets of other individual sub-accounts for purposes of investment and management. ACA Art. 4.3.
The ACA states that the Trustee has absolute discretion regarding all use and distribution of sub-account property on the SB's behalf. ACA Art. 6.3, 9.1. Any payment in cash and any use of income or principal to provide or pay for food or clothing or to supplement housing costs rests in the sole discretion of the Trustee. ACA Art. 9.1. No beneficiary or other person has authority to require a payment in cash or use of income or principal to provide or pay for food, clothing, or supplementation of shelter costs. Id.
The Trustee may make payment from the sub-account for all expenses of providing housing to the SB and for all expenses of owning, renting, and maintaining home. ACA Art. 9.1. The Trustee may also make payment for the SB's supplemental needs. ACA Art. 9.5.
The ACA contains a spendthrift provision in which the SB may not anticipate, sell, assign, or otherwise encumber any part of his interest in the assets of the Trust. ACA Art. 6.3.
The ACA provides that the sub-account terminates upon the SB's death, after payment of expenses incurred prior to the SB's death, including funeral and burial expenses, and fees and expenses connected with closing the sub-account. ACA Art. XIII. The remaining assets of the sub-account shall be retained by the Trust and shall be applied to the charitable purposes of the Trust as provided in the Declaration. Id.
The ACA is governed by the laws of the State of Wisconsin. ACA Art. 14.1.
DISCUSSION
WISH, Inc. has indicated that sub-accounts within the Trust may be self-settled or established with the assets of a third party. We will discuss each situation in turn.
Self-settled Sub-account
Pursuant to 42 U.S.C. § 1382b(e), the principal of a trust created on or after January 1, 2000, with the assets of an individual will be considered a resource to the extent that the trust is revocable or, in the case of an irrevocable trust, to the extent that any payments from the trust could be made to or for the benefit of the individual (or the individual's spouse), with certain exceptions. See also POMS SI 01120.201(D).
Our first inquiry is whether the SB of a self-settled sub-account would have the legal authority to revoke his sub-account. Whether a trust can be revoked depends on the terms of the trust and applicable state law--here Wisconsin. See POMS SI 01120.200(D)(2). The Declaration states that it is irrevocable. Decl. Art. XII. Likewise, the ACA states that it and the sub-account created by it are irrevocable. ACA Art. II, 3.3. Despite these provisions, the SB's sub-account would still be considered revocable if he were the sole beneficiary. See Restatement (Third) of Trusts § 65 Reporter's Notes (2003) (if grantor is also sole beneficiary of trust, trust is considered revocable regardless of contrary language in trust); POMS SI 01120.200(D)(3). In this case, however, the SB would not be the sole beneficiary. Rather, the Trust creates a contingent remainder interest in WISH, Inc. The Declaration and the ACA both specify that, upon the SB's death, after payment of allowable expenses, the remaining assets are to be retained by the Trust. Decl. Art. 5.3; ACA Art. XIII. Since there is a residual beneficiary, the SB could not revoke his sub-account unilaterally, but would need to obtain the consent of the residual beneficiary. See Wis. Stat. § 701.12 (trust may be revoked, modified, or terminated by written consent of settlor and all beneficiaries); POMS SI CHI01120.200(C) ("[I]f the trust names a residual beneficiary to receive the benefit of the trust interest after a specific event, usually the death of the primary beneficiary, the trust is irrevocable. The primary beneficiary cannot unilaterally revoke the trust; he needs the consent of the residual beneficiary."). Because we do not presume that WISH, Inc. would consent to a revocation, we would consider a self-settled sub-account irrevocable. See Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, SSI - Update on the Law Regarding Grantor Trusts (July 23, 2003).
As stated above, in the case of an irrevocable trust, the principal will be considered a resource to the extent that any payments could be made to or for the benefit of the individual (or the individual's spouse), with certain exceptions. Here, payments from the sub-account could be made to or for the benefit of the SB, since he would be the sole beneficiary during his lifetime. ACA Art. 4.1. Therefore, a self-settled sub-account within the Trust would be considered a resource, unless an exception applies.
One exception is for a trust that is established under section 1917(d)(4)(C) of the Social Security Act, 42 U.S.C. § 1396p(d)(4)(C), commonly referred to as a pooled trust. In order to qualify for this exception, the trust must contain the assets of a disabled individual and meet the following conditions:
* The trust is established and managed by a nonprofit association.
* The trust maintains a separate account for each beneficiary, but pools these accounts for purposes of investment and management of funds.
* Accounts in the trust are established solely for the benefit of the disabled individual by the individual or a parent, grandparent, legal guardian, or court.
* To the extent that amounts remaining in the beneficiary's account upon his or her death are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State Medicaid plan.
See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203(B)(2).
Here, the Trust does not meet all of the conditions of the pooled trust exception. Specifically, the Trust fails to meet the last condition. The POMS unequivocally states that "[t]o qualify for the pooled trust exception, the trust must contain specific language that provides that, to the extent that amounts remaining in the individual's account upon the death of the individual are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the individual under the State Medicaid plan." POMS SI 01120.203(B)(2)(g) (emphasis added). Under the terms of the Declaration and the ACA, upon the SB's death, the Trustee first pays any expenses listed in ACA Art. IX incurred prior to the SB's death, including funeral and burial expenses, and fees and expenses connected with closing the sub-account. Decl. Art. 5.3; ACA Art. XIII. Only after payment of these allowable expenses does the Trust retain the remaining assets of the sub-account. Id. Thus, the Trust does not qualify for the pooled trust exception under 42 U.S.C. § 1396p(d)(4)(C), and a self-settled sub-account within the Trust would be considered a resource under 42 U.S.C. § 1382b(e).
If WISH, Inc. is able to cure the above defects and qualify for the pooled trust exception, the Agency would still need to apply the regular resource rules set forth in POMS SI 01120.200 to determine whether a self-settled sub-account would be a resource. See 42 U.S.C. § 1382b(e)(1); SI 01120.200(A)(2)(c). Under the regular resource rules, the trust principal will be a resource if the individual can (1) revoke or terminate the trust and use the assets to meet his needs for food or shelter, or (2) direct the use of the trust assets for his support and maintenance. See POMS SI 01120.200(D)(1)(a). In addition, the current value of the individual's future interest in mandatory disbursements, if any, may be a resource if it can be sold. See id.
Applying these rules, a self-settled sub-account would not be a resource. As discussed above, the sub-account would be considered irrevocable because the SB would not be able to revoke it without the consent of WISH, Inc., the residual beneficiary. Moreover, the ACA provides that the SB does not have authority to require a payment in cash or use of income or principal to provide or pay for food, clothing, or supplementation of shelter costs. ACA Art. 9.1. Rather, the Trustee has "absolute discretion" in making all distributions. ACA Art. 6.3, 9.1. Thus, the SB could not direct the use of the sub-account assets for his support and maintenance. Consequently, the SB's sub-account principal would not be a resource. Additionally, neither the Declaration nor the ACA provides for mandatory disbursements to the SB.
With respect to the SB's power to otherwise sell his beneficial interest in the Trust, the ACA contains a spendthrift provision in which the SB's interest in the assets of the Trust is not subject to alienation. ACA Art. 6.3. However, since the SB is also the settlor of the sub-account, a Wisconsin court may decline to give effect to this spendthrift provision. See Wis. Stat. § 701.06(6) (where settlor is beneficiary, court may, upon request of judgment creditor, order satisfaction of judgment to extent of settlor's proportionate contribution to trust). In any event, since the sub-account is a discretionary trust and the Trustee could not be compelled to make any distributions, the SB's beneficial interest in the Trust would have no significant market value. See Restatement (Third) of Trusts § 60 & cmt. e, f (2003). Accordingly, the SB's beneficial interest in a self-settled sub-account would not be considered a resource.
Third Party Sub-account
In the case of a trust established solely with the assets of a third party, the regular resource rules set forth in POMS SI 01120.200 apply to determine whether the assets in the trust are a resource. As noted above, under this provision, the trust principal will be a resource if the individual can (1) revoke or terminate the trust and use the assets to meet his needs for food or shelter, or (2) direct the use of the trust assets for his support and maintenance. See POMS SI 01120.200(D)(1)(a). In addition, the current value of the individual's future interest in mandatory disbursements, if any, may be a resource if it can be sold. See id.
As with a self-settled sub-account, a third party sub-account would not be a resource under the regular resource rules. Here, the terms of the ACA do not give the SB the right to terminate a third party sub-account. Morever, under Wisconsin law, the SB would not be able to unilaterally terminate his sub-account, but would need the consent of the settlor and WISH, Inc., the residual beneficiary. See Wis. Stat. § 701.12. The ACA also gives the Trustee "absolute discretion" in making all distributions and provides that the SB does not have authority to require the use of the sub-account assets for his support and maintenance. ACA Art. 6.3, 9.1. Consequently, the SB's sub-account principal would not be a resource. Additionally, neither the Declaration nor the ACA provides for mandatory disbursements to the SB.
With respect to the SB's power to otherwise sell his beneficial interest in the Trust, the ACA contains a spendthrift provision in which the SB's interest in the assets of the Trust is not subject to alienation. ACA Art. 6.3. Spendthrift trusts are allowed in Wisconsin. See Wis. Stat. § 701.06 (applies to both principal and income). Accordingly, the SB's beneficial interest in a third party sub-account would not be considered a resource.
Sub-account Distributions
Assuming WISH, Inc. cures the defects that would disqualify its self-settled sub-accounts from the pooled trust exception, neither self-settled nor third party sub-accounts would be considered resources under the regular resource rules. However, certain distributions from the sub-accounts would be considered income. For example, any disbursements of cash made directly to the SB would be considered unearned income for SSI purposes. ACA Art. 9.5(a); see 20 C.F.R. § 416.1102; POMS SI 01120.200(E)(1)(a). In addition, any disbursements made to a third party resulting in the SB's receipt of food or shelter would be considered income in the form of in-kind support and maintenance ("ISM") up to the presumed maximum value ("PMV"). ACA Art. 9.5(b)(xiii); see 20 C.F.R. §§ 416.1102, 416.1130, 416.1140; POMS SI 01120.200(E)(1)(b), SI 02210.201(I)(1).
Because the Trust provides a home to the SB to use as a primary residence (ACA Art. 8.1) and pays for certain housing expenses (ACA Art. 9.1[2]), we must consider whether and the extent to which these provisions would be considered ISM in the form of shelter. This, in turn, depends on the type of housing arrangement that is formed. The first category is where the sub-account creator (either the SB or a third party) transfers title to his home to the sub-account (ACA Art. 3.1(a)), or the Trust purchases a home for the SB out of the SB's sub-account assets (ACA Art. 8.14(a)), and the SB lives in that home. In that case, the Trust holds legal title to the home for the benefit of the SB, who has an equitable ownership interest, and the SB is considered to be living in his own home. See POMS SI 00835.110, 01110.515(C)(2), 01120.200(F)(1). Accordingly, we apply POMS SI 01120.200(F), which sets forth resource and income rules pertaining to a home. Because the SB has an equitable ownership interest, he does not receive ISM in the form of rent-free shelter while living in the home. See POMS SI 01120.200(F)(2). (Consequently, it is unnecessary for the SB to pay rent.) However, the purchase of a home or the payment of any monthly mortgage by the Trustee would constitute a disbursement from the Trust that results in the receipt of ISM to the SB. See POMS SI 01120.200(F)(3). Specifically, the purchase of a home would be ISM up to the PMV in the month of purchase, if the SB lives in the home that month. See id. And if there is a mortgage, each monthly mortgage payment would be ISM up to the PMV. See 20 C.F.R. § 416.1130(b); POMS SI 01120.200(F)(3)(b). However, since the SB is required to pay a monthly occupancy fee for using the home (ACA Art. 8.2), for purposes of determining ISM, the amount of this fee would serve as an offset for the mortgage payment made by the Trustee (but this offset would not have any effect on the ISM if the resulting net mortgage payment equals or exceeds the PMV). Moreover, to the extent that the Trustee pays for the SB's additional shelter expenses including property taxes, heating fuel, gas, electricity, water, sewer, and garbage removal, such expenses would be considered ISM in the month payment is made (but the total ISM will not be more than the PMV). See 20 C.F.R. §§ 416.1130(b), 416.1140; POMS SI 00835.350, 00835.465(D), 01120.200(F)(3)(c). Again, for purposes of determining ISM, if the monthly occupancy fee is not used up in offsetting a mortgage payment, the remainder would serve as an offset for any other shelter expense distributions.
The second category is where the SB lives in a home that is rented or owned by the Trust (separate from the SB's sub-account), i.e., the SB does not have an equitable ownership interest. ACA Art. 8.14(a). Under the ACA, the Trustee sets the monthly occupancy fee which shall not exceed the larger of the PMV or another amount based on the anticipated total annual expenses of owning and maintaining the home. ACA Art. 8.2. As long as the SB's monthly occupancy fee exceeds or equals the PMV, he would not be receiving ISM in the form of room or rent. See 20 C.F.R. § 416.1130(b). However, if the SB's monthly occupancy fee is less than the PMV, the lesser of the difference between the monthly fee and either the PMV or the current market value would be imputed as ISM. See id. Moreover, to the extent that the Trustee pays for the SB's additional shelter expenses including heating fuel, gas, electricity, water, sewer, and garbage removal, such expenses would be considered ISM in the month payment is made (but the total ISM will not be more than the PMV). See 20 C.F.R. §§ 416.1130(b), 416.1140; POMS SI 00835.350, 00835.465(D).
CONCLUSION
For the reasons discussed above, we conclude that under the current version of the Trust documents, a self-settled sub-account would not qualify for the pooled trust exception and would be a resource for SSI purposes. However, assuming that WISH, Inc. cures the disqualifying defects, neither self-settled nor third party sub-accounts would be resources. However, as discussed above, certain trust distributions would be considered income to the SB.
M. PS 05-228 SSI - Wisconsin - Review of the Account of Luann A~, ~, in the Wisconsin Family Community Trust for the Disabled and the WisPACT Trust II - REPLY Our Ref: 05-0136 Your Ref: S2D5G6, SI 2-1-3 WI (A~)
N. PS 05-228 SSI - Wisconsin - Review of the Account of Luann A~, ~, in the Wisconsin Family Community Trust for the Disabled and the WisPACT Trust II - REPLY Our Ref: 05-0136 Your Ref: S2D5G6, SI 2-1-3 WI (A~)
DATE: August 26, 2005
1. SYLLABUS
An irrevocable grantor trust was created in 1994 for an SSI beneficiary. The corpus was held in a subaccount of the Wisconsin Family Community Trust and terms provided that the trustee had exclusive discretion regarding disbursements. The subaccounts of the Trust were determined to be excluded from resource counting as long as they named a residual beneficiary. This subaccount named Wisconsin Medicaid as the residual beneficiary and was, thus, excluded from SSI countable resources. In July 2003, the Trust Advisory Committee terminated the Community Trust and transferred all assets to the WisPACT II trust. A trustee-to-trustee transfer does not constitute establishment of a new trust as long as there is no indication that the beneficiary is using the transfer as an estate planning tool. Since there is no indication that the beneficiary is using the transfer to circumvent SSI resource counting policy, the subaccount in WisPACT II should not be considered a resource.
2. OPINION
You asked whether Luann A~'s former subaccount in the Wisconsin Family Community Trust for the Disabled (Community Trust) and current subaccount in WisPACT Trust II were/are a resource for purposes of SSI eligibility. For the reasons discussed below, we conclude that the Community Trust subaccount was a resource to Luann, and that the WisPACT II subaccount is a resource to Luann. However, the Community Trust subaccount was an excluded resource through March 1995.
BACKGROUND
In November 1994, Lois A~ transferred assets belonging to Luann (a retroactive Social Security benefit payment issued in September 1994) to a subaccount in the Community Trust. The Adoption Agreement names Luann as a beneficiary. The Adoption Agreement also provides that the trustee has discretion with respect to payments, Article 3, and the Master Trust provides that trustee is not authorized to make payments from the trust for the beneficiary's support that is otherwise provided at public expense and that the trust is not to be used to "replace or make unnecessary any form of public aid or assistance" for which the beneficiary qualifies, Section I(B)(2). The Adoption Agreement also provides that the trust is irrevocable, Article 5, and that, upon the claimant's death, the entire remainder goes to "Wisconsin Medical Assistant," which presumably refers to Wisconsin's Medicaid entity, Article 4. Finally, the Master Trust provides that the trust may be amended by the Trust Advisory Committee. Article I(B)(10).
In July 2003, pursuant to Article I(B)(10), the Trust Advisory Committee amended the Community Trust "in its entirety" by substituting the WisPACT Trust II, and stating that the Community Trust should hereafter be known as WisPACT, Inc. Trust II. In a June 2005 letter, attorney Sara B~ indicated that the Adoption Agreement entered into when Luann joined the Community Trust continued to be in force.
DISCUSSION
In Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Wisconsin-Review of the Wisconsin Family Community Trust for the Disabled for Judy J. (Nov. 24, 1999), we indicated that subaccounts in the Community Trust would not be a resource (under the regular resource rules) so long as the Adoption Agreement named at least one additional beneficiary in addition to the claimant, thus making the subaccount irrevocable. Here, the Adoption Agreement states that it is irrevocable and names Wisconsin Medicaid as a remainderman entitled to 100% of Trust assets upon Luann's death.
As indicated in POMS SI CHI01120.200, however, the State is generally considered a creditor, not a beneficiary, in all States in our region except Ohio. As explained in Scott on Trusts:
If he creates a trust, ordinarily the inference is that he does not intend to create it for the creditor, but intends to create it only for his own benefit. The result is different where he has agreed with the creditor to set aside the property for the payment of the debt, and particularly where it is agreed that on his so doing there shall be a novation, the trust being substituted for the debt that is thereby discharged. Where the debtor has not agreed with the creditor to make the disposition, there is ordinarily no reason why the debtor should surrender his control over the property, and the inference is that he does not intend to do so. He is simply making the disposition as a convenient step toward the discharge of the debt.
Mark L. A~, Austin W. S~, William F. F~, Scott on Trusts § 126.1 (4th ed. 2001). Here, there is no indication that Luann has entered into an agreement to make the disposition in the Trust, and thus the State is a creditor, leaving Luann as the sole beneficiary under the Trust. Because Luann is also the settlor of the Trust (since the Trust was established with funds that belonged to her), the Trust is revocable, notwithstanding the contrary language in the Trust, and therefore was a resource under the regular resource rules. POMS SI 01120.200(B)(2), 01120.200(D)(3), CHI01120.200; Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Wisconsin-Review of the Wisconsin Family Community Trust for the Disabled for Judy J. (Nov. 24, 1999) (citing Wisconsin statutes). However, since the Trust assets consist of retroactive Social Security benefits, they would be an excluded resource for six calendar months following receipt, or through March 1995. POMS SI 01130.600(B)(2).
In July 2003, pursuant to the amendment clause, the Trust Advisory Committee essentially terminated the Community Trust and transferred all subaccounts to the WisPACT Trust II. Although this was done through the amendment clause, rather than a termination clause, the action appears to be valid. Mark L. A~, Austin W. S~, William F. F~, Scott on Trusts § 331.2 (4th ed. 2001) ("Where the settlor has reserved power to modify the trust, and the power of modification is unrestricted, it would seem that he can revoke the trust.").
We have recently opined that a trustee-to-trustee transfer, such as occurred here, does not constitute the "establishment" of a new trust for purposes of applying the statutory trust resource rules, at least so long as there is no indication that the claimant is using the transfer as an estate planning tool. Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Review of the WisPACT I Trust (July 29, 2005). Here, there is no indication that the claimant is using the transfer to circumvent our counting rules. Accordingly, we consider whether the trust (into which the transfer is made) is a resource under the rules applicable when the trust (from which the transfer was made) was created, not whether the trust (into which the transfer was made) would be a resource under the rules applicable to trusts established at the time of the transfer. Id.
Thus, we apply the regular resource rules only to determine whether Luann's subaccount in WisPACT II is a resource. Because the Adoption Agreement continues to be in force, and because WisPACT II provides that, upon the death of the claimant, subaccount assets are to be distributed first to the State (in an amount necessary to reimburse Medicaid for any benefits paid) and then as provided in the Contribution (Adoption) Agreement, Article XIV(A), all Trust assets remaining at the death of Luann would still go just to Medicaid. As such, for the reasons discussed above, Luann's subaccount in WisPACT II would also be a resource under the regular resource rules.
CONCLUSION
As discussed above, both subaccounts should be considered a resource, subject to the exclusion of the Community Trust subaccount through March 1995.
N. PS 05-219 SSI-Wisconsin-Review of Special Needs Trust for Kenneth J. W~, ~, Established with the ARC Milwaukee and U.S. Bank (N.A.) Community Trust for Persons with Developmental Disabilities - REPLY Your Ref: S2D5G6 SI 2-1-3 WI (W~) Our Ref: 05-0129
O. PS 05-219 SSI-Wisconsin-Review of Special Needs Trust for Kenneth J. W~, ~, Established with the ARC Milwaukee and U.S. Bank (N.A.) Community Trust for Persons with Developmental Disabilities - REPLY Your Ref: S2D5G6 SI 2-1-3 WI (W~) Our Ref: 05-0129
DATE: August 11, 2005
1. SYLLABUS
This opinion addresses whether or not the trust in question meets the criteria to qualify for the Medicaid pooled trust exception. As outlined in SI 01120.203, to qualify for this exception, the trust must contain the assets of a disabled individual and satisfy the following conditions: 1) Be established and maintained by a nonprofit association; 2) A separate account be maintained for each beneficiary; 3) The account be established for the sole benefit of the disabled individual by the individual, or parent, legal guardian, or a court; and 4) The trust must provide that to the extent that amounts remaining in the beneficiary's account upon death of the beneficiary are not retained by the trust, the trust will pay to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary.
In this case, the trust satisfies the conditions as outlined above and thus is excluded from resources for SSI purposes.
2. OPINION
You asked us whether the Special Needs Trust for Kenneth J. W~ (Mr. W~) established with the ARC Milwaukee and U.S. Bank (N.A.) Community Trust for Persons With Developmental Disabilities (Master Trust) would be a resource for Kenneth for SSI purposes. For the reasons discussed below, it is our opinion that the Trust would not be a resource.
BACKGROUND
The ARC Milwaukee and U.S. Bank (N.A.) Community Trust for Persons With Developmental Disabilities (Master Trust) was established a pooled trust in 1996, and amended on February 25, 2005. See Master Trust, introduction (first paragraph); Article V. The purpose of the Trust is to hold assets of individuals who are disabled and to supplement, but not supplant, available government resources to ensure the Beneficiary's comfort and happiness during lifetime. It is also intended to qualify the participant for SSI. Master Trust, first, introductory, paragraph; Master Trust, Article VI B; see also Article VI A, C. The Master Trust defines disabled individuals consistent with Section 1614(a)(3) of the Social Security Act. Master Trust, Article I.
Within the Master Trust, individual trust accounts, called "shares," are created and maintained for each beneficiary, including Mr. W~. Master Trust, Article V; Instrument of Adoption, Article II. The funds from each share can be commingled (or pooled) with the amounts in other accounts for investment and management purposes. Master Trust, Article V. The Trust is activated for an individual beneficiary when the Instrument of Adoption is signed by a grantor (defined by the Master Trust as the individual or individuals who have established the Trust by signing the Instrument of Adoption), and when it is accepted by the Trustee. Master Trust, Introduction; Article I. Master Trust, Articles I, IV. A share is established upon receipt, by the trustee, of assets with a minimum value of $25,000 transferred on behalf of a person with a disability. Master Trust, Article IV.
Our materials also include an Instrument of Adoption Agreement that identifies Marie W~ as the Grantor, Kenneth J. W~ as the primary beneficiary, and it is signed by Marie W~, Grantor, representatives of the U.S. Bank National Association, ARC Milwaukee (Financial advisor) and Glenn M~, Personal Advisor. The share for Mr. W~ is funded by net proceeds of a lawsuit which Mr. W~ settled on November 24, 2004 in the amount of $38, 323.31.
These funds are to be managed by a Trustee who is the U.S. Bank (N.A.). The trustee has sole discretion to hold, manage, invest, and reinvest the funds in each share. Master Trust, Articles VI, A; XI. The Trustee has sole and absolute discretion to pay amounts from the principal and earnings in Mr. W~'s share to Mr. W~ in order to provide for his care. Master Trust, Article VI, B-C. The Instrument of Adoption states that it irrevocable, and a spendthrift provision in the Master Trust provides that Mr. W~, as the beneficiary, cannot anticipate, alienate, or encumber any interest in the Trust's principal or income. Instrument of Adoption, Article I, Master Trust, Article VII.
The Master Trust provides that the Trust shall terminate at the time and as provided in the Instrument of Adoption which specifies the person or persons or entities to whom the Trust assets are to be distributed upon termination, provided however no provision in an Instrument of Adoption that allows or directs distributions to or for the benefit of any person other than the beneficiary during the beneficiary's lifetime shall be followed if the Trust contains assets of the beneficiary. Amendments to Master Trust, Article VIII. The Instrument of Adoption provides that the Trust shall terminate upon the death of the primary beneficiary, or if, pursuant to the Master Trust, the Trustee determines that continued administration is impractical due to the size of the principal balance. Instrument of Adoption, Article VII, A(1), A(2). Upon termination, the Adoption Instrument provides that the Trust balance shall be distributed to the following individuals or entities:
(1) the Trustees shall, to the extent required by law, distribute such assets of this Trust as shall be required to reimburse the State for medical assistance benefits paid on behalf of the beneficiary which, if such benefits were not reimbursable by the Trust, would case assets held by this Trust to disqualify Mr. W~ for such benefits; (2) if this Trust terminates pursuant to Article VII, the Trust balance shall be distributed to the beneficiary; (3) If this Trust account has been transferred to a pooled trust, as defined in 42 U.S.C. § 1396p(d)(4)(c), all remaining assets shall be retained by the trustee of the pooled trust to be used as directed under the terms of that trust; (4) if this Trust account has not been transferred to a pooled trust as defined in 42 U.S.C. § 1396p(d)(4)(c), assets remaining after any distributions under Article VII.B. 1, shall be distributed: to Glen M~, or if he had predeceased, to any Supplemental Needs Trust established by Glen M~ for the benefit of Sandra M~.
Instrument of Adoption, Article VII, B.
DISCUSSION
Under the Social Security Act, trusts created on or after January 1, 2000, from the assets of an SSI claimant or beneficiary, will be considered a resource to the extent that the trust is irrevocable or to the extent that any payments can be made from the trust for the benefit of the individual. See 42 U.S.C. § 1382b(e); POMS SI 01120.201. In the present Trust, the trustee has the discretion to use the income and the principal from Mr.W~'s Trust share for his benefit. See Master Trust, Article VI. Therefore, the Trust would be a resource to the beneficiary under these provisions. See 42 U.S.C. § 1382b(e)(3)(B).
However, certain trusts are excepted from this provision if they qualify under the Medicaid trust exception, 42 U.S.C. § 1396p(d)(4)(C). See POMS SI 01120.203(B)(2). In order to qualify for the Medicaid payback trust exception, the trust must contain assets belonging to a disabled individual and must satisfy the following conditions:
It must be established and managed by a nonprofit association.
A separate account must be maintained for each beneficiary of the trust; but, for purposes of investment and management of funds, the trust pools these accounts.
Accounts in the trust must be established solely for the benefit of the disabled individual by the individual, or parent, grandparent, legal guardian, or court.
The trust must provide that to the extent that amounts remaining in the beneficiary's account upon the death of the beneficiary are not retained by the trust, the trust will pay to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary.
See POMS SI 01120.203(B)(2).
Here, the Trust appears to qualify for the Medicaid payback exception because it complies with these requirements. ARC Milwaukee, which, along with U.S. Bank, is the organization that established the Community Trust, appears to be a not-for-profit organization. Next, the Trust maintains a separate account for each beneficiary, but pools the accounts for purposes of investment and management of funds. Master Trust, Article V. The Trust further provides that in no event can it distribute any balance to someone other than the beneficiary during the beneficiary's lifetime and thus is established solely for the benefit of the disabled individual. Amendments to the Master Trust, Articles IV, VIII. Here the subaccount was established by Mr. W~, a competent adult, through his mother acting as his agent. Finally, the Instrument of Adoption provides that upon termination, the Trustees shall, to the extent required by law, distribute such assets of the Trust to the state for medical assistance benefits paid on behalf of the beneficiary. Instrument of Adoption, Article VII, B1. Therefore, it appears that the exception would apply.
Furthermore, according to the regular resource rules, see POMS SI 01120.200(D), based on the evidence we have, it does not appear that Mr. W~, the beneficiary, would have the right to revoke or terminate the Trust, because the Instrument of Adoption establishes residual beneficiaries: Glen M~, or, if he has predeceased, to any supplemental needs trust established by Glen M~ for the benefit of Sandra M~. Instrument of Adoption, Article VII,B4. See Berg v. Berg, 142 Wis. 2d 935 (Wis. Ct. App. 1987) (a trust cannot be revoked (or modified) without the approval of all beneficiaries, even the unascertained ones). Nor can Mr. W~ direct use of the Trust's assets.
With respect to selling Mr. W~'s beneficial interest, the Trust provides that no interest shall be assignable. Master Trust, Article VII. However, since Mr. W~ is the grantor of the trust for state law purposes, the non-assignment provision would not prevent him from selling his interest in the trust. See Restatement (Second) of Trusts § 156(1) (1957). But, since disbursements are completely within the trustee's discretion, Mr. W~'s interest in the trust has no significant market value. The interest, however, is a resource since a resource is defined as an interest that an individual (1) owns (2) has the right, power or authority to convert to cash, and (3) is not legally restricted from using for his support and maintenance, POMS SI 01110.100(B)(1), even if the interest has no current market value. POMS SI 01110.100(B)(2), SI 01140.044. Accordingly, Mr. W~'s interest in the Trust should be considered a resource with no market value, even though the Trust principal is not a resource.
CONCLUSION
For the foregoing reasons, we conclude that Mr. W~'s share in the Master Trust would not be a resource.
~~O. PS 05-172 SSI - Wisconsin- Review of the Life Insurance Funded Burial Trust of Barbara Y~, REPLY; SSN: ~-Action; Your Reference: SI 2-1-4 WI (Y~); Our Ref.: 05-003~~
P. PS 05-172 SSI - Wisconsin- Review of the Life Insurance Funded Burial Trust of Barbara Y~, REPLY; SSN: ~-Action; Your Reference: SI 2-1-4 WI (Y~); Our Ref.: 05-003
DATE: April 5, 2005
1. SYLLABUS
This opinion examines whether or not a life insurance funded burial trust is a resource for SSI purposes. A burial trust is not considered to be a countable resource if an individual irrevocably contracts with a provider of funeral services, funds the contract by prepaying for the goods and services, and the funeral provider places the funds in trust. The claimant in this case purchased a life insurance policy which she irrevocably assigned to a trust presumably as part of a pre-planned funeral agreement. However, the claimant never executed a pre-planned funeral agreement with the funeral home and thus does not have a valid life insurance funded burial contract under Wisconsin law. Because the claimant did not enter into a valid burial agreement, the life insurance policy is a resource for SSI purposes.
2. OPINION
You asked whether a life insurance funded burial trust is a resource to Barbara Y~ for purposes of determining Ms. Y~'s SSI eligibility. We have reviewed the documents that you provided and concluded that the life insurance policy is a resource, because she does not have a funeral agreement and thus, may convert the life insurance policy to cash.
BACKGROUND
The materials for Barbara Y~ that you sent to us consist of a one-page letter from Scott M~, from the P~ Life Insurance Company, to Barbara Y~, a one-page "Irrevocable Assignment of Death Benefit Proceeds and Transfer of Ownership to the P~ Life Insurance Trust," a two-page "Enrollment for Insurance" form for the P~ Life Insurance Company, a one-page notice of who to contact if there are any problems with the insurance, a one-page "Notice of Taxation of Life Insurance," and a nine-page "Life Insurance Certificate." You also included similar documents for Edward L. Y~, which do not appear to be relevant to determining whether Ms. Y~'s life insurance funded burial trust is a resource.
On Ms. Y~'s enrollment form, the policy identifies Barbara L. Y~ as the "insured," as well as the "policy owner." On page two of the enrollment form, "Estate" is named as the beneficiary and "Self" is listed as the "Relationship;" the policy has a face value amount of $1,800.83. Ms. Y~ remitted an insurance premium of $1,500.00 with the enrollment form. The "Certificate Specifications" of the policy indicate that it is a single premium whole life policy that Barbara Y~ purchased on June 28, 2004. The "Certificate Specifications" indicates a death benefit of $1,512.00, payable prior to December 28, 2004, and a death benefit amount thereafter of $1,801.00.
