PS: Title XVI Regional Chief Counsel Precedents

Effective Dates: 07/18/2018 - Present

TN 119 (07-18)

A. PS 18-102 Lutheran Social Service of Minnesota’s North Dakota Self-Settled Pooled Trust

Date: June 8, 2018

1. Syllabus

This Regional Chief Counsel (RCC) opinion examines whether the Lutheran Social Service of Minnesota’s North Dakota Self-Settled Pooled Trust (“Trust”) and Joinder Agreement comply with the requirements for a pooled trust exception under section 1917(d)(4)(C) of the Social Security Act (Act). The RCC concludes that the Trust allows for the Trust Fund Manager (potentially a for-profit entity) to have excess managerial authority. Further, the Joinder Agreement does not conform to the Trust Agreement. Therefore, the Trust does not meet the pooled trust exception, and trust sub-accounts are countable resources.

2. Opinion

Question

You asked us to determine whether the Lutheran Social Service of Minnesota’s North Dakota Self-Settled Pooled Trust (“Trust”) and Joinder Agreement conform to the pooled trust exception at 42 U.S.C. § 1382c(a)(3).

Short Answer

The Trust does not meet the pooled trust exception to counting assets in the Trust sub-accounts as resources because the Trust provides a Trust Fund Manager with the authority to invest funds without proper oversight by the Trustee. We also note that the Joinder Agreement does not appear to conform to the Trust Agreement. But if the Trust were amended to satisfy the pooled trust exception, and if the Joinder Agreement were revised to correspond to the Trust Agreement — and assuming no other changes were made — beneficiary sub-accounts would not be countable as resources under the regular resource counting rules.

Background

a. Definitions, Establishment, and Purpose

A Minnesota nonprofit corporation, Lutheran Social Service of Minnesota (“LSS”), established the Trust in 2016. See Trust, Preamble. The purpose of the Trust is to provide supplemental care and special needs assistance to “Beneficiaries,” i.e., disabled persons as defined in the Social Security Act who have sub-accounts established with the Trust. See Art. 1.01(b), 2.01. The Trust defines “supplemental care” and “special needs” as “care that is not otherwise provided, or needs that are not met, by any Public Benefits or Government Assistance that might be otherwise available to any Beneficiary.” See Art. 1.01(f). The Trustee can make distributions to cover medical and dental treatment; supplemental care; expenditures for travel and companionship by a personal care attendant; and other expenditures that the Trustee deems advisable to improve the Beneficiary’s quality of life. See Art. 5.03.

A “Grantor” is defined as a parent, grandparent, legal guardian of a Beneficiary, legal conservator of a Beneficiary, or court using the Beneficiary’s funds to establish a sub-account. See Art. 1.01(d). LSS maintains a separate sub-account for each Beneficiary, but the Trust sub-accounts are pooled for the purpose of investing and managing the funds. Art. 1.01(h), 4.01.

b. Amendment, Termination, and Distribution of Assets upon Termination

The Trust is irrevocable upon execution of the Joinder Agreement by the Grantor and Trustee and funding of a sub-account for a Beneficiary. Art. 1.04, 3.02. But the Trust may be amended to “effectuate its purposes and intent” or to conform the Trust to rules, regulations, or legislative changes related to 42 U.S.C. § 1396p or related statutes. Art. 1.05. Notice of any proposed amendments is to be provided to the North Dakota Department of Human Services and SSA. Art. 1.05.

A Trust sub-account shall be terminated in three situations: (1) the death of the Beneficiary of the sub-account, (2) the sub-account balance reaches $0.00, or (3) the Trustee determines that continuation of a sub-account is not in the best interests of the sub-account Beneficiary because the assets are at such a level as to make continued administration of the sub-account financially burdensome and uneconomical. Art. 6.01.

If a sub-account with remaining assets is terminated, those assets will first be used for “payment of reasonable expenses and administration fees,” and then distributed as follows: (1) reimbursement for services by the State of North Dakota or any other state that provided medical assistance benefits to the Beneficiary; (2) to pay any taxes due from the sub-account to the state(s) or federal government because of the death of the Beneficiary, as authorized by POMS SI 01120.203(B)(3)(a) and any applicable federal or state laws; and (3) to the Beneficiary, if surviving, or otherwise as directed by the Grantor in the Joinder Agreement. Art. 6.02.

c. Spendthrift Provision

The Trust is a spendthrift trust. Art. 2.04. No Beneficiary has the power to sell, assign, transfer, encumber, or in any other manner to anticipate or dispose of their interest in the Trust or any sub-account. Art. 2.04. The Trust, and its sub-accounts, are not subject to garnishment, attachment, or other legal process by a Beneficiary’s creditors. Art. 2.04. No Beneficiary may compel a disbursement from the Trust. Art. 2.04.

d. Governing Law

The Trust is governed by North Dakota law. Art. 9.02.

e. Joinder Agreement

The Trust is effective as to a Beneficiary upon: (1) execution of a Joinder Agreement by a Grantor and the Trustee, and (2) the Grantor’s delivery of cash or property to the Trust, and the Trust Funds Manager’s acceptance of that cash or property. Art. 3.02. The Trust is irrevocable upon delivery and acceptance of assets, and the Grantor releases all rights in, control of, and interest in the assets. Art. 3.02.

Discussion

f. The Master Trust Does Not Meet the Pooled Trust Exception Under 42 U.S.C. § 1396p(d)(4)(C)

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

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

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

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

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

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

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

i. The Trust Is Established and Maintained by a Nonprofit Association, But It Potentially Provides Excess Authority to a Trust Fund Manager

The Trust was established by LSS, a Minnesota nonprofit corporation, and the Trust agreement states that any successor Trustee must be another nonprofit corporation. Art. 7.02. But the Trust also provides that the Trustee can employ a “Trust Fund Manager” and other agents and can “delegate to them such of the rights, powers, and duties herein conferred upon the Trustee as the Trustee deems proper.” Art. 7.03(f). The Trust Fund Manager is specifically given the authority “to receive, hold, manage, and control all the income arising from such Trust and the corpus thereof and to do such other acts or things concerning the Trust as may be advisable.” Art. 8.04.

Because the Trust provides that the Trust Fund Manager must be a bank or trust company, we assume that it is a for-profit entity. See Art. 1.01(m). Pursuant to POMS SI 01120.225(D), a nonprofit corporation may employ the services of a for-profit entity, but the nonprofit corporation must maintains ultimate managerial control over the Trust. For example, the nonprofit must remain responsible for determining the amount of the trust corpus to invest, removing or replacing the trustee, and making the day-to-day decisions regarding the health and well-being of the pooled trust beneficiaries. See id.

