QUESTION
You asked whether the Illinois Charities Pooled Trust (Trust) is in compliance with
the procedures governing the Agency’s trust policy.
SHORT ANSWER
We conclude that the Trust does not meet the pooled trust exception for self-settled
trusts under 42 U.S.C. § 1396p(d)(4)(C). Specifically, the Trust does not satisfy
the exception’s requirements that a nonprofit association manage the trust; that the
trust account be established for the sole benefit of the disabled individual; and
that the trust account be established through the actions of the beneficiary, his
or her parent, grandparent, legal guardian, or a court. As such, a self-settled sub-account
in the Trust would be considered a resource for SSI purposes. However, with respect
to third-party contributions, neither a third-party sub-account in the Trust nor third-party
assets in a commingled sub-account would be considered a resource under the Agency’s
regular resource rules.
BACKGROUND
The Trust was established by CPT Institute (CPT), a Florida non-profit 501(c)(3) corporation.
See Declaration of Trust for the Illinois Charities Pooled Trust (Trust Agreement or TA)
preamble, § 2.1. According to its website, CPT is a national, tax-exempt non-profit
trustee, which “has helped preserve government benefits for the injured and at risk.”
See
CPT Home, https://www.cptinstitute.org/ (last visited May 3, 2021). On November 9, 2016, CPT, as Settlor, established the
Trust for the benefit of persons with disabilities as set forth in 42 U.S.C. § 1396p(d)(4)(C),
Ill. Admin. Code tit. 89, § 120.347(d), and 305 Ill. Comp. Stat. 5/3-1.2, and in compliance
with “all applicable federal and state laws and regulations.” TA preamble, § 1.5.
You have asked us to review the Trust Agreement and accompanying Illinois CPT Joinder
Agreement (Joinder Agreement or JA).
The Trust Agreement states that the Trust is intended to “provide a discretionary,
safe and effective method for persons with disabilities to benefit from their assets
while retaining eligibility for Government Assistance benefits.” TA § 1.5. A “Trust
Beneficiary” is a disabled person (as defined by 42 U.S.C. §1382c(a)(3)), for whose
sole benefit a “Grantor” establishes an Individual Benefit Account (IBA). TA §§ 2.6,
13.12 (“Trust Beneficiary”). The Grantor can be the Trust Beneficiary; the Trust Beneficiary’s
parent, grandparent, spouse, or legal guardian; or any person or entity acting pursuant
to an order by a court or other legal authority, who contributes assets or income
to an IBA. TA §§ 2.5, 13.12 (“Grantor”). A Grantor may also be any person or entity
that contributed his, her, or its own assets to the Trust “by gift, will, contract,
or agreement.” TA §§ 2.5, 13.12.
Separate IBAs are maintained for the sole benefit of each Trust Beneficiary, but the
amounts in the IBAs may be pooled for investment and management purposes. TA §§ 4.1,
9.1. The effective date of an IBA is “indicated by” the date on which the executed
Joinder Agreement and Required Documents are approved by CPT and by the establishment
of an IBA. TA § 4.3. The Trust and IBA are irrevocable once established. TA §§ 1.3,
3.3, 4.2; JA p. 1. The Trust Agreement further provides that the IBA is for the sole
benefit of the Trust Beneficiary, whose needs “supersede the interests of all others.”
TA § 6.2.
Under the Trust Agreement, CPT serves as Trustee and is responsible for “oversight
for the custody, investment asset allocation model selection and disbursement of funds.”
TA § 2.2. The Trustee holds, administers, and distributes all property and income
for the sole benefit of the Trust Beneficiary during the Trust Beneficiary’s lifetime.
TA § 6.1. The Trust Agreement further provides that the Trustee has sole and absolute
discretion to approve or deny disbursement requests. TA §§ 5.6, 6.1. Section Six explains
that the Trustee should follow various disbursement guidelines and that all disbursements
should be made only for the Trust Beneficiary’s sole benefit. TA §§ 6.1, 6.2. Notably,
neither CPT nor the Trustee is ever compelled to approve a disbursement request from
any source. TA § 6.1(A).