On the "Irrevocable Assignment of Death Benefit Proceeds and Transfer of Ownership to the P~ Life Insurance Trust" form, Ms. Y~ irrevocably assigned her ownership and death benefit proceeds in the P~ Life Insurance Policy to the H~ Funeral Home, in return for a promise to deliver funeral services and merchandise. The form indicates that Ms. Y~ renounced any interest in the policy, including any reversionary rights or power to control ownership. The purpose of the assignment is to assure that ownership rights of the insurance policy are transferred in order to fund the agreement for Barbara Y~'s funeral and burial services. Ms. Y~ signed below the line that purported to make this assignment "irrevocable." According to the document, Ms. Y~ thereby could not surrender the policy for cash or obtain a policy loan. In addition, by signing the agreement, Ms. Y~ warranted that the proceeds paid under the insurance policy would be used solely for the purpose of funding the funeral merchandise and burial services selected in the agreement. Irrevocably assigning ownership of the policy required that all of the funds had to be used for the burial expenses, but Ms. Y~ retained the right to designate a new funeral provider.
However, the materials did not include a pre-planned funeral agreement ("Agreement") between Barbara Y~ and the H~ Funeral Home. The claims representative at the field office confirmed that Ms. Y~ does not have an agreement with the funeral home; all she has is the life insurance policy.
DISCUSSION
Assets are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for her support and maintenance. See 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate property, it is a resource. See 20 C.F.R. § 416.1201(a)(1). A life insurance policy constitutes a resource if the individual can surrender it for cash or recover premiums paid. See 20 C.F.R. § 416.1230. A pre-planned burial contract is a resource if it is revocable or salable. Program Operations Manual System (POMS) SI 01130.420(B)(1). Trusts can also constitute a resource with specific statutory provisions addressing trusts created after January 1, 2000. See 42 U.S.C. § 1382b(e).
A life insurance funded burial contract involves an individual purchasing a life insurance policy in her name and then revocably or irrevocably assigning the ownership of that policy to a third party, generally, a funeral provider. The purpose of such an assignment is to fund a pre-planned burial contract. POMS SI 01130.425(A)(1). Here, Barbara Y~ purchased a life insurance policy which she irrevocably assigned to a trust presumably as part of a pre-planned funeral agreement. However, she never executed the pre-planned funeral agreement; she only has the life insurance policy. Therefore, even though she purports to assign the life insurance policy to the funeral home, she has not contracted for funeral services and retains control of the life insurance policy.
Generally, when a pre-planned funeral agreement is funded by a life insurance policy, we assume that the funeral agreement itself has no resource value and is not salable. POMS SI 01130.425(B)(1). Thus, a pre-planned funeral agreement is not generally considered to be a resource. However, Ms. Y~ did not execute a pre-planned funeral agreement with the funeral home.
Turning to the life insurance policy, if the life insurance funded burial contract is not valid under Wisconsin State law, the value of the life insurance policy is a resource per POMS SI 01130.300(B). See POMS SI CHI 01130.426(A). Wisconsin law provides that if an individual pays money to fund a prearranged funeral contract, the money is considered to be held in trust, Wisconsin Statutes Annotated (W.S.A.) § 445.125(1)(a)(1), and the trust can be made irrevocable only up to $3,000.00. W.S.A. § 445.125(1)(a)(2). Wisconsin law also expressly allows the assignment of proceeds of a life insurance policy to fund a pre-planned funeral arrangement. W.S.A. § 632.415(2), formerly W.S.A. § 632.41(2), became effective June 1, 1997. But this law does not limit the ability to irrevocably assign the proceeds of a life insurance policy to fund a pre-planned funeral agreement, so long as the policy holder can designate a different beneficiary and designate a different funeral director or operator of a funeral home to receive the assignment of proceeds. W.S.A. § 632.415(2)-(3). Here, the terms of the assignment under the section titled "Freedom of Choice" specifically state that Ms. Y~ has retained the right to change the designated funeral establishment as provided in the P~ Life Insurance Company Trust. Under the General Provisions, Change of Owner of Beneficiary section of the Life Insurance Certificate, the policy indicates that Ms. Y~ may change the beneficiary by notifying the insurance company in writing, and the change is received and registered in the life insurance company's home office. However, Ms. Y~ has not executed a pre-planned funeral agreement. Ms. Y~ does not have a valid life insurance funded burial contract under Wisconsin law; the assignment of the insurance policy would be revocable or voidable; and thus the value of the life insurance policy is a resource to Ms. Y~. POMS SI CHI 01130.426(A), SI 01130.300(B).
A life insurance policy issued for a burial agreement is not a resource if: (1) the policy holder has irrevocably assigned the proceeds of the policy while retaining the right to designate a different funeral director or operator of a funeral establishment according to the statutory scheme; (2) the policy holder has the right to change the beneficiary; (3) the policy holder has either irrevocably assigned or waived the right to obtain the cash surrender value of the policy; (4) the policy holder has submitted to the insurance company the irrevocable assignment of proceeds and the assignment or waiver of the right to obtain the cash surrender value; and (5) the individual has entered into a valid burial agreement. See POMS SI CHI 01130.426(C). The "Irrevocable Assignment of Ownership and Death Benefits Proceeds and Transfer of Ownership to the P~ Life Insurance Trust" document appears to address the first four of these concerns. Ms. Y~ signed this document, below the section addressing these issues. The paragraph titled "Freedom of Choice" specifies that the policy owner retains the right to designate a new funeral provider; numbered paragraph three specifies that the policy owner has waived all rights to surrender the policy for cash; and numbered paragraph six specifies that proceeds paid under the insurance policy may be used only for the funding of funeral services and merchandise. However, Ms. Y~ has not met the fifth requirement: she has not entered into a valid burial agreement. According to the claims representative, Ms. Y~ did not create any pre-planned funeral contract with the funeral home. Generally, a valid burial agreement must: (a) identify the agent selling the agreement and identify the funeral establishment with which that agent is affiliated; (b) indicate that the agreement is being funded by a life insurance policy; (c) identify the funeral establishment that would perform the services; (d) list the funeral services selected; and (e) indicate that the prices for the funeral services and the merchandise were guaranteed. See POMS SI CHI 01130.426(C)(5). There is no document in the file which meets these criteria. As Ms. Y~ apparently did not enter into a valid burial agreement, the life insurance policy is a resource.
CONCLUSION
For the foregoing reasons, we conclude that the life insurance policy, purchased by Barbara Y~, was a resource to Ms. Y~. Because Ms. Y~ did not contract with a funeral home for a pre-paid burial agreement, she maintained control over the life insurance policy, despite the assignment to the P~ Life Insurance Trust in the Irrevocable Assignment of Death Benefit Proceeds and Transfer of Ownership to the P~ Life Insurance Trust.
~~P. PS 05-029 SSI-Wisconsin- Review of Life Insurance Funded Burial Trust for Linda M. E~ Your Ref: SI-2-1-4 WI (E~) Our ref: 04 P 022 REPLY~~
Q. PS 05-029 SSI-Wisconsin- Review of Life Insurance Funded Burial Trust for Linda M. E~ Your Ref: SI-2-1-4 WI (E~) Our ref: 04 P 022 REPLY
DATE: November 3, 2004
1. SYLLABUS
This opinion is in reference to an irrevocable prepaid burial agreement that is supported by a life insurance policy and held in a trust by the Great Western Trust Insurance Company and whether or not the trust is a resource to the beneficiary. Great Western Trust Insurance Company is based in Utah. Utah law states that if the grantor and the sole beneficiary are the same individual, the trust is revocable. However, if the trust has more than one beneficiary, the trust is not revocable. In this case, there are two beneficiaries (SSI beneficiary and the funeral home) to the trust. An irrevocable prepaid burial agreement that is supported by life insurance policy and is held in a trust by the Great Western Trust Insurance Company is not a resource after the mandatory 30 day right of return period if the beneficiary has (A) irrevocably contracted with a provider of funeral services and (B) pre-paid and (C) established an irrevocable trust naming the funeral home as a beneficiary.
2. OPINION
You have asked for our assistance in determining whether the burial trust is a countable resource to Linda E~ for SSI purposes. We have concluded that the life insurance policy was a resource for the first thirty days it was in effect. After that, however, the life insurance policy is not a resource and the life insurance policy to which the trust was assigned might be a resource, but has no market value.
BACKGROUND
The materials that you sent to us consist of an "Application for Life Insurance" to the Great Western Trust Insurance Company. The policy identifies Linda M. E~ as the "Insured" and it identifies "Estate" as the beneficiary. The policy has a face value amount of $16,304.00 and a single premium amount of $15,000.00. The application also sets out an amount of $15,000.00 for the total price of the pre-arranged funeral, with a minimum dollar amount of death benefit at $16,304.00.
The materials also include a pre-need funeral arrangement contract ("Contract") between Linda E~, listed as the Purchaser, and the P~/D~ Funeral Home of Stevens Point, Wisconsin. The contract identifies the P/D Funeral Home as the "Provider." David P~, a licensed funeral director, signed this form, as did Linda E~.
The Contract contains a section entitled "Assignment of Policy Ownership" on page four. This section states, in part, that the Purchaser has assigned ownership rights of the insurance policy to the Great Western Funeral Trust and that the Contract is financed by the insurance policy. The purpose of the assignment is to assure that ownership rights of the insurance policy are transferred in order to fund the Contract for Linda E~'s burial services. Ms. E~ initialed a line that purported to make this assignment "irrevocable." According to the document, the Purchaser thereby could not cancel the assignment, surrender the policy for cash, or obtain a policy loan. In addition, by initialing the agreement, Ms. E~ warranted that the proceeds paid under the insurance policy would be used solely for the purpose of funding the funeral merchandise and burial services selected in the Contract. Irrevocably assigning ownership of the policy required that all of the funds had to be used for the burial expenses, but the Purchaser retained the right to designate a new funeral provider.
The Contract specified funeral provider services of $15,000.00 ($2,470.00 for the basic professional services), and merchandise of $9,205.00 ($5,000.00 for the casket, $4000.00 for the outer burial container, 50.00 for the Register book, 100.00 for memorial folders, 40.00 for Acknowledgement cards and $15.00 for "other"). In addition, the agreement listed cash advance items (death certificate, the cost of opening and closing the grave, the death notice, an honorarium, music, a luncheon, flowers, engraving, and hairdressing) of $2,070.00. Altogether, these items constituted a total pre-need cost of $15,000.00, the initial purchase price of the policy.
DISCUSSION
Assets are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for her support and maintenance. See 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate property, it is a resource. Id. A life insurance policy constitutes a resource if the individual can surrender it for cash or recover premiums paid. See 20 C.F.R. § 416.1230. A prepaid burial contract is a resource if it is revocable or salable. POMS SI 001130.42. Trusts can also constitute a resource with specific statutory provisions addressing trusts created after January 1, 2000. See 42 U.S.C. § 1382b(e).
A life insurance funded burial contract involves an individual purchasing a life insurance policy in her name and then assigning, revocably or irrevocably, the ownership of that policy to a third party, generally, a funeral provider. The purpose of such an assignment is to fund a prearranged burial contract. POMS § SI 01130.425(A)(1). Here, Linda E~ purchased a life insurance policy which she irrevocably assigned to a trust as part of a pre-need funeral agreement. In the same transaction, Ms. E~ agreed that policy proceeds could be used only for funeral and burial services. This arrangement raises three issues that we address in turn: (1) is the pre-paid burial agreement a resource; (2) is the life insurance policy a resource; and (3) is the trust to which Ms. E~ assigned the policy a resource?
The first question is easily answered. When a pre-paid burial agreement is funded by a life insurance policy, we assume that the burial contract itself has no resource value and is not salable. POMS SI 01130.425(B)(1). Thus, the prepaid burial agreement is not a resource.
Turning to the life insurance policy, if the Life Insurance Funded Burial Contract is not valid under state law, the value of the life insurance policy is a resource. POMS SI CHI 01130.426(A). Wisconsin law provides that if an individual pays money to fund a prearranged funeral contract, the money is considered to be held in trust and the trust can be made irrevocable only up to $3,000.00. Wisconsin Statutes Annotated (W.S.A.) § 445.125(1) (a)(1). Wisconsin law also expressly allows the assignment of proceeds of a life insurance policy to fund a pre-need funeral arrangement. W.S.A. § 632.415(2), formerly W.S.A. § 632.41(2) became effective June 1, 1997. But this law does not limit the ability to irrevocably assign the proceeds of a life insurance policy to fund a pre-need funeral agreement, so long as the policy holder can designate a different beneficiary and designate a different funeral director or operator of a funeral home to receive the assignment of proceeds. W.S.A. § 632.415(2)-(3). Here, the terms of the assignment specifically state that Ms. E~ has retained the right to change the assignee to another funeral home. And the policy further indicates that the owner may change the beneficiary by notifying the insurance company in writing, although it recognizes that where the Contract is used to fund a pre-need funeral arrangement contract, excess proceeds would go to the insurance beneficiary or her estate. Thus, Ms. E~'s Life Insurance Funded Burial Contract is valid under Wisconsin law.
The life insurance policy will be a resource for the first thirty days after issuance. Under Wisconsin law, a policy holder has the unrestricted right to return a life insurance policy used to fund a pre-need funeral agreement within 30 days after the policy holder receives the policy. If the policy holder returns the policy, the insurance contract is void and all payments made must be refunded directly to the policy holder. Wis. Admin. Code § Ins. 23.20(1)(e). This right should be conspicuously printed on the front of the policy and would, presumably, remain with the insured who purchased the policy even after that policy has been assigned to the funeral provider. The policy purchased by Ms. E~ has a section under the heading "Contract Termination" which states that the purchaser (you) may cancel the policy within thirty days of its issue date and receive a full refund of all premiums paid. Thus, this policy would constitute a resource to Ms. E~ for the first thirty days after it was issued.
After the 30-day period during which a life insurance policy issued for a burial agreement is revocable, such policy would not be a resource if: (1) the policy holder has irrevocably assigned the proceeds of the policy while retaining the right to designate a different funeral director or operator of a funeral establishment according to the statutory scheme; (2) the policy holder has the right to change the beneficiary; (3) the policy holder has either irrevocably assigned or waived the right to obtain the cash surrender value of the policy; (4) the policy holder has submitted to the insurance company the irrevocable assignment of proceeds and the assignment or waiver of the right to obtain the cash surrender value; and (5) the individual has entered into a valid burial agreement. See POMS SI CHI 01130.426 (C). The "Assignment of Policy Ownership" section of the Guaranteed Pre-need Funeral Arrangement Contract appears to address the first four of these concerns. Ms. E~ initialed the section entitled Irrevocable Assignment. Paragraph four under the Irrevocable Assignment section specifies that the Purchaser retains the right to designate a new funeral provider; paragraph two specifies that the Purchaser has waived all rights to surrender the policy for cash; and paragraph three specifies that proceeds paid under the insurance policy may be used only for the funding of the funeral merchandise and services selected in the contract. In addition, Ms. E~ has entered into a valid burial agreement because: (a) it identified the agent selling the agreement and it identified the funeral establishment with which that agent is affiliated; (b) it indicated that the agreement is being funded by a life insurance policy; (c) it identified the funeral establishment that would perform the services; (d) it has listed the funeral services selected; and (e) it indicated that the prices for the funeral services and the merchandise were not guaranteed. See POMS SI CHI 01130.426(c)(5). As such, the life insurance policy is not a resource (after the first thirty days). (Although the life insurance policy is not a resource, it does offset the burial funds exclusion. POMS SI 01130.425(c)(2)).
Turning to the Trust to which the policy was assigned, a trust established by an individual with her own assets on or after January 1, 2000, will generally be considered a resource under federal law if it is revocable, or even if it is irrevocable, to the extent that payments to the trust could be made to or for the benefit of the individual. 42 U.S.C. § 1382b(e)(3)(B); POMS SI 01120.201(D)(1)-(2). This rule applies if payments can be made for the benefit of the individual "under any circumstances, no matter how unlikely or distant in the future." POMS SI 011020.201(D)(2)(b).
These provisions, however, do not apply to burial trusts where (A) the individual irrevocably contracts with a provider of funeral goods and services; (B) funds the contract by pre-paying for the goods and services and (C) either (1) the funeral provider subsequently places the funds in trust, or (2) the individual establishes an irrevocable trust naming the funeral home as a beneficiary. POMS SI 01120.201(H)(1). Under these circumstances, the funeral provider is considered, for federal law purposes, to have established the trust with the provider's own funds. See Memorandum from Associate General Counsel, Office of Program Law, to Associate Commissioner Legislative Development, Exclusion of Certain Burial Trusts from Section 205 of Public Law Number (Pub. L. No.) 106-169, (Aug. 29, 2000).
We conclude that Ms. E~ irrevocably contracted with a provider of funeral goods and services for a funeral, because as part of the Pre-Need Burial Contract, she irrevocably assigned ownership of the life insurance policy to a trust, indicating that the proceeds could be used only for funding funeral services. Ms. E~ also prepaid for the goods and services by funding the contract with the Life Insurance Policy. The third prong of the trust analysis requires determining whether the funeral provider placed the funds in trust, or whether Ms. E~ "established an irrevocable trust naming the funeral provider as the beneficiary." POMS SI 01120.201(H)(1). Because the funeral provider did not place the funds in trust, the question is whether Ms. E~ has established an irrevocable trust that names the funeral home (or provider) as the beneficiary.
In the Assignment of Policy Ownership, Linda E~ irrevocably assigned ownership of the insurance policy to the Great Western Funeral Trust. The specific assignment language provides that the assignment was permanent and that the assignment could not be changed by the Purchaser. Ms. E~ also waived all rights to change the policy ownership, surrender the policy for cash, receive a loan based on the policy, or receive any refund for premiums paid. Ms. E~ also instructed that all proceeds paid under the insurance policy could be used solely for the purpose of funding the funeral merchandise selected in the Contract. The Assignment of Policy Ownership further acknowledges that policy holders can irrevocably assign their ownership rights to a life insurance policy. In addition, the Great Western Funeral Trust document acknowledges acceptance of such an irrevocable assignment in Paragraph 1 of the document.
However, regardless of trust language to the contrary, a trust is revocable under Utah law, which governs the Great Western Funeral Trust, if an individual is both the grantor and the sole beneficiary of the trust. In Clayton v. Behle, 565 P.2d 1132, 1133 (Utah 1977) the Utah Supreme Court held that "where the settlor is the sole beneficiary by the weight of the evidence, he can terminate the trust at any time and compel the trustee to re-convey the property to him. This is true even if the purposes of the Trust have not been fully accomplished."
Here, there is no question that Ms. E~ is the settlor of the trust, because her life insurance policy funded the trust. Under these circumstances, however, we believe that a court would conclude that Ms. E~ is not the sole beneficiary of the trust, because the P~/D~ Funeral Home would be considered an intended beneficiary. In general, when an individual creates a trust that will pay a debt and transfer to the trust was not made in connection with an agreement with the creditor, the creditor is not an intended beneficiary of the trust. Instead, the trust is intended only for the benefit of the debtor, who can revoke the trust at any time. See Restatement (Second) of Trusts § 330 comment h (4th ed. 1987). However, where transfer to the trust is made pursuant to an agreement with the creditor, the creditor will be considered a beneficiary of the trust. Id. Here, Ms. E~ assigned her life insurance policy to the Great Western Funeral Trust as part of an agreement with P~/D~ Funeral Home and in consideration for the funeral home's agreement to provide funeral services for her upon her death. Under such circumstances, we believe that a court would likely find that P~/D~ Funeral Home is an intended beneficiary of the Great Western Trust under Utah law. Thus, the funeral provider's consent would be required in order to revoke the trust. In keeping with the clear intent of the parties, we believe that a Utah court would find that Ms. E~ effectively established an irrevocable trust, and sufficiently named the funeral provider as a beneficiary of that trust under Utah law. Thus, because Ms. E~ has (A) irrevocably contracted with a provider of funeral services and (B) pre-paid and (C) established an irrevocable trust naming the funeral home as a beneficiary we conclude that the funeral home established the trust for Federal law purposes. POMS SI 011201 (H)(I). The trust therefore would not be considered a resource under 42 U.S.C. § 1382b(e)(3)(B) or under our trust rules. Id.
A final consideration is whether Ms. E~ retains an equitable interest in the trust established in effect by the funeral home provider. We assume that Ms. E~ retains an equitable interest but that her interest has no resource value under the rules for trusts established by third parties. See POMS SI 01130.200. The trust is irrevocable, and Ms. E~ cannot direct the trustee to make disbursements for her support and maintenance. Legally, Ms. E~ could sell her interest in the trust (as there is nothing in the trust or contract prohibiting such a sale); but, because the trust is funded with a life insurance policy on Ms. E~'s life, such that the funds can only become available on her death, Ms. E~'s equitable interest in the trust has no discernable market value. Cf. POMS SI 01130.420(B)(2) ("If a burial contract cannot be … sold without significant hardship, it is not a resource."). Thus, if Ms. E~'s interest in the trust is a resource it has no market value. POMS SI 01140.044.
Lastly, because the funeral provider's future interest in the trust is contingent upon providing the contracted for funeral services, we considered whether the possibility that Ms. E~ could never have a funeral would make the trust arrangement void under the common law Rule Against Perpetuities. However, Utah does not follow the common law Rule Against Perpetuities and has instead, enacted a statutory "wait and see" rule to determine the validity of contingent future interests. Ut. St. 75-2-1203. Under Utah's statutory Rule Against Perpetuities, a contingent or future interest only becomes invalid if it does not vest from within 1,000 years after the interest is created. Thus, the current trust arrangement is valid notwithstanding the contingent future interest.
CONCLUSION
For the foregoing reasons, we conclude that the life insurance policy, purchased by Linda E~ was a resource to her for the first thirty (30) days that the policy was in effect, because she had the right to cancel the policy during that time and obtain a refund of premiums paid. Thereafter, because the assignment to the Great Western Funeral Trust was irrevocable, pursuant to the Guaranteed Pre-Need Funeral Arrangement Contract, and because P~/D~ Funeral Home was sufficiently named as a beneficiary of the Trust under Utah law, the life insurance policy and the contract are not a resource. In addition, the Trust to which the policy was assigned has no market value, even if it is a considered a resource. (However, the LIFBC does offset the burial funds exclusion).
~~Q. PS 04-326 SSI-Wisconsin-Review of Erik M~ Trust, SSN: ~ -ACTION Your Reference: S2D5G6, SI 2-1-3 WI (M~) Our Reference: 04S042~~
R. PS 04-326 SSI-Wisconsin-Review of Erik M~ Trust, SSN: ~ -ACTION Your Reference: S2D5G6, SI 2-1-3 WI (M~) Our Reference: 04S042
DATE: September 8, 2004
1. SYLLABUS
A trust was established in July, 2003 for a legally incompetent, eligible individual. The trust was established with his funds (grantor trust) by his legal guardians and qualifies as a Medicaid trust. Remainder interests were granted to the eligible individual's two brothers, thus, creating an irrevocable trust. The trustee's were assigned absolute discretion over distributions on behalf of the beneficiary and the trust does not contain any provisions allowing the beneficiary to direct use of the trust assets. In addition, the trust contains a "spendthrift" provision precluding the eligible individual from assigning his interest in the trust. Wisconsin state law, however, allows the grantor of a trust who is also the beneficiary to sell his interest in the trust regardless of the "spendthrift" provision. It is concluded that the beneficiary could sell his interest in the trust, but disbursements are completely within the trustee's discretion. Therefore, the trust has no significant market value and is considered to be a countable resource with zero value.
2. OPINION
You have asked whether the trust established for Erik M~ ("Erik") is a resource for the purposes of determining Erik's eligibility for Supplemental Security Income (SSI). As discussed below, the trust might be a resource, but has zero market value.
FACTS
On July 18, 2003, the Erik P. M~ Irrevocable Supplemental Needs Trust was established by Kenneth A. M~ and Georgellen O. M~, the parents and co-guardians of Erik. The Trust was established for Erik's sole benefit. Its purpose is to supplement any public benefits that are providing or may provide for Erik's primary support, medical and other service needs. The Trust states that it is irrevocable, and is governed by the law of Wisconsin. The Trust also authorizes the Trustees, in their discretion, to transfer all or some of the Trust assets to a trust account established for the sole benefit of Erik in a pooled trust established in compliance with 42 U.S.C. § 1396p(d)(4).
The Trust provides that, upon Erik's death, the remaining income and principal in the Trust shall be transferred to the state of Wisconsin and any state which has provided Medicaid benefits to Erik, up to an amount equal to the total Medical Assistance benefits paid on Erik's behalf under the state plan. Any remaining principal and income shall be transferred to Erik's two brothers or their issue.
DISCUSSION
Under federal law, a trust established by an individual (with his own assets) after January 1, 2000 generally will be considered a resource to him if the trust is revocable. 42 U.S.C. § 1382b(e)(3)(A); POMS SI 01120.201(D)(1). The Trust states that it is irrevocable. However, a trust that purports to be irrevocable can be revoked if the settlor of the trust is also the sole beneficiary. 76 Am. Jur. 55; see McLain v. Jarecki, 232 F.2d 211, 212 (7th Cir. 1956) ("a person becomes the settlor of a trust if he supplies the consideration, in spite of another person's mechanical declaration of trust"); Restatement (Second) of Trusts § 339, comment a (1959); Restatement (Third) of Trusts § 65 & comment a & Reporter's Note (2003). Even though Erik is the true settlor of the Trust (since the Trust was established with funds that belonged to his estate), he is not the sole beneficiary under the Trust (which would make the Trust unilaterally revocable notwithstanding any contrary language). POMS SI 01120.201(B)(7), 01120.200(B)(2); CHI01120.200. Specifically, the Trust creates contingent remainder interests in Erik's brothers. Accordingly, the Trust is irrevocable. Berg v. Berg, 142 Wis. 2d 935 (Wis. Ct. App. 1987) (a trust cannot be revoked without the approval of all beneficiaries).
Even if it is irrevocable, a trust will still be a resource under the statute if there are any circumstances under which payment cold be made to or for the benefit of the individual, unless an exception applies. 42 U.S.C. § 1382b(c)(3)(B). One such exceptions, commonly referred to as the Medicaid payback trust exception, applies where the trust is: (1) established with the assets of an individual under age 65 who is disabled; (2) established for the benefit of such individual by a parent, grandparent, legal guardian or a court; and (3) provides that, on the death of the individual, any funds remaining in the trust will be used to reimburse the state for Medicaid payments made for the benefit of the individual during his lifetime. See 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203(B)(1).
It appears that Erik meets the first requirement, as he is under 65 and disabled. It also appears that Erik meets the second requirement, as the Trust was established by his parents and legal guardians. Moreover, the fact that his parents are his guardians means that Erik is an incompetent adult. Finally, the Trust provides that, upon Erik's death, any funds remaining in the Trust will be used to reimburse the state for Medicaid payments made for Erik's benefit during his lifetime. As such, the Medicaid trust exception applies.
Since the Medicaid payback exception applies, we turn to the ordinary resource rules to determine whether the Trust is a resource. See POMS SI 01120.200, 011.20.203(B)(1). Under the ordinary resource rules, a trust will be a resource if: (1) the SSI beneficiary can revoke the trust and use the assets for his support and maintenance; (2) the individual can direct the trustee to pay him the funds or use the funds for his support and maintenance; or (3) if the individual can sell his beneficial interest in the trust. POMS SI 01120.200(D). Here, as we have explained, Erik cannot revoke the trust. Moreover, Erik cannot direct the use of the trust assets. Whether Erik can direct the use of the trust assets depends upon the terms of the trust agreement and applicable state law. See POMS SI 01120.200(D)(1), (D)(2). According to the terms of the trust agreement, Erik does not have the authority to direct the payment of trust assets for his support and maintenance. The trust provides that the Trustee shall use the principal and interest of the trust to "supplement any public benefits that are providing or may provide for [Erik's] primary support, medical and other service needs." Article II, § B. The Trust further provides that "the Trustee has absolute discretion in regard to all distributions on behalf of the Beneficiary." Id. Moreover, the trust agreement contains no provision allowing Erik to act on his own or order actions by the trustee, which, if present, could constitute directing the use of the assets. See POMS SI 01120; SI 01120.200(D)(1)(b). Therefore, the trust gives the trustee sole and absolute discretion to distribute trust income or principal and, as such, Erik does not have authority to direct the use of the trust assets.
Finally, applying normal resource rules, a trust can also be a resource if the individual can sell his beneficial interest in the trust. The Trust contains a "spendthrift" provision which precludes Erik from assigning his interest in the Trust. Trust, Article II, D. However, since Erik is the grantor of the trust for state law purposes, the spendthrift provision would be invalid and would not prevent him from selling his interest in the Trust. See Restatement (Second) of Trusts § 156(1) (1957); Wis. Stat. § 701.06. But, since disbursements are completely within the trustee's discretion, Erik's interest in the Trust has no significant market value. Thus, it should be considered a resource with zero value. POMS SI 01140.044 (property that meets the definition of a resource is a resource, even if it has no value).
CONCLUSION
For the reasons discussed above, we conclude that the trust might be a resource, but has zero market value.
~~R. PS 04-140 Wisconsin Forethought Life Insurance Funded Burial Trust for Marcella L. P~ SSN ~~~
S. PS 04-140 Wisconsin Forethought Life Insurance Funded Burial Trust for Marcella L. P~ SSN ~
DATE: June 24, 1997
1. SYLLABUS
This 1997 opinion concludes that a life insurance-funded burial trust arrangement is not a countable resource for SSI purposes. Under this pre 1/1/2000 arrangement, the eligible individual irrevocably transferred ownership of a life insurance policy to the Forethought Trust. By doing this, she gave all rights to this policy and it is not a resource. The opinion further concludes that the Forethought Trust meets the requirements to be considered valid under Wisconsin State law which requires that ownership of the policy must be assigned to a person or entity other than a funeral home.
2. OPINION
This is in response to your inquiry concerning a Forethought Life Insurance Funded Burial Trust (LIFBT) for Marcella P~. You asked if the LIFBT in question is valid under Wisconsin state law and, if the LIFBT is not valid, whether the cash surrender value of the life insurance policy could be excluded since it has been irrevocably assigned to the Forethought Trust. We believe that the Forethought LIFBT in question is valid and should therefore not be counted as a resource for SSI purposes.
FACTS
In July 1996, Ms. P~ bought a life insurance policy from the Forethought Life Insurance Company. Ms. P~ did not name a beneficiary. Later that month, she irrevocably transferred ownership of the policy to the Forethought Trust, giving up her right to control the policy, surrender it for cash or obtain a loan against it, and specifying only that the proceeds of the policy were to be used to fund burial expenses.
DISCUSSION
A resource, for SSI purposes, includes assets that the individual owns and could convert to cash to be used for her own support and maintenance. See 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate the property, it is a resource. Id. Trust assets are a resource if the individual can use the trust assets to meet her needs for food, clothing, and shelter. POMS SI 01120.105(A)(1), 01120.200(D)(1)-(3).
If an individual neither owns nor has the legal right to direct the use of trust assets to meet his or her support and maintenance needs and if state law allows a revocably assigned life insurance policy that funds a funeral contract to be placed irrevocably in trust, the LIFBT is not a resource for SSI purposes. POMS SI 01130.425D.2.E.
After purchasing the Forethought life insurance policy, Ms. P~ irrevocably transferred ownership of the policy to the Forethought Trust. This was a valid transfer in which Ms. P~ relinquished the right to control the policy, to surrender it for cash, or to obtain a loan against it. Thus, the remaining question is whether this Forethought LIFBT package is valid under Wisconsin law.
We have previously advised that this particular Forethought LIFBT package is valid under Wisconsin law. Wisconsin Forethought Life Insurance Funded Burial Contract for Phillip H., OGC V (M~) to Kayser, SSA-V (6/9/97). For a LIFBT to be valid under Wisconsin law, there are several requirements: (1) a funeral provider cannot be named as a beneficiary of the insurance policy that is issued; (2) ownership of the life insurance policy must be assigned to a person or entity other than the funeral home; and (3) the assignee must be free to select any funeral provider to fund the client's funeral needs at the time of death. Wisconsin Life-Insurance Funded Burial Agreements, OGC-V (M~) to Panama, ARC, SSA-V (10/28/92).
We note that, following a statutory amendment effective May 10, 1996, Wisconsin statute §632.41(2)(b) now permits the assignment of the proceeds of the policy to a funeral provider, if certain requirements are met. Nonetheless, the statute preserves the requirement that a life insurance policy sold under the act shall permit the policyholder to designate a different beneficiary and a different funeral provider to receive the assignment of proceeds. W.S. § 632.41(2)(b)(3). Wisconsin Forethought Life Insurance Funded Burial Contract for Phillip H., OGC V (M~) to K~, SSA-V (6/9/97).
Although Ms. P~ did not name a beneficiary, this does not defeat the validity of the LIFBT, since the statute does not require that the purchaser of a LIFBT name a beneficiary. It is necessary, however, that she assign ownership of the life insurance policy to a person or entity other than the funeral home, and that the assignee must be free to select any funeral provider to fund the client's funeral needs at the time of death.
As stated above, Ms. P~ has irrevocably divested herself of ownership of the policy, and of the right to control the policy, to surrender it for cash, or to obtain a loan against it. The document transferring ownership of the policy to the Forethought Trust specifies that the proceeds of the policy will be used to fund Ms. P~'s burial costs. The Forethought Trust is not a funeral provider--it appears to be a creation of the Forethought Life Insurance Company, whose name appears on the Forethought Trust forms and which shares the same Batesville, Indiana address. And lastly, there is apparently no pre-need agreement with any funeral home, indicating that the assignee remains free to select any funeral provider at the time of the claimant's death.