It appears that the Trust provides the Trust Fund Manager with authority exceeding the limits set forth in POMS SI 01120.225. In particular, Article 8.04 of the Trust seems to impermissibly allow the Trust Fund Manager to determine the amount of the Trust corpus to invest. Moreover, the provision allowing the Trustee to delegate such powers and duties to the Trust Fund Manager as it sees fit is overly broad. See Art. 7.03(f). As noted above, for the pooled trust exception to apply, the Trustee must retain ultimate managerial control over the Trust, and certain responsibilities may not be delegated. See POMS SI 01120.225(D).

ii. Separate Sub-Accounts Are Maintained

Consistent with the second requirement, each Beneficiary has a separate sub-account, which is then pooled for purposes of investing and managing the funds. Art. 4.01.

iii. The Trust Satisfies the Requirement that Accounts Be Established Solely for the Benefit of the Disabled Individual

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

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

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

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

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

POMS SI 01120.199(F). Here, the Trust only allows for early termination if (a) the sub-account balance reaches zero dollars or (b) if, in the Trustee’s sole and absolute discretion, continuation of the sub-account would not be in the best interests of the Beneficiary because the sub-account’s “assets are at such a level as [to] make continued administration of the Sub-Account financially burdensome and uneconomical.” Art. 6.01. Under the first scenario, the above criteria are moot because there would be no remaining funds in the sub-account. In any event, the Trust’s early termination provisions appear to comply with POMS SI 01120.199(F). The Trust’s provision for disposition of assets upon termination of a sub-account only allows for the payment of “reasonable expenses and administration fees” prior to state Medicaid payback. Art. 6.02. That appears to be consistent with the POMS, which allow for “[r]easonable fees and administrative expenses associated with the termination of the Trust” prior to reimbursement of medical assistance to the State(s). POMS SI 01120.199(F)(3). Further, following Medicaid payback, the balance of the remaining assets are to be distributed to the Beneficiary.¹

See Art. 6.02(c). The Trust’s early termination provisions are thus acceptable.

In addition, the Trust does not contemplate any other impermissible payments or benefits to third parties. The Trust states that sub-accounts are for the “sole benefit” of the Beneficiary, and it does not otherwise provide for improper distributions. See Art. 1.01(h), 5.03, 5.04.

iv. The Trust Properly Provides that Individuals Authorized by Statute May Establish a Sub-Account

v. The Trust Properly Provides for Medicaid Reimbursement

The Trust satisfies the fifth requirement because it contains specific language providing that, upon the death of a Beneficiary, the Trust shall first be subject to claims for reimbursement from the State of North Dakota or any other state that provided medical assistance benefits to the Beneficiary. Art. 6.02. The Trust does not limit payment to any particular state or time-period. See id.; see also POMS SI 01120.203(B)(2)(g).

While the Trust allows for payment of “reasonable expenses and administration fees” prior to State Medicaid payback, POMS SI 01120.203(B)(3) expressly provides that “[r]easonable fees for administration of the trust estate” are “[a]llowable administrative expenses” excepted from the requirement that states that provided Medicaid have the first right of reimbursement. Art. 6.02; see also POMS SI 01120.203(B)(2)(g). The Trust does not provide any additional detail as to what expenses and administration fees it would consider “reasonable,” but it does state its intent to “conform with all the requirements of 42 U.S.C. § 1396p and/or related laws and regulations . . . pertaining to reimbursements to States for Government Assistance provided on behalf of such Beneficiary.” Art. 6.02. Given the Trust’s stated intent, as well as the fact that it does not expressly allow for the payment of any prohibited expenses prior to state Medicaid payback, we believe this Trust language is acceptable.²

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

Even if the Trust is amended to address the issue noted above, the sub-accounts must still be evaluated under the regular resource rules. See POMS SI 01120.203(B)(1)(A); POMS SI 01120.200. Pursuant to the Joinder Agreement, the sub-account will be funded by the beneficiary. See Joinder Agreement ¶¶ B-C. SSA applies the regular resource rules to determine whether a trust that is established with a beneficiary’s own assets is a resource. See POMS SI 01120.200(D).³ Pursuant to these rules, trust property may be a resource for SSI purposes if the individual: (1) has the authority to revoke the trust and then use the funds to meet his basic needs for food or shelter; (2) can direct the use of the trust principal for his support and maintenance; or (3) can sell his beneficial interest in the trust. See POMS SI 01120.200(D)(1)(a)-(b).

The Trust provides that the sub-accounts are irrevocable as to the Grantor and Beneficiary. Art. 1.04. But a general principle of trust law holds that if a grantor is also the sole beneficiary of a trust, the trust is revocable regardless of language to the contrary in the trust document. See Restatement (Third) of Trusts § 65 (2003); S~ and A~ on Trusts, § 34.3. North Dakota appears to follow this general principle. See POMS PS 01825.037 (PS 17-075). Even so, the Trust remains irrevocable because the Trust and Joinder Agreement identify residual beneficiaries — any remaining funds (after the reimbursement of Medicaid payments and payment of funeral expenses and administrative costs) are distributed to “Descendants of the Beneficiary.” See Art. 6.02(c); Joinder Agreement § L.3. See also POMS SI 01120.200(D)(3) (providing that “residual beneficiaries are assumed to be created, absent evidence of a contrary intent, when a grantor names heirs, next of kin, or similar groups to receive remaining assets in the trust upon the grantor’s death. In such case, the trust is considered to be irrevocable.”).

Further, beneficiaries do not have the right to direct the use of the Trust principal for their support and maintenance; rather the Trustee has the sole and absolute discretion to elect to disburse such funds for the benefit of a Beneficiary. See Art. 5.01. The Trust also contains a spendthrift clause that prohibits beneficiaries from anticipation, assignment, attachment, or compelling a disbursement from the Trust. Art. 2.04; see also POMS SI 01120.200(D)(1)(a). Under North Dakota law, a spendthrift clause is valid in a self-settled trust that meets the pooled trust criteria in POMS SI 01120.203. See POMS PS 01825.037 (PS-17-075 (citing N.D. Cent. Code Ann. §§ 59-13-03.(503)(2)-(3); 59-13-05.(505)(1))). Therefore, assuming the Trust was otherwise amended to satisfy the pooled trust requirements, the spendthrift provision would prevent a Beneficiary from selling his beneficial interest the Trust.

3. Conclusion

In sum, we conclude that the Trust does not satisfy the pooled trust exception to counting assets in the sub-accounts as resources. The Trust allows for the Trust Fund Manager to have excess authority. Further, the Joinder Agreement does not conform to the Trust Agreement. If LSS were to correct the Joinder Agreement and amend the Trust to address the problematic provisions and satisfy the pooled trust exception, the sub-accounts would not be countable as resources under the regular resource counting rules.