The Trust Agreement permits the Trustee to appoint (and remove) a “Directed Trustee,”
who has “all of the authority of a Trustee.” TA §§ 2.3, 2.4. After appointing a Directed
Trustee, the Trustee continues to manage the Trust. TA § 2.3. The Trustee may also
select a Successor Directed Trustee. TA § 2.4. In addition, the Trustee can retain
(and remove) an Investment Advisor which is responsible for custody of assets, risk
assessment, investment and asset allocation, written reports, and other tasks. TA
§§ 2.7, 11.1, 11.2. The Trustee may also hire accountants, attorneys, consultants,
and other specialists as the Trustee finds necessary. TA § 10.1(f).
If an IBA involves a Medicare Set-Aside Arrangement (MSA), the Trustee can retain
(and remove) an MSA Vendor to be responsible for evaluation and determination of disbursement
requests from funds within the IBA identified as MSA funds. TA §§ 2.8, 2.9. Disbursements
from MSA funds shall be made at the sole and absolute discretion of the Trustee or
designated MSA vendor. TA § 6.4. Payments from the MSA shall only be for medical expenses
that would otherwise be covered by Medicare and related to the insurance settlement
from which funds were used to establish the MSA. Id.
A Trust Beneficiary retains no interest in the assets in the IBA. TA § 3.3(C). Moreover,
the Trust Agreement contains a spendthrift provision, which prohibits any part of
an IBA from being subject to voluntary or involuntary assignment, attachment or taking
by creditor, or compelled distribution. TA § 9.9.
The Trust Agreement contains a defense clause indicating that the costs and expenses
incurred in defending the Trust may be charged on a pro rata basis to all IBAs, or
charged only against the IBAs of the affected Trust Beneficiaries. TA § 10.6. CPT
or the Trustee, in its sole and absolute discretion, can determine whether defense
costs affect a substantial number of IBAs and warrant allocation among all IBAs or
whether the issue requiring defense of the Trust is limited to a single IBA or certain
IBAs, warranting allocation only to such IBAs. Id.
The Trust Agreement provides that, in the event of early termination of an IBA, the
State(s) would receive a reimbursement of all amounts remaining in the IBA at the
time of termination up to an amount equal to the total amount of medical assistance
paid on behalf of the Trust Beneficiary under the State Medicaid plan(s). See TA § 8.1. Following reimbursement, all remaining assets are distributed to the Trust
Beneficiary. Id.
Although the Trust Agreement does not consider it an “early termination,” a Trust
Beneficiary’s assets may be transferred from one pooled trust to another. See TA § 6.5. When this occurs, no disbursements can be made other than to the receiving
pooled trust, including expenses in POMS SI 01120.199F.3 and SI 01120.201F.2.c.[1] Id.
Upon a Trust Beneficiary’s death, his or her respective IBA is terminated. TA § 7.1.
When this occurs, the Trustee determines the Remainder Amount—the amount of assets
remaining in the IBA. TA § 7.2. The Trustee then determines the amount to be retained
by the Trust (Trust Remainder Share), the amount that will be used to payback a State(s)
Medicaid agency(ies) (Payback Amount), and any remaining amounts to be paid to the
Trust Beneficiary’s remainder beneficiaries (Final Remainder Beneficiaries). Id.
If the Payback Amount is equal to or greater than the Remainder Amount, CPT shall
retain 50% of the Remainder Amount as the Trust Remainder Share, and the Trustee shall
use the remaining 50% to reimburse the State(s) Medicaid agency(ies). See TA §§ 7.2(D)(1), 7.3, 7.4.
If the Payback Amount is less than the Remainder Amount, CPT shall retain 5% of the
Remainder Amount as the Trust Remainder Share, and the Trustee shall pay the full
reimbursement amount to the State(s) Medicaid agency(ies). TA §§ 7.2(D)(2), 7.3, 7.4.
Then, the Trustee shall pay any remaining Remainder Amount to the Final Remainder
Beneficiaries. See TA §§7.2(D)(2), 7.5.
Before reimbursing the State(s), the Trustee may pay certain administrative expenses
not prohibited by the Agency’s POMS. TA § 7.4(A). Following reimbursement, and before
distribution to the Final Remainder Beneficiaries, the Trustee may distribute assets
appropriately owed to the Trust, for the Trust Beneficiary’s funeral expenses, and
to third parties. TA § 7.5(A). Subsequently, the Trustee shall then distribute remaining
assets to the Final Remainder Beneficiaries pursuant to the Joinder Agreement. TA
§ 7.5(B). According to the Joinder Agreement, if the Trust Beneficiary did not name
at least one remainder beneficiary, then CPT will retain all funds as set forth in
42 U.S.C. § 1396p(d)(4)(C)(iv). See JA pp. 1, 3 (Sch. C).
The Trust is governed by, and interpreted in accordance with, Illinois law and, where
appropriate, federal laws. TA § 13.1.