For these reasons, we believe that the Forethought LIFBT is valid under Wisconsin law and should not be counted as a resource for SSI purposes. If upon further inquiry into the matter you have additional questions, please let us know if we can be of assistance.
~~Thomas W. C~Chief Counsel, Region V~~
Thomas W. C~ Chief Counsel, Region V
~~By: Myriam M~Assistant Regional Counsel~~
By: Myriam M~ Assistant Regional Counsel
S. PS 04-073 SSI-Wisconsin-Review of the Marital Settlement Agreement for Donald R~ and Sylvia R~ and the Sylvia A. R~ Special Needs Trust, ~ Your Ref: S2D5G6, SI 2-1-3 WI Our Ref: 03P086 Social Security No. ~,
T. PS 04-073 SSI-Wisconsin-Review of the Marital Settlement Agreement for Donald R~ and Sylvia R~ and the Sylvia A. R~ Special Needs Trust, ~ Your Ref: S2D5G6, SI 2-1-3 WI Our Ref: 03P086 Social Security No. ~,
DATE: 2/02/04
1. SYLLABUS
The SSI beneficiary was divorced from her spouse and was awarded a marital settlement that was ordered to be paid into a Special Needs Trust created for her benefit. Wisconsin law permits an individual to make spousal payments into a trust and Wisconsin law also permits an individual to irrevocably assign spousal support payments to a trust. If the trust is not a resource for SSI purposes, then the payments are not considered income. However, if the trust is a countable resource for SSI purposes, then the payments are income regardless of assignment.
2. OPINION
You asked whether the spousal support payments being deposited into the trust are countable income for Sylvia R~ for Supplemental Security Income (SSI) purposes. We conclude that the spousal monthly payments are legally assignable to the trust, and that the assignment is irrevocable, so that the payments should not be considered income to Ms. R~, if the trust is not a resource. If the trust is a resource, the payments are income. Whether amounts held in trust are a resource depends on the Agency's policy interpretation of the Medicaid payback trust exceptions to counting trusts as resources under the statute.
BACKGROUND
Sylvia R~ is disabled and receives SSI. On June 26, 2003, the Circuit Court of Outagamie County, Wisconsin, entered an Order modifying a judgment of divorce and supplemental judgment between Ms. R~ and Donald R~ which incorporated the parties' Stipulation dated April 30 and May 7, 2003. Stipulation and Order (Stipulation). The Stipulation set forth the distribution of $186, 462.62, the net sale proceeds from jointly held real estate. The Stipulation provides that each party is entitled to one-half of the net sale proceeds (Stipulation and Order, 1). The Stipulation further provided that a number of items would be deducted from Mr. R~'s half of the net proceeds, including $30,000 to be placed in an account of Mr. R~'s choosing from which monthly payments would be made to the trust account of Ms. R~ (Stipulation and Order, s 2.b, 5).
On June 26, 2003, the same date that the court entered the Stipulation and Order, Ms. R~'s attorney filed a Petition to Establish Trust and for Approval of transfer of Funds to Trust (Petition to Establish Trust and For Approval of Transfer of Funds to Trust (Petition)). Ms. R~'s attorney stated that Ms. R~ was entitled to receive funds from assets to be distributed from proceeds from the sale of investments and monthly payments from Mr. R~ in the amounts set forth in the Stipulation and Order; that she was permanently disabled, but that she had needs that were not provided for under public benefits; that it would be in Ms. R~'s best interest to have the funds and proceeds used for her care under a Special Needs Trust, as provided for under § 42 U.S.C. 1396p(d)(4) and §49.454(4), Wis. Stats. (Petition, 3-7)). On the same date, June 26, 2003, the Court ordered the establishment of the Sylvia A. R~ Irrevocable Special Needs Trust attached as Exhibit B and the transfer of funds to the trust as set forth in Exhibit A, including Ms. R~'s half share of the net sale proceeds. Order to Establish Trust and for Approval of Transfer of Funds to Trust (Order) ; see also Exhibits A and B.
The Stipulation and Order
The Stipulation provides that each party is entitled to one-half of $186, 462.62, the net sale proceeds of jointly-held real estate (Stipulation and Order, 1). The Stipulation provides that a number of items would be deducted from Mr. R~'s half of the net proceeds, including $30,000, which he was directed to place in an account out of which monthly payments would be made into a trust account established by Ms. R~. (Stipulation and Order, 2. a; 5). The Stipulation required that Mr. R~ place $30,000 into an account of his own choosing; that the account established by Mr. R~ make monthly payments into a trust account to be established by Ms. R~; that in no event shall any payments be made directly to Ms. R~; that the payments be in the amount of $419 per month for five years from May 2003 through April 2008; that at the end of five years, beginning in May 2008, Mr. R~'s account must pay the sum of $219 per month to Ms. R~'s trust account for as long as there are funds in Mr. R~'s account (Stipulation and Order, 5). The Stipulation further provided that if the funds ran out before Ms. R~'s death, she would have no entitlement to further payments form Mr. R~ under any circumstances; that jurisdiction as to maintenance to Ms. R~ shall terminated at that time; and Ms. R~ shall not be entitled for any further maintenance payments from Mr. R~. (Stipulation and Order, 5). If Ms. R~ died while funds remained in the account, such funds reverted to Mr. R~ (Id.). Finally, the Stipulation provided that once Mr. R~ funded the account with the $30,000, so long as the account was fully insured, his maintenance obligation to Ms. R~ was terminated. (Id.).
Sylvia A. R~ Irrevocable Special Needs Trust
Pursuant to the Petition of Ms. R~'s attorney, the court created a trust for the benefit of Ms. R~ called the SYLVIA A. R~ IRREVOCABLE SPECIAL NEEDS TRUST dated June 25, 2002. The trust states that it will be funded with assets to be distributed to Ms. R~ as set forth in Schedule A, such as her half of the net sale proceeds, and from other assets owned by Ms. R~ and that the Trustee may, in her or his discretion accept additions from any other source. (Trust, Art. I B). It states that it is governed by the laws of the State of Wisconsin (Trust, Art. III A) and that it is establish in accordance with 42 U.S.C. § 1396p(d)(4)(A) and § 49.454(4), Wis. Stats. (Trust, Art. III, B). The trust, therefore, purports to be a Medicaid payback trust pursuant to 42 U.S.C. § 136p(d)(4)(A). The trust is established for the benefit of Ms. R~ who has serious and permanent disabilities (Trust, Art. II, A). Its "primary" purpose is to give Ms. R~ the opportunity to enjoy the most pleasant, comfortable and happy life as is possible. (Id.). The trust also states that because trust assets are not sufficient to ensure adequate and appropriate care for Ms. R~ throughout her lifetime, another purpose of the trust, therefore, " is to provide funds to supplement the essential, primary support, services and medical care provided by public assistance in order to ensure [Ms. R~'s] care, comfort and happiness, not to replace essential, primary support, services and medical care provided by public assistance to which [Ms. R~] may be entitled" (Trust, Art. II B).
The trust states that the trustee may use trust income and principal for Ms. R~'s benefit at such times and in such amounts as the Trustee, in her or his sole and absolute discretion, determines are consistent with the purposes of the trust (Trust, Art. IV, A). The trustee may investigate any and all public sources of support, services or benefits available to Ms. R~ and must consider the effect of any distribution to or for Ms. R~'s benefit on her eligibility for such support, services or benefits (Trust, Art. IV, B). The trust includes a non-exclusive list of expenses or costs for which the trustee may make distributions, most involving the purchase of goods and services (Trust, Art. IV C).
The Trustee has the authority, if the trustee deems it advisable, to initiate or pay the expenses of another party to initiate an action to enforce Ms. R~'s right to public assistance should such public assistance be denied, suspended, reduced or terminated for any reason whatsoever (Trust, Art. IV D). The trustee my employ legal counsel or pay the expenses of legal counsel employed by another party to determine Ms. R~'s eligibility for any public assistance or the effect of any distribution or other action on public assistance Ms. R~ receives or is entitled to receive (Id.). The trustee has no duty to preserve principal if she or he considers its current use in Ms. R~'s best interest; Ms. R~'s care, comfort, and happiness shall be the sole consideration in the trustee's exercise of discretion to make or withhold distributions; the trustee shall have no liability for any good faith exercise of her or his power to make or withhold distributions of income or principal; the trustee may consider other resources available to Ms. R~, including her eligibility for public assistance (Trust, Art. IV, E). The trust states that at no time shall Ms. R~ obtain a vested interest in Trust income or principal, that the trustee may terminate all distributions of income and principal to or for the benefit of Ms. R~ if the trustee considers it likely that such continued distributions will result in a reduction of public assistance to her; and that at all times the trust is meant to be interpreted to come within the provisions of Wisconsin Statute 701.06(5m), which exempts the trust assets from the claims of the State of Wisconsin or its agencies (Trust, Art. IV, G). The trust further provides that distribution of the income and principal of the trust is solely in the trustee's discretion and is not subject to any order of any court under sec. 701.13, Wis. Stats., or any other statute or legal or equitable doctrine (Trust, Art. IV, G). It also states that the trustee "may be arbitrary and unreasonable in exercising her or his discretion" (Id.).
The trust states that it is irrevocable; that it can be amended only in a manner consistent with the purposes of the trust and "only by an appropriate Court upon petition of the Trustee, for any reasons sufficient to the Court, including changes in the law relating to public assistance" (Trust, Art. VIII s A, B). It also provides that the trustee is authorized, with or without court approval, to make administrative or ministerial modifications to the provisions of the trust for the purpose of conforming to law or factual and economic circumstances (Trust, Art. VIII, C(3); Art. IX, T).
The trust provides that after the death of the beneficiary of the trust, Ms. R~, distribution after payment of trust fees and expenses, the trustee "shall, to the extent required by law, distribute such assets of the trust as shall be required to reimburse the State of Wisconsin for the medical assistance benefits paid on behalf of [Ms. R~] which, if not reimbursable by the terms of this Trust, would cause assets held by this Trust to disqualify [Ms. R~] for benefits during her lifetime" (Trust Art. V, A(1)). After these payments, the trustee may in his or her discretion, pay Ms. R~'s funeral, burial and related expenses, (Trust V, A(2)); and pay, indirectly or directly, income, gift, death, inheritance or estate taxes (Trust, V, A(3)). If any assets remain after these payments, Trustee shall distribute such assets to Ms. R~'s heirs-at-law, in equal shares, or to their issue per tirpes, pursuant to the intestacy provisions of Wisconsin statutes then in effect (Trust, Art. V A(4)).
DISCUSSION
1. Monthly Payments Made to Trust Are Not Income to Ms. R~, unless the Trust is a Resource.
Wisconsin law expressly gives family courts the discretion to order spousal maintenance payments to be placed in trust. Wis. Stat. Ann. §767.31 (West 2003); see also In re Paternity of Tucker M.O., 544 N.W.2d 417, 421 (Wis. 1996) (court properly ordered support payments to be placed in trust fund). Wisconsin law states that:
The court may appoint a trustee, when deemed expedient, to receive any payments ordered, to invest and pay over the income for the maintenance of the spouse entitled thereto . . . or to pay over the principal sum in such proportions and at such times as the court directs.
Wis. Stat. Ann. § 767.31 (West 2003). Here, the court ordered the trustee to receive assets, including additions from any source which would appear to include the monthly payments to the trust. Upon the petition of Ms. R~'s attorney, the court appointed a trustee to receive the transfer of assets listed as well as to receive other assets owned by Ms. R~, and to receive, in the trustee's discretion, additions from any other source. See Order; Trust, I(B); see also Petition, 3 (stating that Ms. R~ is entitled to receive funds from the sale of investments and monthly payments from Mr. R~ as set forth in the Stipulation). The court appointed a trustee to receive "any payments ordered" which appear to include the monthly payments from Mr. R~ to the trust. Even though the trustee is not required to pay over the monthly payments for the maintenance of Ms. R~, the monthly payments to the trust, appear to be proper under Wisconsin law._1/ The Supreme Court of Wisconsin seems open to settlement terms that modify statutory provisions, at least where the statute does not prohibit such deviations. See Nichols v. Nichols, 469 N.W.2d 619, 623 (Wis. 1991).
However, while Wisconsin law permits a court to order a trustee to receive any payments ordered, including spousal support payments, they may still constitute unearned income to the spouse who receives the payments. Under both Wisconsin and federal law, spousal maintenance payments ordinarily constitute unearned income attributable to the spouse who receives the payments. 20 C.F.R. § 416.1121(b); Wis. Stat. Ann. §§71.03(1), 71.52(6) (West 2003); POMS SI 00830.418. A legally assignable payment that is assigned to a trust, however, is not considered income for SSI purposes, but only if the assignment is irrevocable. See POMS SI 01120.200(G)(d). If the assignment is revocable, the payment is income to the individual legally entitled to receive it. Id.
Here, the monthly payments are deposited into the trust from an account established by Mr. R~ over which Ms. R~ has no control. See Stipulation; Trust. While Ms. R~'s attorney petitioned the Court to establish the trust, she cannot control any disbursements from the trust income or principal (Trust, s IV(A), (G)). Nor is there any language in either the Stipulation or the Trust state indicating that the monthly payments to Ms. R~ shall continue "until further order of the Court." Rather, under the terms of the trust, only the trustee can petition the court to modify the trust (Trust, VIII(B)).
The parties, then, agreed to non-modifiable monthly payment amounts and a non-modifiable termination of the payment amounts: Mr. R~ was to establish an account of his own choosing, fund it with $30,000 out of his share of the net sale proceeds; pay a non-modifiable monthly amount of $419 into Ms. R~'s trust for a non-modifiable term of five years from May 2003 through April 2008; and thereafter, a non-modifiable amount of $219 until the funds in the account ran out or until Ms. R~ died. In the former case, Ms. R~ agreed that she would be entitled to no further maintenance; in the latter, she agreed that any remaining funds would revert to Mr. R~. Moreover, the parties agreed that the payments were to be made to the trust account and that "(i)n no event shall any payments be made directly to" Ms. R~ (Stipulation, 5). Thus, it appears that the parties intended that Ms. R~ could not ask to modify the agreement to revoke the transfer to the trust and receive the maintenance payments herself.
These provisions are more restrictive than Wisconsin law, which provides that after any judgment of divorce providing for maintenance or creating a trust, the Court retains the discretion to hear motions from either party to revise or modify the order with respect to the amount or payment of maintenance, "and may make any judgment or order respecting any of the matters that such court might have made in the original action." Wis. Stat. Ann. § 767.32 (West 2003). However, a court can modify the amount of maintenance or the time period over which it must be paid only if there is a substantial change in circumstances. See Wis. Stat. Ann. § 767.32(1)(a); Whitford v. Whitford, 232 Wis.2d, 38, 41; 606 N.W.2d 563, 567 (Wis. 1999); Nichols v. Nichols, 469 N.W.2d 619, 622 (Wis. 1991).
Moreover, under Wisconsin law, parties may establish non-modifiable settlement terms, and, in certain circumstances, the parties may be estopped from requesting modification of these terms, notwithstanding general statutory provisions of Wisconsin Statute §767.32, which generally allows for modifications. Nichols, 162 Wis. 2d at 105, 469 N.W.2d at 622; Whitford v. Whitford, 232 Wis. 2d 38, 44-45, 606 N.W.2d 563, 568 (Wis. Ct. App. 1999). Estoppel applies when (1) both parties entered a stipulation to the agreement freely and knowingly; (2) the overall settlement is fair and equitable; (3) the settlement, including the maintenance agreement, is not against public policy; and (4) the non-modifiable term must be one that the court could not have ordered without the parties' agreement. The case law also indicates that because the parties are giving up the statutory right to modification, their agreement must be clear and unequivocal. Id., 232 Wis.2d at 44, 606 N.W.2d at 568.
Here, the stipulation meets this four-part test. The non-modifiable terms in the stipulation could not have been ordered by the court without the parties' agreement. There is no suggestion that both parties did not enter the stipulation freely and knowingly. The overall settlement was not against public policy. See Nichols, 162 Wis.2d 96, 106-07 (holding that a provision in a divorce judgment providing that the amount of maintenance cannot be modified does not violate public policy). The stipulation was fair and equitable. In agreeing to non-modifiable monthly payments only to the trust, it appears that the parties agreed on this amount of maintenance and the payment only to the trust based on the assumption that the trust would allow Ms. R~ to continue receiving public benefits, including SSI. In addition, both parties gained other benefits: Mr. R~ agreed to reduce his half of the net proceeds from the sale of jointly held real estate by, among other things, paying off the mortgage debt, in exchange for a fixed maintenance obligation; Ms. R~ gave up the option to modify the monthly payments in exchange for receiving her half of the net proceeds and for continuing eligibility for SSI. See N~, 162 Wis.2d 96, 108-115, 469 N.W.2d 619, 624-27; Whitford, 232 N. Wisc.2d 38, 49-51, 606 N.W. 2d 563, 570-72 (Wisc. 1999). It therefore appears that the conditions of estoppel apply here to preclude Ms. R~ from seeking modification of these non-modifiable terms. Thus, the assignment of the monthly payments to the trust is irrevocable and should not be considered income to Ms. R~, if the trust is not a resource. However, if the trust is a resource, the payments would be income. POMS 01120.201(J)(3)(b).
2. Assets Held in the Trust May or May Not Be Resources to Ms. R~
We next address whether the trust assets, including the payments actually made to and held in the trust, should be considered a resource to Ms. R~. Under the Social Security Act, trusts created on or after January1, 2000, from the assets of an SSI claimant or beneficiary will be considered a resource to the extent that the trust is revocable or to the extent that any payments can be made from the trust for the benefit of the individual. See 42 U.S.C. § 1382b(e); POMS SI 01120.201. This rule applies unless the trust satisfies the statutory requirements of a Medicaid payback trust. See 42 U.S.C. §1382b(e)(5); POMS SI 01120.203. When the statutory trust provisions do not apply, regular resource rules still apply. POMS SI 01120.200; POMS SI 01120.203(B)(1). Under the regular resource provisions, a trust is a resource if it is unilaterally revocable, if the SSI beneficiary can direct the trustee to provide for her support and maintenance, or if the SSI beneficiary can sell her beneficial interest in the trust. POMS SI 01120.200(D)(1).
The trust was established with Ms. R~'s assets, including the her share of the proceeds of the net sale of investment property. The trust was created after January 1, 2000, and the trustee has discretion to expend all of the trust assets for Ms. R~'s benefit. Thus, the trust will be a resource under the statute, unless the Medicaid payback trust exception applies. It appears that the Medicaid payback exception may apply to counting the trust under the statute, depending on how the Agency interprets that provision. If the Agency determines that the exception applies to counting the trust as a resource under the statute, the trust would not be a resource under regular resource rules
a. The Medicaid Payback Exception May Apply to Counting the Trust as a Resource Under Statutory Provisions.
The Medicaid payback exception to counting the trust as a resource under the statute applies where the trust is (1) established with the assets of an individual under the age of 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 appropriate state for Medicaid payments made for the benefit of the individual during her lifetime. See 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203(B)(1).
Here, the first and third requirements are met. Ms. R~ is under age 65 and is disabled. And, the trust provides that, upon Ms. R~'s death, any remaining funds would first be used to reimburse that state of Medicaid payments made for her benefit during her lifetime.
The second requirement, however, may be problematic. The court established the trust, but it did so at the request of Ms. R~'s attorney, and presumably could not have done so without her consent. The Office of the General Counsel previously has advised that the Medicaid payback exception in 42 U.S.C. § 1396p(d)(4)(A), is best interpreted to require that the trust be established by parents, grandparents, legal guardians and courts for disabled children and disabled incompetent adults, or by a court where the individual is not exercising any discretion in the creation of the trust. See Memorandum from Associate General Counsel for Program Law to Acting Associate Comm. for Program Benefits, Questions Related to Implementation of Section 205 of the Foster Care Independence Act of 1999, Pub. L. No. 106169 (Feb. 7, 2002). If the Agency were to adopt a policy based on this interpretation of the statute, the trust in this case would not be "established by" the court for purposes of 42 U.S.C. § 1396p(d)(4)(A), and therefore would not qualify for the Medicaid payback trust exception to counting the trust as a resource under the statute. It would be counted as a resource under 42 U.S.C. § 1382b(e) and POMS 01120.201.
However, if the Agency considers this trust, as a matter of Agency policy, to be established by the court under these circumstances, the trust would otherwise qualify for the Medicaid payback trust exception to counting the trust as a resource under 42 U.S.C. §1382b(e). If the Agency determines that the exception applies to counting the trust under the statute, the regular resource rules would apply to determine whether the trust is a resource. See POMS SI 1120.200; POMS SI 01120.203(B)(1).
b. The Trust Is Not a Resource Under the Regular Resource Rules.
Under regular resource rules, assets are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for his support and maintenance. 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate the property, it is considered a resource. Id. at (1). Thus, trust assets are a resource to an individual if she can revoke the trust and use the assets to meet her individual needs for food, clothing, and shelter; if the individual can direct the use of the trust assets for her support and maintenance under the terms of the trust; or if the individual can sell her beneficial interest in the trust. See POMS SI 01120.200(D)(1).
Whether the claimant can revoke or terminate the trust or direct use of the assets depends upon the terms of the trust agreement and applicable state law. See POMS SI 01120.200(D)(2). Wisconsin Law provides that, after a judgment providing for maintenance, the court may, at any time, on petition of either party, revise and alter the judgment "respecting the appropriation of a payment of the principal and income of the property so held in trust, and may make any judgment or order respecting any of the matters that such court might have made in the original judgment . . . ." Wis. Stat. Ann. § 767.32(1)(a) (West 2003). This statute requires a showing of a change in circumstance in order to make revisions or modifications to the amount of or length of time for paying maintenance, but we found no such limitation on changing the entity to whom the payments would be made. Wis. Stat. Ann. § 767.32(1)(a); Whitford v. Whitford, 232 Wis.2d, 38; 606 N.W.2d 563 (Wis. 1999); Nichols v. Nichols, 469 N.W.2d 619 (Wis. 1991). Thus, under the statute, it would appear that Ms. R~ could ask the court at any time to amend or revise the trust to pay income or principal for her support and maintenance.
As explained above, however, the Supreme Court of Wisconsin has recognized that parties may establish non-modifiable settlement terms, and that, in such circumstances, the parties may be estopped from requesting modification of these terms, notwithstanding general statutory provisions of Wisconsin Statute §767.32, which generally allows for modifications. Nichols, 162 Wis. 2d at 105, 469 N.W.2d at 622; Whitford v. Whitford, 232 Wis. 2d 38, 44-45, 606 N.W.2d 563, 568 (Wis. Ct. App. 1999). As discussed, we believe that estoppel applies here to prevent Ms. R~ from asking for any modification in the monthly payments. For the same reasons, we also believe that under these circumstances, a court would conclude that Ms. R~ intended the terms of the trust to be non-modifiable, so that funds from any of the assets held in the trust could not be paid, even on order of the court, except in the trustee's discretion. The trust itself states that "Distribution of the income and principal of this Trust is solely in the Trustee's discretion and is not subject to any order of any court under Section 701.13, Stats., or any other statute or legal or equitable doctrine." (Trust Art. IV, G). We conclude that a court would most likely conclude that the provisions are sufficiently clear and unequivocal to establish a non-modifiable provision regarding the appropriation and payment of the principal and income of the property held in trust pursuant to the divorce decree.
As discussed, the other elements of estoppel appear to exist, as well. Both parties appear to have entered the agreement freely and knowingly; the overall settlement seems fair and equitable; the settlement, including the provision in question, do not seem patently against public policy, since both state and federal law allow these types of trusts for indigent disabled individuals; and the non-modifiable terms are ones that the court could not have ordered without the parties' agreement.
We note that, even if Ms. R~ could not ask the court to revise the trust under Section 767.32, she still could revoke the trust if she were the grantor and sole beneficiary of the trust. See Wis. Stat. Ann. §701.12(1) (West 2003) (absent express language providing a right of revocation, modification, or termination, a trust cannot be revoked or modified unless the grantor or settlor and all of the beneficiaries agree). Here, however, Ms. R~ could not revoke the trust unilaterally because the trust names other contingent beneficiaries of the trust, including Ms. R~'s heirs, whose consent would be necessary to revoke the trust. See Wis. Stat. Ann. § 854.22 (West 2003) (designation of "heirs" generally assumed to create a beneficial interest in those that would inherit).
Furthermore, the trust would not otherwise be a resource under the regular resource rules because Ms. R~ cannot direct the trustee to make payments for her support and maintenance, and presumably could not sell her beneficial interest in the discretionary trust for her benefit. See POMS SI 01120.200(D)(1)(a); (Trust Art. II G); Restatement (Third) of Trusts, §60, comment f (2003).
Finally, we note that, even if the trust is not a resource, any distributions made directly to Ms. R~ or paid for her support and maintenance, will be income to her. See 20 C.F.R. §416.1102; POMS SI 01120.200(E)(1)(a)-(b). Similarly, if the trustee terminates the trust, due to insubstantial assets, and pays Ms. R~ any remaining funds after reimbursing the State for medical assistance, any assets she receives would be income to her. (Trust Art. I, C(2)).
CONCLUSION
In summary, we conclude that Wisconsin law permits Mr. R~ to make spousal support payments into trust. Under Wisconsin law, and by agreement of the parties, Ms. R~ has irrevocably assigned the monthly payments to the trust and the payments should not be considered income, if the trust is not a resource. It it is a resource, the payments are income regardless of the assignment.
The assets in the trust, including any maintenance payments actually assigned to and held in the trust, may be resources, depending on whether the Agency adopts the position that the trust cannot be considered to be established by the court where the SSI claimant is a competent adult and requested that the court establish the trust. If the Agency determines that, under such circumstances, the trust was established by the individual, rather than the court, then the trust would be a resource under the statutory provisions because it would not meet the Medicaid payback exception to counting the trust. If, however, the Agency decides that, under these facts, the trust is considered to be established by the court, the trust otherwise meets the requirements for the Medicaid payback exception to counting it under the statute. The trust also would not be a resource under the regular resource rules. The trust is irrevocable; Ms. R~ cannot compel the trustee to pay for her support and maintenance; and she cannot sell her beneficial interest in the trust. However, any payments from the trust to Ms. R~ or for her support and maintenance would be income to her.
_1/ It should be noted that none of the documents provided to us specifically designate the monthly payments from Mr. R~'s account into the trust as maintenance payments nor require that they be used for her maintenance. See Stipulation, Petition, Order, and Trust. Nor does the Stipulation recognize that the payments be included as income on Ms. R~'s income tax returns. Nevertheless, the Stipulation states that Mr. R~'s obligation with respect to maintenance ends once he deposits the $30,000 into an account established by him, as long as it is properly insured account, and that the court's jurisdiction with respect to maintenance to Ms. R~ shall terminate when the funds run out. Stipulation, 5. Thus, while the pertinent documents do not specifically designate the monthly payments as maintenance payments, the Stipulation contains language indicating that the payments are related to the maintenance obligations of Mr. R~ and the right of Ms. R~ to receive maintenance.
~~T. PR 04-051 SSI-Minnesota-Review of the Interest of David H~ in the H~ Revocable Living Trust, ~-ACTION Your Ref: S2D5G6, SI 2-1-3 MN Our Ref: 3P091~~
U. PR 04-051 SSI-Minnesota-Review of the Interest of David H~ in the H~ Revocable Living Trust, ~-ACTION Your Ref: S2D5G6, SI 2-1-3 MN Our Ref: 3P091
DATE: December 22, 2003
1. SYLLABUS
This opinion concerns a living trust in the State of Wisconsin. The trust agreement created 3 separate trusts. The SSI beneficiary is the grantor and beneficiary of one of the 3 trusts. The trust was established in 1983, so it was evaluated under the SSI trust rules in effect prior to the 1/1/2000 change in the law. The SSI beneficiary's trust is not revocable and the beneficiary cannot direct the use of the trust, so that trust not a resource for SSI purposes. However, the beneficiary does have access to the trust income which is kept in a separate account. Therefore, the income generated by the trust is unearned income for SSI purposes and, if retained, is a countable resource.
2. OPINION
You have asked us whether the interest of David H~ in the H~ Revocable Living Trust is a countable resource to him for purposes of SSI. For the reasons discussed below, we conclude that the trust principal is not a countable resource, but that the trust income, if any, may be a countable resource.
FACTS
On September 15, 1983, Leroy H~ ("Leroy"), Susan C. H~ ("Susan"), and David H~ ("David") created the H~ Revocable Living Trust. The trust was funded with real estate located in Rock County, Wisconsin, which the three individuals received undivided interests under the will of their grandfather. The purpose of the trust is to develop the trust property as a business asset. Trust § 1.1.
The trust agreement created three separate trusts. The first trust was established with Leroy's undivided one-half interest in the real estate and was for his benefit. The second trust was established with Susan's undivided one-fourth interest in the real estate and was for her benefit. The third trust was established with David's undivided one-fourth interest in the real estate and was for his benefit. Trust § 1.2. Thus, David is the grantor and primary beneficiary with respect to his trust. As of June 30, 2003, David's trust was valued at $295,070.50.
According to the trust agreement, any trust may be amended or revoked when any two of the three grantors do so in writing. Trust § 7.1. In addition, a grantor has the right to withdraw any income accrued to his/her account at any time. Trust § 1.4. Upon termination of any trust, the remaining assets are to be distributed first to the respective grantor, if living; then in accord with the grantor's will; and if there is no valid will, to the grantor's "heirs-at-law." Trust § 1.5.
The trustees generally have the right to make distributions in cash or in kind or partly in each as they see fit. Trust § 8.1(c). The trust agreement also states that the trustees have sole discretion to distribute any portion of the net income of each grantor's trust for the health care, education, and maintenance and support of the grantor. Trust § 1.3. Any income may be accumulated in a separate income account for each beneficiary. Id.
The trust agreement also contains a spendthrift provision, which prohibits the assignment or anticipatory transfer of the beneficiaries' interests in their respective trusts. Trust § 8.1(r).
DISCUSSION
For SSI purposes, a resource is defined as cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to be used for his support and maintenance. See 20 C.F.R. § 416.1201(a) (2003). If the individual has the right, authority, or power to liquidate the property, it is a resource. See id. Trust assets are a resource if the individual can (1) revoke or terminate the trust and use the assets to meet his needs for food, clothing, or shelter, (2) direct the use of the trust assets for his support and maintenance under the terms of the trust, or (3) sell his beneficial interest in the trust. See POMS SI 01120.200(D)(1)(a).
Initially, we note that, although David lives in Minnesota, Wisconsin law governs in this case. The trust agreement specifies that all questions concerning the trust are to be determined in accordance with Wisconsin state law. Trust § 6.8.
We first determine whether David has the legal authority to revoke his trust. The trust agreement provides that any two of the three grantors may amend or revoke any trust. Trust § 7.1. Since David cannot revoke his trust on his own, but would need the consent of at least one other grantor, we do not consider the trust revocable by David for purposes of determining whether it is a countable resource.
Wisconsin law also provides that a trust may be revoked by written consent of the grantor and all beneficiaries. See W.S.A. § 701.12. As stated above, David is the grantor and beneficiary of his trust. However, David is not the sole beneficiary, since residual beneficiaries are also named in the trust agreement. The trust agreement states that, upon David's death, the remaining assets are to be distributed in accord with his will, or there is no valid will, to his "heirs-at-law." Trust § 1.5. Under current Wisconsin law, a future interest in one's "heirs at law" or similar language generally creates residual beneficiaries, unless a contrary intent is indicated. See W.S.A.§§ 700.11, 854.22. _1/] This is consistent with the general trust principle which presumes that "language expressing an apparent intention to create a remainder in someone's heirs is so intended and is to be given that effect." Restatement (Third) of Trusts § 49, comment a(1). Since there are residual beneficiaries, David cannot revoke his trust without their consent. Therefore, we again do not consider the trust revocable for purposes of determining whether it is a countable resource. See Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, SSI - Update on the Law Regarding Grantor Trusts, at 3-4 (July 23, 2003).
Next, we determine whether David has the power to direct the use of the trust assets for his support and maintenance. The trust language on this issue is less than clear. Section 8.1(c) of the trust agreement states that the trustees have discretion to make distributions as they see fit. And under § 1.3, the trustees have sole discretion to make distributions of the net income of the trust for the grantor's health care, education, and maintenance and support. However, § 1.4 provides that the grantor has the right to withdraw any accumulated and undistributed trust income at any time. Thus, under the terms of the trust, David does not have the power to direct the use of the trust principal for his support and maintenance. However, it appears that David has full access to the trust income, which is kept in a separate income account. Accordingly, any generated trust income would be considered unearned income in the month it is accrued and credited to David's account, and a countable resource in subsequent months if it is not withdrawn._2/] See 20 C.F.R. §§ 416.1102, 416.1121, 416.1123; POMS SI 00810.005, SI 00810.015, 01110.600.