B. PS 17-120 2016 Restatements of Declaration of North Dakota Pooled Trust and North Dakota Third Party Pooled Trust

Date: July 19, 2017

1. Syllabus

The Regional Chief Counsel (RCC) Opinion reviews the restated North Dakota Pooled Trust (the “Restated Trust”) and Joinder Agreement to determine if they remedy the deficiencies in the Trust such that the Trust now conforms to section 1917(d)(4)(C) of the Social Security Act (the “pooled trust exception”). The RCC was also asked to review the 2016 Restatement of Declaration of North Dakota Third Party Pooled Trust Master Agreement (the “Restated Third-Party Trust”) and Joinder Agreement, a trust that was not reviewed as part of an earlier opinion. The RCC determined that the Restated Trust and Joinder Agreement remedy the deficiencies identified in the earlier opinion. The RCC also determined that sub-accounts established pursuant to the Restated Third-Party Trust would not count as a resource because the trust satisfies the regular resource counting rules.

2. Opinion

Question Presented

You asked us to review the restated North Dakota Pooled Trust (the “Restated Trust”) and Joinder Agreement to determine if they remedy the deficiencies in the Trust such that the Trust now conforms to section 1917(d)(4)(C) of the Social Security Act (the “pooled trust exception”).

You have also asked us to review the 2016 Restatement of Declaration of North Dakota Third Party Pooled Trust Master Agreement (the “Restated Third-Party Trust”) and Joinder Agreement, a trust that was not reviewed as part of our earlier opinion.

Short Answer

We have determined that the Restated Trust and Joinder Agreement remedy the deficiencies identified in our earlier opinion. We have also determined that sub-accounts established pursuant to the Restated Third-Party Trust would not count as a resource because the trust satisfies the regular resource counting rules.

Background

We previously reviewed the North Dakota Pooled Trust (the “Trust”) to determine whether it conformed to the pooled trust exception. We determined that the Trust did not conform to our requirements for the following reasons:

Although it was established by a nonprofit corporation, it provided a Funds Manager with the authority to invest funds without oversight by the Trustee.
The Trust allowed for possible payments to third parties; in particular, it allowed payments for companion travel in circumstances beyond those allowed by the POMS.
The Trust allowed for early termination and provided that the Trustee could direct the Funds Manager to continue to administer a sub-account under “separate arrangement,” without limiting the “separate arrangement” to another pooled trust, as required by the POMS.

See Memorandum from OGC Region VIII to Deputy Assistant Regional Commissioner Region VIII, North Dakota Pooled Trust, Oct. 23, 2015.

Subsequently, Guardian and Protective Services, Inc. (“GaPS”) submitted a “2016 Restatement of Declaration of North Dakota Pooled Trust” that amended numerous provisions of the Master Agreement. GaPS also provided an updated Joinder Agreement. In addition, GaPS has also submitted a “2016 Restatement of Declaration of North Dakota Third Party Pooled Trust” and Joinder Agreement; we have not reviewed a previous version of this agreement.

Discussion

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

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

For this exception to apply, the pooled trust must satisfy certain requirements:

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

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

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

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

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

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

In this case, we previously determined that the Trust failed to meet the first and third requirements. Further, in reviewing the Restated Trust and Joinder Agreement, we have also identified some potentially problematic language with respect to the second requirement.

The Trust Must Be Established and Maintained by a Nonprofit Association

We advised that the original Trust ran afoul of this requirement because it appeared to provide a Funds Manager with authority exceeding the limits set forth in POMS SI 01120.225, which requires that a nonprofit corporation maintain ultimate managerial control over the Trust. In particular, the Trust did not specify that GaPS, as Trustee, would be responsible for determining the amount of the Trust corpus to invest. See Trust, Art. 7.4. It also gave the Funds Manager the authority to terminate the entire Trust in certain circumstances, and allowed the Funds Manager to make payments or disbursements “to any person deemed suitable by [the] Funds Manager.” Trust, Art. 3.6.3, 12.3.

The Restated Trust now appears to comply with this requirement. In particular, Article 7.4 of the Restated Trust, which pertains to the powers of the Funds Manager, now makes clear that the Trustee maintains ultimate managerial control and that the Funds Manager operates “under the close direction and supervision of the Trustee,” and that the Funds Manager’s ability to invest the assets of the Trust is likewise subject to the “close direction and supervision” of the Trustee.

The Restated Trust also removed former Article 3.6.3, which allowed disbursements “to any person deemed suitable by Funds Manager,” and amended Article 12.3 to state that only the Trustee may terminate the entire Trust if it becomes impossible or impracticable to carry out its purposes. In addition, the Restated Trust made minor changes to numerous other provisions to further clarify that ultimate authority and managerial control rests with the Trustee, not the Funds Manager. See, e.g., Restated Trust, Art. 2.4, 3.1, 3.3, 3.8, 4.3.2, 5.1, 6.1, 6.3, 6.4, 7.1.

With these changes, the Funds Manager no longer appears to have authority exceeding the limits outlined in POMS SI 01120.225.

A Separate Account Must Be Maintained for Each Beneficiary of the Trust

Section Q.4 of the Joinder Agreement to the Restated Trust states, in part, “[i]f the Grantor intends to enroll more than one Beneficiary under one Trust Sub-Account, an additional agreement is required.” This language is problematic because a separate sub-account must be maintained for each beneficiary. See POMS SI 01120.203(B)(2). However, this provision conflicts with several more specific provisions of the master agreement, which clearly state that each sub-account must be maintained for a single beneficiary. See, e.g., Restated Trust, Art. 2.12, 3.8, 6.1. Where there is an apparent conflict between different clauses or provisions of an agreement, the clause with the more specific language governs. See Fortis Benefits Ins. v. Hauer, 636 N.W.2d 200, 205 (N.D. 2001) (“[I]t is a well-accepted rule of contract interpretation that when a conflict exists between a specific provision and a general provision in a contract, the specific provision ordinarily prevails over the general provision.”) (citing Restatement (Second) of Contracts § 203(c) (1981)); Langer v. Pender, 764 N.W.2d 159, 163 (N.D. 2009) (“General rules of construction of written documents apply to the construction of trust instruments.”). Thus, we conclude that the repeated references in the Restated Trust indicating that a sub-account can only be for one beneficiary control. Consequently, the Restated Trust satisfies this pooled trust requirement.

Accounts in the Trust Must Be Established Solely for the Benefit of the Disabled Individual

In our analysis of the original Trust, we concluded that it failed to satisfy this criteria for two reasons. First, the Trust appeared to allow for impermissible third-party payments. Second, the Trust’s early termination provisions did not comply with POMS SI 01120.199.

On the first point, we advised that Trust language that sought to outline inappropriate uses of Trust assets was not sufficiently restrictive because it implied that the Funds Manager could pay third-party travel expenses in circumstances beyond those provided for in POMS SI 01120.201(F)(2)(b). See Trust, Art. 3.5.4. The Restated Trust has now remedied this deficiency by removing the prior language and adding two new provisions that track the language in POMS SI 01120.201(F)(2)(b) regarding the circumstances in which the payment of third-party travel expenses do not violate the sole benefit rule. See Restated Trust, Art. 3.5.4.2 & 3.5.4.3.

