This Regional Chief Counsel (RCC) opinion examines whether a particular provision in a Special Needs Trust violates the Medicaid-Payback requirements of the Social Security Act. The provision states that the federal government annuity payments (which are the trust's funding source) will revert to the government upon the trust beneficiary's death.

The RCC concludes that the provision at hand does not speak to the funds remaining in the trust upon the beneficiary's death. Those funds would still be available to repay the State(s) for Medicaid payments made on behalf of the trust beneficiary. Therefore, the provision does not circumvent the Medicaid-Payback requirement.

SUMMARY

On May 25, 2018, you requested our advice on whether D~’s (D~) Special Needs Trust, which is funded with annuity payments stemming from a settlement of a personal injury lawsuit against the federal government, violates the Medicaid-Payback requirement of the Social Security Act (Act). As discussed below, this trust does not violate the Medicaid-Payback requirement. The trust is therefore acceptable, and the agency may except it from counting as a resource.

BACKGROUND

~D was born in 2008. The agency found him disabled in 2010 and awarded supplemental security income. On November 4, 2014, the R~, a United States District Court Judge in the Southern District of West Virginia, established the trust. (CA No. 3:12-cv-00076, Dkt. No. 156, Section 8). The trust states that “the State(s) will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan.” (Trust paragraph 2.5.2.2 - “Termination at Beneficiary’s Death . . . State Reimbursement”).

The trust is funded by a single premium annuity contract. The federal government gave this contract to D~ as consideration to settle a personal injury suit, which D~ brought under the Federal Tort Claims Act. The owner of the annuity is “United States of America, Department of Justice, Torts Branch.”

The relevant terms are:

Commencing April 3, 2015, the sum of Four Thousand Four Hundred Dollars ($4,400.00) per month . . . shall be payable . . . until the death of [D~] or until a sum total of Two Million Eight Hundred Seventy-Five Thousand Dollars ($2,875,000.00) has been paid, whichever is longer.

The settlement agreement that R~ signed further adds that “if during the guaranteed period [D~] should die, then the payments under the guaranteed portion of the settlement will revert to the United States of America” (CA No. 3:12-cv-00076, Dkt. No. 156, Section 9(E)).

ANALYSIS

Under the Social Security Act, a grantor trust established for the benefit of an individual with the assets of that individual on or after January 1, 2000 generally is a resource to the individual, even if the trust is irrevocable, unless a statutory exception applies. 42 U.S.C. § 1382b(e); POMS SI 01120.201(D). Under 42 U.S.C. § 1396p(d)(4), commonly referred to as the Special Needs Trust exception, a trust will be excepted as a resource if:

1. a. 

   It contains the assets of a disabled individual under the age 65;

2. b. 

   It is established for the individual’s benefit by the individual’s parent, grandparent, legal guardian, or a court; and

3. c. 

   It contains language that the State(s) will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan.

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

Overall, it appears that the D~ Special Needs Trust is valid. First, D~ is a disabled individual, as the agency reached this conclusion in 2010 and awarded supplemental security income to him. Additionally, D~ was born in 2008 and is under age 65. Second, the trust was established for D~’s benefit by R~ on November 4, 2014. (CA No. 3:12-cv-00076, Dkt. No. 156, Sections 8, and 9(D)). Third, the trust specifically contains language that “the State(s) will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan.” (Trust paragraph 2.5.2.2 - “Termination at Beneficiary’s Death . . . State Reimbursement”). The Special Needs Trust, therefore, appears to meet all three requirements of the Act to be excepted as a countable resource.

However, the provision of the settlement agreement stating that the annuity payments will revert to the “United States of America” if D~ should die during the guaranteed period makes it arguably appear that Medicaid will not be reimbursed at D~’s death and that the trust can therefore not be recognized as valid. This is not the case.

At the outset, the funding of the trust with the annuity is not relevant to the question of whether the agency can recognize the trust. As discussed above, all of the requirements to meet the statutory exception for a Special Needs Trust to be excepted from the resource counting rules have been met.

In addition, even though the annuity payments revert to the government upon D~’s death, it does not follow that the funds remaining in the trust will also revert. Therefore, resources may yet be available from the funds remaining in the trust upon D~’s death to reimburse the State(s) for any Medicaid payments made on D~’s behalf. In other words, at D~’s death, the possibility exists that money will be available to repay the State(s) for Medicaid disbursements from funds accumulated in the trust from the receipt of the monthly annuity payments prior to death. This settlement arrangement, accordingly, does not circumvent the Medicaid-Payback provision of the Act.

The fact that the funding mechanism (i.e., the annuity payments) of the trust extinguishes at D~’s death and that Medicaid payback will not be made from posthumous annuity payments, is unrelated to whether the Agency can recognize the trust. Simply put, the annuity upon the death of D~ has no direct bearing on the validity of the Special Needs Trust or, more specifically, the Medicaid-Payback provision.

CONCLUSION

It is our opinion that:

1. a. 

   The trust satisfies the Special Needs Trust criteria of 42 U.S.C. § 1396p(d)(4).

2. b. 

   The single premium annuity contract, which funds the trust and has no value should D~ die prior to receiving all annuity payments, has no bearing on the validity of the Special Needs Trust.

3. c. 

   D~’s Special Needs Trust is valid and does not violate the Medicaid-Payback provision of the Act.