Lastly, we determine whether David has the power to sell his beneficial interest in his trust. Although the trust agreement contains a spendthrift provision, it cannot be given effect, because a grantor is not permitted to create a spendthrift trust for his own benefit. See W.S.A. § 701.06; Restatement (Third) of Trusts § 58(2) & comment e. David's interest in the trust principal would not have significant market value, as it may be unlikely that anyone would purchase an undivided one-fourth interest in the property with no right to unilaterally revoke the trust. David would, however, be able to sell his interest in future trust income, which may be withdrawn unilaterally at any time.
CONCLUSION
In sum, the principal of David's trust is not a countable resource. Although the trust is revocable under its terms, we do not consider it revocable for purposes of SSI because David cannot revoke the trust on his own. Moreover, David cannot direct the use of the trust principal for his maintenance and support, or sell his beneficial interest in the trust principal. The accrued trust income, however, is considered unearned income in the month it is acquired by the trust. In subsequent months, if the trust income remains in the income account, it is considered a countable resource, because David has the right to withdraw the full amount of the accumulated trust income at any time, and the spendthrift provision does not prevent him from selling his interest in future trust income.
Sincerely,
~~Kim L. B~ Acting Regional Chief Counsel, Region V~~
Kim L. B~ Acting Regional Chief Counsel, Region V
~~By: Cristine H. K~Assistant Regional Counsel~~
By: Cristine H. K~ Assistant Regional Counsel
_1/ This law took effect on May 12, 1998, and applies to deaths occurring on or after January 1, 1999, except with respect to irrevocable governing instruments executed before that date. The new law applies in David's case because his death will occur after January 1, 1999, and his trust is revocable.
_2/ The information provided does not indicate whether the trust has generated any income.
~~U. PS 03-102 SSI - Wisconsin - Review of Life Insurance Funded Burial Trust for Barbara K~, ~~~
V. PS 03-102 SSI - Wisconsin - Review of Life Insurance Funded Burial Trust for Barbara K~, ~
DATE: March 5, 2003
1. SYLLABUS
In this opinion, OGC found that an insurance policy assigned to a trust was a resource for SSI purposes because the owner retained the power to revoke the agreement and could convert the policy to cash which she could use for her support and maintenance. While the trust established by the funeral provider was irrevocable, the assignment of the insurance proceeds to fund the trust was revocable. Therefore, OGC concluded that the beneficiary rather than the funeral provider established the trust. Finally, OGC opined that the undue hardship provision explained at SI 01120.203E. should be considered in this case because the trust would be viewed by a Georgia court as irrevocable. This is an interesting case because it serves as a reminder to field offices that State law from more than one jurisdiction may have to be considered when rendering a determination. In the instant case, Wisconsin law applies to the transactions at hand, but Georgia law determines whether the trust is irrevocable for purposes of applying the undue hardship provision for trusts.
2. OPINION
You have asked for our opinion regarding Barbara K~ irrevocable assignment of her right to change the beneficiary of her life insurance policy to a Funeral Home and Pre-Thana Trust. We do not reach the issue of the beneficiary assignment because we conclude that the pre-need burial agreement Ms. K~ entered into is revocable; thus the trust to which she assigned her insurance policy is a resource under federal law. However, the Agency may want to consider whether the undue hardship exception may apply to counting Ms. K~ trust as a resource.
BACKGROUND
On March 27, 2002, Ms. K~ sister Jeanette K~, applied for a life insurance policy with the Fortis Benefits Insurance Company for Ms. K~. The policy was issued on April 7, 2002. It is to be paid by quarterly premiums of $247.14. No beneficiary is designated on the application.
The file also contains a “Pre-need Agreement/Assignment.” The front page of the assignment indicates that the agreement is being funded by a life insurance policy; that the prices of some funeral goods and services are guaranteed and some will be determined at the time of need; identifies Janet V~ as the sales agent and indicates that a sales commission is being paid to her; identifies the S~ Funeral Home and is signed by the funeral home's “authorized person”; the assignment also indicates that it is irrevocable. The irrevocability clause indicates that, in exchange for the promise of the funeral home specified in the document to provide the specified goods and services, the purchaser irrevocably assigns all incidents of ownership including the right to change the beneficiary, obtain a loan against the policy, surrender it for cash or change the owner. The funeral home in turn agrees to immediately transfer its ownership rights in the policy to the Pre-T~ Trust, which then holds the policy as agent for Ms. K~.
The funeral home and the purchaser agree that after Ms. K~ death, the trustee will pay the policy proceeds to the funeral home if it provides the goods and services and to another funeral home if it provides the goods and services. The back page of the Pre-need Agreement/Assignment contains additional terms. Among them is a termination provision, which indicates that the purchaser may cancel the agreement at any time before the funeral home furnishes the goods and services. The termination provision further indicates that termination would not cancel the insurance policy, which is governed by the terms of the policy itself; nor does termination of the agreement cancel any transfer of ownership of the policy to the Pre-T~ Trust.
DISCUSSION
Assets are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for her support and maintenance. 20 C.F.R. § 416.1201(a). A life insurance policy can be a resource if the individual can surrender it for cash or recover the premiums paid. 20 C.F.R. § 416.1230. Here, the life insurance policy was a resource for the first thirty days after it was issued because Ms. K~ had the unrestricted right to cancel the policy and recover the full amount of the premiums paid. Wis. Admin. Code § Ins 23.30 (giving purchasers of life insurance policies thirty days to cancel the policy and recover premiums paid). Ms. K~ policy was to be paid by quarterly amounts of $247.14; thus, the value of the policy during the first thirty days was most likely $247.14.
After the first thirty days, we must determine whether the trust to which the policy was assigned is a resource. A trust established by an individual on or after January 1, 2000, as this one is, generally will be considered a resource, under federal law, if it is revocable, or, even if it is irrevocable, to the extent that payments from the trust could be made to or for the benefit of the individual. 42 U.S.C. § 1382b(e)(3)(B); POMS SI 01120.201(D)(1)-(2). This rule applies if payments can be made for the benefit of the individual “under any circumstance, no matter how unlikely or distant in the future.” POMS SI 01120.201D.2.b.
These provisions do not apply to burial trusts where the individual irrevocably contracts with a provider of funeral goods and services and either (1) the funeral provider subsequently places the funds in a trust, or (2) the individual establishes an irrevocable trust naming the funeral provider as the beneficiary. POMS SI 01120.201H.1. Under these circumstances, the funeral home is considered, for federal law purposes, to have established the trust. See Exclusion of Certain Burial Trusts from Section 205 of Public Law Number (Pub. L. No.) 106-169, Associate General Counsel Office of Program Law to Associate Commissioner for Legislative Development (Aug. 29, 2000). The statutory provisions at 42 U.S.C. § 1382b(e)(3)(B), however, will apply where an individual establishes a burial trust with his or her own assets but does not enter into a pre-need funeral contract with a funeral provider; or the individual enters into an irrevocable funeral contract with a funeral provider, but establishes a revocable trust to fund the contract; or the individual enters into a revocable funeral contract with a funeral provider, even if the funeral provider places the money in a trust. POMS SI 01120.201H.2. In these circumstances, the individual, rather than the funeral home, is considered, for federal law purposes, to have established the trust.
In this case, Ms. K~ burial agreement is revocable; thus, the trust to which the insurance policy was assigned is a resource even though the funeral home placed the funds in trust. POMS SI 01120.201H.2. As noted, the Pre-need Agreement/Assignment contains a termination provision. The termination provision states that the purchaser, i.e., Ms. K~, “may cancel this Agreement at any time, if the cancellation is in writing and received before the Funeral Home furnishes the funeral goods and services.” The provision further indicates that “[c]ancellation releases all parties from their obligations under this Agreement.”
We note that the language in the Pre-Need Agreement/Assignment is confusing. For example, the irrevocable assignment clause initialed by Ms. K~ guardian, which appears on the front page, indicates that “ownership” has been assigned to a “Funeral Home and Pre-T~ Trust.” Yet, the clause later indicates that the “Purchaser hereby irrevocably assigns all incidents of ownership of Policy to the Funeral Home,” and then that “The Funeral Home agrees to immediately transfer its ownership rights . . . to the Pre-T~ Trust, which will hold the Policy as agent for [Ms. K~].” The termination provision in the Pre-Need Agreement/Assignment indicates that cancellation “would not cancel any transfer of ownership of the Policy to the Pre-T~ Trust.” In any event, because the agreement with the funeral home is revocable, the trust to which Ms. K~ insurance policy may have been assigned is a resource under 42 U.S.C. § 1382b(e)(3)(B). POMS SI 01120.201H.2. The value of the resource is the cash surrender value of the life insurance policy, which depends on how long Ms. K~ has held the policy.
SSA, however, may waive application of the statutory trust counting provisions if the individual is ineligible for benefits due to counting an irrevocable trust as a resource, and if the individual meets the criteria for undue hardship. 42 U.S.C. § 1382b(e)(4); POMS SI 01120.203C.2.a.; Exclusion of Certain Burial Trusts from Section 205 of Public Law Number (Pub. L. No.) 106-169, Associate General Counsel Office of Program Law to Associate Commissioner for Legislative Development (Aug. 29, 2000); Memorandum from Regional Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Wisconsin-Review of Wisconsin Life Insurance Funded Burial Trust for Betty N~, at 3-4 (October 29, 2002) (hereinafter, N~ memo). When the Agency evaluates whether an individual has established undue hardship, assets in an irrevocable trust are not considered to be available funds. N~ memo at 4; Exclusion of Certain Burial Trusts from Section 205 of Public Law Number (Pub. L. No.) 106-169, Associate General Counsel Office of Program Law to Associate Commissioner for Legislative Development (Aug. 29, 2000). As explained below, Ms. K~ trust is irrevocable.
In determining whether the trust is irrevocable, for undue hardship purposes, we turn to the terms of the trust and applicable state law. The documents submitted suggest that the parties intended the assignment to trust to be irrevocable. However, the trust also should be evaluated under Georgia law, which governs the trust by the trust's own provisions, to determine whether the trust may be revoked under state law. We have previously verified with Region IV OGC that, under Georgia law, an identical trust would not be considered revocable. N~ memo at 4.
As we explained in N~, Georgia previously followed the general trust rule that a grantor who is also the sole beneficiary of a trust can revoke a trust even though the trust states that it is irrevocable. N~ memo at 4, citing Moore v. First Nat'l Bank & Trust, 130 S.E.2d 718 (1963). However, the Georgia Supreme Court acknowledged that the state legislature nullified the holding in Moore, for trusts created after 1973, by passing a statute providing that no trust that purported to be irrevocable could be terminated in whole or in part. N~ memo at 4, citing Woodruff v. Trust Co., 210 S.E.2d 321, 323-25 (Ga. 1974). The current Georgia statute states that “[a] settlor shall have no power to modify or revoke a trust in the absence of an express reservation of such power.” N~ memo at 4, citing Ga. Stat. Ann. § 53-12-150 (2002). Thus, it appears that a Georgia court would not allow Ms. K~ to revoke the trust because she did not expressly reserve the right to revoke the trust.
CONCLUSION
In sum, we conclude that Ms. K~ life insurance policy was a minimal resource for the first thirty days after it was issued because Ms. K~ retained the unrestricted right to cancel the policy and recover the $247.14 premium she had paid. After the first thirty days, the policy was still a resource, with a value equal to its cash surrender value. This is because the trust to which she assigned the insurance policy would be considered a resource under the provisions of the Social Security Act. The statutory provisions apply because the policy was assigned to trust pursuant to a revocable contract with a funeral provider; therefore, Ms. K~ is considered to have established the trust. However, because the trust is irrevocable, the Agency may wish to consider whether the undue hardship provisions may apply in this case.
Sincerely,
~~Donna L. C~ Acting Regional Chief Counsel, Region VSocial Security Administration~~
Donna L. C~ Acting Regional Chief Counsel, Region V Social Security Administration
~~By: Elizabeth F~Assistant Regional Counsel~~
By: Elizabeth F~ Assistant Regional Counsel
~~V. PS 03-081 SSI - Wisconsin - Review of Burial Trust for Mary M. G~, ~ Your Reference No.: SI-2-1-3 Our Reference No.: 03P006~~
W. PS 03-081 SSI - Wisconsin - Review of Burial Trust for Mary M. G~, ~ Your Reference No.: SI-2-1-3 Our Reference No.: 03P006
DATE: January 23, 2003
1. SYLLABUS
In this opinion, the individual entered into an irrevocable contract for $5,116.18 for funeral and burial services which was subsequently placed in an irrevocable trust by the funeral director. This trust is considered to be established with the assets of the funeral director. Under Wisconsin law burial agreement funds must be held in trust but the trust can be made irrevocable only up to $2,500. Therefore, SI 01130.420C.5.b. was followed to determine that, after applying all appropriate exclusions, the resource value of this burial arrangement is $1,000.
2. OPINION
You have asked whether Mary G~ $5,116.18 burial trust is a resource for the purposes of SSI. We conclude that after applying Wisconsin's $2,500.00 statutory limit on the irrevocability of burial trusts, and SSA's burial space and burial fund exclusions, Ms. G~ is left with $1,000.00 which is a countable resource for SSI purposes.
BACKGROUND
The file contains an informational memorandum from the Wisconsin Department of Workforce Development (DWD), explaining how to treat the Wisconsin Funeral Directors Association (WFDA) master funeral trust agreement for determining an individual's eligibility for Medicaid. The memorandum indicates that the agreement between the purchaser and the funeral home constitutes a purchase, and it is not an installment burial contract, an insurance funded burial contract or divestment. In explaining how to calculate how much of the burial trust can be excluded, the memorandum references Wis. Stat. § 445.125(1) - which directs that burial agreements funded by trusts may be made irrevocable up to $2,500.00.
The file indicates that Ms. G~ entered into an irrevocable contract with the O~-E~ Funeral Home. Ms. G~ contracted for $1,485.00 worth of “basic services” of the funeral director and staff; $450.00 for embalming; $355.00 for the funeral ceremony; $210.00 to transfer her remains to the funeral home; $1,694.18 for a casket and $922.00 for an outer burial container. Her total price for services and merchandise was $5,116.18, which she apparently paid in full. The money Ms. G~ paid is being held in the master trust.
DISCUSSION
A trust created on or after January 1, 2000, even an irrevocable trust, is considered to be a resource “if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual.” 42 U.S.C. § 1382b(e)(3)(B); POMS SI 01120.201D.2. As in this case, however, when an individual signs an irrevocable, non-assignable agreement with a funeral home, pre-pays for the goods and services, and the funeral home places the funds in an irrevocable trust, SSA considers the trust to have been established with the assets of the funeral director. POMS SI 01120.201H.1. In such instances, SSA applies its regular resource rules rather than its rules for trusts. Id.
A burial contract that cannot be revoked or sold without significant hardship is not a resource. POMS SI 01130.420B.2. State law determines the revocability of a burial contract. POMS SI 01130.420B.3. As the Wisconsin DWD memorandum indicates, Ms. G~ burial trust/agreement is not a life insurance funded burial contract. Accordingly, Wis. Stat. Ann. § 445.125(1) applies. Wisconsin requires burial agreement funds to be held in trust, however, the trust can be made irrevocable only up to $2,500.00. Wis. Stat. Ann. § 445.125(1). The statute also excludes certain items, such as outer burial containers, which are considered revocable. Wis. Stat. Ann. §§ 445.125(4)(b), 701.12. In addition to applying state law, SSA applies its own rules in excluding burial spaces and burial funds. POMS SI 01130.400; SI 01130.410; SI 01130.420. Although the Wisconsin statute indicates that the $922.00 for the outer burial container is revocable, SSA includes this in the burial space exclusion, which does not have a monetary limit; the $922.00 is thus excludable. POMS SI 01130.400A.1.
After initially deducting the $922.00 outer burial container from Ms. G~ $5,116.18 trust we are left with $4,194.18 subject to the statutory limit. This remaining trust amount includes both burial space (the $1,694.18 casket) and burial service items (embalming, transportation and ceremony services totaling $2,500.00). POMS SI 01130.400B.1.; POMS SI 01130.410B.2.a. The $2,500.00 statutory limit is first applied to the burial space portion - Ms. G~ $1,694.18 casket. POMS SI 01130.420C.5.b. Such application leaves $806.00 of the statutory $2,500.00 to apply to the $2,500.00 worth of burial services. After such application, Ms. G~ is left with $1,694.00 of burial services beyond Wisconsin's statutory limit, which is revocable under state law. However, our calculations do not end there. Ms. G~ still has $694.00 of SSA's $1,500.00 burial funds exclusion - $1,500.00 minus the $806.00 already applied - which can be applied to the $1,694.00 remainder. POMS SI 01130.420C.5.b. This additional calculation leaves $1,000.00, which is a countable resource.
CONCLUSION
$1,000.00 worth of burial services in Ms. G~ burial trust is beyond Wisconsin's statutory limit for irrevocable burial contracts and is also beyond SSA's $1,500.00 burial funds exclusion. The amount is thus a resource for SSI purposes.
Sincerely,
~~Donna L. C~Acting Regional Chief Counsel, Region VSocial Security Administration~~
Donna L. C~ Acting Regional Chief Counsel, Region V Social Security Administration
~~By: Elizabeth F~Assistant Regional Counsel~~
By: Elizabeth F~ Assistant Regional Counsel
~~W. PS 03-072 SSI - Wisconsin - Review of the Wisconsin Life Insurance Funded Burial Contract for Kathleen F. S~, ~ Your Reference No.: S2DG6, SI-2-1-8 Our Reference No.: 02 P098~~
X. PS 03-072 SSI - Wisconsin - Review of the Wisconsin Life Insurance Funded Burial Contract for Kathleen F. S~, ~ Your Reference No.: S2DG6, SI-2-1-8 Our Reference No.: 02 P098
DATE: December 30, 2002
1. SYLLABUS
In this opinion an insurance funded burial contract is excluded from counting as a resource for SSI purposes. The individual irrevocably assigned ownership and proceeds of a life insurance policy to her sister on the condition that the policy's proceeds may only be used to pay for funeral expenses. The sister signed an agreement with a funeral home for a funeral but did not assign the ownership of the insurance to the funeral home. However the sister, acting with power of attorney, signed a “public assistance” caveat that the individual was irrevocably renouncing the power to control the policy and irrevocably waived all rights to surrender the policy for cash, and irrevocably assigned the policy for payment of funeral expenses. Based on these facts the individual does not appear to have the right to surrender her policy for its cash value. In addition, the individual's assignment of the proceeds to her sister is akin to a trust agreement since she assigned her legal ownership to the sister and retained a beneficial right which can only be used for funeral expenses. This assignment agreement was established prior to 1/1/2000 and meets the pre-1/1/2000 requirements for a trust to be excluded from resource counting.
2. OPINION
You have asked us whether a life insurance funded burial contract set up on behalf of Kathleen F. S~ is a resource for the purposes of SSI. We conclude that the insurance policy is not a resource after the initial twenty days in which Kathleen S~ had the right to revoke the insurance policy, because Kathleen S~ irrevocably waived her right to recover the cash surrender value or to recover the premium paid on the policy.
FACTS
The documents you have provided include a February 16, 1996, “Application for Insurance/Annuity” from Prairie States Life Insurance Company (Prairie States); the application indicates that the policy is a single premium policy, and the initial benefit of the policy is $6,838.00. The application indicates that $6,804.26 was paid upon application. The file contains three checks equaling the paid premium amount. Two checks, dated February 12, 1996, are made out directly to the Borgwardt Funeral home. The other check, dated February 19, 1996, appears to be made out to Prairie States “for the benefit of” (FBO) Kathleen S~; this check also indicates that Kathleen S~ is the remitter and references an irrevocable funeral trust agreement with “F. J. Borgwardt Sons, Inc.” The application for life insurance identifies Kathleen S~ as the proposed insured and the owner, and her sister, Dorothy Z~, as the irrevocable beneficiary. Dorothy Z~ is also identified as having power of attorney (P.O.A.). The application indicates that the beneficiary designation is irrevocable. The application identifies the Borgwardt Funeral Home in a section entitled “Agent's Report”; nothing else on the document indicates the insurance policy is intended to fund funeral services. The application is signed by Dorothy Z~, not by Kathleen S~. However, the file also contains a February 16, 1996, “Signature Statement” from Prairie States upon which Kathleen S~ (by Dorothy Z~'s signature) is identified as the applicant and/or prospective owner of a life insurance policy on the life of Kathleen S~ and that due to “mental incompetency,” Kathleen S~ is incapable of signing the application. Dorothy Z~ signed the statement as the “owner” and indicated that her relationship to the insured was a sister.
Additionally, the file contains an “Irrevocable Assignment of Ownership and Beneficiary Designation and Agreement to Apply Proceeds for Burial” signed on February 16, 1996, by Dorothy Z~ as the insured. This assignment indicates that “as owner and insured” of the “above insurance policy,” the right, title and interest in the policy is irrevocably assigned to the beneficiary named above - Dorothy Z~ - on the condition that the beneficiary agrees to use the total policy proceeds towards the cost of funeral services and merchandise upon the death of the owner. The assignment further indicates that the heirs of the insured and the beneficiary are also irrevocably bound to the agreement.
The file also contains a February 16, 1996, “Pre-need Disclosure Statement”; it identifies Dorothy Z~ as the beneficiary and is signed by Dorothy Z~ as the “purchaser.” The statement contains a preamble in which it is noted that the Federal Trade Commission requires certain disclosures to prohibit misrepresentation. The statement lists disclosures pertaining to the price of funeral and burial services and indicates that certain services may or may not be required under the law. The file references a “Guaranteed Funeral Trust.” The file contains a disclosure statement that, in relevant part, indicates that the pre-need funeral guarantee was being offered by a licensed funeral director; that a copy of the Wisconsin Buyers Guide to Life Insurance was provided; that the insurance policy offered as a funding vehicle was being offered by a licensed insurance agent; that the purchaser had twenty days to cancel the insurance policy and receive a full refund; that if an “Irrevocable Assignment of Ownership and Beneficiary Designation and Agreement to Apply Proceeds for Burial” was executed, the entire proceeds of the insurance policy must be used for funeral expenses, and any excess amount will be used for additional funeral services or donated to charity and in no event would the excess amount be refunded to the deceased's estate or to any other persons; and that the “cash advance items” identified in the gratuitous pre-need funeral guarantee were estimates only, and that “since they are provided by others that [sic] the funeral home of your choice are not absolute and may vary and can not be guaranteed by the funeral home of your choice.”
Finally, the file contains an “Option for At Need Funeral Services” signed on February 16, 1996, by Dorothy Z~ as the policy owner. The “at need” option identifies the Borgwardt Funeral Home and identifies Dorothy Z~ as the beneficiary. The option indicates which services have been selected; the total amount of services equals $6,804.26. Signing the form indicates that the policy owner acknowledged and understood that the option was not a “pre-need” funeral service contract; the option did not involve an assignment of insurance proceeds prior to the death of the insured, the family, next of kin or authorized agent was not obligated to exercise the option and the option did not involve the purchase or sale of any goods or services. Dorothy Z~ also signed after a caveat reserved to recipients of public assistance. The caveat indicated that the undersigned acknowledged, understood and confirmed that by signing she was irrevocably renouncing the power to control the policy; irrevocably waived all rights to surrender the policy for cash or obtain a loan against it; did not assign the rights waived to any other person; irrevocably committed the use of the policy to the payment of funeral services and merchandise provided for the insured.
DISCUSSION
Assets are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for his/her support and maintenance. 20 C.F.R. § 416.1201(a) (2001). If the individual has the right, authority or power to liquidate the property, it is a resource. Id. A life insurance policy can be a resource if the individual can surrender it for cash or recover the premiums paid. 20 C.F.R. § 416.1230.
Here, Kathleen S~ purchased a life insurance policy on which she has (1) identified an irrevocable beneficiary - her sister and (2) irrevocably assigned the proceeds of her insurance policy to the same beneficiary with an agreement that the proceeds from the policy be used to fund Kathleen S~'s funeral. The policy was irrevocably assigned to a trust. The file also contains an option for at need funeral services.
The Insurance Policy
Under current Wisconsin law, Kathleen S~'s insurance policy would be a resource for the first thirty days after it was issued because, during that time period, she could cancel it and receive the full amount of any premiums paid. Wis. Adm. Code § Ins 23.30; Memorandum from Regional Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Wisconsin-Review of Wisconsin Life Insurance Funded Burial Contract (LIFBC) for Donna W., at 2 (December 13, 1999). Kathleen S~'s policy indicates that she could return it for a refund during the first twenty days of issue. We can assume that the twenty day limit was the law at the time Kathleen S~'s policy was issued. Moreover, unless Kathleen S~ applied for SSI benefits in 1996, the revocability period should not be relevant to her current eligibility for SSI benefits.
Beyond the initial twenty-day period, Kathleen S~ most likely cannot get the cash surrender value without the consent of any irrevocable beneficiary. We do not have the actual policy, but this is a standard provision. Kathleen S~ also irrevocably assigned her right, title and interest in the insurance policy to the beneficiary on the condition that the beneficiary use the total policy proceeds towards the cost of funeral services and merchandise. Also as part of that transaction, Kathleen S~ agreed that any excess proceeds from the policy would not revert to her estate or to any other person. Based on these facts, Kathleen S~ does not appear to have the right to surrender her insurance policy for its cash value.
The Trust
Kathleen S~'s assignment of the proceeds of her life insurance policy to her sister is akin to a trust agreement, since Kathleen S~ assigned her legal ownership interest and retained a beneficial right, which can only be used for her funeral. Because the trust in this case was created prior to January 1, 2000, it will be considered a resource if: (1) Kathleen S~ can revoke or terminate the trust and recover the assets; (2) she can direct the trustee to use the trust assets to provide for her support and maintenance; or (3) she can sell her beneficial interest in the trust. POMS SI 01120.200(D)(1). The second and third prongs of this analysis are not problematic since the trust assets are available for the benefit of Kathleen S~ only upon her death and can be used only to pay for her funeral, not for her support and maintenance, and no one is likely to purchase Kathleen S~'s beneficial interest in the trust since it is tied to her life insurance policy which is available only when she dies.
With respect to the first prong of the trust analysis, we believe that the trust is irrevocable, because if the option contract is valid (which we believe it is as explained in more detail in the following section) and irrevocable, the funeral provider who issued the option contract could be considered a beneficiary to the trust whose consent would be required in order to revoke the assignment and recover the case surrender value. The assignment of the insurance policy to Dorothy Z~ to pay for Kathleen S~'s funeral was done as part of the same set of transactions with the funeral home that provided the option contract; the option contract assumes that the policy will be assigned to a relative to be used to pay for the funeral services if Kathleen S~ or her relatives exercise it. Therefore, it appears that the policy was assigned to Dorothy Z~ with the agreement of the funeral home to protect the assets so that they would be available in order to exercise the option contract. Under these circumstances, the funeral home may be considered a beneficiary to the trust whose consent would be required in order to revoke and recover the cash surrender value. See Restatement (Second) of Trusts, § 330, commnt. h (1957); Austin W. S~, The Law of Trusts, § 330.6 (4th ed. 1987).
The Option Contract with the Funeral Home
We believe that the option contract was intended to be irrevocable. Although Kathleen S~ or her next of kin is not required to exercise the option with the identified funeral home, it is apparent that Kathleen S~ has agreed to irrevocably set aside her life insurance policy in order to ensure that the option contract will be exercisable at her death. For example, on the contract, Kathleen S~ indicated that she acknowledged, understood and confirmed that by signing she was irrevocably renouncing the power to control the policy; irrevocably waived all rights to surrender the policy for cash or obtain a loan against it; did not assign the rights waived to any other person; irrevocably committed the use of the policy to the payment of funeral services and merchandise provided for the insured.
We note that subsequent to the time Kathleen S~ entered into her life insurance funded burial agreement, Wisconsin law on the subject changed significantly. See Memorandum from Regional Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Wisconsin-Review of Wisconsin Life Insurance Funded Burial Trust for Bernice M. E~ (December 9, 2002). While the statutory distinction between burial agreements funded by trusts and by life insurance policies - Wis. Stat. § 445.125(3m) - was created in 1995 (1995 Wis. Act 295), the Wisconsin Administrative Code provisions specifying the manner in which the insurance policies or the burial agreements should be structured, were not in effect until October 1, 1997 (Wis. Adm. Code § Ins 23.30) and November 1, 1998 (Wis. Adm. Code § FD 6.07). Additionally, Wis. Stat. § 632.415 was not created until 1999 and was not effective until July 1, 2000. 1999 Wis. Act 191. All of the documents relevant to this case were signed in February 1996; consequently, they may not be fully compliant with current Wisconsin law.
We believe, however, that the option contract/burial agreement is valid in spite of the change in Wisconsin law. We believe that Wisconsin courts would not find that the current statutory and regulatory provisions regarding life insurance funded burial agreements apply to this matter. In In re Estate of N~, 175 N.W.2d 640, 643 (Wis. 1965), the court held that art. 1, § 10 of the Wisconsin Constitution barred retroactive application of a statute if it “substantially lessens the value of a pre-existing contract.” In so finding, the court noted that Wisconsin had long held this view of statutory retroactivity. Citing Pawlowski v. Eskofski, 244 N.W. 611 (Wis. 1932), the N~ court noted that Wisconsin relied on Supreme Court precedent for its construction of art. 1, § 10: “That court long ago held that any statute, whether remedial or not, that operated to deprive a party to a contract antedating the enactment of the statute of any valuable right secured to him by that contract is void as to that contract.” Pawlowski, 244 N.W. at 613, citing Edwards v. Kearzey, 96 U.S. 595. In this case, a retroactive application of Wis. Stats. §§ 445.125(3m), 632.415, would operate to deprive Kathleen S~ of a vested property interest she had under the prior law - her burial contract.
Finally, we note that the option contract could be a resource if Kathleen S~ could sell it. SI 01110.100(B)(1); see also Williston on Contracts, § 412 at 47, (3d ed. 1951) (rights under contract are assignable); Federal Deposit Ins. Corp. v. First Mortg. Investors, 250 N.W.2d 362, 368 (Wis. 1977) “unless expressly restricted an option is freely transferable.” Here, however, the option is not transferable - and thus not a resource - because it is inextricably tied to the insurance policy on Kathleen S~'s life.
CONCLUSION
In sum, it is our opinion that, because the documents in the file indicate that Kathleen S~'s burial agreement is irrevocable, and she may not obtain the cash surrender value of her life insurance policy or use the trust to which it was assigned for her support and maintenance, Kathleen S~'s life insurance funded burial agreement is not a resource for the purposes of SSI except during the twenty-day period after February 16, 1996, when Kathleen S~ could have canceled the policy and received a refund of her premium.
Sincerely,
~~Gary A. S~Acting Regional Chief Counsel, Region VSocial Security Administration~~
Gary A. S~ Acting Regional Chief Counsel, Region V Social Security Administration
~~By: Elizabeth F~Assistant Regional Counsel~~
By: Elizabeth F~ Assistant Regional Counsel
~~X. PS 03-061 SSI - Wisconsin - Review of the Life Insurance Funded Burial Trust for Jennifer P~ - REPLY Your Ref: S2D5G6, SI 2-1-3 WI Our Ref: 03P002~~
Y. PS 03-061 SSI - Wisconsin - Review of the Life Insurance Funded Burial Trust for Jennifer P~ - REPLY Your Ref: S2D5G6, SI 2-1-3 WI Our Ref: 03P002
DATE: December 5, 2002
1. SYLLABUS
In this Wisconsin opinion, ownership of a life insurance policy was irrevocably assigned to a life insurance trust whose proceeds are to be used for the funeral expenses of insured individual. This trust is a resource for SSI purposes because it was created on or after January 1, 2000 with the individual's own assets and there are circumstances under which payment from the trust could be made for the benefit of the individual, i.e., it will pay the individual's funeral expenses. This trust also would be a resource because it is revocable under Wisconsin law. It is revocable because the SSI applicant is both the grantor and the sole beneficiary of the trust.
2. OPINION
You asked whether a life insurance burial trust established for Jennifer P~ is a resource for SSI purposes. We have reviewed the materials you sent, and have concluded that the life insurance policy assigned to the trust is a resource. Furthermore, because the trust is revocable, the Agency need not consider whether counting this resource results in an undue hardship.
Background
Ms. P~ purchased a life insurance policy with a single premium of $1,930. The policy has a face value of $2000. Ms. P~ applied for the policy on February 27, 2002, and the policy was issued on March 11, 2002. The policy provides that Ms. P~ had 20 days after receipt of the policy to cancel the policy and recover the premium paid. The policy also has a cash surrender value that increases over time.
In her application for the insurance policy, Ms. P~ names the Jennifer S. P~ Trust as the beneficiary of the policy and states that the policy is being irrevocably assigned to an irrevocable life insurance trust. Ms. P~ also signed a document entitled “Irrevocable Life Insurance Trust Agreement,” which is dated February 27, 2002. The agreement indicates that the life insurance policy will be held by the trust, which will use the proceeds at Ms. P~'s death to provide for her funeral. The trust states that, if any funds are remaining after these expenses are paid, the remainder will be paid to the secondary beneficiary named in the trust document. The trust document names the “Estate of the Insured” as the secondary beneficiary.
