A trust is a property interest whereby property is held by an individual or entity (e.g., a bank) called the trustee, subject to a fiduciary duty to use the property for the benefit of another (i.e., the beneficiary).

We consider a trust to be established with the assets of an individual if any assets of the individual or spouse were transferred to the trust other than by a will. To determine what we consider an “asset,” see SI 01120.201B.1.

A grantor, also referred to as a settlor or trustor, is the individual who provides the trust principal or corpus. The grantor must be the owner of, or have a legal right to, the property or otherwise be qualified to transfer it. For more information on grantors, see SI 01120.200B.3.

A trustee is a person or entity that holds legal title to property for the use or benefit of another. In most instances, the trustee has no legal right to revoke the trust or use the property for their or its own benefit.

A trust beneficiary is a person for whose benefit a trust exists. A beneficiary does not hold legal title to trust property but has an equitable ownership interest in it. As equitable owner, the beneficiary has certain rights that will be enforced by a court because the trust exists for their benefit. The beneficiary receives the benefits of the trust, while the trustee holds the title and duties. A beneficiary has certain rights relative to the trust, such as to enforce mandatory provisions of the trust, to demand an accounting, and to sue to remove the trustee. The trustee owes certain duties, such as loyalty and attention, to the beneficiary.

The trust principal is the property that is placed in trust by the grantor and held by the trustee, subject to the rights of the beneficiary. It includes any earnings on the trust. It is also called “the corpus of the trust.”

Trust decanting generally refers to the distribution or transfer of trust property from one trust to one or more other trusts, usually with more favorable terms. Decanting may involve the early termination of the first trust, or the effect of decanting may be materially the same as the effect of an early termination. In such a situation, we generally evaluate the decanting provision under the instructions on early termination in this section. However, decanting can be complex and can vary depending on applicable State law. It may be appropriate for the RO to seek input from OPLaw.

For other definitions applicable to this section, see SI 01120.200B.

A trust that contains an early termination provision may not be excepted from the SSI resource counting rules at section 1613(e) of the Act unless it satisfies the requirements in either section 1917(d)(4)(A) or section 1917(d)(4)(C). Additionally, the trust must satisfy the resource counting rules in SI 01120.200D and SI 01110.100B in order not to be a countable resource. To meet those requirements, all of the following criteria must be met:

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  Upon early termination (i.e., termination prior to the death of the trust beneficiary), the State(s), as primary assignee, would receive all amounts remaining in the trust at the time of termination up to an amount equal to the total amount of medical assistance paid on behalf of the individual under the State Medicaid plan(s); and

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  Other than payment for the administrative expenses listed in SI 01120.199E.3 in this section and in SI 01120.201F.4, no individual or entity other than the trust beneficiary may benefit from the early termination (i.e., after reimbursement to the State(s), all remaining funds are disbursed so as solely to benefit the trust beneficiary); and

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  The early termination provision gives the power to terminate to an individual or entity other than the trust beneficiary.

An early termination provision in a section 1917(d)(4)(A) special needs trust or section 1917(d)(4)(C) pooled trust does not need to meet the above criteria if the provision allows solely for a transfer of the beneficiary’s assets to a secondary section 1917(d)(4)(A) or section 1917(d)(4)(C) trust of which the same individual is the beneficiary.

The early termination provision must contain specific limiting language that precludes the early termination from resulting in disbursements other than to the secondary section 1917(d)(4)(A) or section 1917(d)(4)(C) trust or to pay for the administrative expenses listed in SI 01120.199E.3 in this section and in SI 01120.201F.4.

The following types of administrative expenses may be paid from the trust prior to reimbursement of medical assistance to the State(s):

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  Taxes due from the trust to the State(s) or Federal government due to the termination of the trust; and

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  Reasonable fees and administrative expenses associated with the termination of the trust.

For more information about allowable and prohibited expenses, see SI 01120.203E.

EXAMPLE 1: A special needs trust contains an early termination provision stating that, upon early termination, all assets remaining in the trust will be distributed to the trust beneficiary. The provision gives the trustee or the trust beneficiary the power to terminate.

Treatment: This early termination provision is unacceptable for two reasons. First, upon early termination, the trust does not provide first for reimbursement to the State(s) for the amount of medical assistance paid on behalf of the trust beneficiary. Second, the early termination provision gives the trust beneficiary the power to terminate the trust.

EXAMPLE 2: A pooled trust established in State X contains an early termination provision stating that, upon early termination, State X will receive all amounts remaining in the trust up to an amount equal to the total amount of medical assistance paid on behalf of the individual under the State X Medicaid plan. After reimbursement to State X, any remaining funds will be distributed evenly among the other sub-accounts in the pooled trust. The provision gives the trustee the power to terminate.

Treatment: This early termination provision is unacceptable for two reasons. It restricts Medicaid payback to State X rather than requiring payback to any State(s) that paid medical assistance on behalf of the trust beneficiary. It also allows for individuals or entities other than the trust beneficiary (i.e., the other pooled trust sub-accounts) to benefit from the early termination.

EXAMPLE 1: A special needs trust contains an early termination provision stating that, upon early termination, the State(s) will first be reimbursed for the amount of medical assistance paid on behalf of the trust beneficiary, and any remaining assets will be distributed to the beneficiary. The provision gives the trustee the power to terminate.

Treatment: This early termination provision is acceptable because it meets all three criteria in SI 01120.199E.1 in this section.

EXAMPLE 2: A pooled trust contains an early termination provision stating that, upon early termination, trust assets may solely be transferred to a secondary section 1917(d)(4)(A) trust, or a secondary section 1917(d)(4)(C) trust, where the beneficiary of the original trust also is the beneficiary of the secondary trust.

Treatment: This early termination provision does not meet the regular criteria for an acceptable early termination provision outlined in SI 01120.199E.1 in this section. However, it meets the exception to the regular criteria, set out in SI 01120.199E.2 in this section, by allowing solely for a transfer of the beneficiary’s assets to a secondary section 1917(d)(4)(A) trust, or a secondary section 1917(d)(4)(C) trust, of which the same individual is the beneficiary.