DISCUSSION
As an initial matter, the Trust Agreement permits IBAs to be funded by both the Trust
Beneficiary and other parties. See TA §§ 2.5, 2.6, 13.12. Accordingly, we note that three possible types of sub-accounts
may exist within the Trust: 1) a sub-account that is funded solely by assets belonging
to the Trust Beneficiary (i.e., a self-settled sub-account); 2) a sub-account that
is funded solely by third-party assets; and 3) a commingled sub-account containing
assets from both the Trust Beneficiary and third parties. The following discussion
addresses each type separately.
I. Self-Settled IBA
A. Statutory Resource Rules
Under the Social Security Act (Act), a trust created on or after January 1, 2000,
from the assets of an individual generally will be considered a resource for SSI purposes
to that individual to the extent that the trust is revocable or, in the case of an
irrevocable trust, to the extent that any payments could be made from the trust to
or for the benefit of the individual. See 42 U.S.C. § 1382b(e); POMS SI 01120.201D. However, an exception to this rule exists for certain trusts that meet the criteria
of 42 U.S.C. § 1396p(d)(4)(C), commonly known as the pooled trust exception. See POMS SI 01120.203D.
In order to qualify for the pooled trust exception, the trust must contain assets
belonging to a disabled individual and satisfy the following conditions:
-
1.
The trust is established and managed by a nonprofit association;
-
2.
The trust maintains a separate account for each beneficiary, but pools the assets
for purposes of investment and management;
-
3.
Each account in the trust is established solely for the benefit of the disabled individual;
-
4.
The account is established through the actions of the individual, a parent, a grandparent,
a legal guardian, or a court; and
-
5.
The trust provides that, to the extent that any amounts remaining in the beneficiary’s
account upon the death of the beneficiary are not retained by the trust, the trust
will pay to the state(s) from such remaining amounts in the account an amount equal
to the total amount of medical assistance paid on behalf of the beneficiary under
the state Medicaid plan(s).
See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203D.
Here, the Trust Agreement states that the Trust, Joinder Agreements, and contributed
amounts to IBAs are irrevocable. See TA §§ 1.3, 3.3, 4.2. The Joinder Agreement also states that it is irrevocable. See JA p. 1. Nevertheless, an IBA would be considered a resource under the statutory
provisions, since payments could be made from the sub-account for the individual’s
benefit. TA §§ 1.5, 3.2, 6.1. Accordingly, we consider whether the Trust qualifies
for the pooled trust exception. As discussed below, we do not believe that it does.
In particular, the Trust does not satisfy the first requirement of the exception,
as it does not comply with Agency policy concerning nonprofit management. In addition,
the Trust does not satisfy the third requirement, which requires each account to be
established solely for the benefit of the disabled individual, or the fourth requirement,
which requires each account to be established through the actions of the beneficiary,
his or her parent, grandparent, legal guardian, or a court. Consequently, a sub-account
in the Trust would not be excepted from resource counting.
1. Established and Managed by a Nonprofit Association
To satisfy the first requirement of the pooled trust exception, the trust must be
established and managed by a nonprofit association. 42 U.S.C. § 1396p(d)(4)(C)(i);
POMS SI 01120.203D.3. A nonprofit association may employ the services of a for-profit entity, but the nonprofit
association must maintain ultimate managerial control over the trust. POMS SI 01120.225D. For example, the nonprofit association must be responsible for determining the amount
of the trust corpus to invest, removing or replacing the trustee, and making day-to-day
decisions regarding the health and well-being of the beneficiaries. Id. Also, a for-profit entity should not be allowed to determine whether to make discretionary
disbursements from the trust. POMS SI 01120.225E.
Here, CPT, a nonprofit corporation, settled and manages the Trust as Trustee. See
TA preamble, §§ 1.2, 2.1, 2.2. The Trust Agreement permits CPT to retain an independent
advisory firm as an investment advisor, which is given a limited set of responsibilities,
including custody of assets, risk assessment, investment and asset allocation selection
and management, cash management, investment performance analysis, written investment
performance reports, written account statements, and annual summaries of account information.