On March 25, 2002, Ms. P~'s guardian executed an Amendment of Application, which apparently also is signed by an agent of the insurance company. The amendment states that the application for the life insurance policy was amended to read that it was “[i]ssued with Date of Trust being February 27, 2002.”
Discussion
Assets are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for his support and maintenance. See 20 C.F.R. § 416.1201(a). A life insurance policy can be a resource if the individual can surrender it for cash or recover the premiums paid. See 20 C.F.R. § 416.1230.
This policy has a cancellation period of twenty days after it was issued, during which time Ms. P~ had the right to cancel the policy and recover the premium paid. We believe that the date the policy actually was issued, on March 11, 2002, should control in determining the time period during which Ms. P~ still could recover her premium. Ms. P~'s guardian apparently attempted, on March 25, 2002, to amend the application for the policy to reflect that the policy was issued with the date of the trust, i.e., February 27, 2002. However, unless Ms. P~ produces reliable evidence that the insurance company would not have allowed her to recover her premium at any time through the twenty day time period following March 11, 2002, we believe it would be appropriate to consider the $1,930 premium to be a resource during that time.
After that time period, the policy will be a resource if Ms. P~ could surrender the policy for cash. Here, Ms. P~ has assigned the policy to trust. Therefore, the policy will be a resource to her if the trust is a resource. A trust created on or after January 1, 2000, generally is considered a resource, under Section 1613(e) of the Social Security Act, even if the trust is irrevocable, to the extent that “there are any circumstances under which payment from the trust could be made to or for the benefit of the individual.” 42 U.S.C. § 1382b(e)(3)(B); see also POMS SI 01120.201D.2. Ordinarily, if an individual establishes an irrevocable burial trust with his or her assets, Section 1613(e) of the Act applies and the trust is considered a resource. See POMS SI 01120.201H.2.; Exclusion of Certain Burial Trusts from Section 205 of Public Law Number (Pub. L. No.) 106-169, Associate General Counsel Office of Program Law to Associate Commissioner for Legislative Development (Aug. 29, 2000). The Agency may consider waiving application of Section 1613(e) of the Act if counting an irrevocable trust as a resource results in the individual's ineligibility for SSI due to excess resources and other criteria for undue hardship are alleged. POMS SI 01120.203C.2.a.; see generally 42 U.S.C. § 382b(4).
Here, Ms. P~'s trust would be a resource under federal law, even if it were revocable, because the assets will be used to provide for her funeral. Furthermore, the Agency need not consider whether to waive application of the law under the undue hardship provisions because the trust is revocable.
Under Wisconsin law, a trust is revocable, despite any trust language to the contrary, when the individual is both the settlor (or “grantor”) and the sole beneficiary of a trust. See Wis. Stat. Ann. § 701.12. Wisconsin law states that “[b]y written consent of the settlor and all beneficiaries of a trust or any part thereof, such trust of part thereof may be revoked, modified or terminated ....” Wis. Stat. Ann. § 701.12(1). Thus, if Ms. P~ is the sole beneficiary of the trust, she could unilaterally revoke the trust. Here, the trust names no other beneficiaries. Indeed, the trust names Ms. P~'s own estate as the secondary beneficiary to receive any remaining assets after providing for Ms. P~'s funeral.
Conclusion
In sum, we conclude that, unless Ms. P~ produces reliable evidence to the contrary from the insurance company, the Agency should assume that Ms. P~ could recover the $1930 premium she paid for her life insurance policy until twenty days after the policy actually was issued on March 11, 2002. After that time, the cash surrender value of the policy would be a resource because the policy was assigned to a trust that was to be used for Ms. P~'s benefit. Because the trust is revocable, the Agency need not consider whether application of federal law would constitute undue hardship
Sincerely,
~~Donna C~Acting Regional Chief Counsel, Region V~~
Donna C~ Acting Regional Chief Counsel, Region V
~~By: Suzanne E. D~Supervisory Counsel~~
By: Suzanne E. D~ Supervisory Counsel
~~Y. PS 03-058 SSI - Wisconsin - Review of the Life Insurance Funded Burial Trust for Tab H~, ~ - REPLY Your Ref: S2D5G6, SI 2-1-3 WI Our Ref: 03P003~~
Z. PS 03-058 SSI - Wisconsin - Review of the Life Insurance Funded Burial Trust for Tab H~, ~ - REPLY Your Ref: S2D5G6, SI 2-1-3 WI Our Ref: 03P003
DATE: December 6, 2002
1. SYLLABUS
In this Wisconsin opinion, ownership of a life insurance policy was irrevocably assigned to a life insurance trust which is to be used for the funeral expenses of the insured person. This trust is a resource because it was created on or after January 1, 2000 with the individual's own assets and there are circumstances under which payment from the trust could be made for the benefit of the individual, i.e., it will pay the individual's funeral expenses. This trust also would be a resource because it is revocable under Wisconsin law because the SSI applicant is both the grantor and the sole beneficiary of the trust. The trust document has a space for naming a residual beneficiary but none was named.
2. OPINION
You asked whether a life insurance burial trust established for Tad H~ is a resource for SSI purposes. We have reviewed the materials you sent, and have concluded that the trust is a resource. Furthermore, because the trust is revocable, the Agency need not consider whether counting this resource results in an undue hardship.
Background
Mr. H~ apparently has a life insurance policy which, as of August 30, 2002, had a face value of $3,632.62. A letter from the insurance company suggests that the policy may have had a higher face value before that time, but we do not have a copy of the insurance policy or any other documents that indicate when the policy was issued or the original value of the policy.
On August 26, 2002, Mr. H~ signed an irrevocable assignment of his life insurance policy to the Tab R. H~ Irrevocable Trust. He also has signed an Irrevocable Life Insurance Trust Agreement which indicates that the life insurance policy will be held by the trust, which will use the proceeds at Mr. H~'s death to provide for his funeral. The trust states that, if any funds are remaining after these expenses are paid, the remainder will be paid to the secondary beneficiary named in the trust document. The trust document has a space for naming a secondary beneficiary to the trust. However, that space was left blank.
Discussion
Assets are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for his support and maintenance. See 20 C.F.R. § 416.1201(a). A life insurance policy can be a resource if the individual can surrender it for cash or recover the premiums paid. See 20 C.F.R. § 416.1230. We do not have a copy of the life insurance policy to determine whether the policy had any period during which the policy can be cancelled or what any cash surrender value may be.
In any event, because Mr. H~ has assigned the policy to trust, the policy will be a resource if the trust is a resource. A trust created on or after January 1, 2000, generally is considered a resource, under Section 1613(e) of the Social Security Act, even if the trust is irrevocable, to the extent that “there are any circumstances under which payment from the trust could be made to or for the benefit of the individual.” 42 U.S.C. § 1382b(e)(3)(B); see also POMS SI 01120.201D.2. Ordinarily, if an individual establishes an irrevocable burial trust with his or her assets, Section 1613(e) of the Act applies and the trust is considered a resource. See POMS SI 01120.201H.2.; Exclusion of Certain Burial Trusts from Section 205 of Public Law Number (Pub. L. No.) 106-169, Associate General Counsel Office of Program Law to Associate Commissioner for Legislative Development (Aug. 29, 2000). The Agency may consider waiving application of Section 1613(e) of the Act if counting an irrevocable trust as a resource results in the individual's ineligibility for SSI due to excess resources, and if other criteria for undue hardship are alleged. POMS SI 01120.203C.2.a.; see generally 42 U.S.C. § 382b(4).
Here, Mr. H~'s trust would be a resource under federal law, even if it were revocable, because the assets will be used to provide for his funeral. Furthermore, the Agency need not consider whether to waive application of the law under the undue hardship provisions because the trust is revocable.
Under Wisconsin law, a trust is revocable, despite any trust language to the contrary, when the individual is both the settlor (or "grantor") and the sole beneficiary of a trust. See Wis. Stat. Ann. § 701.12. Wisconsin law states that "[b]y written consent of the settlor and all beneficiaries of a trust or any part thereof, such trust of part thereof may be revoked, modified or terminated ...." Wis. Stat. Ann. § 701.12(1). Thus, if Mr. H~ is the sole beneficiary of the trust, he could revoke the trust unilaterally. Here, the trust names no other beneficiaries. Indeed, the space for naming a secondary beneficiary has been left blank.
Conclusion
In sum, we conclude that Mr. H~'s life insurance policy is a resource under federal law because it is assigned to a trust that will be used for his benefit. Because the trust is revocable, the Agency need not consider whether application of this federal law constitutes an undue hardship.
Sincerely,
~~Donna L. C~Acting Regional Chief Counsel, Region V~~
Donna L. C~ Acting Regional Chief Counsel, Region V
~~By: Suzanne E. D~Supervisory Counsel~~
By: Suzanne E. D~ Supervisory Counsel
~~Z. PS 03-057 SSI - Wisconsin - Review of Life Insurance Funded Burial Trust of Bernice M. E~, ~ Our Reference No.: 02PO57~~
AA. PS 03-057 SSI - Wisconsin - Review of Life Insurance Funded Burial Trust of Bernice M. E~, ~ Our Reference No.: 02PO57
DATE: December 9, 2002
1. SYLLABUS
In this case, the ownership of a Forethought Life Insurance policy was irrevocably assigned to a funeral director. The funeral director subsequently assigned the ownership of the policy to a Forethought Trust which will pay for the funeral services. This opinion finds that the irrevocable assignment of the life insurance policy to the funeral director substantially complies with the Wisconsin law that governs prepaid burial contracts and this individual can be considered to have an irrevocable prepaid burial contract under Wisconsin law. Therefore, this burial contract/trust arrangement meets the POMS requirements in SI 01120.210H.1. i.e., this transaction constitutes a purchase of goods and services by the individual and trust is considered purchased with the funeral director's funds, not the individual's. Therefore, the life insurance policy and the trust are not resources for SSI purposes.
2. OPINION
You have asked us whether a life insurance funded burial contract set up on behalf of Bernice M. E~ is a resource for the purposes of SSI. We conclude that, assuming a burial agreement, which substantially complies with Wisconsin law, has been established with the funeral firm of Bernice E~'s choice, the life insurance policy is a prepayment for funeral services and would not be a resource after the first thirty days during which Bernice E~ had the unrestricted right to revoke the insurance policy.
BACKGROUND
The file contains an application to the Forethought Life Insurance Company for a single premium policy with an initial payment of $6,000.00. The application was signed by Bernice E~ on March 27, 2000. The file also contains an “Irrevocable Assignment of Ownership to a Funeral Firm” signed by Bernice E~ on the same day. The irrevocable assignment identifies Downs Funeral Home as the funeral firm to which ownership of the policy is to be transferred, contingent upon delivery of funeral services and merchandise. By signing the irrevocable assignment, Bernice E~ acknowledged that she understood that the assignment was permanent and irrevocable, and except for retaining the right to change the designated funeral firm and beneficiary, she renounced her power to control the policy. Bernice E~ further acknowledged that she understood that ownership of the policy would be transferred by the funeral firm to the Forethought Trust, which would assure payment to the designated funeral firm for the purpose of funeral services and merchandise. Bernice E~ also waived all rights to surrender the policy for cash or to obtain a loan against it, and represented that she did not assign these rights to any other person.
DISCUSSION
Assets are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for his/her support and maintenance. 20 C.F.R. § 416.1201(a) (2001). If the individual has the right, authority or power to liquidate the property, it is a resource. Id. A life insurance policy can be a resource if the individual can surrender it for cash or recover the premiums paid. 20 C.F.R. § 416.1230.
In Wisconsin, a life insurance policy sold as a funeral policy must contain the “unrestricted right to return the policy or certificate within 30 days of the date it is received” whereupon “the insurance contract is void and all payments made under it must be refunded directly to the policyholder.” Wis. Adm. Code § 23.30 (1)(d). This provision must be conspicuously printed on the front of the policy or attached thereto. Wis. Adm. Code § Ins 23.30(1)(e). Accordingly, Bernice E~'s life insurance policy was a resource for the first thirty days after it was issued because under Wisconsin law, she had the unrestricted right to cancel the policy and recover the full premium of $6,000.00. Thus, the value of the policy for the first thirty days was $6,000.00.
Beyond the first thirty days, we must determine whether the trust to which the policy was assigned is a resource. A trust established by an individual on or after January 1, 2000, generally will be considered a resource under federal law, if it is revocable or, even if it is revocable, to the extent that payments from the trust could be made to or for the benefit of the individual. 42 U.S.C. § 1382b(e)(3)(B); POMS SI 01120.201D.1.-SI 01120.201D.2. This rule applies if payments can be made for the benefit of the individual “under any circumstance, no matter how unlikely or distant in the future.” POMS SI 01120.201D.2.b.
These provisions do not apply to burial trusts where the individual irrevocably contracts with a provider of funeral goods and/or services and either (1) the funeral provider subsequently places the funds in a trust or (2) the individual establishes an irrevocable trust naming the funeral provider as the beneficiary. POMS SI 01120.201H.1. Under these circumstances, the funeral home is considered, for federal law purposes, to have established the trust. Exclusion of Certain Burial trusts from Section 205 of Public Law Number (Pub. L. No. 106-169, Associate General Counsel Office of Program Law to Associate Commissioner for Legislative Development (Aug. 29, 2000).
However, the statutory provisions at 42 U.S.C. § 1382b(e)(3)(B) will apply where an individual establishes a burial trust with his or her own assets but does not enter into a pre-need funeral contract with a funeral provider; the individual enters into an irrevocable funeral contract with a funeral provider, but establishes a revocable trust to fund the contract; or the individual enters into a revocable funeral contract with a funeral provider even if the funeral provider places the money in a trust. POMS SI 01120.201H.2. In these circumstances, the individual rather than the funeral provider is considered, for federal law purposes, to have established the trust.
Here, the funeral establishment placed the funds in trust so the trust will be considered to have been established by the funeral establishment, for federal law purposes, if Bernice E~ has an irrevocable contract with the funeral home for funeral goods and services. We do not have an actual contract with the funeral home, but it appears from the assignment of the insurance policy that Bernice E~ intended to irrevocably assign ownership of the policy in exchange for the funeral provider's promise to provide funeral services and merchandise. This would appear to be sufficient to show there had been an irrevocable contract for funeral goods and services as long as the assignment is valid under state law.
Wisconsin law expressly provides that a life insurance policy may provide for the assignment of the policy proceeds to a funeral director or operator of a funeral establishment if the insurance intermediary selling the policy is not an agent of the funeral director or operator of the funeral establishment or “if the assignment of proceeds is contingent on the provision of funeral merchandise or funeral services as provided for in a burial agreement that satisfies the requirements of [Wis. Stat. §] 445.125(3m) and rules promulgated by the funeral directors examining board under [Wis. Stat. §] 445.125(3m)(j)1. b.” Wis. Stat. Ann. § 632.415(2) (established in 1999, 1999 Wis. Act 191). A life insurance policy sold with the intent to provide funeral services also “shall permit the policyholder to designate a different beneficiary, upon written notice to the insurer, and a different funeral director or operator of a funeral establishment that is to receive the assignment of proceeds, after written notice to the current funeral director or operator of the funeral establishment.” Wis. Stat. Ann. § 632.415(3). The law does not appear to limit the ability to irrevocably assign the proceeds of such a life insurance policy either in amount or in terms of who may be the beneficiary. In this case, Bernice E~ irrevocably assigned her rights in the life insurance policy, but retained the right to designate a different beneficiary and funeral establishment. Accordingly, as long as the burial agreement she has entered into substantially complies with the law, the assignment of the proceeds of Bernice E~'s life insurance policy is valid under Wisconsin law.
The Wisconsin insurance code provides that an insurance policy that violates a statute or rule is nonetheless enforceable against the insurer as if it conformed to the statute or rule. Wis. Stat. § 631.15(3m); Brunson v. Ward, 629 N.W.2d 140 (Wis. 2001) (when uninsured motorist coverage on policy was below the statutory requirement, statutory level of coverage was read into policy even though it was not reflected in the premium paid). Accordingly, it is our belief that the life insurance policy sold to fund a burial agreement might contain errors and still be enforceable as though it adhered to the law. For example, if the policy does not contain on its face the caveat that it is entirely revocable for the first thirty days after issuance, should the purchaser seek to revoke it in that time, Wisconsin courts would allow the revocation during that time.
Wisconsin Stat. § 445.125(3m) provides that a “burial agreement” means a written agreement between an operator of a funeral establishment or funeral director and “a person in which the operator of the funeral establishment or funeral director agrees to provide to a person, after that person is deceased, funeral merchandise or funeral services.” Wis. Stat. § 445.125(3m) (established in 1995, 1995 Wis. Act 295). Burial agreements must comport with the statute and with the rules established by the Funeral Directors Examining Board. Wis. Stat. § 445.125(3m)(b). The statute and the code provision contain overlapping directions. Based on these authorities, we have determined that the following provisions should be included in a burial agreement:
* the identity of the funeral establishment and the insurer or insurers the agent selling the policy and agreement represents and whether sales commission or other form of compensation is being paid to the agent;
* the identity of the funeral establishment that will be used to provide the services and merchandise;
* an indication that a life insurance policy is being used to fund the agreement as well as the type of insurance;
* the nature and extent of any price guarantees;
* a list of the funeral services and merchandise selected and the price of each item, including a statement as to whether the prices are guaranteed at the time the agreement is arranged or at the time of need; if the services and merchandise are to be provided at the time of need, they may not exceed the prices set forth in the funeral establishments general price list required under industry practice and Federal Trade Commission regulations;
* the effect on the burial agreement of changing the life insurance policy, including changing the assignment of proceeds, the beneficiary or changing the use of the proceeds;
* any penalties incurred by the policy holder as a result of failing to make premium payments or incurred upon cancellation or surrender of the life insurance policy as well as any money received upon cancellation or surrender;
* all information concerning what is to be done and whether any entitlements arise in the event of a difference between the proceeds of the life insurance policy and the amount actually needed to fund the burial agreement;
* any restrictions or penalties relating to the delivery of services under the agreement including the inability of the operator of the funeral establishment to perform;
* this statement in not less than 12-point boldface type “Burial agreements are regulated by the Wisconsin Funeral Directors Examining Board. Should you have a complaint, please contact the Board at 1400 E. W. Avenue, P.O. Box 8935, M., W~ or by telephone at (608) ~.”
We note, however, that the failure of the burial agreement to exactly comport with the statutory and regulatory standards does not render the life insurance funded burial agreement void and thus make the insurance policy a resource. We believe that Wisconsin courts would require only substantial and not strict compliance with Wis. Stat. § 445.125(3m) and its accompanying regulations. The ultimate question in a court's determination of whether the doctrine of substantial compliance applies to a statue is whether the statutory provisions not strictly complied were so essential that the failure of compliance results in the invalidity of the contract. Bechthold v. City of Wauwatosa, 277 N.W.2d 657, 660 (Wis. 1938). Wisconsin has recognized that substantial compliance with even a mandatory statute may be legally sufficient. Midwest Mutual Ins. Co. v. Nicolazzi, 405 N.W.2d 732, 735 (Wis. App. 1987). Factors considered with respect to the substantial compliance doctrine include the objectives sought to be accomplished by the statute, the consequences of non-compliance set forth in the statute, whether a penalty is imposed for non-compliance and whether dereliction is beyond the direct control of those whose rights are at stake. Id. at 735-36. The doctrine contemplates “actual compliance in respect to the substance essential to every reasonable objective of the statute.” Id. at 736 quoting Sutherland Statutory Construction, § 57.26 (internal quotation omitted).
We believe that the intent of Wisconsin's burial agreement statute is to ensure that an individual entering into a burial agreement funded with the proceeds of a life insurance policy is fully informed and aware that an agent of a funeral establishment may be involved in and profit from the sale of the life insurance policy and that the cost of funeral services and merchandise cannot be inflated because they are being funded with the proceeds of a life insurance policy. Additionally, Wis. Stat. § 445.125(3m) does not set forth any penalties or consequences if the provisions are not strictly adhered to. Moreover, because it is the funeral directors and their agents who draft the burial agreements, compliance with the statute is beyond the direct control of the parties whose rights it is intended to safeguard. All of these factors lead us to conclude that Wis. Stat. § 445.125(3m) is directory rather than mandatory and Wisconsin courts would not void a burial agreement if it did not strictly comply with Wis. Stat. § 445.125(3m). Thus, notwithstanding the eleven points enumerated above, we believe that in order to substantially comply with Wis. Stat. § 445.125(3m) a burial agreement should:
* specify the identity of the agent and the funeral establishment with which he or she is affiliated;
* indicate that the agreement is being funded by a life insurance policy;
* identify the funeral establishment that will provide the services;
* list the funeral services and merchandise selected; and
* indicate whether prices for funeral merchandise and services are guaranteed.
We stress that the key element in determining whether a life insurance policy intended to fund a burial is a resource is whether the individual can utilize the policy for maintenance and support. 20 C.F.R. § 416.1230. Accordingly, in Wisconsin, after the 30 day period during which a life insurance policy issued for a burial agreement is revocable, such a policy could be assigned to a funeral provider to fund a burial agreement and generally would not be a resource if: (1) the policyholder irrevocably assigns the proceeds of the policy while retaining the right to designate a different funeral director or operator of a funeral establishment according to the statutory scheme; (2) the policy holder has the right to change the beneficiary; (3) the policyholder has either irrevocably assigned or waived the right to obtain the cash surrender value of the policy; (4) the policy holder has submitted to the insurance company the irrevocable assignment of proceeds and the assignment or waiver of the right to obtain the cash surrender value; and (5) the policy holder has entered into a burial agreement with a specific funeral provider. POMS SI 01120.201H.2.; Wis. Stat. §§ 445.125(3m), 632.415.
Assuming Bernice E~ has entered into a burial agreement (contract) that substantially complies with Wisconsin law, we believe that the life insurance policy constitutes a prepayment for funeral services and is thus not a resource. POMS SI 01120.201H.1. Additionally, the “Irrevocable Assignment of Ownership to Funeral Firm” document appears to satisfy Wisconsin's requirements that the policyholder the policy holder has the right to change the beneficiary, has irrevocably assigned the right to obtain the cash surrender value of the policy and has submitted the irrevocable assignment of proceeds and the assignment or waiver of the right to obtain the cash surrender value to the insurance company. Accordingly, after the initial thirty days during which a life insurance policy intended to fund a burial agreement is revocable in Wisconsin, the insurance policy would not be a resource for the purposes of SSI.
CONCLUSION
In sum, Bernice E~'s life insurance policy was a resource valued at $6,000.00 for the first thirty days after it was issued since she had the right to cancel it during that time. As long as Bernice E~ has contracted with a funeral services provider for funeral services, the life insurance policy is not a resource after the first thirty days.
Sincerely,
~~Donna L. C~Acting Regional Chief Counsel, Region VSocial Security Administration~~
Donna L. C~ Acting Regional Chief Counsel, Region V Social Security Administration
~~By: Elizabeth F~Assistant Regional Counsel~~
By: Elizabeth F~ Assistant Regional Counsel
~~AA. PS 03-023 SSI-Wisconsin--Review of the Life Insurance Policy and Funeral Trusts of Marion P~, ~~~
BB. PS 03-023 SSI-Wisconsin--Review of the Life Insurance Policy and Funeral Trusts of Marion P~, ~
DATE: October 16, 2002
1. SYLLABUS
This opinion clarifies State law regarding prepaid burial agreements in Wisconsin. The beneficiary possesses a burial trust, a casket trust and a life insurance policy. The burial trust is not a resource to the beneficiary because it is irrevocable. The initial deposit to fund the trust was $1,500 when the trust was established in 1986. At that time, State law permitted the irrevocable treatment of the first $1,500 of a burial agreement funded by a trust. NOTE: The current amount allowed per Wisconsin law is $2,500; effective 07/01/03, the allowable amount will increase to $3,000. See Wis. Stat. Ann. §445.125(a)(2)-(3). The beneficiary's assignment of her life insurance policy to a funeral home also met the statutory requirements for burial agreements funded by life insurance policies and could be excluded. Finally, however, the casket trust could not be excluded because it was deemed revocable. Although the trust was termed “irrevocable,” the statutory limit for irrevocable burial agreements in effect when the casket trust was established would have been exceeded since we already recognized, as irrevocable, the $1,500 burial trust. OGC opined that it was doubtful a State court would recognize a second irrevocable trust under the statute.
2. OPINION
You have requested our opinion on whether Marion P~'s life insurance policy, funeral trust, and casket trust would be a resource for SSI purposes. We conclude that, the funeral trust complies with Wisconsin law concerning trust-funded burial agreements, and that it would not be a resource to Ms. P~ because it is irrevocable. Ms. P~'s casket trust, however, would be a countable resource. Although the trust purports to be irrevocable, when the amount in the casket trust is combined with the amount in the pre-existing funeral trust, the funds would exceed the Wisconsin statutory limit for irrevocable burial agreements in effect at that time. Consequently, Wisconsin's general trust law provisions would apply, and the trust would be a resource because Ms. P~ could revoke the trust unilaterally.
Ms. P~'s assignment of her life insurance policy to Hansen Funeral Home appears to comport with most of the Wisconsin statutory requirements for burial agreements funded by a life insurance policy. Therefore, for the reasons stated below, we conclude that the life insurance policy would be considered a resource for the first thirty days after it was issued since, during that time, she could return the policy for a refund of the premium paid. After that thirty-day period, if you can confirm that Ms. P~ had the right to change the beneficiary of the insurance policy and that she has the right to name a different funeral firm to receive the proceeds, the policy would not be a resource because she could no longer return the policy for a refund of the premiums, and could not surrender the policy for cash without the consent of the funeral provider.
BACKGROUND
In 1986, Ms. P~ entered into an “Irrevocable Funeral Trust Agreement” with Hansen Funeral Home “to set forth in advance some arrangements of a funeral service.” The agreement indicates that Ms. P~ deposited $1,500 with Marshfield Savings and Loan for such expenses. The agreement provides that, in accordance with Section 445.125 of the Wisconsin statutes, the first $1,500 is designated as an irrevocable trust fund, “which must be used for the funeral and final disposition of [Ms. P~].” The agreement further states that any dividends and/or interest earned on the $1,500.00 are irrevocable and can never be withdrawn by the depositor. The funeral trust is currently valued at $3,358.51.
On October 25, 1989, Marion P~ entered into a Casket Trust Agreement with Batesville Casket Company to pay for her burial casket. The agreement indicates that Ms. P~ deposited $1,000 with Marshfield Savings Bank for future payment of the cost of a burial casket. The agreement states that the $1,000 deposit plus interest and accruals “shall constitute an irrevocable trust fund established pursuant to Section 445.125 of the Wisconsin statutes.” The agreement further states that the “casket trust account shall constitute an irrevocable trust fund which shall be considered a grantor trust pursuant to Section 677 of the Internal Revenue Code,” and that interest payable on her deposit would be made a part of the Irrevocable Trust Fund. The casket trust is currently valued at $1,966.30.
Finally, in April 2001, Ms. P~ signed a document agreeing to assign and transfer to Hansen Funeral Home her rights to receive death benefits from Prudential Life Insurance Company. The funeral home's right to receive death benefits was contingent on their providing funeral goods and services as provided by “prearranged or at-need funeral agreements.” The cash value of the policy was $4,012.60; the death benefit was $4,655.82. In November 2001, Prudential Financial advised the Agency that Ms. P~ could only surrender the policy or access the dividends if both she and a representative from the funeral home signed the request form. In January 2002, Prudential Financial reported that Marion P~ owned the life insurance policy, cash surrender value, and the accumulations on the policy, and that the only restriction on her cashing in the policy was that, in addition to her signature, she needed to obtain the signature of a representative from Hansen Funeral Home.
DISCUSSION
Casket and Funeral Trusts
Assets are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for his/her support and maintenance. 20 C.F.R. § 416.1201(a) (2002). Since the trusts at issue here were established prior to January 1, 2000, the trust assets would be a resource if, under applicable law, Ms. P~ could (1) revoke the trust, (2) direct the use of the trust funds for her own support and maintenance or sell her beneficial interest in the trust. POMS SI 01120.200(D)(1).
We conclude that the funeral trust at issue here is irrevocable. Consistent with Wisconsin law in 1986 (when Ms. P~ entered into the agreement), the funeral trust designated Ms. P~'s $1,500.00 deposit plus any dividends or interests earned as irrevocable. Wis. Stat. Ann. § 445.125(1)(b)-(c) (1985) (noting that burial agreements funded by trusts can be made irrevocable as to the first $1,500 of the funds paid under the agreement by the depositor, and that any interest or dividends accruing to the trust fund can be made irrevocable) (current version at Wis. Stat. Ann. § 445.125(1)(a)(2)-(3) (West 2002)). Because the amount in the funeral trust does not exceed the $1,500 statutory limit in effect in 1986 and is designated as irrevocable, Ms. P~ does not have the legal authority to revoke the trust and the trust fund is not a countable resource for SSI purposes. POMS SI 01120.200(D)(2).
Ms. P~'s casket trust, however, would be a countable resource. Although the trust similarly designates Ms. P~'s $1,000.00 deposit plus any interests and accruals earned as irrevocable pursuant to Wis. Stat. Ann. § 445.125, as discussed in the preceding paragraph, Ms. P~ had already established an irrevocable funeral trust up to the $1,500.00 statutory limit. Therefore, we do not believe a Wisconsin state court would recognize a second irrevocable trust under that statute. Consequently, the $1,000.00 casket trust would be subject to the general trust provisions of Wis. Stat. Ann. § 701.12(1), which states that, notwithstanding any language to the contrary, a trust can be revoked if the grantor and all beneficiaries agree. Since Ms. P~ provided the funds for the trust and is the sole beneficiary, she could revoke the trust unilaterally, despite purporting to make the trust irrevocable, and the exception in Wis. Stat. Ann. § 445.125 would not apply.
Life Insurance Policy
A life insurance policy can be a resource if an individual can surrender it for cash or recover the premiums paid. 20 C.F.R. § 416.1230. A life insurance funded burial contract involves an individual purchasing a life insurance policy in her name and then assigning, revocably or irrevocably, either the proceeds or ownership of the policy to a third party, generally a funeral provider. The purpose of the assignment is to fund a prearranged burial contract. POMS § SI 01130.425(A)(1). Assuming the policy allowed Ms. P~ to assign ownership, ownership of Ms. P~'s life insurance policy was assigned to Hansen Funeral Home in April 2001 to provide previously arranged funeral goods and services.
Wisconsin law expressly provides that “[a] life insurance policy may provide for the assignment of the proceeds of the policy to a funeral director or operator of a funeral establishment. . . .” Wis. Stat. Ann. § 632.415(2). This law does not appear to limit the ability to irrevocably assign the proceeds of a life insurance policy to fund a preneed funeral agreement. However, the policyholder must be able to designate a different beneficiary after written notice to the insurer, and the policyholder must be able to designate a different funeral director or operator of a funeral establishment to receive the assignment of proceeds, after written notice to the current designated funeral director or operator of a funeral establishment. Wis. Stat. Ann. § 632.415(3).
Further, under Wisconsin law, a policyholder has the unrestricted right to return a life insurance policy used to fund a pre-arranged funeral agreement within 30 days after the policyholder receives the policy. Wis. Admin. Code § Ins. 23.30(1)(d) (2002). This provision must be conspicuously printed on the front of the policy or attached thereto. Id. at 23.30(1)(e). If the policyholder returns the policy, the insurance contract is void and all premiums paid must be refunded directly to the policyholder. Id. at 23.30(1)(d).
Therefore, as we have previously advised, you can generally assume that, in Wisconsin, a life insurance policy used to fund a preneed burial contract is a resource for the first thirty days after it is issued, since the policyholder should have the right to cancel the policy during that time and recover any premiums paid. After thirty days, the policy will not be a resource if:
* the individual has irrevocably assigned the policy or policy proceeds to a funeral firm, with the right to name a different funeral firm to receive the proceeds;
* the individual had the right to change the beneficiary of the insurance policy;
* the individual has either irrevocably assigned or waived the right to obtain the cash surrender value of the policy; and
* the individual has submitted to the insurance company the irrevocable assignment of proceeds and the assignment or waiver of the right to obtain the cash surrender value.
See Memorandum from Regional Chief Counsel, Chicago, to Assistant Regional Commissioner-MOS, Chicago, Review of Wisconsin Life Insurance Funded Burial Contract (LIFBC) for Donna Walker, Dec. 13, 1999).
In this case, if you can verify that Ms. P~ had the right to change the beneficiary of the insurance policy and that she has the right to name a different funeral firm to receive the proceeds, then the agreement would appear to satisfy these requirements. 20 C.F.R. § 416.1230. Ms. P~ assigned her right to receive death benefits from her life insurance policy to Hansen Funeral Home and crossed out language in the assignment which would have allowed her to revoke the agreement during her lifetime. Furthermore, the insurance company has recorded the assignment and has indicated that it would require both Ms. P~'s signature and the signature of a representative from the funeral home in order for Ms. P~ to obtain the cash surrender value. Thus, she cannot obtain the cash surrender value of the policy unilaterally.