On the second point, we have previously explained that where a trust can be terminated during a beneficiary’s lifetime, the trust must meet certain additional requirements for it to remain for “the sole benefit of the disabled individual.” See POMS SI 01120.199(F); POMS SI 01120.203(B)(2)(e). While a pooled trust does not need to meet these requirements if the early termination clause solely allows for a transfer of the beneficiary’s assets from one pooled trust to another pooled trust, the clause must contain specific limiting language that prevents the early termination from resulting in disbursements other than to the secondary pooled trust, or to pay for allowable administrative expenses. POMS SI 01120.199(F)(2).

We found the early termination provision of the original Trust unacceptable because it provided, in relevant part, that:

[T]he Trustee in its sole discretion, may direct the Funds Manager to . . . continue to administer the Trust Sub-Account under separate arrangement with the affected Beneficiary or his or her Primary Representative.

Trust, Art. 12.1.2. We noted that, in contravention of POMS SI 01120.199(F)(2), the “separate arrangement” provision did not contain any specific limiting language precluding disbursement to a trust not meeting the requirements of § 1917(d)(4)(C).

However, the Restated Trust has now revised this provision to read:

[T]he Trustee in its sole discretion, may direct the Funds Manager to . . . transfer the remaining balance of the Trust Sub-Account to another 42 U.S.C. § 1396p(d)(4)(C) pooled trust, subject to the limitation that such transfer may not result in disbursements other than to the secondary pooled trust.

Restated Trust, Art. 12.1.2. The new language satisfies POMS SI 01120.199(F)(2).

We conclude that the Restated Trust has corrected the deficiencies previously identified with respect to the requirements that a pooled trust be maintained by a non-profit association and that a sub-account be for the sole benefit of a disabled individual. Thus, the Restated Trust satisfies the pooled trust exception to counting assets in the sub-accounts as resources.⁴

B. The Restated Third-Party Trust Satisfies the Regular Resource Counting Rules

While the Restated Third-Party Trust generally tracks the language used in the Restated Trust, it does differ in a few material respects. Most significantly, the Restated Third-Party Trust defines “Grantor” as:

“any person or entity other than the Beneficiary, or other than a person who holds title to assets in which the Beneficiary has a legal or equitable interest, or other than a person who owes an undischarged legal duty of support to the Beneficiary under North Dakota law that establishes a Sub-Account within the Trust for the benefit of a Beneficiary; or, that contributes his, her or its own assets to an existing Sub-Account of the Trust for the benefit of a Beneficiary, whether such contribution is made by gift, will, beneficiary designation, or pursuant to a Court Order.”

Restated Third-Party Trust, Art. 2.6, 2.11. Because Trust sub-accounts can only be established with the assets of third parties, the Restated Third-Party Trust is evaluated under the regular resource counting rules. See POMS SI 01120.200(A)(2)(b). Under these rules, assets in a trust sub-account may still be a resource for SSI purposes if the beneficiary: (1) has the authority to revoke or terminate the trust and then use the funds to meet his basic needs for food or shelter; (2) can direct the use of the trust principal for his support and maintenance; or (3) can sell his beneficial interest in the trust. See POMS SI 01120.200(D)(1)(a)-(b).

These requirements are satisfied here. First, a beneficiary cannot ordinarily terminate a third-party trust, and the Restated Third-Party Trust provides that the sub-accounts are irrevocable as to the grantor and beneficiary. Art. 5.1, 11.1. See POMS SI 01120.200(D)(1)(b). Second, beneficiaries do not have the right to direct the use of the trust principal for their support and maintenance; rather the Trustee has sole and absolute discretion to elect to disburse such funds for the benefit of the beneficiary. Art. 3.1, 3.4. Third, there are no mandatory disbursements, and in any event the Trust contains a spendthrift clause that prohibits beneficiaries from anticipation, assignment, attachment, or compelling a disbursement from the Trust. Art. 3.9. Such clauses are valid under North Dakota law. See N.D. Cent. Code Ann § 59-13-02.

Conclusion

We conclude that the Restated Trust has corrected the deficiencies previously identified and now satisfies the requirements of the pooled trust exception. We further conclude that under the regular resource counting rules (the only rules applicable to the Restated Third-Party Trust, but also applicable to the Restated Trust), sub-account assets would not be countable for purposes of SSI.

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

Date: April 6, 2017

1. Syllabus

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

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

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

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

In Colorado, the law is unclear.

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

2. Opinion

Question Presented

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

Background

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

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

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

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

Discussion

Revocability where Grantor is the Sole Beneficiary

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

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

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

References:

Colorado:

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

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

Montana:

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

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

North Dakota:

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

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

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

South Dakota:

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

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

Utah:

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

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

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

Wyoming:

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

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

Validity of Spendthrift Clause

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

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

References:

Colorado:

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

Montana:

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

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

North Dakota:

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

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

South Dakota:

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

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

Utah:

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

Wyoming:

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

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

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

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

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

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

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

References:

Colorado

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

Montana

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

North Dakota

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

South Dakota

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

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

Utah

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

Wyoming

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

Conclusion

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

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

D. PS 16-169 Dakota Pooled Trust (PL 16-23)

Date: July 28, 2016

1. Syllabus

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

The Trust provides a Funds Manager with the authority to invest funds without proper oversight by the Trustee;

The Trust potentially allows prohibited payments to, or on behalf of, third parties during the beneficiary’s lifetime; and

The Trust contains an early termination provision stating that the Trustee may direct the Funds Manager to continue to administer a sub-account under “separate arrangement,” without limiting that “separate arrangement” to another pooled trust, as required by the POMS.

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

2. Opinion

Question Presented

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

Short Answer

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

The Trust provides a Funds Manager with the authority to invest funds without proper oversight by the Trustee;

The Trust potentially allows prohibited payments to, or on behalf of, third parties during the beneficiary’s lifetime; and

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

Background

Definitions, Establishment, and Purpose

A North Dakota nonprofit corporation, Guardian, Fiduciary & Advocacy Services, Inc. (GFAS), established the Trust in 2010. See Declaration of Trust. The purpose of the Trust is to provide distributions for the special needs, supplemental needs, and supplemental care of the “Beneficiaries,” i.e., persons with disabilities as defined in the Social Security Act (Act) who have sub-accounts established within the Trust. See Art. 2.2, 2.10, 3.2, 3.3. The Trust defines special needs, supplemental needs, and supplemental care as “non-support disbursements for the benefit of the Beneficiaries,” which may include medical or dental treatment, therapy, insurance premiums, entertainment, companionship, cultural experiences, vacations, television, educational materials, and other expenses authorized by the Funds Manager or Trustee. Art. 3.3. Grantors are defined as “a parent, grandparent, or Guardian of a Beneficiary, the Beneficiary himself or herself, any court, or any other person or entity that established a Sub-Account within the Trust for the benefit of a Beneficiary.” Art. 2.7. GFAS maintains a separate sub-account for each Beneficiary, but the Trust sub-accounts are pooled for the purpose of investing and managing the funds. Art. 6.1.