See TA § 2.7. Notably, there is no indication that the investment advisor must be a non-profit
association. Moreover, the Trust Agreement contains ambiguous language regarding the
investment advisor’s powers, suggesting that some of the Trustee’s powers are shared
with the investment advisor. See TA §§ 10.1, 11.1.[2] Nevertheless, it appears that CPT retains sufficient management control, as the specific
duties of the investment advisor listed in section 2.7 of the Trust Agreement are
financial. Importantly, it does not appear that the investment advisor is involved
in discretionary disbursements. See TA § 6.1. Moreover, the Trust Agreement specifies that the Trustee may delegate only
its investment functions to an investment advisor. See TA § 11.2. And CPT has the ability to remove any investment advisor. See TA § 2.7.
Likewise, CPT or the Trustee may retain an MSA Vendor to maintain any MSA component
of an IBA. See TA §§ 2.8, 6.4. And there is no indication that the MSA Vendor must be a non-profit
association. The MSA Vendor is responsible for evaluation and determination of disbursement
requests from funds within the IBA identified as MSA funds in accordance with the
policies established by the Centers for Medicare and Medicaid Services. See TA § 2.8. Significantly, the Trust Agreement specifies that the MSA Vendor shall perform
solely administrative functions related to investment and physical possession of MSA
funds. TA § 2.8. Also, CPT or the Trustee may remove an MSA Vendor. See TA § 2.9. As such, it appears that CPT retains sufficient management control. See POMS PS 01825.021 (CPM 19-205) (Oct. 2, 2019) (finding that a Louisiana CPT trust complied with POMS
SI 01120.225D where Trustee permitted to retain an MSA vendor), PS 01825.048 (PS 20-019) (Feb. 18, 2020) (finding the same for a Texas CPT trust).
The Trustee also has the authority to hire and compensate attorneys, accountants,
consultants, government benefit specialists, and other agents as may be necessary.
TA § 10.1(f). It is possible that the Trustee could hire for-profit entities for such
positions. However, we believe that the language of the Trust Agreement, construed
as a whole, indicates that CPT maintains ultimate managerial control over the Trust,
as required by POMS SI 01120.225D. For example, the Trust Agreement states that the Trustee retains oversight responsibility
for the custody, investment, and disbursement of funds contributed for the Trust Beneficiaries.
TA §§ 2.2, 10.1. The Trustee also retains “sole and absolute” discretion to approve
or deny disbursement of funds to any Trust Beneficiary. TA §§ 4.4, 6.1.
However, the Trust Agreement also allows CPT to appoint a Directed Trustee, which
would “have all of the authority of a Trustee as set forth in the appointment” by
CPT, as well as a Successor Directed Trustee. See TA §§ 2.3, 2.4. It adds that the Directed Trustee (which includes a Co-Directed Trustee
and Successor Directed Trustee) “may be referred to as Trustee in this Trust agreement.”
TA § 13.12 (“Directed Trustee”). However, the Trust Agreement indicates that CPT would
“continue to manage the trust.” TA § 2.3. Like the investment advisor and MSA Vendor,
there is no requirement that the Directed Trustee be a non-profit association.
We are concerned that the Trust Agreement does not comply with Agency policy due to
its language concerning the powers of the Directed Trustee. In particular, the Trust
Agreement allows for the possibility that a for-profit entity acting as Directed Trustee
could determine whether to make discretionary disbursements from the Trust. See TA §§ 2.3, 6.1, 13.12; POMS 01120.225E. Although the Trust Agreement emphasizes that
CPT continues to manage the Trust, TA § 2.3, it nevertheless permits a Directed Trustee
to be given “all of the authority of a Trustee as set forth in the appointment” by
CPT. TA § 2.3. Moreover, it is not clear to what extent references to “Trustee” in
the Trust Agreement would also pertain to a Directed Trustee. See
TA § 13.12.
We believe that provisions discussing the Directed Trustee represent too broad a delegation
of power to a potential for-profit entity. Thus, the Trust does not meet the first
requirement of the pooled trust exception.
2. Maintenance of Separate Accounts for Each Trust Beneficiary
To satisfy the second requirement of the pooled trust exception, the trust must maintain
a separate account for each trust beneficiary, although it is acceptable to pool the
funds in the individual accounts for investment and management purposes. 42 U.S.C.