If you cannot confirm that Ms. P~ had the right to change the beneficiary of the insurance policy and that she has the right to name a different funeral firm to receive the proceeds, then this case should be referred to our office for further guidance. In that case, we would request that you provide a copy of the burial agreement and/or life insurance policy, including any named beneficiaries.
CONCLUSION
For the foregoing reasons, we conclude that the funeral trust is not a countable resource because it is irrevocable. However, the casket trust was a resource because it was revocable and because the exception in Wis. Stat. Ann. § 445.125 would not apply. The life insurance policy was a resource for the first thirty days after it was issued (since Ms. P~ could cancel the policy and recover the premium paid during that time). After that time, however, the policy would not be a countable resource, if Ms. P~ had the right to change the beneficiary of the insurance policy, and the right to name a different funeral firm to receive the proceeds.
Thomas W. C~ Regional Chief Counsel
By: Kathryn A. B~ Assistant Regional Counsel
~~BB. PS 03-006 SSI - Wisconsin - Supplemental Trust for Elizabeth M. H~, SSN ~, Your Reference: S2D5G6~~
CC. PS 03-006 SSI - Wisconsin - Supplemental Trust for Elizabeth M. H~, SSN ~, Your Reference: S2D5G6
DATE: October 3, 2002
1. SYLLABUS
This opinion concerns a trust established by a grandmother with her own funds for her mentally disabled granddaughter. This trust, established with the assets of a third party, is not a resource for SSI purposes because the granddaughter cannot direct the use of the assets, cannot terminate or revoke the trust and use the assets for her support and maintenance, and cannot sell her beneficial interest in the trust.
2. OPINION
FACTS
It appears that Mary L. N~, Elizabeth H~'s grandmother, wishes to establish the “Elizabeth M. H~ Supplemental Trust.” Elizabeth H~ is mentally handicapped. The trust names Mary N~ as both the donor of the trust assets and the trustee of the trust. The trust is to be funded with the property listed in Schedule A, but the materials you submitted do not list any property in Schedule A. The trust provides that during Mary N~'s lifetime, it is to be held for her benefit, and that she can amend or revoke the trust, in whole or in part, at any time.
Upon the death of Mary N~, if Elizabeth H~ survives her, the trustees may in their discretion, expend trust income or principal to provide for Elizabeth's comforts, amenities, services, and experiences over and above the benefits she otherwise receives as a result of her mental handicap from any governmental or private source. The trust property is not to be used to provide for Elizabeth's primary care or support. The trust also states that during Elizabeth's lifetime, the trustees may from time to time, at their discretion, pay or distribute such part of the income or principal of the trust, as may be appropriate, to any one or more then living of Mary's issue.
The trust contains a spendthrift provision that prohibits Elizabeth from transferring, voluntarily or involuntarily, any trust income or principal. The trust income or principal cannot be subject to the claims of creditors, or the claims of Elizabeth's spouse or former spouse. In the event that the trustee has notice or believes that Elizabeth's interest in any part of the trust income or principal has been or may be diverted for these purposes, the trustee shall not pay out such trust income or principal to Elizabeth.
Upon Elizabeth's death, or upon Mary's death if Elizabeth predeceases Mary, the amount remaining in the trust will be paid and distributed as follows: (1) the trust property will be divided equally among Elizabeth's children, with the share of any deceased child divided equally to such child's issue, and (2) if Elizabeth leaves no issue, the trust property will be divided equally among her surviving brothers and sisters, with the share of any deceased brother and sister divided equally among that brother's and sister's issue; or, if Elizabeth has no surviving brothers or sisters, or there are no surviving issue of any then deceased brothers and sisters, the trust property will be divided equally among the surviving issue of Elizabeth's nearest ascendant, who is Mary's descendant; or, if there are no such surviving issue, then the trust property will be divided equally to Mary's surviving issue. If after Mary's death there are no beneficiaries eligible to receive the trust property, the trust property will be distributed to persons then living who would inherited Mary's estate if she had then died intestate.
DISCUSSION
To qualify for SSI benefits, a claimant must show that her resources are below a statutory maximum. 42 U.S.C. 1382(a); 20 C.F.R. 416.202, 416.1205. Resources are defined as cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for her support and maintenance. 20 C.F.R. 416.1201(a). If the individual has the right, authority or power to liquidate the property or her share of the property, it is considered a resource. 20 C.F.R. 416.1201(a)(1). A trust created by a third party with the third party's funds is a resource if the individual can direct the use of the assets, if the individual can terminate the trust and use the trust assets for her support and maintenance, or if the individual can sell her beneficial interest in the trust. POMS SI 01120.200D.1. Whether the individual can terminate the trust, direct the use of the trust assets, or sell her beneficial interest depends on the terms of the trust agreement and applicable state law. POMS SI 01120.200D.2. Here, the trust is not a resource to Elizabeth under any of these methods.
The trust gives Mary, as the grantor of the trust who is donating he assets of the trust, the power to revoke or terminate the trust. Elizabeth, however, is not given the power to terminate the trust and obtain the assets. Elizabeth may be entitled to receive the trust assets upon Mary's death, if she survives Mary. However, Elizabeth could not direct the trustee to pay over cash or to make payments for her support and maintenance. Article II of the trust makes clear that this is a “discretionary” trust, or one in which the trustee has full discretion to make distributions from the trust income and principal, and that the beneficiary has no control over the trust. POMS SI 01120.200B.10. The trust specifies that the trustee may from time to time, in the trustees' absolute discretion, pay or distribute to or for Elizabeth's benefit, part or all of the net trust income or principal that may be appropriate to supplement, but not replace, the public or private assistance which Elizabeth qualifies for and receives. The Supplemental Trust also provides that the trustee is not authorized to make payments from the trust for Elizabeth's primary care or support. This is a related rule that applies to grantor trust, where the grantor is also the beneficiary.
The trust also contains a spendthrift provision that prohibits Elizabeth from transferring, voluntarily or involuntarily, any trust income or principal. Spendthrift provisions generally are valid where the interest protested is that of a beneficiary other than the grantor herself. Such provisions generally provide that a beneficial interest shall not be transferable by the beneficiary or subject to claims of the beneficiary's creditor's. Restatement (Second) of Trusts 152, 153, 156, 157; Restatement (Third) of Trusts 58(1) (Tentative Draft No. 2 Mar. 10, 1999). Elizabeth would not retain the right to voluntarily transfer her interest in the trust income and principal.
CONCLUSION
We conclude that the supplemental trust is not a resource to Elizabeth for purposes of determining her eligibility for SSI
~~Thomas W. C~,Regional Chief Counsel~~
Thomas W. C~, Regional Chief Counsel
~~By: Henry S. K~Assistant Regional Counsel~~
By: Henry S. K~ Assistant Regional Counsel
~~CC. PS 02-067 Jean M. B~ Trust, Wisconsin SSN ~~~
DD. PS 02-067 Jean M. B~ Trust, Wisconsin SSN ~
DATE: April 9, 2002
1. SYLLABUS
This opinion concerns 2 grantor trusts established in Wisconsin and funded by life insurance policies. Both were established prior to 1/1/2000. The trusts are not countable as resources for SSI purposes because the beneficiary does not have the legal authority to revoke the trusts or direct the use of the trusts' assets for her own support. Because of a change in the Social Security Act, this precedent is only applicable to a trust established before 1/1/2000.
2. OPINION
Jean M. B~ (Ms. B~) has established two trusts with directions to pay her funeral expenses with the proceeds of two life insurance policies used to establish the trusts. You have asked whether these trusts should be considered countable resources to Ms. B~ for purposes of SSI eligibility. For the reasons discussed below, we believe that neither of the trusts should be considered a countable resource.
Background
Ms. B~ created both trusts at issue, using life insurance policies written by the Medico Life Insurance Company. The trusts explain that, at Ms. B~'s death, the proceeds are to be distributed to the trust to be used for Ms. B~'s burial expenses. To the extent that the funds are greater than burial costs, secondary beneficiaries have been named for each trust.
The first trust was created July 3, 1997, based on life insurance policy number ~, with Good Shepherd Lutheran Church as the secondary beneficiary. The second trust, based on life insurance policy number ~, was created March 11, 1998, with Ms. B~'s great nieces and nephews as secondary beneficiaries. The face value is $1,036 for each policy ($2,072 total) and the cash surrender value at January 1, 2001 was approximately $465 for each policy ($930 total). Discussion
For purposes of determining SSI eligibility, a resource is any cash or other liquid assets or any real or personal property that an individual owns and can convert to cash to be used for her support and maintenance. See 20 C.F.R. 416.1201(a). If the individual has the right, authority or power to liquidate the property, it is a resource. Id. Accordingly, trust assets are resources if the individual can revoke the trust and use the funds to meet her needs for food, clothing and shelter. See Program Operations Manual System (POMS) SI 01120.200 (D)(1). However, if an individual does not have the legal authority to revoke the trust or direct the use of the trust funds for her own support and maintenance, then the trust principal is not a resource for SSI purposes. See POMS SI 01120.200(D)(2).
In this case, Ms. B~ does not have the right to terminate the trust. In Wisconsin, a trust can be revoked with the consent of the grantor and all beneficiaries. Wis. Stat. Ann. 701.12(1). Under Wisconsin law, the person who directly or indirectly creates a trust, or adds property to an existing trust, is the grantor. Wis. Stat. Ann. 701.01(5). This is consistent with the general trust theory that the grantor of a trust is the person who provides the consideration for the trust. 76 Am. Jur. 2d 55 (1992); POMS SI 01120.200(B)(2). In this case, Ms. B~ is the grantor of the trust because she provided the life insurance policies that formed the basis of the trusts. Ms. B~ is a beneficiary because the trust proceeds will be used to pay her funeral expenses. However, she is not the sole beneficiary because each Trust Agreement lists secondary beneficiaries. In order to revoke either trust, all of the secondary beneficiaries would have to agree to revoke and Ms. B~ cannot, by herself, revoke the trust.
Trust assets are also a resource if the individual could "direct the use" of the trust. In this case, the direction was given at the establishment of the trust (to pay for Ms. B~'s funeral and give the remainder to the secondary beneficiaries) and Ms. B~ does not have the authority to require that any funds be paid to her prior to the funeral. Also, even though it is possible, in theory, that Ms. B~ could sell her interest in the trust, given the terms of the trust (to pay for Ms. B~'s funeral) it is unlikely to be marketable. Therefore, the trust assets are not a resource to Ms. B~ under this theory either.
We also considered whether the trusts were invalid because they violate the Rule Against Perpetuities, since it is possible that Ms. B~ may never have a funeral. However, Wisconsin has abolished the Rule Against Perpetuities. Wis. Stat. Ann. 700.16(5). Under Wisconsin law, a future interest or trust will be void only if it suspends the power of alienation of property for longer than a life or lives in being plus a period of thirty years. Wis. Stat. Ann. 701.19(1) ("In the absence of contrary or limiting provisions . . . a trustee has complete power to sell, mortgage or lease trust property without notice, hearing or order."). We were able to conclude that, in Wisconsin, this rule did not make the trusts invalid.
Conclusion
You have indicated that Ms. B~ would not have excess funds even if the life insurance policies were considered countable resources and that, in any event, the policies could be excluded under the burial fund exclusion. However, for future reference, you asked whether, in this situation, the policies would be considered a countable resource. We conclude that neither Trust Agreement, each of which was created prior to January 1, 2000, is a countable resource because the life insurance policies were assigned irrevocably to a trust and Ms. B~ cannot obtain the cash surrender value of the policies to be used for her own support and maintenance.
~~DD. PS 01-190 SSI - Wisconsin - Review of Pekin Life Insurance Assignment To Funeral Home, Prepared by Pekin Life Insurance Co.~~
EE. PS 01-190 SSI - Wisconsin - Review of Pekin Life Insurance Assignment To Funeral Home, Prepared by Pekin Life Insurance Co.
DATE: July 2, 2001
1. SYLLABUS
This opinion concerns an assignment form submitted by the Pekin Life Insurance Company applicable to life insurance funded burial contracts in Wisconsin. The company asked SSA to evaluate whether a transaction using this form would be countable as a resource for SSI purposes. Under this assignment form, the policyholder irrevocably assigns the policy to the funeral director who then must re-assign the policy to a trust. In this case the life insurance funded funeral arrangement would be a resource for SSI purposes for the first thirty days. This is because under Wisconsin law, the policy holder has the right to return a policy used to fund a funeral arrangement within thirty days of receiving it. After thirty days, the policy would no longer be a resource for SSI purposes because it is then irrevocable.
2. OPINION
INTRODUCTION
Michele G. V~, of the Pekin Life Insurance Company, has submitted an assignment form applicable to life insurance funded burial contracts and asked us for our opinion as to whether a policy assigned in this manner would be a resource for SSI purposes. We are enclosing a copy of Ms. V~' letter and the assignment form so that you may contact Ms. V~ and advise her of our opinion. For reasons stated below, we conclude that, for the first thirty days after such a policy is issued, the policy would be a resource because the policyholder could cancel the policy and recover the premium. After that thirty-day period, however, the policy would not be a resource because the policyholder irrevocably assigns the ownership of the policy and waives the right to obtain the cash surrender value.
FACTS
Pekin Life Insurance Company submitted an assignment form applicable to life insurance funded burial contracts (see attached form), and requested the legal opinion of the Social Security Administration's Office of the General Counsel as to whether the contract complies with Wisconsin law and whether such a contract would constitute a resource for SSI purposes. The assignment form assigns the policyholder's ownership of the life insurance or annuity policy to a funeral home in return for the funeral home's promise to immediately transfer ownership of the policy to a trust (the Pekin Life Insurance Trust). The funeral home irrevocably assigns the ownership rights and the rights to policy proceeds to the trust. The policyholder waives the right to surrender the policy for cash, to obtain a loan or advance on the policy, and to pledge or assign the policy as collateral. The funeral home also acknowledges that any right to receive any of the proceeds of the policy is contingent on delivering funeral services and merchandise. The policyholder, however, retains the right to choose a different funeral home to provide funeral services and merchandise and receive the policy proceeds.
DISCUSSION
Assets are a resource for SSI purposes if the individual owns them and can convert them 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, it is a resource. See id. A life insurance policy can be a resource if the individual can surrender it for cash or recover the premiums paid. See 20 C.F.R. 416.1230.
Wisconsin law expressly provides that "[a] life insurance policy may provide for the assignment of the proceeds of the policy to a funeral director or operator of a funeral establishment. . . ." W.S.A. 632.415(2). This law does not appear to limit the ability to irrevocably assign the proceeds of a life insurance policy to fund a preneed funeral agreement. However, the policyholder must be able to designate a different beneficiary after written notice to the current beneficiary, and the policyholder must be able to designate a different funeral director or operator of a funeral establishment to receive the assignment of proceeds, after written notice to the current designated funeral director or operator of a funeral establishment. W.S.A. 632.415(3). We believe that a life insurance policy would not be a resource if an individual irrevocably assigns the ownership or proceeds of the policy in this manner and if the individual irrevocably assigns or waives the right to obtain the cash surrender value.
Further, under Wisconsin law, a policyholder has the unrestricted right to return a life insurance policy used to fund a pre-arranged funeral agreement within 30 days after the policyholder receives the policy. If the policyholder returns the policy, the insurance contract is void and all premiums paid must be refunded directly to the policyholder. Wis. Admin. Code Ins. 23.30(1)(d).
As we have previously advised you, you can generally assume that, in Wisconsin, a life insurance policy used to fund a preneed burial contract is a resource for the first thirty days after it is issued, since the policyholder should have the right to cancel the policy during that time and recover any premiums paid. After thirty days, the policy will not be a resource if:
(1) the individual has irrevocably assigned the policy or policy proceeds to a funeral firm, with the right to name a different funeral firm to receive the proceeds;
(2) the individual has the right to change the beneficiary of the insurance policy;
(3) the individual has either irrevocably assigned or waived the right to obtain the cash surrender value of the policy; and
(4) the individual has submitted to the insurance company the irrevocable assignment of proceeds and the assignment or waiver of the right to obtain the cash surrender value.
See Memorandum from Regional Chief Counsel, Chicago, to Assistant Regional Commissioner-MOS, Chicago, Review of Wisconsin Life Insurance Funded Burial Contract (LIFBC) for Donna W~, Dec. 13, 1999).
Applying these rules, the contract submitted by Pekin Life Insurance Company would constitute a resource to the policyholder for the first thirty days after such a policy is issued. After the initial thirty days, however, the policy would not constitute a resource. Although the assignment to the funeral home requires that the funeral home re-assign the policy to a trust, we believe that the trust provisions are secondary to the assignment of the policy to the funeral home. The funeral home must reassign the policy to a trust to safeguard the policy so that it will be available to carry out the main agreement for the funeral services. However, the main intent of the parties is to irrevocably assign the policy to the funeral home, as permitted by state law. Therefore, state law provisions regarding irrevocable assignment to the funeral home control. See Donna W~ Memorandum, supra, at 4.
We conclude that the life insurance funded burial contracts submitted by Pekin Life Insurance Company would constitute a resource to the policyholder for the first thirty days after such a policy is issued, but not thereafter. The value of the resource during the first thirty days would be the amount of premiums paid. After thirty days, the policy would no longer be a resource because the policyholder irrevocably assigns the policy and waives the right to obtain the cash surrender value of the policy. Consistent with Wisconsin law, the policyholder retains the right to change the beneficiary of the policy and to designate another funeral home or provider to receive the proceeds of the policy. Thus, the assignment seems to conform with state law requirements.
~~EE. PS 01-100 SSI-Wisconsin-Review of a Trust for Jesse S. B~, ~; Your ref: S2D5G3~~
FF. PS 01-100 SSI-Wisconsin-Review of a Trust for Jesse S. B~, ~; Your ref: S2D5G3
DATE: March 7, 2001
1. SYLLABUS
This opinion concerns a grantor trust in Wisconsin. In this case the grantor is not the sole beneficiary because the trust created 2 beneficiaries. Because there is an additional beneficiary, the grantor cannot revoke the trust. And because the trustee has full discretion to distribute the assets, the grantor cannot direct the use of the assets. Therefore, the trust is not a resource of the grantor for SSI purposes. However, each month the trust disburses a cash payment to the grantor's guardian for the grantor. Although the guardian does not use the disbursements for the grantor's food and shelter, the disbursement is considered cash income to the grantor for SSI purposes.
NOTE: Because of a change in the Social Security Act, this precedent may be applicable only to trusts established before 1/1/00.
2. OPINION
You asked us to review a trust agreement created by the Circuit Court of Sheboygan County, Wisconsin, for the benefit of Jesse S. B~ to determine whether the funds placed in the trust constitute a countable resource to Mr. B~ for Supplemental Security Income (SSI) purposes. You also asked us to determine whether distributions made from the trust would be income to Mr. B~ or his mother, Ellen P~. For the reasons set forth below, we believe that the trust is irrevocable and the trust principal is not a countable resource to Mr. B~. Some distributions to Mr. B~ may, however, constitute unearned income. The distributions made to Ellen P~ constitute unearned income to Ms. P~ or Mr. B~ depending on whether the distributions were made to her for her own benefit, or as guardian for Mr. B~.
FACTS
On March 8, 1991, in settlement of a medical malpractice claim brought on behalf of Jesse S. B~, a trust was created for the benefit of Mr. B~ and his mother. Trust, Art. I.
Pursuant to the trust agreement, the trustee retains full discretion to distribute trust assets or income to Mr. B~ and his descendants for their "health, support in the accustomed manner of living, maintenance and education." Trust, Art. V, B. In addition, the trustee has absolute discretion to distribute any part of the trust assets and income, up to sixty thousand dollars ($60,000), to Mr. B~'s mother. Trust, Art. V, C. However, if any beneficiary becomes eligible for supplemental security income or other public assistance, the trustee may in his discretion limit distributions to supplement public assistance and other resources. Trust, Art. V, B, C. The trustee further retains the discretion to terminate any distributions of income or principle to any beneficiary if such distribution is likely to result in reduced government benefits or support. Trust, Art. V, B, C.
The trust agreement further provides that no beneficiary has the right to anticipate any income or principal of the trust, to sell, transfer, mortgage, or pledge the trust assets or income. Trust, Art. VI, D. This is commonly known as a spendthrift provision.
ANALYSIS
Under the regulations, "resources" are "[c]ash or other liquid assets or any other real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance." 20 C.F.R. 416.1201(a). If an individual has the right, authority or power to liquidate the property it is considered a resource. 20 C.F.R. 416.1201(a)(1).
Generally, a beneficiary does not have the right or power to liquidate the assets of an irrevocable trust. Thus, the assets contained in an irrevocable trust are not considered a countable resource for SSI purposes. POMS SI 01120.200(D)(2). However, if the grantor is the sole beneficiary of a trust, the trust is revocable regardless of language to the contrary and thus would be considered a countable resource to the beneficiary. POMS SI 01120.200(D)(3).
The instant trust purports to be irrevocable. However, Mr. B~ is the grantor of the trust, since the trust was established with the proceeds of the settlement of a lawsuit brought on his behalf. See POMS SI 01120.200(B)(2). Thus, we must determine whether Mr. B~ retains the power to revoke the trust under applicable state law. POMS SI 01120.200(D)(1)(b).
Under Wisconsin law, a trust may be revoked, terminated or modified by written consent of the grantor and all the beneficiaries. See Wisc. Stat. Ann 701.12. Although the trust sometimes refers to Jesse S. B~ as "the Beneficiary" the trust was created "for the benefit of" Mr. B~ and his mother. Trust, Art. I. See In re Estate of S~, 275 Wis. 290, 298 81 N.W.2d 729, 734 (1957) (a person for whose benefit a trust is created is a trust beneficiary). In addition, the trustee is permitted to distribute trust principal and income to or for the benefit of Mr. B~'s descendants, including all children and grandchildren. Trust, Art. V, B. We do not assume that Mr. B~ will be able to obtain the consent of his existing offspring, if any, or unascertainable beneficiaries to revoke or terminate the trust. See Supplemental Security Income - Wisconsin Trust - Michael G~ (~), OGC-V (K~) to M~, ARC-MOS (February 23, 2000) at 3. Thus, there is at least one additional beneficiary to the trust and Mr. B~ does not retain the power to revoke the trust on his own.
Even when a trust is not revocable, trust assets may be considered a countable resource if the beneficiary has the right or power to direct that the funds be used for his support and maintenance, or to sell his interest in the trust and use the proceeds for his support and maintenance. 20 C.F.R. 416.1201(a)(1); POMS SI 01120.200(D)(1)(b). Here, the trustee has the full discretion to distribute or withhold trust assets and income. Trust, Art. V, B, C. Therefore, Mr. B~ cannot direct the use of the trust assets for his support and maintenance. Nor can he sell his interest in the trust. The spendthrift provision of the trust would not prevent Mr. B~ from selling his beneficial interest in the trust, since he is also the grantor of the trust. POMS SI 01120.200(B)(16); Restatement (Second) of Trusts 156(a). However, we generally conclude that a beneficial interest in a discretionary trust is essentially unsellable. See W~; Restatement (Third) Trusts 60 comment f (tentative draft no. 21 March 10, 1999). Thus, the trust property is not a countable resource for SSI purposes. 20 C.F.R. 416.1201(a)(1).
Although the trust principal is not considered a countable resource, certain distributions may be considered income. For example, any disbursements of cash made directly to Mr. B~ are considered unearned income for SSI purposes. POMS SI 01120.200(E)(1)(a). In addition, any disbursements made to a third party, including Mr. B~'s mother, resulting in Mr. B~'s receipt of food, clothing or shelter are considered income in the form of in-kind support and maintenance. POMS SI 01120.200(E)(1)(b).
An August 25, 1998, report of contact included in the file indicates that each month a check is issued to Ms. P~ for Jesse B~. Thus, Ms. P~ apparently received trust distributions as Mr. B~'s legal guardian acting on his behalf. Your notes also indicate that Ms. P~ understands that trust distributions may not be used for food, shelter, or clothing and therefore are not used for such purposes. Nevertheless, Ms. P~ is receiving cash distributions. Therefore, if she is receiving them in her capacity as Mr. B~'s guardian, as the report of contact reflects, the funds are considered Mr. B~'s "unearned income" for SSI purposes. 01120.200(E)(1)(a). If, on the other hand, Ms. P~ is receiving distributions in her capacity as a beneficiary, the funds should be counted as Ms. P~'s "unearned income." See 42 U.S.C. 1382c(f)(2); Social Security Ruling 81-21; POMS SI 01330.200(A).
CONCLUSION
The trust principal is not a countable resource for Mr. B~. Cash distributions from the trust directly to Mr. B~ may be considered unearned income. Distributions to Ms. P~ are considered unearned income to Ms. P~ or Mr. B~, depending on whether the distributions were made to her as a beneficiary of the trust or were made to her as Mr. B~'s guardian to be used for his benefit.
~~FF. PS 00-436 Wisconsin Trust for Travis J. W~; SSN: ~ Your Reference No.: S2D5G3~~
GG. PS 00-436 Wisconsin Trust for Travis J. W~; SSN: ~ Your Reference No.: S2D5G3
DATE: November 24, 1997
1. SYLLABUS
A Revocable Supplemental Trust was established in 1997 that named an SSI beneficiary as a "contingent beneficiary" of the trust. His mother established the trust to receive assets either from her estate or from deposits she might make during her lifetime. Wisconsin state law permits establishment of a trust without initial principal if the trust will obtain property through a will, however, the trust is not created until the property is acquired and the intention is confirmed. Since the grantor (the SSI beneficiary's mother) is not identified as a beneficiary under a will, there is some question as to the validity of the trust naming the SSI recipient as a "contingent beneficiary". Regardless, the SSI beneficiary is precluded by trust terms from revoking the trust or obtaining a vested interest in trust income or principal. Any funds that were transferred into the trust in the future are not to be used for the SSI beneficiary's basic needs such as food, clothing, and shelter. Therefore, the trust should not be considered a resource for SSI purposes.
2. OPINION
You have asked for our assistance in determining whether the trust agreement in question is a countable resource to Mr. W~, an SSI applicant. For the following reasons, it is our opinion that the trust is not a countable resource because there is no property in the trust.
FACTS
On June 22, 1997, Mr. W~'s mother, Lucille A. W~, executed a trust agreement entitled "Travis J. W~ Revocable Supplemental Trust," in which she described herself as grantor and initial trustee. No initial trust principal was deposited. Lucille W~ expected the trust to receive assets either from her estate, or from deposits she might make during her lifetime. Mr. W~ was named as a "contingent beneficiary" of the trust, with no vested interest in trust income or principal, and no right to revoke the trust agreement. Upon Mr. W~'s death, the trust is to terminate with the assets to transfer to Mr. W~'s sister, Cassandra W~, and her estate.
DISCUSSION
Under the applicable regulation, "resources" are:
cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance. (1) If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource....
20 C.F.R. § 416.1201(a). Therefore, if an individual is able to obtain funds or convert property to cash to be used toward his support and maintenance, such funds or property are to be included as resources for purposes of determining SSI eligibility. Trust assets are a resource if the individual has access to the trust assets and can direct the use of the assets to meet his needs for food, clothing, and shelter, or if she can revoke the trust and obtain unrestricted access to the trust assets. See Programs Operation Manual System (POMS) SI 01120.105.(A).(1), 01120.200.(D).(1)-(3). We have reviewed the documents you have provided and, for the following reasons, we conclude that the trust agreement in question does not establish a countable resource under 20 C.F.R. § 416.1201.
As an initial matter, we do not believe the documents you provided us establish the existence of a valid trust. A basic requirement for the creation of a valid trust is the existence, at the time of the creation of the trust, of trust property or subject matter - that is, the existence of a trust "res" consisting of property actually in existence, and in which the trustor has a transferable title or interest. "A trust without a res is impossible." American Jurisprudence 2d, Trusts § 47.
No initial principal was deposited, and the documents do not indicate whether any additional property has been added to the trust since it's establishment. Accordingly, it is unclear whether there are any trust "assets" at present.
Article I of the trust document expresses the trustee's "expectation that this Trust will receive assets from the Trustee's estate through her will, and that no initial Trust principal has been deposited pursuant to Wis. Stats. 701.07(1)(b)." Wisconsin Statutes Annotated § 701.07(1) states, "A living trust, otherwise valid, shall not be held invalid as ... a trust lacking in sufficient principal because ... (b) The principal consists of a designation of the trustee as a primary or direct, secondary or contingent beneficiary under a will...." W.S.A. § 701.07 addresses the situation in which a person who hopes or expects to acquire property in the future, although he or she has no present interest therein, may manifest an intention or make a promise to create a trust in such property. Thus, this provision allows a trust to be established by a person who will obtain property through a will. The trust is not created, however, until the property is acquired and this intention is confirmed. Lucille W~, the trustee, did not identify herself as a beneficiary under a will. Her intention to fund the trust through her will, does not create sufficient trust principal to create a trust.
Even if this is a valid trust, by it's express terms, Mr. W~ cannot revoke the trust and is precluded from ever obtaining a vested interest in trust income or principal. Trust funds are not to be used to provide for Mr. W~'s essential primary support and services such as food, clothing, and shelter. Therefore, if there were trust property, it would not constitute a resource.
CONCLUSION
Accordingly, we conclude that the trust assets at issue, if any, should not be considered a resource to Mr. W~ for SSI purposes.
~~Thomas W. C~Chief Counsel, Region VBy: Edward P. S~ Assistant Regional Counsel~~
Thomas W. C~ Chief Counsel, Region V By: Edward P. S~ Assistant Regional Counsel
~~GG. PS 00-337 Supplemental Security Income - Wisconsin Trust - Christopher J. M~, Jr., SSN ~; Your Reference: S2D5G3~~
HH. PS 00-337 Supplemental Security Income - Wisconsin Trust - Christopher J. M~, Jr., SSN ~; Your Reference: S2D5G3
DATE: June 9, 1999
1. SYLLABUS
This opinion involves an Irrevocable Supplemental Trust established on February 19, 1999. The trust assets are not considered a countable resource for SSI purposes since the settlor (the SSI recipient) is not the sole beneficiary of the trust and he cannot direct use of the trust assets for his support and maintenance.
CAUTION: Because of a change in the Social Security Act, this precedent may only be applicable to trusts established before 1/1/00.
2. OPINION
You inquired whether the assets held under the terms of the Christopher J. M~, Jr. Irrevocable Supplemental Trust, established February 19, 1999, should be treated as a countable resource for SSI purposes for the beneficiary of the trust, Christopher J. M~ Jr. After reviewing the documents you provided, we conclude that the trust assets should not be considered a countable resource under 20 C.F.R. 416.1201(a)(1).
FACTS
SSI recipient, Christopher J. M~, Jr. (Chris), was a beneficiary of his uncle's estate, which was closed in December 1998. On February 19, 1999, Chris' inheritance became available to him when his grandfather was appointed guardian to receive the inheritance on Chris' behalf. The inheritance consisted of an IRA account, a bank account balance, and a mortgage note, valued at a total of $53,028.09. Waeffler letter of March 3, 1999. Also on February 19, 1999, Chris' guardian established the Christopher J. M~, Jr. Irrevocable Supplemental Trust (Trust), naming himself and the U.S. Bank National Association as Trustees and Chris as the beneficiary. Trust Declaration at 1. On February 26, 1999, the guardian transferred the assets Chris had inherited from the guardianship estate into the Trust. Waeffler letter of March 3, 1999. Although the Trust Declaration allows the Trustees to accept additions to the Trust from other sources, there is no indication in the materials you provided to us that the Trust contains any assets other than those from Chris' inheritance. Trust Declaration at 1.
The primary purpose of the Trust is to provide for Chris' secondary and post-secondary education. Trust Declaration at 1. A secondary purpose is to supplement the support, services, and medical care provided to Chris by federal, state or local government programs. Trust Declaration at 2, 5. The terms of the Trust are to be construed under Wisconsin law in effect when the Trust was created and in a manner that will not disqualify Chris from receiving SSI or other public benefits. Trust Declaration at 2.
The Trustees have absolute discretion to make disbursements for Chris' benefit consistent with the purposes of the Trust, including disbursements for the following expenses: education, medical services not otherwise available through governmental programs, housekeeping services, child care, companions, legal representation, vacations, transportation, entertainment, furniture, household goods, personal items, living quarters, funeral expenses, and tax obligations. Trust Declaration at 3-4.
The Trustees also have discretion to "terminate all distributions of income and principal" if they think that continued distributions will result in a reduction in governmental assistance to Chris. Trust Declaration at 5. In addition, there is a provision that Chris cannot assign his interest in income or principal to anyone else. Trust Declaration at 7.
The Trust terminates under either of two conditions. First, the Trust terminates and the principle and income must be distributed to Chris if (a) Chris has attained the age of 21, (b) SSA has determined that he is no longer disabled, and (c) the Trustees determine that he is not eligible or likely to become eligible for any public benefits. Trust Declaration at 6. This provision complies with Wisconsin law allowing a guardian of a minor to place a ward's assets into a trust under certain conditions and with court approval. Wis. Stat. Ann. 880.175 (West 1991). Second, if the Trust is still in existence when Chris dies, the residue must be distributed to whomever Chris has appointed by will or by trust (after reimbursement to the state for medical assistance benefits and, in the Trustees' discretion, payment of funeral expenses and death, inheritance, and estate taxes). If Chris dies without exercising a valid power of appointment, the residue of the Trust passes to his "issue by right of representation" or, if no issue, to his "heirs at law" under Wisconsin intestacy laws. Trust Declaration at 6.