Revision of the 2003 Regional Chief Counsel (RCC) opinion on whether a parent or grandparent can establish an empty trust for the purpose of receiving a competent adult’s supplemental security income (SSI) payments at a later date under the law of the jurisdiction within Region III. Since 2003 four out of the six States within Region III have adopted the Uniform Trust Code (UTC) provision requiring identifiable trust property. The two states that have not adopted the UTC provisions do not have statutes that permit empty trusts. No State within Region III will recognize as valid an empty trust, and for a trust to be permissible under the exceptions of Social Security Act § 1917(d)(4)(A) the parent or grandparent that establishes the trust will have to “seed” it with their own money before transferring the individuals money to the trust.

INTRODUCTION

On August 27, 2003, we provided advice on whether a parent or grandparent can establish an empty trust for the purpose of receiving a competent adult supplemental security income (SSI) beneficiary’s assets at a later date under the laws of the jurisdictions within Region III (Delaware, District of Columbia, Maryland, Pennsylvania, Virginia, and West Virginia). In preparing this advice, we were instructed to assume that the trust agreements that we were to consider satisfied the requirements of Social Security Act § 1613(e)(5), 42 U.S.C. '1382b(e)(5). In 2003, our research of case law led us to conclude that every jurisdiction in Region III would recognize empty trust agreements as valid if there was an expectation of funding, such as from a court order awarding funds that would become the property of a trust. We have recently reviewed the applicable law in the intervening 11 years, and found that the law has evolved more clearly to require some funds be transferred to a trust at the time it is established. Since 2003, four jurisdictions within Region III have adopted the Uniform Trust Code (UTC), thereby offering legal authority other than case law for the establishment of trusts. Although two states did not adopt the UTC, the Restatement (Third) of Trusts also supports our conclusion. Consequently, we believe that jurisdictions within Region III would not recognize as valid trust agreements that satisfy the provisions of Social Security Act § 1613(e)(5) when a parent or grandparent establishes only an empty trust. Therefore, we recommend replacing our

August 27, 2003 memorandum (which is found at SSA POMS PS 01825.042, 2002 

WL 1879916) with this revised opinion.

BACKGROUND

To qualify for SSI, an individual must not have resources that total more than $2,000. 20 C.F.R. ' 416.1205 (2013). In addition, as a general rule, a trust established with the assets of an individual (or spouse) will be considered a resource for SSI eligibility purposes. Social Security Act § 1613(e)(3). There is, however, an exception to these resource provisions. Under Social Security Act § 1613(e)(5), if any agreement satisfies the criteria found in Social Security Act § 1917(d)(4), 42 U.S.C. ' 1396p(d)(4), it is not counted as a resource. Social Security Act § 1917(d)(4)(A) provides the following exception for counting a trust as a resource:

A trust containing assets of an individual under age 65 who is disabled (as defined in section 1614(a)(3)) and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court if the state will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this title.

With respect to trust property, “[i]n the case of a legally competent, disabled adult, a parent or grandparent may establish a ‘seed’ trust using a nominal amount of his or her own money, or if State law allows, an empty or dry trust.” POMS SI 01120.203(B)(1)(f). Consequently, the POMS answers in the affirmative the question of whether a special needs trust can be established with nominal or seed funds, and leaves the resolution of questions pertaining to empty trusts to the individual states.

DISCUSSION

Since we prepared our August 27, 2003 memorandum, the majority of jurisdictions within Region III (Pennsylvania, Virginia, West Virginia, and the District of Columbia) have adopted § 401 of the UTC. See 20 Pa.C.S.A. § 7731 (effective Nov. 6, 2006), VA Code Ann. § 64.2-719 (effective Oct. 1, 2012), W. Va. Code, § 44D-4-401 (effective June 10, 2011), and DC ST

§ 19-1304.01 (effective Mar. 10, 2004). This section of the UTC explains how trusts are established and reads, as relevant:

A trust may be created by:

(1) transfer of property to another person as trustee during the settlor's lifetime or by will or other disposition taking effect upon the settlor's death;

(2) declaration by the owner of property that the owner holds identifiable property as trustee; or

(3) exercise of a power of appointment in favor of a trustee.

Unif. Trust Code § 401 (2000) (emphasis added). Therefore, the UTC requires that a trust must contain identifiable property, and empty trusts will not satisfy this requirement.

The comments found in the Restatement of Trusts further clarify that a trust must have identifiable property. The UTC was drafted in close coordination with the revision of the Restatement (Second) of Trusts to the extent that a significant number of UTC provisions could be described as a codification of the Restatement. D~, The Uniform Trust Code (2000): Significant Provisions and Policy Issues, 67 Mo. L. Rev. 143, 148 (Spring 2002). Similar to § 401 of the UTC, the Restatement (Third) of Trusts provides that a trust cannot be created unless there is trust property in existence and ascertainable at the time of the creation of the trust. See Restatement (Third) of Trusts (2003) § 2, cmt. i.

CONCLUSION

In summary, four of the six jurisdictions within Region III have adopted the UTC provision requiring identifiable trust property. The two jurisdictions (Delaware and Maryland) that have not yet adopted the UTC provision, do not have statutes that permit empty trusts. Thus, we conclude that no state within our region would recognize as valid an empty trust. Accordingly, to qualify for the exception under Social Security Act § 1917(d)(4)(A), when a parent or grandparent establishes the trust, they must first “seed” the trust with some of the parent or grandparent’s own money before transferring the individual’s money to the trust. POMS SI 01120.203(B)(1)(f). Since empty trusts are not considered valid in our region, simply transferring the individual’s money to the trust without first seeding would be considered equivalent to the individual establishing the trust on their own, which is not permitted under the trust exception codified at 42 U.S.C. § 1396p(d)(4)(A). Accordingly, we recommend replacing our August 27, 2003 memorandum (which is found at SSA POMS PS 01825.042, 2002 WL 1879916), with this updated opinion.