§ 1396p(d)(4)(C)(ii); POMS SI 01120.203D.4. In addition, the trust must be able to provide an individual accounting for each
individual. POMS SI 01120.203D.4.
The Trust satisfies the first part of this requirement in that it maintains a separate
sub-account (IBA) for each Trust Beneficiary, but, for purposes of investment and
management of funds, the Trust pools the sub-accounts. See TA §§ 4.1, 9.1, 13.12 (“Individual Benefit Account (IBA)”). The Trust also satisfies
the second part of this requirement in that the Trustee is required to maintain records
and provide periodic reports, at least annually, to each Trust Beneficiary as well
as to other applicable parties. See TA §§ 4.1, 9.1, 9.4. These reports must show “all receipts and disbursements to and
from . . . [an] IBA during the previous reporting period.” TA § 9.4; POMS SI 01120.203D.4.
3. Established for the Sole Benefit of the Individual
To satisfy the third requirement of the pooled trust exception, the individual trust
account must be established for the sole benefit of the disabled individual. 42 U.S.C.
§ 1396p(d)(4)(C)(iii); POMS SI 01120.203D.5. A trust account is considered to be established for the sole benefit of an individual
if the trust benefits no one but that individual, either at the time the trust is
established or at any time for the remainder of the individual’s life. POMS SI 01120.201F.1. Conversely, a trust account is not established for the sole benefit of the disabled
individual if it: 1) provides a benefit to any other individual or entity during the
disabled individual’s lifetime; or 2) allows for termination of the trust account
prior to the individual’s death and payment of the corpus to another individual or
entity. POMS SI 01120.203D.5.
Here, the Trust Agreement indicates that an IBA is established and maintained for
the sole benefit of each Trust Beneficiary, whose needs “supersede the interests of
all others.” TA §§ 2.6, 3.3(D), 4.1, 6.2, 9.1. Moreover, disbursements may only be
made for the Trust Beneficiary’s sole benefit. TA §§ 1.5, 3.2, 6.1, 6.2. As explained
below, we conclude that, although the early termination provision appears to comply
with Agency policy, the provisions allowing payments for defense costs and IBA Counsel
fees on a pro rata basis do not.
i. Benefit to Another Individual or Entity During the Disabled Individual’s
Lifetime
The Trust Agreement states that costs and expenses incurred in defending the Trust
may be charged on a pro rata basis to all IBAs, or charged only against the IBAs of
the affected Trust Beneficiaries. TA § 10.6. CPT or the Trustee, in its sole and absolute
discretion, must determine whether defense costs affect a substantial number of IBAs
and warrant allocation among all Trust Beneficiary IBAs or whether the issue requiring
defense of the Trust is limited to a single IBA or certain IBAs, warranting allocation
only to such IBAs. TA § 10.6.
As we previously advised in POMS PS 01825.026 (PS 20-041) (Apr. 28, 2020), we believe that the language in this case permitting
the allocation of defense costs on a pro rata basis to all IBAs when the costs “affect
a substantial number of Trust Beneficiary IBAs” is problematic. Because a “substantial”
number of IBAs may be less than “all” IBAs, it is possible that IBAs that are not
affected could be charged for a portion of the defense costs that only affect other
beneficiaries’ IBAs. However, there is no requirement in the Trust Agreement that
the Trustee determine that it would be in the best interest of an unaffected beneficiary
(or beneficiaries) to share in the cost of defending the affected beneficiaries’ IBAs.
This could run afoul of Agency policy that accounts must be established for the sole
benefit of the disabled individual. Therefore, this defense provision should be modified
or clarified accordingly.
Similarly, the Trust Agreement provides that an IBA Counsel (an attorney retained
to protect the benefits of an IBA) “may be paid from the Trust Beneficiary’s IBA or
pro rata among all Trust Beneficiaries’ IBAs based on the sole and absolute discretion
of the Non Profit or Trustee.” TA § 13.12 (“Individual Benefit Account Counsel (IBA
Counsel)”). This provision also does not comply with Agency policy that accounts be
held for the sole benefit of the individual, because it could allow CPT or the Trustee
to use funds from a beneficiary’s account to pay for an IBA Counsel’s services that
only benefit other beneficiaries.