Under Section VIII of the Trust Declaration, the Trust is irrevocable, although it can be amended by the Trustees with court approval in a manner consistent with the purposes of the Trust. Trust Declaration at 8. Section X of the Trust Declaration, however, gives the Trustees power to terminate the Trust, in whole or in part, and distribute the assets to Chris if, in the Trustees' absolute discretion, termination would be in Chris' best interests. Trust Declaration at 14.
DISCUSSION
1. The Inheritance Was Income in February 1999.
The pertinent SSI regulation provides that resources include cash or other liquid assets or any real or personal property that a person owns and can convert to cash to be used for the person's support and maintenance. 20 C.F.R. 416.1201(a). If the person has the right or power to liquidate the property, or his share of the property, it is a resource. Id.
An inheritance is not a resource until it has value, i.e., it can be used to meet the distributee's needs for food, clothing, or shelter. See POMS SI 00810.005(A). Under Wisconsin law, a guardian must apply a ward's personal property, or income from personal property or real estate, as far as may be necessary for the ward's education, maintenance, and support. Wis. Stat. Ann. 880.21 (West 1991 Supp. 1998). Therefore, Chris' inheritance was income in February when it became available to him. See Wisconsin Family Community Trust for the Disabled, Maybelle T~ (F~) to M~, ARC-MOS, SSA V (January 13, 1999) at 1.
2. The Trust Is Not a Resource
We turn to the question of whether the principal and any accumulated income in the Trust constitute a resource for SSI purposes. Trust assets are a resource if, under the terms of the trust, the individual can direct use of the trust assets for his support and maintenance. POMS SI 01120.200(D)(1)(a). Trust assets are also a resource if the individual has the power to revoke the trust and then use the funds to meet his food, clothing, or shelter needs. Id. A trust may be revocable because the trust document allows for revocation, or it may be revocable through application of state law. POMS SI 01120.200(D)(2).
The Trust Declaration gives the Trustees absolute discretion over disbursements, subject to the limitation that they can make disbursements only for expenses over and above those covered by government programs and only to the extent that such disbursements will not disqualify Chris from receipt of SSI or other government benefits. In addition, there is a clause that prohibits Chris from assigning any interest he may have to anyone else, including his creditors. Thus, under the terms of the Trust Declaration, Chris does not have the power to direct use of the trust assets for his support and maintenance.
The Trust Declaration is ambiguous as to whether or not the Trust is revocable. See Trust Declaration at 8, 14. We need not resolve that issue, however, since, even if we were to assume that Section X, paragraph R of the Trust Declaration is controlling, that paragraph allows for termination of the Trust only in the absolute discretion of the Trustees. Trust Declaration at 14. The Trust Declaration gives Chris no power to revoke the Trust or to direct the Trustees to revoke the Trust.
Nor does Wisconsin trust law give Chris the power to revoke the Trust. Under Wisconsin law, the person who directly, or indirectly, creates a trust or adds property to an existing trust is the settlor. Wis. Stat. Ann. 701.01(5) (West 1981 Supp. 1998). This is consistent with the general trust law principle that the true settlor of a trust is the person who provides the consideration for the trust, even if another person nominally creates the trust. 76 Am. Jur. 55; POMS SI 01120.200(b)(2); POMS SI 01120.200(J)(2)(a). Here, although Chris' guardian was named as the settlor, Chris is the true settlor of the Trust because the Trust was funded with Chris' inheritance.
Consistent with general trust principles, Wisconsin law provides that a Trust that is not revocable by its terms may nevertheless be revoked upon written consent of the settlor and all beneficiaries. Wis. Stat. Ann. 701.12 (West 1981). See Restatement (Second) of Trusts 330-31. Since Chris is the settlor of the Trust, he has the power to revoke the Trust only if he is also the Trust's sole beneficiary. If however, there are other beneficiaries, including contingent beneficiaries, he cannot revoke the Trust without their consent. Under the terms of the Trust Declaration, Chris is the sole beneficiary during his lifetime. The question is whether there are contingent beneficiaries with a remainder interest at Chris' death who would be required to consent to revocation of the Trust. If so, we do not consider the Trust revocable by Chris for purposes of determining whether the assets are a countable resource.
Chris has a general power to appoint the person or persons who will receive the residue of the Trust upon his death. Trust Declaration at 6. Under general trust law, a general power of appointment does not create a remainder interest in those to be named by will, since the person who has power of appointment could fail to execute a will, fail to exercise the power of appointment in a will, or revoke the will. We found no Wisconsin statutes or caselaw to the contrary. Therefore, if the general power of appointment were the only provision for the Trust residue, the Trust would be Chris' resource because he could compel the Trustees to terminate the Trust and re-convey the assets to him. See Restatement (Second) of Trusts 330, comment e. See also Clarification of Regional SSA Program Circular 94-05 (K~) to L~, Acting ARC, SSA V, at 3 (May 24, 1995).
However, the Trust Declaration also provides that, in the event Chris does not execute a valid appointment pursuant to his general power, the assets in the Trust when Chris dies are to be distributed to Chris' "issue." Trust Declaration at 6. This provision precludes Chris from terminating the trust because it creates a remainder interest in Chris' children as contingent beneficiaries. See Boyle v. Kempkin, 9 N.W.2d 589, 592 (Wis. 1943) (creation of remainder interest in trust to "children" created vested equitable interest); Restatement (Second) of Trusts 127, comment b (if beneficial interest is limited to settlor for life and on his death the remainder goes to his children, issue, or descendants, an interest in the remainder is created in the children, issue, or descendants, and the settlor is not the sole beneficiary). See also M~, et al., Wills Trusts and Estates 353 (West 1988), citing Levy v. Crocker Citizens National Bank, 14 Cal. App. 3d 102 (1971) (consent of children required for revocation, even if children take only in default of testamentary power of appointment retained by settlor). Thus, Chris does not have the power to revoke the Trust.
That we cannot presently ascertain who will be Chris' issue at the time of his death, or even whether such issue will exist, does not change the result. Wisconsin law provides that a court may consent to revocation on behalf of unascertained or unborn beneficiaries after a hearing where a guardian ad litem represented their interests. Wis. Stat. Ann. 701.12(2)(West 1981). See also Restatement (Second) of Trusts 127 and comment b, 339 and comment b; 76 Am. Jur. 95; Review of the Joseph B~ Trust, OGC-V (B~) to M~, ARC, SSA-V, at 5 (January 12, 1999).
Where a beneficiary does not have the power to direct use of the trust for his support and maintenance and does not have the power to revoke the trust on his own, the trust assets may still be a resource for SSI purposes if the beneficiary can sell his interest in the trust and use the proceeds for his support and maintenance. 20 C.F.R. 416.1201(a)(1). In theory, Chris could enter into an agreement to exercise his general power of appointment in favor of a creditor or other person for payment. See Wis. Stat. Ann. 702.01(3) (West Supp. 1998) (general power of appointment may be exercised in favor of donee's creditors if exercisable during lifetime and in favor of creditors of estate if exercisable by will). It is unlikely, however, that Chris' power of appointment would have any real market value. We think it unlikely that anyone would purchase the right to take the contingent remainder of the Trust upon Chris' death, since there is no certainty as to the amount, if any, that would remain in the Trust at the time of Chris' death.
Since Chris cannot direct use of the trust assets for his support and maintenance, revoke the Trust, or sell his interest in the Trust, the Trust assets do not constitute a countable resource for purposes of Chris' entitlement to SSI. We note, however, that any amounts actually distributed to Chris from the Trust would be income to him and any disbursement to a third party in exchange for food, shelter, or clothing for Chris would be in-kind income to Chris. POMS SI 01120.200(E)(1)(a)-(b).
CONCLUSION
Under the terms of the Trust Declaration, all disbursements are at the discretion of the Trustees who are limited to making disbursements for Chris' supplemental needs only. Chris cannot direct use of the Trust assets for his support and maintenance. The Trust Declaration does not give Chris the power to revoke the Trust, nor does he have such power under Wisconsin law. Although he is the true settlor of the Trust, he is not the sole beneficiary because the Trust Declaration creates contingent interests in Chris' "issue." Finally, it is unlikely that anyone would pay for the right to have Chris exercise his general power of appointment in his/her favor, since the value of the remainder at Chris' death is uncertain. Therefore, the Trust assets should not be considered Chris' countable resources for SSI purposes.
~~HH. PS 00-318 Forethought Life Insurance Funded Burial Contract in Wisconsin Viola L. K~, ~ (Your November 18, 1994 Request) (Your ref: S2D5B51, SI 2-1-8)~~
II. PS 00-318 Forethought Life Insurance Funded Burial Contract in Wisconsin Viola L. K~, ~ (Your November 18, 1994 Request) (Your ref: S2D5B51, SI 2-1-8)
DATE: March 21, 1995
1. SYLLABUS
This opinion concerns a life insurance-funded burial contract in Wisconsin. In this case the life insurance policy has been assigned to the funeral home. However, a life insurance-funded burial contract must be assigned to a person or entity other than the funeral home to be considered valid under Wisconsin law. Therefore this policy is not valid and the ownership has not been irrevocably assigned. Therefore, the purchaser is still considered the owner of the policy for SSI purposes.
2. OPINION
On November 18, 1994, you asked us to review a Forethought life insurance funded burial arrangement that was marketed in Wisconsin to Viola L. K~, ~. Specifically, you asked us to determine: (1) if the plan is legal under Wisconsin law; and (2) if so, does it constitute a countable resource for Supplemental Security Income (SSI) purposes. With your November 18, 1994 request you included: (1) the application to Forethought Life Insurance Company for a life insurance policy by the individual with a power-of-attorney to act for the insured; (2) the life insurance policy; and (3) the irrevocable assignment of policy ownership to a funeral home. You did not submit to us a pre-need funeral agreement between the insured and the funeral home.
As we have previously advised you, for a life-insurance-funded burial contract to be valid under Wisconsin law, ownership of the life insurance policy must be assigned to a person or entity other than the funeral home. / In the package you submitted for our review, however, ownership of the life insurance policy has been assigned to a funeral home. We presume that the same funeral home has made pre-need funeral arrangements with the insured. Therefore, based on the information we currently have, we do not think SSA should find that the Forethought package is valid under Wisconsin law.
Should the insured attempt to cure the deficiency by irrevocably assigning the life insurance policy to a person or entity other than the funeral home, please resubmit the entire package to us for our review. In order for us to issue a definitive opinion, we will also need to see the pre-need funeral agreement between the insured and the funeral home at that time.
Should the insured make no effort to cure the deficiency, it would appear that the purported irrevocable assignment of policy ownership to a funeral home was not valid under Wisconsin law. Therefore, in our opinion the policy ownership has not effectively been irrevocably assigned. The balance of the package, however, would appear to be valid. For that reason, you should treat the purchaser as the owner of the life insurance policy for SSI purposes, subject to any exclusions for life insurance or burial funds that otherwise apply.
~~II. PS 00-307 Supplemental Security Income - Wisconsin Trust - Matthew T. K~, SSN ~, Your Reference: S2D5G3~~
JJ. PS 00-307 Supplemental Security Income - Wisconsin Trust - Matthew T. K~, SSN ~, Your Reference: S2D5G3
DATE: September 18, 2000
1. SYLLABUS
This opinion concerns an Irrevocable Family Trust established in December 1992. For reasons explained below, the trust is not countable as a resource.
In Wisconsin, a trust can only be revoked with the consent of the grantor and all beneficiaries. The grantor of the trust is the SSI recipient's mother. In addition to the SSI recipient, there are other beneficiaries named.
Therefore, since the SSI recipient is not the grantor or sole beneficiary of the trust it is not a countable resource to him. However, any payments from the trust fund should be considered in assessing the SSI recipient's eligibility for SSI benefits.
CAUTION: Because of a change in the Social Security Act, this precedent may only be applicable to trusts established before 1/1/00.
2. OPINION
You asked that we review the "Cynthia L. K~ Irrevocable Family Trust" to determine whether it is a countable resource for Matthew T. K~ (Matthew), a Supplemental Security Income (SSI) recipient. For the reasons stated below, we conclude that the funds in the trust should not be considered a countable resource to Matthew. The disbursements to Matthew from that trust fund should, however, be considered income in assessing Matthew's eligibility for SSI benefits.
FACTS
In December 1992, Cynthia L. K~ (Cynthia), Matthew's mother, established the Cynthia L. K~ Irrevocable Family Trust (the trust). The trust was funded with $10.00 and a million dollar whole life insurance policy on Cynthia's life. It appears that Cynthia contributes about $8,000.00 each year into the trust. The trust assets have now been changed over to an annuity. We do not know any of the terms of the terms of the annuity. The trust names Cynthia as the grantor and Thomas E. S~ as the trustee. The trust provides that it may not be amended or revoked.
The trust states that the trustee shall hold, administer, and distribute the trust estate as enumerated in the trust. The trust provides that prior to Cynthia's death, for a period of thirty days following any contribution to the trust, each living child of Cynthia shall have the right to withdraw from the trust an amount not exceeding the lesser of: (a) $10,000 as described in the Internal Revenue Code as a gift for federal gift tax purposes, or (b) his proportionate share of the contribution.
The trust further provides that at least quarterly, the trustee shall pay the net trust income equally, to or for the benefit of Cynthia's children. If Cynthia's children are then not living, the income shall be added to the principal. The trust also states that the term "children" includes all children and descendants, whether born or adopted before or after the trust instrument was executed. We do not know how many children Cynthia has.
DISCUSSION
To qualify for SSI benefits, a claimant must show that his resources are below a statutory maximum. 42 U.S.C. 1382(a); 20 C.F.R. 416.202, 416.1205. Resources are defined as cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his support and maintenance. 20 C.F.R. 416.1201(a). If the individual has the right, authority or power to liquidate the property or his share of the property, it is considered a resource. 20 C.F.R. 416.1201(a)(1). Trust assets are a resource if the individual has access to the trust assets, or can direct the use of the assets, or can terminate the trust and use the trust assets for his support and maintenance. POMS SI 01120.200(D)(1). Whether the individual can terminate the trust or direct the use of the trust assets depends on the terms of the trust agreement and applicable state law. POMS SI 01120.200(D)(2).
In this case, Matthew does not have the right to terminate the trust. In Wisconsin, a trust can be revoked with the consent of the grantor and all beneficiaries. Wis. Stat. Ann. 701.12(1) (West 1981 Supp. 1999); 76 Am. Jur. 2d 94 (1992). This is true even if the trust document specifically states that it may not be revoked. Id.
Under Wisconsin law, the person who directly or indirectly creates a trust or adds property to an existing trust is the grantor. Wis. Stat. Ann 701.01(5) (West 1981 Supp. 1999). This is consistent with general trust principal that the grantor of a trust is the person who provides the consideration for the trust. 76 Am. Jur. 2d 55 (1992); POMS SI 01120.200(B)(2). In this case, Cynthia, Matthew's mother, is the grantor of the trust because she provided funds to establish the trust, and continues to add funds to the trust.
Matthew is a beneficiary, but not the sole beneficiary of the trust. As noted above, under Wisconsin law, a trust can be revoked with the consent of the settlor and all beneficiaries. Wis. Stat. Ann. 701.12(1) (West 1981 Supp. 1999); 76 Am. Jur. 2d 94 (1992). During Cynthia's lifetime, it appears that the beneficiaries of the trust include Matthew and Cynthia's other children, whether born or adopted before or after the trust instrument was executed.
Although the trust principal is not a resource for Matthew, disbursements from the trust under certain circumstances would be income for determining Matthew's SSI eligibility and level of benefits. During Cynthia's lifetime, for thirty days following her annual $8,000.00 contribution to the trust, Matthew has the right to withdraw from the trust an amount not exceeding the lesser of: (a) $10,000 as described in the Internal Revenue Code as a gift for federal gift tax purposes, or (b) his proportionate share of the contribution. In this case, he would have the right to withdraw from the trust his proportionate share of the approximate $8,000.00 annual contribution. At the start of the thirty-day period, this share is income to Matthew. If the thirty days pass into another calendar month, this share is Matthew's resource. If he does not exercise his right to obtain the funds, they cease to be a resource when the thirty-day period ends. The trustee is authorized to disburse this cash from the trust directly to Matthew, and such a disbursement would be income for SSI purposes. See 20 C.F.R. 416.1102; POMS SI 01120.200(E)(1)(a),(b).
In addition, during Cynthia's lifetime, the trustee is directed to disburse to Matthew or for his benefit, at least quarterly, his proportionate share of the net income from the trust. Matthew's right to obtain these payments would also be income for SSI purposes. See 20 C.F.R. 416.1102; POMS SI 01120.200(E)(1)(a),(b). We do not, however, know if the trust has generated any income. This will depend on the terms of the annuity.
CONCLUSION
Thus, we conclude that the funds held in the trust do not constitute a countable resource for purposes of determining Matthew's SSI eligibility because Matthew does not have the right to revoke the trust. Matthew's right to obtain payments from the trust fund, whether Matthew's proportionate share of the approximate $8,000.00 annual contribution by Cynthia, or his quarterly proportionate share of the net income from the trust should be considered as income in assessing his eligibility for SSI benefits.
~~JJ. PS 00-287 States Named as Beneficiary to a Trust; Your Reference No. SI-2-1-3~~
KK. PS 00-287 States Named as Beneficiary to a Trust; Your Reference No. SI-2-1-3
DATE: June 24, 1997
1. SYLLABUS
This opinion states that if a trust is excluded from resources for Medicaid eligibility purposes, it may still be a resource for SSI purposes. Additionally, providing for reimbursement to the State for Medicaid expenditures on behalf of the beneficiary does not make the State a residual beneficiary of the trust. Because of a change in the Social Security Act, this precedent may only be applicable to a trust established by an individual before 01/01/00.
2. OPINION
You asked for state-by-state evaluation of how trusts created under the Omnibus Reconciliation Act (OBRA) of 1993, P.L. 103-66, 13611(b) (codified at 42 U.S.C. 1396p(d)(4)), to shelter money for Medicaid purposes should be treated when determining whether the trust assets are a resource for SSI purposes. We conclude that, for any state, the mere fact that a trust may comply with the OBRA 1993 provisions is irrelevant to determining whether the trust assets are a resource for SSI purposes.
Discussion
In the OBRA 1993, Congress established an exception to the resource guidelines for the Medicaid program. See P.L. 103-66, 13611(b). Under this provision, when determining an individual's eligibility for, or amount of benefits to be paid under Medicaid, trust assets and income from that trust will not be considered as resources and income if the trust meets certain guidelines. To meet these requirements the trusts must, among other things, provide that, on the death of the individual, the State will receive all remaining trust assets up to an amount equal to the total medical assistance paid on behalf of the individual under the State's Medicaid program. See 42 U.S.C. 1396p(d)(4).
Congress limited the applicability of this provision, however, to the Medicaid program and did not make a similar provision for the SSI program. Therefore, even if a trust is consistent with the provisions of the OBRA 1993 and state statutes that implement that provision, the trust assets still may be a countable resource for SSI purposes. See Illinois OBRA '93 Trust for Dominick J. G~, ~, OGC-V (D~) to Gerald K~, Center Director, SSA-V (Apr. 14, 1997); Revocability of Wisconsin Trust for Clayton D. B~, ~, OGC-V (D~) to Gloria J. P~, ARC-POS (Oct. 28, 1994) at 4, n.7; cf. POMS SI 00601.060.H.1 (some trusts that are not resources for SSI purposes may affect Medicaid eligibility).
Furthermore, no residual beneficiary is created merely because the OBRA 1993 trust requires that, on the death of the individual, the state be reimbursed for Medicaid assistance paid on behalf of the individual. See Supplemental Security Income - Wisconsin Trust - Michelle J. L~, ~, OGC-V (Mates) to Gloria J. P~, ARC-MOS (June 9, 1997); Illinois OBRA '93 Trust for Dominick J. G~, ~, supra. The Restatement (Second) of Trusts 3(4) defines a beneficiary as "[t]he person for whose benefit property is held in trust." None of the trust property in an OBRA 1993 trust is held for the "benefit" of the state. Rather, any amounts paid to the state after the individual's death are reimbursements for amounts the state paid for the benefit of the individual.
Conclusion
In summary, although some of our prior opinions may have suggested otherwise, on further consideration, we feel the better approach is to treat OBRA 1993 trusts the same as any other trust, for SSI purposes. Although trust assets may not be considered a resource for Medicaid purposes under the OBRA 1993 provisions, this does not affect how the trust is treated under the SSI program. Furthermore, no residual beneficiary is created merely because the trust requires that any sums remaining in the trust at the death of the individual be paid first to the state to reimburse it for any benefits paid on that person's behalf. Therefore, this provision would not affect the individual's ability to revoke the trust if he or she is the grantor and sole beneficiary of the trust.
~~KK. PS 00-270 State of Wisconsin - Irrevocable Funeral Trust Agreement for Walter E. J~~~
LL. PS 00-270 State of Wisconsin - Irrevocable Funeral Trust Agreement for Walter E. J~
DATE: August 10, 1995
1. SYLLABUS
This opinion concerns a funeral trust in the State of Wisconsin. The individual deposited a total of $4,800 into the trust. Consistent with Wisconsin State law, $2,000 is designated by the trust as irrevocable. Under the trust, the individual retains the authority to revoke or liquidate the remaining $2,800. Therefore, $2,000 in the trust is not countable as a resource. But, $2,800 is countable as a resource for SSI purposes. CAUTION: Because of a change in the Social Security Act, this precedent may only be applicable to trusts established before 1/1/00.
2. OPINION
You have asked for our assistance in determining (1) whether the "Irrevocable Funeral Trust Agreement" in question satisfies the requirements of Wis. Stat. Ann. 445.125 (West 1994) even though certain sections of the agreement have not been completed and (2) how much, if any, of the funds deposited pursuant to the agreement constitute a countable resource to a Supplemental Security Income (SSI) recipient, Walter E. J~. To qualify for SSI benefits, an applicant must show that his income, both earned and unearned, is below the statutory maximum. 42 U.S.C. 1382(a)(1). Income is anything a claimant receives in cash or in kind. 20 C.F.R. 416.1102 (1994).
Under the applicable regulation, "resources" that are countable as income are defined as:
cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his support and maintenance. If the individual has the right, authority or power to liquidate the property, or his share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual (or spouse).
See 20 C.F.R. 416.1201. The Program Operation Manual System (POMS) addresses the circumstances under which specifically trust funds are considered a resource to an SSI recipient:
If an individual does not have the legal authority to revoke the trust or direct the use of the trust assets for his/her own support and maintenance, the trust principal is not the individual's resource for SSI purposes. POMS SI 01120.200D.2 (emphasis in the original). Thus, in this case, to constitute a countable resource as described in the regulations and POMS, Mr. J~ must have the right, authority, or power to liquidate the funds of the funeral trust agreement in question and apply them to meet his support and maintenance needs.
The pertinent facts reveal that on April 26, 1995, Mr. J~ (the Depositor) entered into a funeral trust agreement with Bob P~, the funeral director of the Metcalfe Kuenster Page Funeral Home (the Funeral Home). The funeral trust agreement states in pertinent part that:
The First $2000 of funds deposited under [the] agreement must be used for the funeral of the Depositor. . .
The intent of the Depositor is to designate the first $2000 of the funds deposited pursuant in this agreement as an irrevocable funeral trust fund, which must be used for the funeral and final disposition of the Depositor . . . The Depositor further directs that any dividends and/or interest earned on the fund shall be . . . [m]ade irrevocable and added to the minimum amount to be deposited and used for the Depositor's funeral . . . Before his/her death the Depositor, after written notice to the Funeral Home, may withdraw any portion of the principal deposited in excess of $2000, provided that no interest and/or dividends also made irrevocable is ever withdrawn by the Depositor.
The funeral trust agreement also states that the Funeral Home will provide, under the following sections: (A) "professional and staff services and facilities," (B) an "outer burial chamber," and (C) "services and merchandise."
Mr. J~ did not specify the types of such items and services and/or their "estimated" costs, but noted that such items and services would be selected or added "at need." With regard to the above burial/funeral items and services, the funeral trust agreement provides that:
The actual and total cost of the services and merchandise provided by the Funeral Home ([in section] (A) only or including (B) and/or (C)) shall be determined as of the date of the Depositor's death. The Depositor reserves the right to amend this agreement subsequently in writing to change any details of the funeral and final disposition specified here provided that the Funeral Home may then adjust the cost of the funeral service accordingly.
Pursuant to this funeral trust agreement, Mr. J~ deposited $4,800.00, which was held in trust by the designated Depository, the Badger State Bank.
Notwithstanding Mr. J~'s failure to designate specific burial/funeral merchandise and services and their estimated costs in sections (A)-(C) of the agreement, we nonetheless believe that the funeral trust agreement is a valid burial agreement under Wis. Stat. Ann. 445.125, and as such, is irrevocable as to the first $2,000.00, plus all interest and/or dividends earned on the fund. Therefore, we do not believe that the first $2,000.00, plus all interest and/or dividends, is a countable resource. It is our opinion, however, that the remaining $2,800.00 under the funeral trust agreement is revocable and thus a countable resource to the SSI recipient.
Section 445.125 of the Wis. Stat., Ann.,/ which governs burial agreements such as the one in question, in pertinent part, reads:
(1)(a) Whenever a person . . . makes an agreement with another person selling or offering for sale funeral or burial merchandise or services . . . for the purchase of a casket, outer burial container not preplaced into the burial excavation of a grave, combination casket-outer burial container or other receptacle . . . for the burial or other disposition of human remains or for the furnishing of funeral or burial services, either of which is intended to be provided for the final disposition of the body of a person . . . wherein the use of such personal property or the furnishing of such services is not immediately required, all payments made under the agreement shall be and remain trust funds, including interest and dividends if any, until occurrence of the death of the potential decedent, unless the funds are sooner released upon demand to the depositor, after written notice to the beneficiary.
(b) Notwithstanding [Wis. Stat. Ann. 701.12(1)/], such agreements may be made irrevocable as to the first $2,000 of the funds paid under the agreement by each depositor.
(c) Any interest or dividends accruing to a trust fund under par.(b) may be made irrevocable.
With regard to the issue of the revocability of a trust, the POMS defers to the terms of the trust and/or State law:
The revocability of a trust and the ability to direct the use of the trust principal depends on the terms of the trust agreement and/or on State law. If a trust is irrevocable by its terms and under State law and cannot be used by an individual for support and maintenance, it is not a resource.
POMS SI 01120.200D.2 (emphasis in the original).
The funeral trust agreement in question wholly complies with the terms of Wis. Stat. Ann. 445.125. In particular, explicitly under the terms of the funeral trust agreement and in accordance with Wis. Stat. Ann. 445.125, Mr. J~ has no authority to revoke or liquidate the first $2,000.00, plus all interest and/or dividends, of the trust funds deposited under the funeral trust agreement. Mr. J~, however, has the authority to revoke or liquidate the remaining $2,800.00 in trust funds, and may use those funds to meet his food, clothing or shelter needs or direct the use of those funds for his support and maintenance.
Hence, the remaining $2,800.00 in trust funds constitutes a countable resource.
That Mr. J~ neglected to select specific burial/funeral merchandise and services and provide their estimated cost in sections (A)-(C) of the funeral trust agreement does not appear to be of any legal consequence, given that Section 445.125 does not require that such items and services necessarily be specified. Rather, Section 445.125 requires only that there be an agreement for the purchase of certain general types of burial containers and/or services. Consistent with the state statute, the funeral trust agreement in this case generally describes the burial/funeral merchandise and services that will be provided under the funeral trust agreement. Although the funeral trust agreement provides room for the Depositor to specifically describe burial/funeral merchandise and services and their costs, the fact that Mr. J~ did not do so does not appear to be a critical omission since the "actual and total" costs of such burial/funeral items and services are not determined until the Depositor's death, and since the Depositor has the "right" at any time prior to his death to "change any details of the funeral and final disposition" as long as the costs are adjusted accordingly.
~~LL. PS 00-265 Wisconsin Forethought Life Insurance Funded Burial Contract for Phillip H~, SSN ~~~
MM. PS 00-265 Wisconsin Forethought Life Insurance Funded Burial Contract for Phillip H~, SSN ~
DATE: June 9, 1997
1. SYLLABUS
In Wisconsin, irrevocable assignment of a life insurance policy funding a funeral contract to the Forethought Trust is valid under State law. The policy is not a resource to the individual.
Because of a change in the Social Security Act, this opinion may only be valid to trusts established by an individual prior to 01/01/00.
2. OPINION
This is in response to your inquiry concerning a Forethought Life Insurance Funded Burial Contract (LIFBC) for Phillip H~. You asked if the LIFBC in question is valid under Wisconsin State Law and, if the LIFBC is not valid, whether the cash surrender value of the life insurance policy could be excluded since it has been irrevocably assigned to the Forethought Trust. We believe that the Forethought LIFBC in question is valid and should therefore not be counted as a resource for SSI purposes.
FACTS
In May 1996, Mr. H~ purchased a life insurance policy from the Forethought Life Insurance Company for the purpose of funding his burial expenses. Mr. H~ named his father, John H~, beneficiary. John H~ signed an affidavit attesting to his understanding that the proceeds of the life insurance were to be used for Mr. H~'s funeral costs. Mr. H~ then transferred ownership of the life insurance policy to the Forethought Trust, giving up his right to control the policy, surrender it for cash or obtain a loan against it.
DISCUSSION
A resource, for SSI purposes, includes assets that the individual owns and could convert to cash to be used for his own support and maintenance. See 20 C.F.R. 416.1201(a). If the individual has the right, authority, or power to liquidate the property, it is a resource. Id. Trust assets are a resource if the individual can revoke the trust and use the assets to meet his needs for food, clothing, and shelter. POMS SI 01120.105.A.1, 01120.200(D)(1)-(3).
Consistent with SSI's trust policy, if an individual neither owns nor has the legal right to direct the use of trust assets to meet his or her support and maintenance needs and state law allows a revocably assigned life insurance policy that funds a funeral contract to be placed irrevocably in trust, the LIFBC is not a resource for SSI purposes. POMS SI 01130.425D.2.E.
After purchasing the Forethought life insurance policy, Mr. H~ irrevocably transferred ownership of the policy to the Forethought Trust. This was a valid transfer in which Mr. H~ relinquished the right to control the policy, to surrender it for cash, or to obtain a loan against it. Thus, the remaining question is whether this Forethought LIFBC package is valid under Wisconsin law.
Prior to May 10, 1996, W.S.A. 632.41(2) provided that "No contract in which the insurer agrees to pay for any of the incidents of burial or other disposition of the body of a deceased may provide that the benefits are payable to the funeral director or any other person doing business related to burials." Accordingly, we have previously advised you that, for a LIFBC to be valid under Wisconsin law, there are several requirements: (1) a funeral provider cannot be named as a beneficiary of the insurance policy that is issued; (2) ownership of the life insurance policy must be assigned to a person or entity other than the funeral home; and (3) the assignee must be free to select any funeral provider to fund the client's funeral needs at the time of death. Forethought Life Insurance Funded Burial Contract In Wisconsin-Viola L. K~, OGC-V (M~) to P~, ARC, SSA-V (3/21/95); Wisconsin Life-Insurance Funded Burial Agreements, OGC-V (M~) to P~, ARC, SSA-V (10/28/92).
We note that, following a statutory amendment effective May 10, 1996, 632.41(2)(b) now permits the assignment of the proceeds of the policy to a funeral provider, if certain requirements are met. Nonetheless, the statute preserves the requirement that a life insurance policy sold under the act shall permit the policyholder to designate a different beneficiary and a different funeral provider that is to receive the assignment of proceeds. W.S. 632.41(2)(b)(3).
The recent amendment does not affect Mr. H~'s Forethought LIFBC, which is equally valid under either version of the statute since (1) the beneficiary of the Forethought LIFBC is Mr. H~'s father, not a funeral provider; (2) Mr. H~ then irrevocably assigned ownership of the life-insurance policy to the Forethought Trust, not a funeral provider; and (3) although the beneficiary of the insurance policy, Mr. H~'s father, signed an affidavit stating that he would use the proceeds of the fund for Mr. H~'s burial expenses, he remained free to select a different funeral provider at any time.
We note the existence of a document entitled "Funeral Purchase Contract" between Mr. H~ and the Pratt Funeral Home. However, this does not appear to be an enforceable contract, given that several essential components are missing, such as the signature of the funeral home. At most this document indicates Mr. H~'s casket preference. Furthermore, Pratt Funeral Home itself has denied the existence of a pre-need contract with Mr. H~ and has indicated that Mr. H~ is free to change funeral provider at any time.
Your letter states that the insurance company indicated that it would distribute the proceeds of the policy to the Pratt Funeral Home on the death of Mr. H~. As you correctly point out, this cannot be the case, since there is no assignment of proceeds to the funeral home, nor is there any pre-need contract between Pratt Funeral Home and Mr. H~. Moreover, the life insurance policy states clearly that absent any assignment of proceeds by the insured, Forethought will disburse the death benefit to the beneficiary of the policy.