Amendment, Termination, and Distribution of Assets upon Termination

The Trust is irrevocable upon execution of the Joinder Agreement by the Grantor and Trustee, and funding of a sub-account for a beneficiary. Art. 11.1. But the Trust may be amended to accommodate a change in law related to the Medicaid program, the SSI program or other government assistance program, or to “improve the administration of the Trust provided, however, that no amendment may be made that will materially change the purposes of the Trust and the intent of the Settlor.” Art. 11.2. Amendments may not alter the purpose of the Trust, make gifts revocable that are otherwise irrevocable, or change the duties of the Funds Manager without his consent. Art. 11.3.

A Trust sub-account may be terminated if, due to developments in the law, the Trustee and Funds Manager have “reasonable cause to believe that the assets of a Trust Sub-Account are or will become liable for basic maintenance, support, or care that has been or would otherwise be provided to such Beneficiary by local, state, or federal government, or an agency or department thereof.” Art. 12.1. Similarly, if it becomes impossible or impracticable to carry out the purposes of the entire Trust with respect to all, or substantially all, beneficiaries, the Trustee, or in his absence, the Funds Manager, may use discretion to terminate the entire Trust. Art. 12.3.

In the event of the termination of a sub-account or the entire Trust, the Trustee or Funds Manager may distribute the trust assets in each sub-account by first making any required payments to any state and then distributing any remaining balance of Trust assets to the beneficiary. Art. 12.3. But rather than termination and distribution, the Trustee may direct the Funds Manager to continue to administer a sub-account under a “separate arrangement” with the affected Beneficiary. Art. 12.1.2.

Upon the death of a beneficiary, remaining amounts in the sub-account will be distributed as follows: (1) reimbursement for services by the State of North Dakota, or such other state that provides Medicaid benefits to the beneficiary, up to the amount equal to the total medical assistance paid on behalf of the beneficiary; (2) unpaid funeral expenses of the beneficiary and any necessary administrative costs in the settlement of the sub-account; and (3) to the final remainder beneficiaries listed in the Joinder Agreement. Art. 12.2; Joinder Agreement § L.3.

Spendthrift Provision

The Trust provides that no part of the Trust shall be subject to anticipation, assignment, attachment, control by a creditor of a beneficiary, judicial process, or levy against a beneficiary. Further, no beneficiary may compel a disbursement from the Trust. Art. 3.9.

Governing Law

The trust documents are governed by North Dakota law. Art. 13.2.

Joinder Agreement

The Trust is effective as to a beneficiary upon: (1) execution of a Joinder Agreement by a Grantor or a court order, (2) certification of the Joinder Agreement by the Trustee; and (3) Grantor’s delivery to the Funds Manager, and the Funds Manager’s acceptance of, assets. Art. 4.3. The Trust is irrevocable upon delivery and acceptance of assets, and the Grantor releases all rights in, control of, and interest in the assets. Art. 5.1.

Discussion

A. The Master Trust Does Not Meet the Pooled Trust Exception Under 42 U.S.C.
§ 1396p(d)(4)(C)

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

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

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

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

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

See id.; POMS SI 01120.203(B)(2). As discussed below, the Trust does not meet the first and third pooled trust requirements.

1. The Trust Is Established and Maintained by a Nonprofit Association, But it Provides Excess Authority to a Funds Manager

The Trust was established by GFAS, a North Dakota nonprofit corporation. But the Trust has employed an entity as Funds Manager to receive, hold, manage, and control all income arising from the Trust. Art. 2.4, 7.4. Because the Trust provides that the Funds Manager must be a bank or trust company, we assume that the Funds Manager is a for-profit entity. Art. 7.3 Pursuant to POMS SI 01120.225(D), a nonprofit corporation may employ a for-profit entity as Funds Manager if the nonprofit corporation maintains ultimate managerial control over the Trust. For example, the nonprofit corporation must remain responsible for determining the amount of the trust corpus to invest, removing or replacing the trustee, and making the day-to-day decisions regarding the health and well-being of the pooled trust beneficiaries. See id.

Here, the Funds Manager has the authority to control all of the Trust income, as well as sell, mortgage, and encumber property, and invest or borrow money under any terms and conditions it deems proper. Art. 7.4. Furthermore, where the Trustee has not provided direction, the Funds Manager has the authority to terminate the entire Trust if it becomes impossible or impracticable to carry out its purposes with respect to all or substantially all beneficiaries. Art. 12.3.

It appears that the Trust provides the Funds Manager with authority exceeding the limits set forth in POMS SI 01120.225. The provision of the Trust granting authority to the Funds Manager allows for investment of the assets in the Funds Manager’s common funds, and does not specify that GFAS will be responsible for determining the amount of the Trust corpus to invest. Art. 7.4; see POMS SI 01120.225(D).

2. Separate Sub-Accounts Are Maintained

Consistent with the second requirement, each beneficiary has a separate sub-account, which is then pooled for purposes of investing and managing the funds. Art. 6.1.

3. Multiple Provisions of the Trust Appear to Violate the Requirement that Accounts Be Established Solely for the Benefit of the Disabled Individual

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

a. The Trust Allows for Prohibited Payments to, or on Behalf of, Third Parties

The Trust states that the Trustee or Funds Manager, in their sole discretion, may provide payments for various special, supplemental, and non-support needs of a beneficiary, including medical treatment, travel, entertainment, telephone services, and cable. Art. 3.3. But the Trust also provides that assets “shall not be used” to pay for services that are not “necessary” to enhance the beneficiary’s quality of life, which includes “avoiding disbursements that only incidentally benefit a beneficiary.” Art. 3.5.4. The Trust explains that this prohibition would cover travel expenses for a companion when the beneficiary is capable of travel without a companion or travel expenses for a non-beneficiary when a visit to the beneficiary is incidental to the travel. Art. 3.5.4.1. It would also cover the purchase or rental of a home that greatly exceeds the needs of the Beneficiary and is used by others, or the purchase or rental of a motor vehicle that is ordinarily used by others. See Art. 3.5.4.2-.4.3.

These “incidental benefits” provisions could potentially allow a sub-account to benefit a
third party in contravention of POMS SI 01120.203(B)(2)(e). The language of the provisions appears to contemplate that a Trust sub-account can permissibly benefit another individual or entity during the disabled individual’s lifetime, as long as the benefit to the beneficiary is more than “incidental.” See Art. 3.5.4; POMS SI 01120.203(B)(2)(e). For example, the Trust’s language regarding payment of travel expenses for third parties is overly broad. The provision implies that the Funds Manager may pay travel expenses in circumstances where: (1) a companion is necessary for the beneficiary to travel; or (2) when the primary purpose of a trip is to visit a beneficiary. However, under the POMS, third-party travel expenses are more narrowly limited to situations where: (1) the companion’s travel is necessary for the beneficiary to obtain medical treatment; and (2) the companion’s travel is to visit the beneficiary in an institution, nursing home, or other long-term care facility. See POMS SI 01120.201(F)(2)(b) (emphasis added).