ii. Termination of the Trust Account Prior to the Individual’s Death and Payment of
the Corpus to Another Individual or Entity
Under the POMS, an early termination clause is acceptable only if all of the following
criteria are met: 1) the state(s), as primary assignee, would receive all amounts
remaining in the trust up to an amount equal to the amount of medical assistance paid
on behalf of the individual under the state Medicaid plan(s); 2) other than payment
of allowable administrative expenses listed in POMS SI 01120.199E.3 and SI 01120.201F.4, all remaining funds are disbursed so as solely to benefit the trust beneficiary;
and 3) the power to terminate is given to an individual or entity other than the trust
beneficiary. See POMS SI 01120.199E.1. Agency policy also permits an early termination clause that solely allows for a transfer
of the beneficiary’s assets from one 42 U.S.C. § 1396p(d)(4)(C) pooled trust to another
42 U.S.C. § 1396p(d)(4)(C) pooled trust of which the same individual is the beneficiary.
See POMS SI 01120.199E.2. In that case, the early termination clause must contain specific limiting language
that precludes the early termination from resulting in disbursements other than to
the secondary 42 U.S.C. § 1396p(d)(4)(C) trust or to pay for allowable administrative
expenses listed in SI 01120.199E.3 and SI 01120.201F.4. See id.
Here, the Trust Agreement indicates that, under no circumstances “shall the Trust
Beneficiary, the Beneficiary Advocate, or any other of the Trust Beneficiary’s legal
representative have the power to terminate the Trust or any part of the Trust Beneficiary’s
IBA at any time under any circumstances.” See TA § 8.1. In the event that termination of an IBA nonetheless occurs, the State(s)
would receive a reimbursement of all amounts remaining in the IBA at the time of termination
up to an amount equal to the total amount of medical assistance paid on behalf of
the Trust Beneficiary under the State Medicaid plan(s). See TA §§ 7.4, 8.1. Following reimbursement, all remaining assets would be distributed
to the Trust Beneficiary. See
TA § 8.1.
Furthermore, although the Trust Agreement permits a Trust Beneficiary’s assets to
be transferred from one pooled trust to another, when this occurs, no disbursements
can be made other than to the receiving pooled trust, including allowable administrative
expenses listed in the POMS. TA § 6.5. As noted above, the references to POMS SI 01120.199F.3 and SI 01120.201F.2.c in the Trust Agreement are outdated; they are now POMS SI 01120.199E.3 and SI 01120.201F.4, respectively.
Except for the references to these outdated POMS provisions, the early termination
provisions appear to comply with Agency policy. See POMS SI 01120.199E.
4. Established Through the Actions of the Beneficiary, a Parent, Grandparent, Legal
Guardian, or a Court
The fourth requirement of the pooled trust exception requires that the trust account
be established through the actions of the account beneficiary; the beneficiary’s parent,
grandparent, or legal guardian; or a court. 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS
SI 01120.203D.6. The Trust does not appear to meet this requirement.
Under the Trust Agreement, an IBA is established via the execution of a Joinder Agreement
between CPT/the Trustee and the Grantor, and the Trustee’s acceptance of the contributed
assets. TA §§ 3.1, 3.3, 4.3, 13.12 (“Completed Enrollment,” “Joinder Agreement”).
As indicated above, the Trust Agreement contains two definitions of “Grantor.” Under
the first definition, a Grantor is the Trust Beneficiary; the Trust Beneficiary’s
parent, grandparent, spouse or legal guardian; or any person or entity acting pursuant
to an order by a court or other legal authority, who contributes assets to an IBA.
See TA §§ 2.5, 13.12 (“Grantor”). This definition is problematic because a person or entity
acting pursuant to “other legal authority” would not be permitted to take action to
establish an IBA under the statute. The second definition of Grantor is also problematic—it
allows a Grantor to be “any person or entity that contributed his, her or its own
assets to the Trust for the sole benefit of a Trust Beneficiary.” TA §§ 2.5, 13.12
(“Grantor”). Thus, the second definition would potentially allow any individual, not
just those permitted under the statute, to take action to establish an IBA, in contravention
of the fourth requirement of the pooled trust exception. Consequently, in order to
meet this requirement, CPT would need to specify that only the individuals permitted
under the statute may execute a Joinder Agreement and establish an IBA.