For these reasons, we believe that the Forethought LIFBC is valid under Wisconsin law and should not be counted as a resource for SSI purposes.
~~MM. PS 00-257 Supplemental Security Income - Wisconsin Trust - Sarah K. H~, SSN ~, Your Reference: S2D5G3~~
NN. PS 00-257 Supplemental Security Income - Wisconsin Trust - Sarah K. H~, SSN ~, Your Reference: S2D5G3
DATE: November 10, 1997
1. SYLLABUS
The trust in the opinion is not a countable resource for the following reasons:
1) The SSI recipient named in the trust does not have the authority to direct payments from the principal of the trust for her support and maintenance;
2) The trust cannot be revoked by the SSI recipient and the principal used for her support and maintenance; and
3) The SSI recipient is not the sole beneficiary of the trust and cannot revoke the trust without consent of additional parties.
2. OPINION
You inquired whether the funds held pursuant to the terms of a trust agreement should be treated as a countable resource for purposes of SSI eligibility for Sarah K. H~, the beneficiary of the trust.
The pertinent SSI regulations provide at 20 C.F.R. 416.1201(a) that:
[R]esources means cash or other liquid asset or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance. (1) If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual (or spouse).
Thus, if an individual is able to obtain funds or convert property to cash to be used toward her support and maintenance, such funds or property are to be included as resources for purposes of SSI eligibility determinations. Trust assets are a resource to the individual if she "has legal authority to revoke the trust and then use the funds to meet [her] food, clothing or shelter needs, or if the individual can direct the use of the trust principal for his/her support and maintenance under the terms of the trust. . . ." POMS SI 01120.200(D)(1)(a). We have reviewed the documents presented to us and, for the reasons discussed below, we conclude that this trust should not be a countable resource under 20 C.F.R. 416.1201.
FACTS
This trust was established by order of the court in In re Matter of Guardianship of Sarah K. H~ No. 96-GN-34 (Jefferson County Circuit Court) and appears to have been funded with proceeds from a settlement between Sarah H~ and Allstate Insurance Company. The memorandum of inquiry notes that Sharon H~ is the mother and legal guardian of Sarah K. H~. The SSID attached to the request indicates that Sarah is incompetent and her mother is her legal guardian.
The trust names Sharon H~ as Grantor, and Carl H~ as Trustee. The trust contains two clauses regarding revocation of the trust. First, "[o]n the death of the beneficiary, the Trustee shall pay the expenses of the last illness, funeral and burial of the beneficiary out of the principal of the Trust Estate, unless the Trustee in his discretion determines that other provisions have been made for the payment of such expenses". H~ Trust, Article I, Section 3. Second, "[i]f at the death of Sarah Katie H~ there remains any portion of such share created for said child, after complying with paragraphs 1-3 herein, the Trustee shall terminate said Trust, and pay over to the surviving issue of Grantor said funds equally upon the same terms contained in Article II, Section 1., herein before stated." Article I, Section 4.
DISCUSSION
A trust may be a countable resource if the beneficiary can either: (1) direct the trustee to pay over trust principal for her support and maintenance; or (2) revoke the trust and then use the funds for her support or maintenance. A trust may be revocable either according to language in the trust document itself or according to law.
First, Ms. H~ does not have the authority to direct the payment of trust principal for her support and maintenance. A trust may be a resource "in the rare instance, where he/she has the authority under the trust to direct the use of the trust principal." POMS SI 01120.200(D)(1)(b). Ms. H~'s trust is not one of these rare instances. Payment of trust principal is to be at the discretion of the Trustee, Carl H~. H~ Trust, Article II, Section 1. Second, the trust provides that "[t]he determination of the Trustee with respect to the advisability of making any payments out of income or principal to the beneficiary, shall be conclusive on all persons howsoever interested in the Trust." H~ Trust, Article II, Section 3. Therefore, Ms. H~ does not have authority to demand payment from the trust, as Carl H~, Trustee, has exclusive authority over trust payments. In addition, even Mr. H~'s power to disburse trust principal is limited. Mr. H~, as Trustee, is prohibited from making any payment that will jeopardize Ms. H~'s eligibility for "state, federal, local, or other governmental subsidy or aid." H~ Trust, Article II, Section 1, 2. Therefore, Ms. H~'s access to the trust principal is restricted, and the trust principal should not be considered a countable resource for this reason.
Second, a trust may also be a countable resource if it may be revoked and trust proceeds used by the beneficiary for her support and maintenance. POMS SI 01120.200(D)(1)(a). A trust may be revocable either through the language of the trust itself or by the operation of state trust law. Ms. H~'s trust is not revocable in either manner.
Ms. H~'s trust provides for revocation only upon the death of Ms. H~ herself. H~ Trust, Article II, Sections 3 4. On Ms. H~'s death, the Trustee is to pay all expenses of the last illness, funeral, and burial, and then to terminate the trust. H~ Trust, Article II, Sections 3 4. Upon termination, the remainder of the trust principal is to be paid to "the surviving issue" of "Grantor". H~ Trust, Article II, Section 4. Neither provision empowers Sarah H~ to revoke the trust and use the trust principal for her support and maintenance, as both provide for termination only upon her death.
The next question, then, is whether Ms. H~ can revoke the trust pursuant to state trust law. Under Wisconsin law, a trust may be revoked by written consent of the grantor and all beneficiaries. Wisc. Stat. Ann. 701.12 (West 1981 Supp. 1996). It is necessary to determine, therefore, who is the grantor and who are the beneficiaries for purposes of determining the revocability of the trust.
The nominal grantor of Ms. H~'s trust is her legal guardian and mother, Sharon H~. Wisconsin law provides that the grantor of a trust is the person who, either directly or indirectly, creates the trust. Wisc. Stat. Ann. 701.01(4) (West 1981 Supp. 1996). The grantor of a trust is the person who provides the consideration for a trust, even if another is the nominal grantor. 76 Am. Jur. 55; POMS SI 01120.200(B)(2); POMS SI 01120.200(J)(2)(a). Ms. H~'s trust appears to have been funded with the proceeds of a settlement between Sarah H~ and Allstate Insurance Company. In re Guardianship of Sarah K. H~, Case No. 96-GN-34 (Jefferson County Circuit Court, July 24, 1997). The consideration for the trust was property due to Sarah H~. Therefore, it appears that Sarah H~ is the true grantor of this trust, even though her mother, Sharon H~, has been named as the grantor. See Sara K~, ~ RA V (D~) to ARC-MOS 7-30-97, re: Wisconsin Trust.
The documents provided do not indicate whether the trust contains additional property that originated from a source other than Ms. H~, thus creating another grantor. If there is another grantor, his or her consent would also be required in order to revoke that aspect of the trust. In that case, the trust would not be a countable resource. Since we have determined that the trust should not be a countable resource even if Ms. H~ is the only grantor, these additional facts should not affect the opinion given.
The next issue, then, is who are the beneficiaries of the trust. A beneficiary is any person with a beneficial, or equitable ownership, interest in the trust. Wisc. Stat. Ann. 701.01(6) (West 1981 Supp. 1996); POMS SI 01120.200(B)(4). Wisconsin law appears to recognize that even unborn or unascertained contingent beneficiaries are beneficiaries for purposes of revocation by consent. See Wisc. Stat. Ann. 701.12(2) (West 1981 Supp. 1996); Restatement (Second) of Trusts 127 and Comment (b); Restatement 339 and Comment (b); 76 Am. Jur. 95. If there are any contingent beneficiaries other than Sarah H~, therefore, she cannot revoke the trust, and the trust is not a countable resource for purposes of determining SSI eligibility.
Ms. H~'s trust names as contingent beneficiaries "the surviving issue" of the "Grantor". H~ Trust, Article II, Section 4. It appears that the principles of Wisconsin trust law direct a finding that, while Sarah H~ is the grantor for purposes of determining whether the trust is revocable, Sharon H~ is defined in the trust document as "Grantor", and is presumably the person whose "issue" should be considered for purposes of determining who are the intended beneficiaries of the trust.
Wisconsin trust law provides that "[t]he paramount object of will or trust construction is the ascertainment of the testator's or [grantor's] intent." Estate of Furmanski v. Furmanski, 196 Wis. 2d 210, 215 (Wis. Ct. App. 1995). In determining the grantor's intent, one must first look to the trust document itself. Furmanski, 196 Wis.2d at 215; Estate of Barr v. Barr, 78 Wis.2d 254, 258 (Wis. Sup. Ct. 1977). If there is no ambiguity in the trust document itself, the language of the trust should control, viewed in light of the circumstances surrounding its drafting. Barr, 78 Wis.2d at 258; Furmanski, 196 Wis.2d at 568.
The language of Ms. H~'s trust is unambiguous. Sharon H~ is named as grantor, and the trust principal is to be divided equally among her surviving issue upon Sarah H~'s death. H~ Trust, Article II, Section 4. Even if we were to look further into the circumstances surrounding the creation of the trust, it is clear that Sharon and Sarah H~ intended for Sharon H~ to be the grantor. The parties could have named Sarah H~ as the sole beneficiary of her own trust, but did not do so. Therefore, the contingent beneficiaries of this trust are the issue of Sharon H~ that survive Sarah H~'s death.
The documents provided to us do not contain information regarding whether Sharon H~ currently has, or is capable of having in the future, children other than Sarah H~. If Sharon H~ currently has, or is capable of bearing children, Sarah H~ will not be able to revoke the trust. See Restatement (Second) Trusts 340 and Comments (d) (e); 76 Am. Jur. 93. Wisconsin law seems to direct the same result. Wisconsin law requires the appointment of a guardian ad litem to represent the interests of the unborn or unascertained beneficiaries of a trust when the grantor and other beneficiaries seek agreement to revoke the trust. Wisc. Stat. Ann. 701.12 (West 1981 Supp. 1996). Therefore, a trust cannot be revoked (or modified) without the approval of all beneficiaries, even the unascertained ones. See Berg v. Berg, 142 Wis.2d 935 (Wis. Ct. App. 1987).
Even if Sarah H~ is deemed the grantor for purposes of determining who are contingent beneficiaries, Ms. H~ does not appear to be the sole beneficiary. Where a grantor intends to create a contingent interest in his heirs, he may do so. See Restatement (Second) Trusts 127 and Comment (b); POMS SI 00120.200(J)(2)(b); Clarification of Regional SSA Program Circular 94-05 Concerning Trusts RA V (W~) to ARC, Programs, 5-24-95. Therefore, even if Sarah H~ is the grantor, she has manifested an intent to name her surviving issue as contingent beneficiaries, with a remainder interest in the trust principal. In either case, Sarah H~ is not the sole beneficiary of the trust.
Since Ms. H~ is not the sole beneficiary of the trust and cannot revoke the trust without the consent of additional parties, the trust is not revocable and should not be counted as a resource for purposes of determining SSI eligibility. See Sarah L. B~, ~ RA V (Lee) to Acting ARC-MOS 6-6-97, re: Wisconsin Trust.
It should be noted, however, that any disbursements of trust principal or income to Sarah H~ may be income for SSI purposes. POMS 01120.200(E)(1). Any disbursement of cash directly to Sarah H~, or paid to a third party in exchange for food, shelter, or clothing for Ms. H~, will represent in-kind income to Sarah H~. Id. at 01120.200(E)(1)(a) (b).
CONCLUSION
For the above reasons, we believe the trust principal should not be considered a resource when determining Ms. H~'s eligibility for SSI.
~~NN. PS 00-247 SSI-Wisconsin-Review of a Trust for Michael G~~~
OO. PS 00-247 SSI-Wisconsin-Review of a Trust for Michael G~
DATE: February 23, 2000
1. SYLLABUS
This opinion concerns a testamentary trust established for an SSI recipient by his aunt in her will. The opinion explains that the testamentary trust is not countable as a resource because the recipient has no authority to revoke the trust, sell his interest in the trust, or direct the use of the trust assets.
2. OPINION
Subject:
Michael G~, an SSI recipient, is the beneficiary of a testamentary trust created by his aunt, Lucille T~. You asked whether the funds held pursuant to the terms of the trust agreement should be treated as a countable resource to Mr. G~ for purposes of waiving an SSI overpayment. Based on our review of the documents provided, and for the reasons set out below, we believe that the assets in the trust are not a countable resource to Mr. G~.
FACTS
On June 17, 1992, Lucille T~ executed the Amendment to Lucille V. T~ Revocable Trust (hereafter "trust") in which she provided to leave, upon her death, a portion of her estate in trust (hereafter "separate trust") to her nephew, Michael G~, for the duration of his life. Trust Agreement, Article III, B, C(4). The Associated Citizens Bank is named trustee of the trust and the separate trust. Trust Agreement, Article VII, A. The trust agreement gives the trustee discretion to distribute the income and principal from the separate trust to provide for Mr. G~' "support, welfare and health," but directs that payments "shall be reduced or withheld" as necessary to preserve his "continued eligibility for Medicaid, Social Security Disability income, or any similar income or services." Trust Agreement, Article III, B, C(4). The trust agreement includes a "spendthrift" provision preventing Mr. G~ from assigning his rights. Trust Agreement, Article III, B, C(10). The separate trust may be terminated at the trustee's discretion if the fair market value of the separate trust assets does not exceed $10,000.00. Trust Agreement, Article X. Otherwise, the separate trust will terminate upon Mr. G~' death. Mr. G~ has the power to appoint the remainder of the separate trust by will. Trust Agreement, Article III, B, C(4). If he does not exercise his power to appoint, then "any remainder at his death shall be given to his brothers and sisters in equal shares or to his heirs by right of representation." Id.
DISCUSSION
I. Applicable Law
A "resource" is cash, other liquid assets, or any real or personal property that an individual owns and can convert to cash to be used for his or her support and maintenance. 20 C.F.R. 416.1201(a) (1999). If the individual has the right, authority, or power to liquidate the property, it is a resource. Id. Trust assets are a resource if the individual can direct the use of the assets to meet his need for food, clothing, and shelter, or if he can terminate or revoke the trust and obtain unrestricted access to the trust assets. Program Operations Manual System (POMS) SI 01120.105 (A)(1), 01120,200(D)(1)-(3). Whether the claimant can terminate the trust or direct use of the trust assets depends on the terms of the trust declaration and applicable state law. POMS SI 01120.200(D)(2). An individual's beneficial interest in a trust also may be a resource if the individual can sell that interest. See Supplemental Security Income - Wisconsin Trust - Christopher J. M~, Jr., (~), OGC-V (B~) to M~, ARC-MOS (June 9, 1999) at 5.
II. If Ms. T~ is Alive, the Separate Trust Assets Are Not a Resource to Mr. G~.
The Trust Agreement is a living trust, executed and revocable by Ms. T~ during her lifetime. Trust Agreement, Article I, A. If Ms. T~ is still alive, she can revoke the trust. See Restatement (Second) of Trusts, 330, 332, 367. Thus, Mr. G~ has no beneficial interest in the separate trust assets while Ms. T~ is alive.
III. If Ms. T~ is Deceased, the Separate Trust Assets Are Not A Resource to Mr. G~.
A. Mr. G~ Has No Authority To Direct The Use of the Separate Trust Assets.
Upon Ms. T~'s death, the Trust Agreement becomes irrevocable, and Mr. G~ becomes the beneficiary of the separate testamentary trust. The Trust Agreement gives the trustee absolute discretion over disbursements from the separate trust, except that the trustee can make disbursements only to the extent that such disbursements will not disqualify Mr. G~ from receipt of Medicaid, SSI or other government benefits. Trust Agreement, Article III, B, C(4). Thus, under the Trust Agreement, Mr. G~ does not have the power to direct use of the separate trust assets for his support and maintenance.
B. Mr. G~ Has No Authority To Revoke the Separate Trust.
A trust may be revocable by the language of the trust or pursuant to state law. Mr. G~ may not revoke the separate trust by either manner. The Trust Agreement does not state whether the separate trust is revocable. Under the Trust Agreement, however, the separate trust may be terminated if either of two conditions are met. First, the separate trust may be terminated at the discretion of the trustee if the fair market value of the separate trust assets is less than $10,000.00. Trust Agreement, Article X. Otherwise, the separate trust will terminate upon Mr. G~' death. Trust Agreement, Article III, B, C(4). Neither provision, however, empowers Mr. G~ to revoke the separate trust and use the separate trust principal for his support and maintenance. Thus, the terms of the Trust Agreement do not indicate that the separate trust is revocable by Mr. G~.
The next issue, then, is whether Mr. G~ can revoke the separate trust pursuant to state law. Under Wisconsin law, a trust may be revoked, terminated or modified by written consent of the grantor and all beneficiaries. See Wisc. Stat. Ann. 701.12 (West 1981 Supp. 1999). Wisconsin law further provides that a grantor of a trust is the person who, either directly or indirectly, creates the trust. See Wisc. Stat. Ann. 701.01(5) (West 1981 Supp. 1999). Ms. T~ is the grantor of the trust because she executed the Trust Agreement and established the embedded separate testamentary trust. If Ms. T~ is deceased, she cannot consent to the revocation of the separate trust. Consequently, the separate trust would be irrevocable under Wisconsin law.
Moreover, the Trust Agreement provides that Mr. G~ has the power to "appoint the remainder of the [separate] trust by Will. In the event that he fails to exercise this power to appoint, then any remainder at his death shall be given to his brothers and sisters in equal shares or to his heirs by right of representation." Trust Agreement, Article III, B, C(4). This provision creates residual or "contingent" beneficiaries whose consent must be obtained in order for the trust to be revoked. We do not assume that they will consent to terminate the separate trust. Because Mr. G~ cannot revoke or terminate the separate trust at will, the separate trust is irrevocable.
C. Mr. G~ Has No Authority To Assign His Interest in the Separate Trust.
Where a beneficiary does not have the power to direct use of the trust for his support and maintenance and does not have the power to revoke the trust on his own, the trust assets may still be a resource for SSI purposes if the beneficiary can sell his interest in the trust and use the proceeds for his support and maintenance. 20 C.F.R. 416.1201(a)(1). The Trust Agreement contains a spendthrift clause, stating that "neither the income or principal shall be susceptible of assignment, anticipation, provocation or seizure by legal process. Trust Agreement, Article III, B, C(10). In addition, the trustee has full discretion to make or withhold disbursements from the separate trust. Trust Agreement, Article III, B, C(4). Thus, Mr. G~' interest in the separate trust would have little or no fair market value.
Since Mr. G~ cannot direct use of the separate trust assets for his support and maintenance, revoke the separate trust, or sell his interest in the separate trust, the separate trust assets do not constitute a countable resource for SSI purposes. 20 C.F.R. 416.1201; POMS SI 01120.200(D). We note, however, that any amounts actually distributed to Mr. G~ from the separate trust would be income to him, and any disbursement to a third party in exchange for food, shelter, or clothing for Mr. G~ would be in-kind income to Mr. G~. POMS SI 01120.200(E)(1)(a)-(b).
CONCLUSION
In summary, the assets of the separate trust are not countable resources because Mr. G~ cannot direct that the trustee use the trust assets for his support and maintenance; revoke or terminate the trust to obtain the assets; or sell or otherwise transfer his interest in the trust.
OO. PS 00-200 Whether Trust Established By A Legally Incompetent Grantor That Solely Benefits Grantor And Those Whom the Grantor Might Appoint in Her Will Is A Revocable Trust Under Wisconsin Law And Hence A Countable SSI Resource; Theresa L. D. G~, SSN ~
PP. PS 00-200 Whether Trust Established By A Legally Incompetent Grantor That Solely Benefits Grantor And Those Whom the Grantor Might Appoint in Her Will Is A Revocable Trust Under Wisconsin Law And Hence A Countable SSI Resource; Theresa L. D. G~, SSN ~
DATE: March 29, 1995
1. SYLLABUS
At issue in this opinion is if a trust established by a legally incompetent grantor who is also the sole beneficiary of the trust can be revoked by the grantor/sole beneficiary.
Wisconsin law recognizes that when the grantor of a trust is the sole beneficiary of the trust, the grantor/sole beneficiary can revoke the trust even if the trust states that it is irrevocable.
An incompetent in Wisconsin could revoke the trust for which he/she is the grantor/sole beneficiary as the court and guardian ad item would be under an obligation to act in the grantor/sole beneficiary's best interest.
2. OPINION
This is with reference to your January 26, 1995 request for advice as to whether the interest of Theresa D. G~, an SSI recipient, in a trust was a countable asset for Supplemental Security Income (SSI) purposes. Your memorandum and the trust document you attached indicate that Ms. D. G~, a Wisconsin resident and legal incompetent, acted through her Guardian Ad Litem to establish a trust with her proceeds from a personal injury lawsuit settlement. Her incompetency is apparently the result of the injuries she sustained in the automobile accident that led to the lawsuit./
Ms. D. G~ is the grantor of the trust which provides that the trustee shall pay to Ms. D. G~ during her life time so much of the income and principal as the trustee determines is desirable to supplement the other benefits she receives but that the trust's income and assets shall not be used for food, clothing or shelter. The trust states that it is irrevocable. The trust also provides that upon the death of Theresa D. G~, the balance of the trust shall be divided pursuant to the terms of Ms. D. G~'s last will. You attached a copy of Ms. D. G~'s current will.
We conclude that trust is revocable and is, therefore, a countable resource for SSI purposes. If Ms. D. G~ revokes the trust, she will have unrestricted access to the assets that had been the trust's principal and could use those assets for her support and maintenance.
While under most circumstances a trust's provisions can bar the grantor from revoking the trust, most states including Wisconsin recognize that where the grantor is the sole beneficiary of the trust, the grantor can revoke the trust. Restatement (Second) of Trusts, 339 (1959); 76 Am. Jur. 2d Trusts 96 (1975); Wis. Stat. 701.12. In Wisconsin, a trust may be revoked, modified or terminated "By written consent of the settlor [grantor] and all beneficiaries of a trust or any part thereof." Wis. Stat. 701.12(1). Accordingly, if the grantor is the sole beneficiary, the grantor alone can revoke the trust in Wisconsin.
The ability of a grantor/sole beneficiary to revoke a trust is not limited by language in the trust that purports to make the trust irrevocable nor is the power to revoke defeated if the purposes to the trust have not yet be achieved. Restatement (Second) of Trusts, 339 (1959); 76 Am. Jur. 2d Trusts 96 (1975). Therefore, the language in the D. G~ trust purporting to make it irrevocable does not bar Theresa D. G~ from revoking the trust if she is the sole beneficiary.
Although the trust does direct that the balance of trust assets at Theresa D. G~'s death are to be "divided pursuant to the terms and conditions of the Last Will and Testament of Theresa L. D. G~," Ms. D. G~ is still considered the sole beneficiary of the trust under generally accepted trust law. Where no individual beneficiaries other than the grantor and no class of beneficiaries are named in the trust, the grantor is considered the sole beneficiary even though the trust provides that the balance of the trusts assets at the grantor's death go to those appointed in the grantor's will. Under the Restatement (Second) of Trusts, the grantor is considered the sole beneficiary in the following instances: (1) trust pays grantor income for life and after grantor's death pays the principal to whoever is appointed in grantor's will or by deed or, in absence of such an appointment, to the grantor's heirs or next of kin, (2) trust pays grantor income for life and after grantor's death pays the principal to grantor's estate, and (3) trust pays grantor income for life and makes no provisions for who gets principal after grantor's death. Restatement (Second) of Trusts, 127 (comment b including illustration 2), 339 (comment b including illustration 2) (1959); see also Doyle v Bank of Montclair et al., 9 N.J.Super. 586, 76 A.2d 41, 43 (1950) (grantor held to be sole beneficiary of trust that paid grantor income for life and after grantor's death paid the principal to whoever was appointed in grantor's will or by deed or, in absence of such an appointment, to the grantor's heirs or next of kin); Dunnett v. First National Bank Trust Co., 184 Okl. 82, 83, 85 P.2d 281, 283 (1938) (same); Bottimore v. First Merchants National Bank, 170 Va. 221, 227, 231, 196 S.E. 593, 594, 596 (1938) (same)./
Accordingly, the persons mentioned in Theresa D. G~'s will are not considered beneficiaries or contingent beneficiaries under the trust and their consent would not be necessary to revoke the trust. The rationale for this rule of construction is that such a trust permits the grantor to eliminate any potential beneficiaries other than the grantor. Although the trust may provide that those appointed in the will may receive certain benefits after the grantor dies, the grantor is not required to execute a will and, even if such a will were executed, the grantor can revoke or modify the will at the grantor's discretion./ Therefore, the rights of these potential beneficiaries are illusory during the grantor's lifetime because the grantor can eliminate these rights at the grantor's sole discretion.
The final issue here is whether the trust should be considered revocable by Theresa D. G~ where she is legally incompetent. The general rule is that "If the settlor [grantor] is the sole beneficiary of a trust and is not under an incapacity, he can compel the termination of the trust . . . ." Restatement (Second) of Trusts, 339 (1959) (emphasis added). In Wisconsin, however, "such consent [to revoke or modify the trust] may be given on behalf of a legally incapacitated . . . beneficiary by the court after a hearing in which the interests of such beneficiary [is] represented by a guardian ad litem." Wis. Stat. 701.12(2). As the court and guardian ad litem would be under an obligation to act in the incompetent's best interests, an incompetent in Wisconsin could therefore revoke the trust for which the incompetent is the sole beneficiary if it were in his or her best interests.
While the Wisconsin statute does refer to an incompetent "beneficiary" and not to an incompetent "grantor," we do not believe this precludes Theresa D. G~ from revoking the trust. As Theresa is both the grantor and beneficiary, the guardian ad litem and court can also act in her capacity as grantor. Moreover, if an incompetent in Wisconsin cannot act as a grantor through the action of the incompetent's guardian ad litem and the court, then Theresa D. G~'s action as grantor to create the trust would be invalid. Such invalidity would mean that there is no trust, and the assets purportedly held by the trust are in fact held by Theresa D. G~, also making the assets countable resources for SSI purposes.
~~PP. PS 00-152 Supplemental Security Income-Wisconsin Trust, Sarah L. B~, SSN ~~~
QQ. PS 00-152 Supplemental Security Income-Wisconsin Trust, Sarah L. B~, SSN ~
DATE: June 6, 1997
1. SYLLABUS
The issue involves whether funds held in a trust are a resource when there are contingent beneficiaries and under the terms of the trust, any revocation results in the immediate payment of the trust assets to the contingent beneficiaries.
Under Wisconsin law, all trusts may be terminated or modified only with written consent of the Settlor and all beneficiaries, if any, to the trust. The trust principal would not be counted as a resource because the individual lacks the unilateral right, power, or authority to liquidate the trust. In addition, any revocation would result in payment of the trust assets to the contingent beneficiaries. Since revocation would not allow the individual to convert the trust assets for use toward his/her support and maintenance, the funds in the trust are not a resource for SSI purposes.
2. OPINION
You have requested an opinion on whether the funds held pursuant to the terms of a trust agreement should be treated as a countable resource for purposes of eligibility for SSI for Sarah L. B~, the beneficiary of the trust.
The pertinent SSI regulations provide at 20 C.F.R. 416.1201 that:
resources means cash or other liquid asset or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance.
(1) If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource....
Thus, if an individual is able to obtain funds or convert property to cash to be used toward her support and maintenance, such funds or property are to be included as resources for purposes of SSI eligibility determinations. We have reviewed the documents provided to us and, for the reasons discussed below, we conclude that this trust should not be a countable resource under 20 C.F.R. 416.1201.
DISCUSSION
The memorandum of inquiry refers to Sarah B~ as the Settlor even though the actual terms of the trust refer to her father, Marvin B~, as both Settlor and Trustee. See Introduction and Article I of Borth's Trust. We assume that you consider Sarah to be the Settlor because she indirectly funded the subject trust, and her father is the nominal Settlor. See Wisc. Stat. Ann. 701.01(4); see also 76 Am. Jur. 2d 55 ("The settlor of a trust is the person who provides the consideration for the trust, even if another entity nominally creates the trust"). The information provided to this office does not indicate the source of trust assets, or whether additional assets are included in the trust.
For purposes of determining whether the subject trust is a countable resource, however, it does not ultimately matter whether Sarah or her father was the de facto Settlor. It also does not ultimately matter whether the subject trust was technically "revocable" or "irrevocable." Under Wisconsin law, all trusts may be terminated or modified only with written consent of the Settlor and all beneficiaries, if any, to the trust. See Wisc. Stat. Ann. 701.12 (West 1981 Supp. 1996). As you accurately pointed out, Holly K. B~, Michelle A. B~, and Brian S. B~ are all contingent beneficiaries to the trust. See Wisc. Stat. Ann. 701.05(2)-(3) (West 1981 Supp. 1996); see also Restatement (Second) of Trusts 127 and comment (b); 339 and comment (b) (1959); 76 Am. Jur. 2d 95 (a trust cannot be terminated by consent where there exist contingent beneficiaries that cannot be determined until the happening of certain events).
The written consent of the identified contingent beneficiaries and the Settlor is required to revoke the subject trust, and SSA policy would prohibit the trust principal from being counted as Sarah's resource on revocability grounds because she lacks the unilateral right, power, or authority to liquidate the trust. See Deborah A. N~, ~ RA V (L~) to Acting ARC-MOS 7-22-96, re: Wisconsin Trust.
It is also significant that under the express terms of the subject trust, any revocation results in the immediate payment of trust assets to the contingent beneficiaries. See Borth's Trust Article IV. In particular, the trust provisions state that should any governmental agency withhold support payments because of the trust existence, the trust shall terminate with all proceeds to be immediately paid to the contingent beneficiaries. See Borth's Trust Article 1, Subsection C. Thus, even if Settlor and the contingent beneficiaries consented to revocation in writing, the trust assets would not revert to Sarah. Revocation would not allow Sarah to convert the trust assets for use toward her support and maintenance, and as such, the trust should not be considered an available resource for SSI consideration. See 42 U.S.C. 1382b; 20 C.F.R. 416.1201 (A "resource," for the purpose of being eligible for SSI benefits, is defined as property that the beneficiary owns and could convert to cash, or property over which the beneficiary has the right, authority, or power to liquidate).
Finally, the Program Operations Manual System ("POMS") states that if the claimant is a beneficiary of a trust and the beneficiary's access to the trust principal is restricted, then the principal is not a resource for the claimant. POMS 01120.105(A)(2). The subject trust has been tailored to preclude the Trustee from using trust assets to pay for Sarah's primary needs, and it specifically limits the Trustee to furnishing services such as dental treatment, education, special training, and education. See Borth's Trust Article I, Subsection C. This section indicates that Sarah cannot, as the beneficiary, compel the Trustee to distribute trust funds in a manner that would endanger her eligibility for public assistance under the unearned income provisions of the regulations. See 20 C.F.R. 416.1123, 416.1124. See Laura S~, ~, RA V (B~) to Acting ARC-POS Region V (M~) 5/27093, re: Wisconsin Supplemental Trust. This fact, along with the foregoing reasons, demonstrates that the subject trust should not be a countable resource under 20 C.F.R. 416.1201.
Footnotes:
[1]
. According to the introductory paragraph to Article Seven, the Arc of Indiana is an organization that provides services to developmentally disabled individuals.
[2]
. POMS SI 01120.199.F.2 permits an exception for transfer of a beneficiary’s trust account from one pooled trust to another. See POMS SI 01120.199.F.2 (the trust need not meet the above criteria to be excepted as a resource if the early termination clause (1) “solely allows for transfer of the beneficiary’s assets from one [pooled] trust to another [pooled] trust,” and (2) contains specific language precluding disbursements other than to the secondary trust (or for the payment of taxes or reasonable administrative expenses). Under this exception, the State(s) need not receive reimbursement prior to transfer of the beneficiary’s trust account. See id. However, no such exception exists for the transfer of a beneficiary’s trust corpus from a special needs trust to a qualifying pooled trust. See id.
[3]
* The self-funded sub-account is not mentioned in WisPACT’s website. Agency officials have discussed with WisPACT whether this type of account is even necessary, given that it functions in essentially the same manner as a pooled trust under 42 U.S.C. § 1396p(d)(4)(C).
* The self-funded sub-account is not mentioned in WisPACT’s website. Agency officials have discussed with WisPACT whether this type of account is even necessary, given that it functions in essentially the same manner as a pooled trust under 42 U.S.C. § 1396p(d)(4)(C).
[4]
* In light of this recent change in Wisconsin law, we note that POMS PS 01205.055, PS 05-038, Six State Survey on “Dry” or “Empty” Trusts, Nov. 30, 2004, no longer reflects the current law in Wisconsin and should be updated. Also, it appears that PS 05-038 was inadvertently placed in POMS PS 01205 instead of POMS PS 01825.
* In light of this recent change in Wisconsin law, we note that POMS PS 01205.055, PS 05-038, Six State Survey on “Dry” or “Empty” Trusts, Nov. 30, 2004, no longer reflects the current law in Wisconsin and should be updated. Also, it appears that PS 05-038 was inadvertently placed in POMS PS 01205 instead of POMS PS 01825.

POMS Reference

PS 01825.055: Wisconsin