Because this Trust language impermissibly allows for the possibility of a Trust sub-account benefitting another individual or entity during the disabled individual’s lifetime, it violates the POMS requirement that the accounts be established for the sole benefit of the disabled individual. See POMS SI 01120.203(B)(2).

b. The Trust Allows For Early Termination of a Sub-Account and Creation of a “Separate Arrangement” that May Not Meet the Requirements of the Pooled Trust Exception

Generally, a trust that can be terminated during a beneficiary’s lifetime only remains for “the sole benefit of the disabled individual” if the following criteria are met:

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

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

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

See POMS SI 01120.199(F).

For a pooled trust under § 1917(d)(4)(C), however, an early termination clause does not need to meet the above criteria if the clause solely allows for a transfer of the beneficiary’s assets from one pooled trust to another pooled trust. POMS SI 01120.199(F)(2). The early termination clause must contain “specific limiting language” making it clear that the early termination does not result in any disbursements other than to the secondary pooled trust or to pay for allowable administrative expenses. Id.

Here, the Trust provides that where future developments in the law affect the sub-account, and “the Trustee and the Funds Manager have reasonable cause to believe that the assets of a Trust sub-account are or will become liable for basic maintenance, support, or care that has been or that would otherwise be provided to such Beneficiary by local, state, or federal government, or an agency or department thereof,” the Trustee may direct the Funds Manager to either terminate the sub-account, or continue to administer the sub-account under “separate arrangement” with the affected beneficiary. Art. 12.1, 12.1.1, 12.1.2. The provision allowing for the creation of a “separate arrangement” with the affected beneficiary does not contain any specific limiting language indicating disbursement would only be to another pooled trust meeting the requirements of § 1917(d)(4)(C). Thus, it fails to satisfy POMS SI 01120.199(F)(2).

c. The Other Early Termination Provisions Appear to Satisfy the Relevant Criteria

The Trust also provides that the Trustee or Funds Manager may determine that the entire Trust should be terminated in the event that, in either of their discretion, “it becomes impossible or impracticable to carry out the purposes of the Trust with respect to all or substantially all beneficiaries.” Art. 12.3. A related provision states that where the Trustee determines that the Trust has become impossible to implement for the affected beneficiary, he may direct the Funds Manager to terminate the sub-account pursuant to Article 12.3. See Art. 12.1.1.

Upon termination of either the entire Trust or a sub-account during the beneficiary’s lifetime, the assets are to be distributed to the beneficiary “following any required payment to any state.”
Art. 12.3. While this language does not specifically address reimbursement to states for medical assistance paid under Medicaid, the payback provision does broadly cover payment to states before distributing any remainder to the beneficiary. Further, the beneficiary does not have the authority to terminate the Trust. Thus, these Trust provisions appear to comply with the early termination requirements of POMS SI 01120.199(F).

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

To meet the fourth requirement, the accounts in the Trust must be established by a parent, grandparent, legal guardian of an individual, individual himself, or by a court. See 42 U.S.C.
§ 1396p(d)(4)(C); see also POMS SI 01120.203(B)(2)(f). This requirement is satisfied in the present case as the sub-account at issue was established by the disabled individual. See Art. 2.7; Joinder Agreement §§ B-C. We note, however, that the Trust also allows “other person[s] or entit[ies]” to establish sub-accounts. See Art. 2.7. If an individual beneficiary sub-account was established by anyone other than a parent, grandparent, legal guardian, disabled individual, or court, it would still be a countable resource.

5. The Trust Properly Provides for Medicaid Reimbursement

The Trust satisfies the fifth requirement because it contains specific language providing that, upon the death of a beneficiary, the Trust shall first pay claims for reimbursement for services by the State of North Dakota or such other state that provided medical benefits to the beneficiary, up to the amount of benefits paid. Art. 12.2.1. The Trust does not limit payment to any particular state or time-period. See id.; see also POMS SI 01120.203(B)(2)(g). Nor does the Trust allow for payment of any prohibited expenses prior to reimbursement. Art. 12.2; see also POMS SI 01120.203(B)(3).

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

Even if the Trust is amended to address the issues noted above, the sub-accounts must still be evaluated under the regular resource rules. See POMS SI 01120.203(B)(1)(A); POMS SI 01120.200. Pursuant to the Joinder Agreement, the sub-account will be funded by the beneficiary. See Joinder Agreement § P.1. The Agency applies the regular resource rules to determine whether a trust that is established with a beneficiary’s own assets is a resource. See POMS SI 01120.200(D).⁵ Pursuant to these rules, trust property may be a resource for SSI purposes if the individual: (1) has the authority to revoke the trust and then use the funds to meet his basic needs for food or shelter; (2) can direct the use of the trust principal for his support and maintenance; or (3) can sell his beneficial interest in the trust. See POMS SI 01120.200(D)(1)(a)-(b).

The Trust provides that the sub-accounts are irrevocable as to the grantor and the beneficiary. Art. 5.1, 11.1. But a general principle of trust law holds that if a grantor is also the sole beneficiary of a trust, the trust is revocable regardless of language to the contrary in the trust document. See Restatement (Second) of Trusts § 339 (1959). It is unclear whether North Dakota follows this general principle.⁶ But even assuming they do, the Trust remains irrevocable because the Trust and Joinder Agreement identify residual beneficiaries—any remaining funds (after the reimbursement of Medicaid payments and payment of funeral expenses and administrative costs) are distributed to the “Final Remainder Beneficiaries,” who are parties designated in the Trust Joinder Agreement. See Art. 12.2.3; Joinder Agreement § L.3 (requiring the identification of remainder beneficiaries). See also POMS SI 01120.200(D)(3) (providing that “residual beneficiaries are assumed to be created, absent evidence of a contrary intent, when a grantor names heirs, next of kin, or similar groups to receive remaining assets in the trust upon the grantor’s death. In such case, the trust is considered to be irrevocable.”).

Further, beneficiaries do not have the right to direct the use of the Trust principal for their support and maintenance; rather the Funds Manager or Trustee have the sole and absolute discretion to elect to disburse such funds for the benefit of the beneficiary. See Art. 3.1, 3.4, 3.6. The Trust also contains a spendthrift clause that prohibits beneficiaries from anticipation, assignment, attachment, or compelling a disbursement from the Trust. Art. 3.9; see also POMS SI 01120.200(D)(1)(a). But where the grantor is also the beneficiary, such spendthrift provisions are generally invalid. See Restatement (Third) of Trusts § 58 cmt. e (2003); POMS SI 01120.200(B)(16). While unable to locate any North Dakota authority on point, we again believe that North Dakota courts would follow the general rule. Even so, the beneficiary’s interest in the Trust has no significant market value because disbursements are within the sole discretion of the Trustee. See Art. 3.1. Thus, the beneficiary’s interest in the Trust should be considered a resource with zero market value. See POMS SI 01140.44.