5. Reimbursement to the State(s) Upon the Beneficiary’s Death
To satisfy the fifth requirement of the pooled trust exception, the trust must contain
“specific language” that provides that, to the extent that amounts remaining in the
individual’s account upon the death of the individual are not retained by the trust,
the trust will pay to the state(s) an amount equal to the total amount of medical
assistance paid on behalf of the beneficiary under the state Medicaid plan(s). 42
U.S.C. § 1396p(d)(4)(C)(iv); POMS SI 01120.203D.8. This is known as the Medicaid payback requirement of the pooled trust exception.
Here, the Trust Agreement provides that, upon the death of a Trust Beneficiary, any
amounts remaining in their IBA that are not retained by the Trust shall be used to
first reimburse the State(s) Medicaid agency(ies) after allowable administrative expenses
are satisfied. See TA §§ 7.2, 7.3, 7.4. We note that such administrative expenses are allowed under
POMS SI 01120.203E.1. If any assets remain following reimbursement, the Trustee may distribute assets appropriately
owed to the Trust, for the Trust Beneficiary’s funeral expenses, and to third parties.
TA § 7.5(A). Subsequently, the Trustee shall distribute remaining assets to the Final
Remainder Beneficiaries pursuant to the Joinder Agreement. TA § 7.5(B); JA p. 3 (Sch.
C). If the Trust Beneficiary did not name at least one remainder beneficiary, then
CPT will retain all remaining funds as set forth in 42 U.S.C. § 1396p(d)(4)(C)(iv).
See JA pp. 1, 3 (Sch. C). We believe that these provisions satisfy the fifth requirement
of the pooled trust exception.
Ultimately, however, we believe that a self-settled IBA would be considered a resource
for SSI purposes because the Trust does not meet the first, third, or fourth requirements
of the pooled trust exception.
B. Regular Resource Rules
If CPT is able to cure the above defects and qualify for the pooled trust exception,
the regular resource counting rules in POMS SI 01120.200 would apply to determine whether a self-settled sub-account in the Trust would be
counted as a resource. See POMS SI 01120.200A.1, SI 01120.203D.1. Pursuant to POMS SI 01120.200D.1.a, trust principal is a resource if: 1) the beneficiary has legal authority to revoke
or terminate the trust and then use the funds to meet his or her food or shelter needs;
or 2) the beneficiary can direct the use of the trust principal for his or her support
and maintenance under the terms of the trust. In addition, if the beneficiary can
sell his or her beneficial interest in the trust, that interest is a resource. Id .
The revocability of a trust depends on the terms of the trust and applicable state
law—here, Illinois. See TA § 13.1; POMS SI 01120.200D.2. According to the terms of the Trust, the Trust, the Joinder Agreement, and the amounts
contributed to the IBAs are irrevocable. See TA §§ 1.3, 3.3, 4.2, 12.4; JA p. 1. We note that, as a general principle of trust
law, when a grantor is also the sole beneficiary of a trust, the trust is revocable
even if the trust document states that the trust is irrevocable. See Restatement (Third) of Trusts § 65 Reporter’s Notes (2003); see also POMS SI 01120.200D.3, SI CHI01120.200C. However, 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, because the primary beneficiary could not unilaterally revoke
the trust but instead would need the consent of the residual beneficiary. See POMS SI 01120.200D.3, SI CHI01120.200C. Consistent with this general principle, Illinois law typically requires the consent
of all beneficiaries, but it goes even further by also requiring court approval. See 760 Ill. Comp. Stat. 3/411(a), (e).
Here, the Joinder Agreement permits each Trust Beneficiary the opportunity to name
remainder beneficiaries and further provides that, in the event no such remainder
beneficiary is named, CPT will retain all funds as set forth in 42 U.S.C. § 1396p(d)(4)(C)(iv).
JA pp. 1, 3 (Sch. C). Thus, as there would be at least one residual beneficiary and
court approval would be needed, a self-settled sub-account in the Trust is irrevocable.
Nor can a Trust Beneficiary direct the use of Trust assets. Under the terms of the
Trust, all distributions are approved or denied at the sole and absolute discretion
of the Trustee. TA § 6.1. The Trust principal and income is not considered available
to any Trust Beneficiary in determining eligibility for Government Assistance programs.
TA § 6.1(C). Moreover, neither CPT nor the Trustee is compelled to approve a disbursement
request from any source. TA § 6.1(A). A Trust Beneficiary has no right to demand a
distribution for his or her own support or maintenance, and neither CPT nor the Trustee
owes any duty of support or maintenance to any Trust Beneficiary. TA § 9.8.