Conclusion

In sum, we conclude that the Trust does not satisfy the pooled trust exception to counting assets in the sub-account as resources. The Trust allows for the Funds Manager to have excess authority, and the potential benefits to third parties and early termination provision allowing for creation of a separate arrangement appear to violate the requirement that the Trust be established solely for the benefit of the disabled individual. If GFAS were to amend only the problematic (and no other) provisions of the Trust to satisfy the pooled trust exception, the sub-accounts would not be countable as resources under the regular resource counting rules.

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

DATE: December 5, 2014

1. SYLLABUS

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

2. OPINION

QUESTION PRESENTED

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

SHORT ANSWER

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

BACKGROUND

The ALJQ Special Needs Trust was created in September 2002. According to the trust document, A~ and L~ are the “Trustmakers” and J~ is the beneficiary. At the time of the creation of the trust, J~ was a minor and was purported to have a number of conditions that might qualify him as disabled. The trust was funded, according to Schedule A of the trust, with “Ten Dollars Cash” (presumably from his parents) and $10,582.62 in assets bequeathed to J~ by his uncle. ⁷ The trust contains a provision stating that the trust is irrevocable (Section 1.05).

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

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

DISCUSSION

Whether the Trust Is a Resource for Purposes of SSI Eligibility

1. Special Needs Trust Exception

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

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

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

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

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

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

Contains the Assets of an Individual Under Age 65 and Disabled

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

Established for the Sole Benefit of the Disabled Individual

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

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

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

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

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

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

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

Medicaid Payback

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

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

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

2. Court Order Requiring Approval of Withdrawals

The court order requiring approval of withdrawals from the Trust does not change our analysis. Under the applicable provisions of the Social Security Act, if there are any circumstances under which payment from the trust could be made to or for the benefit of J~, the Trust must be counted as a resource—unless an exception applies. See 42 U.S.C. § 1382b(e)(3)(A), (e)(5). As we have explained, the Special Needs Trust exception does not apply. Even if the court order limits the trustee’s discretion, the Act makes clear that such trusts are countable regardless of any restrictions on the trustee’s discretion regarding distributions. See 42 U.S.C. § 1382b(e)(2)(C). ⁸

3. Effect of Defunding

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

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

CONCLUSION

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

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

DATE: November 4, 2014

1. SYLLABUS

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

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

2. OPINION

Questions Presented

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

Short Answer

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

Background

Life Enrichment Pooled Trusts and the Joinder Agreement

Life Enrichment offers trusts for Montana, North Dakota, South Dakota, Utah, and Wyoming. ⁹ Except for references to different state statutes in the “Pooled Trust” introductory section of the MTAs, the trust documents are identical. Relevant provisions of the MTAs are discussed below.

Definitions, Establishment, and Purpose

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

Distribution of Assets and Spendthrift Provisions

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

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

Irrevocability and Termination

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

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

Discussion

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

§ 1396p(d)(4)(C).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(4) The Trust Properly Provides for Medicaid Reimbursement.

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

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

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

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

Conclusion

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

G. PS 03-060 Revocability of Draft Self-Settled Special Needs Trust and Pooled Trust - North Dakota

DATE: December 5, 2002

1. SYLLABUS

Given the current absence of a Regional POMS Supplement to SI 01120.200, this information should prove valuable to field offices who seek guidance on the treatment of trusts established in the State of North Dakota. In its opinion, the Denver OGC assumed the trusts met an exception outlined in SI 01120.203B.1. and SI 01120.203B.2. and then considered whether the trusts would count under the regular resource rules. OGC recognized that most States would determine that a grantor trust is revocable if the grantor is the sole beneficiary of the trust. OGC next considered whether either trust contained sufficient language necessary to establish a residual beneficiary; most States recognize the irrevocability of a grantor trust if there is a named residual beneficiary. While North Dakota law had been silent on the issue of whether the State could be considered a residual beneficiary, OGC opined that the courts would likely consider the State to be a creditor rather than a residual beneficiary. If a beneficiary is “the person for whose benefit property is held in a trust,” then OGC concluded that reimbursement to the State would constitute payment of a debt; therefore, none of the property held in either trust could be considered “held for the benefit” of the State. Having concluded that the State could not be considered a residual beneficiary, OGC examined the remaining trust language to determine whether either trust could be deemed irrevocable. In both instances, the grantor called for any remaining funds following Medicaid reimbursement to go to the “estate of the beneficiary.” OGC concluded that such language is not sufficient to name a residual beneficiary. Thus, each trust was found revocable and a resource for SSI purposes.

2. OPINION

You have asked whether a draft Self-Settled Special Needs Trust from the North Dakota Department of Human Services is revocable and therefore a countable resource for purposes of determining a claimant's eligibility for SSI. You also have forwarded to us a North Dakota Guardian and Protective Services (GAPS) Pooled Trust for similar consideration. For the reasons discussed below, we believe you would be justified in finding that both of these trusts are resources.

DISCUSSION

Section 205 of the Foster Care Independence Act of 1999 (P.L. 106-169), signed into law on December 14, 1999, provides that certain trusts established with the assets of an individual after January 1, 2000, will be considered a resource for supplemental security income (SSI) eligibility purposes. See 42 U.S.C. § 1382b(e)(3)(A); POMS SI 01120.201A.1. However, an exception from § 1382b(e)(3) was made for a “Medicaid Special Needs Trust” that (1) is established with the assets of a disabled individual under age 65; (2) is established for the benefit of such individual by a parent, grandparent, legal guardian, or a court; and (3) expressly provides that any amounts remaining in the trust upon the death of the individual will be distributed first to the State, up to an amount equal to the total medical assistance paid on behalf of the individual under a state Medicaid plan. See 42 U.S.C. §§ 1382b(e)(1) and (5); U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203B.1. We assume for purposes of this memorandum you have concluded that the draft Self-Settled Special Needs Trust from the North Dakota Department of Human Services meets all of these criteria and qualifies for the exception.

An exception from § 1382b(e)(3) also was made for a “Medicaid Pooled Trust” that meets the following criteria:

The trust is established and maintained by a nonprofit association.
The trust has separate accounts that are maintained for each beneficiary (but assets are pooled for investing and management purposes).
The accounts are established solely for the benefit of the disabled individual.
The accounts are established by the individual, a parent, grandparent, legal guardian, or a court; and
any amounts remaining in the beneficiary's account upon the death of the beneficiary are paid to the State up to an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under a state Medicaid plan.

See 42 U.S.C. §§ 1382b(e)(1) and (5); U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203B.2. We assume you have concluded that the GAPS Pooled Trust meets all of these criteria and qualifies for the exception.