With respect to the Trust Beneficiary’s ability to sell his or her beneficial interest
in a self-settled sub-account, the Trust Agreement contains a spendthrift provision,
which prohibits any part of an IBA from being subject to voluntary or involuntary
assignment, attachment or taking by creditor, or compelled distribution. TA § 9.9.
Under Illinois law, a spendthrift provision is valid only if it prohibits both voluntary
and involuntary transfer of a beneficiary’s interest. 760 Ill. Comp. Stat. 3/502(a).
A trust provision specifying that “the interest of a beneficiary is held subject to
a ‘spendthrift trust’, or words of similar import, is sufficient to restrain both
voluntary and involuntary transfer of the beneficiary’s interest.” 760 Ill. Comp.
Stat. 3/502(b). However, whether or not the terms of a trust contain a spendthrift
provision, a creditor or assignee of the settlor of an irrevocable trust can generally
reach the maximum amount that can be distributed to or for the settlor’s benefit.
760 Ill. Comp. Stat. 3/505(a)(2).
That said, there is a specific exception to this rule for the assets of an irrevocable
trust established for the benefit of a person with a disability that meets the requirements
of 42 U.S.C. § 1396p(d)(4). See 760 Ill. Comp. Stat. 3/505(a)(4). Thus, if CPT can cure the above-discussed defects
and satisfy all of the requirements of 42 U.S.C. § 1396p(d)(4)(C), the assets in a
self-settled IBA would not be reachable by an assignee of the Trust Beneficiary. Accordingly,
the spendthrift provision should be considered valid and effective to prevent Trust
Beneficiaries of self-settled IBAs from selling their beneficial interests in the
Trust.
Therefore, if CPT can cure the defects discussed above and satisfy all of the requirements
of the pooled trust exception, a self-settled sub-account in the Trust would not be
a resource under the regular resource rules.
II. Third-Party IBA
As noted above, it appears that the Trust permits third parties to fund or contribute
their assets to an IBA. See TA §§ 2.5, 13.12. In the case of an IBA established solely with the assets of a third
party, the regular resource rules set forth in POMS SI 01120.200 apply to determine whether the assets in the sub-account are a resource.
Here, a third-party sub-account would not be a resource under the regular resource
rules. The Trust does not give the Beneficiary the power to terminate his or her IBA.
See TA § 8.1. In addition, under Illinois law, the Beneficiary would not be able to unilaterally
terminate his or her account, but would need court approval and, typically, the consent
of all residual beneficiaries. See 760 Ill. Comp. Stat. 3/411. Moreover, as discussed above, the terms of the Trust
do not allow the Trust Beneficiary to direct the use of the Trust assets. Finally,
with respect to a Trust Beneficiary’s power to otherwise sell his or her beneficial
interest in the Trust, as noted above, the Trust contains a valid spendthrift provision,
which Illinois recognizes with respect to third-party trusts. 760 Ill. Comp. Stat.
3/502. Accordingly, a Trust Beneficiary’s beneficial interest in a third-party sub-account
would not be considered a resource to the Beneficiary.
III. Commingled IBA
Furthermore, it appears that IBAs may contain assets attributable to both the Trust
Beneficiary and one or more third parties. See TA §§ 2.5, 13.12. Agency policy provides that, in the case of a commingled trust established
on or after January 1, 2000, with the assets of both an SSI claimant (or spouse) and
third parties, the regular resource rules apply to the portion of the commingled trust
attributable to the assets of third parties, and the statutory resource rules apply
to the portion attributable to the assets of the SSI claimant (or spouse). See POMS SI 01120.200A.1.b, SI 01120.201C.2.c
Here, in the event that an IBA receives any contributions from a third party, the
portion of the IBA attributable to the assets of the third party would not be a resource
under the regular resource rules, as discussed in Section II above. However, the portion
of the IBA attributable to the assets of the Trust Beneficiary would be considered
a resource under the Act, based on the defects discussed in Section I.A above.
CONCLUSION
For the reasons discussed above, we conclude that a self-settled IBA in the Illinois
Charities Pooled Trust does not meet all of the requirements to be excepted from resource
counting under 42 U.S.C. § 1396p(d)(4)(C). However, if the defects identified above
can be cured, then a self-settled IBA would not be a resource under the regular resource
rules. In addition, a third-party IBA would not be a resource under the regular resource
rules, nor would third-party assets in a commingled IBA.