The Office of the General Counsel's Office of Program Law has opined that, if an exception in 42 U.S.C. § 1382b(e)(5) is met, the trust cannot be considered under § 1382b(e)(3), but it does not provide a general resource exclusion for such trusts and the trust should be considered under the regular resource rules set forth in regulations to determine if it is a resource available to the individual. See “Memorandum from OGC (Jones ) to Associate Commissioner for Program Benefits (S~), SSA, Questions Related to Implementation of Section 205 of the Foster Care Independence Act of 1999 (Revocable Trusts Which Meet the Section 1917(d)(4)(A) and (C) Exceptions) - REPLY, (November 27, 2000)” (copy attached); see also POMS SI 01120.203B.3.b. Here, the draft Self-Settled Special Needs Trust and the GAPS Pooled Trust meet the Medicaid trust exceptions; therefore, they are subject to regular resource-counting rules.

Under the regular resource rules, “[i]f 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. “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.” Id.

Here, by its express terms, the draft Self-Settled Special Needs Trust is irrevocable. See Article I. However, “[m]ost States follow the general principle of trust law that if a grantor is also the sole beneficiary of a trust, the trust is revocable regardless of language in the trust document to the contrary.” POMS SI 01120.200D.3; see also Restatement (Second) of Trusts § 339 (1959). We have found no North Dakota cases or statutes that specifically address the question of the revocability of grantor or settlor trusts. We believe, however, that a North Dakota court “when faced with this question, would take the position taken by the majority of states where this question has been litigated,” i.e., the general rule expressed in the Restatement and the POMS that where the settlor of a trust is also the sole beneficiary and is not incapacitated, the trust is revocable. See Memorandum, Validity and Accessibility of Three Trusts in Colorado; State Law in Region VIII Regarding the Revocability of Grantor, or Settlor, Trusts, OGC (P~) to Regional Commissioner, SSA, Region VIII (November 30, 1994). As required by statute, the draft Self-Settled Special Needs Trust and the GAPS Pooled Trust both contain a provision that if there are residual assets remaining available after the beneficiary's death, the state of North Dakota or any other state that has provided medical assistance to the beneficiary shall be reimbursed for the amount paid by the state on the beneficiary's behalf. See draft Self-Settled Special Needs Trust, Article XI.B; GAPS Pooled Trust, Article XII.12.2(b).

“Most States recognize the irrevocability of a grantor trust if there is a named 'residual beneficiary' in the trust document who would, for example, receive the principal upon the grantor's death or the occurrence of some specific event.” POMS SI 01120.200D.3.

You have asked whether the State of North Dakota (specifically, the North Dakota Department of Human Services) constitutes a residual beneficiary, which would render the trusts that are the subject of this memorandum irrevocable. We have found no North Dakota cases or statutes that specifically address this question. However, “[a]ccording to the law in most States, the State is not considered a residual or contingent beneficiary, but is a creditor and the reimbursement is payment of a debt.” POMS SI 01120.200H.1.b. Section 3(4) of the Restatement defines a beneficiary as “[t]he person for whose benefit property is held in trust.” Arguably, none of the trust property in a Medicaid trust is held for the “benefit” of the state. Rather, any amounts paid to the State after the beneficiary's death are reimbursements for amounts the State paid for the benefit of the individual. See “Memorandum from OGC (D~) to Assistant Regional Commissioner Management and Operations Support, SSA, Region V, States Named as Beneficiary to a Trust, (June 24, 1997).” We believe that a North Dakota court would take the position taken by a majority of states and find the State is not a contingent or residual beneficiary.

One further issue with regard to the revocability of these two trusts remains. Both trusts state that if funds remain after the State of North Dakota (or any other state(s)) has been completely reimbursed, the remaining residual assets shall be distributed to the estate of the beneficiary. See draft Self-Settled Special Needs Trust, Article XI.B; GAPS Pooled Trust, Article XII.12.2(c). Where a future interest is limited to the heirs of the settlor, in the absence of evidence of a contrary intent, the inference is that the settlor does not intend to create a remainder interest in his heirs. Restatement (Second) of Trusts § 127, comment b (1959). Accordingly, a trust agreement containing language specifying that the trust will pass to the grantor-beneficiary's estate upon his or her death is legally equivalent to a trust instrument where there is no further provision regarding the disposition of the trust and is revocable. Language referring to the trust passing to the beneficiary's “estate” upon the beneficiary's death should therefore ordinarily not be viewed as creating a residual or contingent beneficiary that would make the trust irrevocable. See “Memorandum from OGC (K~) to Acting ARC, Programs, SSA, Region V, Clarification of Regional SSA Program Circular 94-05 Concerning Trusts, (May 24, 1995),” citing Restatement, § 127, comment b, p. 273.

In sum, we believe you would be justified in finding that the draft Self-Settled Special Needs Trust and GAPS Pooled Trust are revocable; therefore, these trusts should be counted as a resource for SSI purposes.

Footnotes:

[1]

^. The Trust actually contains an intervening step allowing for the payment of taxes, but because that provision describes taxes relating to “the death of the Beneficiary,” it would not apply where a sub-account was terminated early. See Art. 6.02(b). Regardless, state and federal taxes related to the termination of a trust are allowable expenses that may be paid prior to disbursement to a beneficiary. See POMS SI 01120.199(F)(1), (3).

[2]

^. We note that the Joinder Agreement’s provision pertaining to distributions of the remainder upon the beneficiary’s death does not precisely track the language used in the Trust Agreement, and also cross-references an article not appearing in the Trust Agreement. See Joinder Agreement ¶ L. The Joinder Agreement should be updated to conform to the master trust agreement.

[3]

^. This analysis also applies if a Trust is funded by a third party. See POMS SI 01120.200(D).

[4]

^. Further, as discussed in our previous memorandum, we believe that the sub-accounts are not countable as resources under the regular resources counting rules.

[5]

^. This analysis also applies if a Trust is funded by a third party. See POMS SI 01120.200(D).

[6]

^. While we have found no cases or statutes that specifically address whether North Dakota follows this principle, we believe that the North Dakota courts would follow the general rule. See POMS PS 01825.037.

[7]

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

[8]

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

[9]

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

[10]

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

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POMS Reference

PS: Title XVI Regional Chief Counsel Precedents

A. PS 18-102 Lutheran Social Service of Minnesota’s North Dakota Self-Settled Pooled Trust

1. Syllabus

2. Opinion

a. Definitions, Establishment, and Purpose

b. Amendment, Termination, and Distribution of Assets upon Termination

c. Spendthrift Provision

d. Governing Law

e. Joinder Agreement

f. The Master Trust Does Not Meet the Pooled Trust Exception Under 42 U.S.C. § 1396p(d)(4)(C)

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

3. Conclusion

B. PS 17-120 2016 Restatements of Declaration of North Dakota Pooled Trust and North Dakota Third Party Pooled Trust

1. Syllabus

2. Opinion

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

1. Syllabus

2. Opinion

D. PS 16-169 Dakota Pooled Trust (PL 16-23)

1. Syllabus

2. Opinion

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

1. SYLLABUS

2. OPINION

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

1. SYLLABUS

2. OPINION

G. PS 03-060 Revocability of Draft Self-Settled Special Needs Trust and Pooled Trust - North Dakota

1. SYLLABUS

2. OPINION

Footnotes: