This Regional Chief Counsel (RCC) opinion evaluates whether an individual's sub-account in a pooled trust is excepted from resource counting under section 1917(d)(4)(C) of the Social Security Act (Act). The RCC concludes that the sub-account meets all the requirements for an exception to resource counting in the Act.

QUESTION

You asked whether T~'s account in the Nevada Charities Pooled Trust is excepted from resource counting under section 1917(d)(4)(C) of the Social Security Act (Act).

SHORT ANSWER

T~’s account in the Nevada Charities Pooled Trust is excepted from resource counting under section 1917(d)(4)(C) of the Act.

BACKGROUND

CPT, a Florida non-profit corporation, established the Nevada Charities Pooled Trust (“Pooled Trust”) through the Declaration of Trust for the Nevada Charities Pooled Trust (“Master Trust Agreement” or “MTA”), executed on November 14, 2017. See MTA, §§ 1.2, 2.1. The purpose of the Pooled Trust is to establish and manage trust accounts for the benefit of persons with disabilities in compliance with Social Security Act § 1917(d)(4)(C), 42 U.S.C. § 1396p(d)(4)(C). See MTA, §§ 1.2, 1.5. The Pooled Trust’s intent is to supplement, not displace, government assistance otherwise available to trust beneficiaries. See MTA, § 3.2.

The Master Trust Agreement provides that a trust beneficiary, or his or her parent, grandparent, legal guardian, or a court, may establish a trust account on the beneficiary’s behalf. See MTA, § 2.3. Once established, an individual beneficiary’s trust account is irrevocable. See MTA, § 1.3. The Trustee shall establish a separate account for each trust beneficiary, but may pool account funds for purposes of investment and management. See MTA, §§ 4.1, 9.1.

During the beneficiary’s lifetime, the Trustee has sole and absolute discretion to make discretionary payments from the trust account to enhance the beneficiary’s safety, comfort, enjoyment, or otherwise enhance the beneficiary’s quality of life. See MTA, § 6.1. Pursuant to the Master Trust Agreement, the Trustee has power to transfer a beneficiary’s account to another qualifying pooled trust. See MTA, § 6.5. In the event of such transfer, the Master Trust Agreement prohibits any disbursements other than to the recipient pooled trust. See id.

Upon the beneficiary’s death, his or her trust account terminates. See MTA, § 7.1. Following such termination, the Trustee must first determine the Pooled Trust’s remainder share (“Trust Remainder Share”). See MTA, § 7.2. If the amount owed to the State(s) in reimbursement for medical assistance paid on the beneficiary’s behalf under a State Medicaid plan(s) is equal to or greater than the amount of funds remaining in the beneficiary’s account, the Trustee shall retain 50% of the remaining funds as the Trust Remainder Share. See id. If the amount owed to the State(s) for Medicaid reimbursement is less than the amount of funds remaining in the beneficiary’s account, then the Trustee shall retain 5% as the Trust Remainder Share. See id. Thereafter, the Trustee shall first use remaining assets in the trust account to reimburse the State(s) for medical assistance paid on the beneficiary’s behalf under a State Medicaid plan(s), and then distribute the remaining account assets to the remainder beneficiaries identified in the beneficiary’s Joinder Agreement. See id.

Prior to reimbursing the State(s) for medical assistance provided under State Medicaid plan(s), the Trustee may pay certain administrative expenses, including State and Federal taxes arising due to the beneficiary’s death, and reasonable fees and costs for terminating and winding up the beneficiary’s account. See MTA, § 7.4. The Master Trust Agreement prohibits the payment of administrative expenses not allowed under the Social Security Administration’s Program Operations Manual System (POMS) prior to State Medicaid reimbursement. See id. Specifically, the Trustee may not pay inheritance taxes, debts owed to third parties, funeral expenses, or payments to residual beneficiaries. See id.

After State Medicaid reimbursement, the Trustee may make distributions for funeral expenses and third party debts. See MTA, § 7.5. After such distributions, the Trustee shall distribute the remaining trust account assets to the remainder beneficiaries according to the Joinder Agreement. See id. The Joinder Agreement permits a trust account beneficiary to designate residual beneficiaries to receive the remaining trust assets upon his or her death. See Joinder Agreement, Schedule C. If the beneficiary does not make such a designation, CPT will retain all remaining funds. See id.

The Master Trust Agreement provides that in the event of early termination, i.e., termination during the beneficiary’s lifetime, the State(s) would receive reimbursement equal to the amount of medical assistance paid on behalf of the beneficiary under the State Medicaid plan(s). See MTA, § 8.1. Following reimbursement to the State(s), the Trustee would distribute all remaining trust account assets to the trust beneficiary. See id.

The Master Trust Agreement contains a spendthrift provision, providing that no part of a beneficiary’s trust account shall be subject to voluntary or involuntary assignment, attachment, or compelled distribution. See MTA, § 9.9.

The Master Trust Agreement provides that Nevada law governs the Pooled Trust. See MTA, § 13.1.

DISCUSSION

Generally, a trust established after January 1, 2000, with the assets of an individual will be a resource countable to that individual for purposes of determining SSI eligibility. See Social Security Act §§ 1613(e), 1917(d); 42 U.S.C. §§ 1382b(e), 1396p(d); POMS SI 01120.201.A. However, a trust established with the assets of a disabled individual that is part of a pooled trust may be excepted under certain circumstances. Social Security Act §§ 1613(e)(5), 1917(d)(4)(C); 42 U.S.C. §§ 1382b(e)(5), 1396p(d)(4)(C); POMS SI 01120.203.D.1. To meet this pooled trust exception: (1) the trust must be managed by a non-profit association; (2) a separate account must be maintained for each beneficiary of the trust; (3) the beneficiary’s account must be established for his or her sole benefit by a parent, grandparent, legal guardian, by the beneficiary, or by a court; and (4) upon the beneficiary’s death, to the extent that amounts remaining in the beneficiary’s account are not retained by the trust, the trust must pay the State(s) the amount remaining in the account up to the total amount of medical assistance paid on behalf of the beneficiary under the State Medicaid plan(s). Social Security Act § 1917(d)(4)(C), 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203.D.1.

T~ established her account in the Pooled Trust on March 8, 2018, and she funded the account with $177,000.00 she received as part of a litigation settlement. See Joinder Agreement, Schedule A. Accordingly, T~’s account in the Pooled Trust is a countable resource unless it meets the exception to resource counting under section 1917(d)(4)(C) of the Act. As discussed in greater detail below, T~’s account in the Pooled Trust meets this exception.

T~'s account in the Nevada CPT meets the requirements for an exception to resource counting under section 1917(d)(4)(C) of the Social Security Act.

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 the trust provides for payment to a third party for recreational purposes. POMS section SI 01120.201F.2.b provides limited exceptions to the sole benefit rule for third party payments. Thus, because other people may benefit from the trust during the beneficiary’s lifetime, the trust is not for his sole benefit. The language pertaining to medical assistance reimbursement upon the death of the beneficiary is lacking specificity, and therefore does not assure State Medicaid reimbursement. 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.

QUESTIONS

You asked whether the B~ Special Needs Trust (hereinafter “Trust”) is a resource for purposes of determining B~’s entitlement to Supplemental Security Income (SSI). Specifically, you asked whether the Trust 1) was established through court action, 2) is for B~’s sole benefit, and 3) sufficiently provides for reimbursement to the State(s) for medical assistance provided to B~ during his lifetime.

SHORT ANSWERS

Yes, the Trust is a resource because it does not meet the elements of a special needs trust under Social Security Act § 1917(d)(4)(A). B~’s parents – and not a court -- permissibly established the Trust, but not for B~’s sole benefit. Furthermore, the Trust does not contain specific language ensuring reimbursement to the State(s) for medical assistance provided to B~ during his lifetime.

BACKGROUND

B~, an SSI applicant, was born on June. He was diagnosed with Autism and had cognitive and developmental delays. As such, B~ requires assistance managing his personal and financial affairs. His parents, M~ and L~ (settlors), petitioned the Clark County District Court in Nevada on December 9, 2013 to be appointed co guardians of B~’s estate. In the same petition, B~’s parents asked the court to approve and order the creation of the Trust and direct B~’s assets into the Trust. At the time of the petition, B~ owned an account with M~ with a balance of approximately $3,700.00 and a Scholar’s Choice (529) account, with a balance of approximately $20,900.00.

The settlors created the Trust for B~’s use and benefit. Trust, 1.2. The Trust states that it is irrevocable, but can be amended to conform to any regulations approved by a governing body or agency by an order from the Eighth Judicial District Court. Trust, 1.3. The settlors intended that the Trust be used as a special and/or emergency fund for B~’s special needs, to supplement and not supplant public assistance otherwise available to B~. Trust, 2.3. Examples of supplemental care included outings and entertainment expenses. Trust, 2.3. The Trust provides that if any of the supplemental distributions required or would be enhanced by another person accompanying or assisting B~, such as on vacation or a recreational trip, the payment of and reimbursement for both B~ and the other person(s) is a proper expenditure for the Trust estate. Trust, 2.3. The Trust gives the Trustee the power to deplete the Trust corpus before B~’s death, giving preference to B~’s interests while simultaneously considering the interest of any remainder beneficiary or beneficiaries. Trust, 2.5. Because the Trustee is required to consider the remainder beneficiaries’ interests, the Trust places limitations on how the Trustee can distribute property. Trust, 2.5.

The Trust provides that it will terminate upon B~’s death, unless it is depleted earlier. Trust, 3.1. The remaining Trust corpus will “first be used to satisfy any outstanding balance of State or Federal assistance received by the Beneficiary during his lifetime.” Trust, 3.1. The Trustee will distribute any remaining balance outright to B~’s parents, or their survivors. Trust, 3.1.

The Trust also contains a Spendthrift Provision, stating that no interest in the principal or income shall be “anticipated, assigned, encumbered, or subjected to creditors’ claims or legal process before actual receipt by a beneficiary.” Trust, 10.2. The Spendthrift Provision also requires the Trustee to pay the income and principal in the manner provided for by the terms of the Trust and not upon any written or oral order, assignment or transfer by the beneficiary, or operation of law. Trust, 10.2.

On January 8, 2014, the Clark County District Court appointed B~’s parents to act as his co-guardians. The Court also approved and ordered the creation of the Trust, and directed B~’s parents to transfer B~’s assets into the Trust.

APPLICABLE LAW

The Trust is subject to the statutory provisions of Section 1613(e) of the Social Security Act for trusts established on or after January 1, 2000. See Social Security Act § 1613(e); Program Operations Manual Support (POMS) SI 01120.201. Generally, under these provisions, trusts established with the assets of the individual are resources for SSI purposes even if they are irrevocable. However, there is an exception for certain trusts that are established under Social Security Act § 1917(d)(4)(A), commonly known as the special needs trust exception. See POMS SI 01120.203. For this exception to apply, the trust must be:

(1) Established with the assets of a disabled individual under age 65, or the disabled individual's spouse;

(2) Established for the sole benefit of the individual by a parent, grandparent, legal guardian, or court; and

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

POMS SI 01120.203.B.1.a. If the trust contains provisions that provide benefits to other individuals or entities, or allows for termination of the trust prior to the individual’s death and payment of the trust corpus to another individual or entity (other than to the State as payment for goods and services rendered to the individual), the trust is not for the sole benefit of the individual and cannot qualify for the special needs trust exception. POMS SI 01120.203.B.1.e.

ANALYSIS

1. A. 

   Special Needs Trust Exception

The Trust does not meet the requirements for the special needs trust exception to counting it as a resource under Section 1613(e) because it does not meet the second and third requirements for the exception.

1. 1. 

   The Trust was established with the assets of a disabled individual under age 65.

The Trust meets the first requirement for the special needs trust exception, because B~ is disabled ^[1] and is under the age of 65. Additionally, B~’s assets funded the Trust.

1. 2. 

   B~’s parents established the Trust, but not for B~’s sole benefit.

B~’s parents – not a court - established the Trust. B~’s parents’ December 9, 2013 petition initiated the court proceedings that ultimately led to the court order approving the Trust. ^[2] SI 01120.203.B.1.f (“a trust can be ‘established by’ an individual who does not See POMS provide the corpus of the trust, or transfer any of his/her assets to the trust, but rather someone who took action to establish the trust.”).

However, the Trust is not for B~’s sole benefit. Trust section 2.3 provides for reimbursement to a person that accompanies B~ on a vacation or trip, if the presence or assistance of that person would enhance the quality of B~’s experience. While the primary intent for reimbursement to persons accompanying B~ on trips may be to ensure the quality of his experience, the provision nevertheless benefits a third party and is not for B~’s “sole” benefit. See Hobbs ex rel. Hobbs v. Zenderman, 542 F. Supp. 2d 1220, 1234 (D.N.M. 2008) (“payment of a salary to Plaintiff's mother for caretaker services, while certainly in Plaintiff's best interests, is not for his sole benefit as contemplated by § 1917(d)(4)(A)”). Payment of third-party travel expenses is permissible only if the expenditures are necessary for the beneficiary to obtain medical treatment, or are otherwise necessary for a non-family member to oversee the beneficiary’s living arrangements at a long-term care facility. POMS SI 01120.201.F.2.b. Third-party travel expenses incurred merely for the beneficiary’s convenience or enjoyment do not qualify as distributions made for his or her “sole benefit.” Thus, because other people may benefit from the Trust during B~’s lifetime, the Trust is not for B~’s “sole benefit.” See POMS SI 01120.203.B.1.e.

Additionally, Trust section 2.5 provides that, during B~’s lifetime, the Trustee may deplete the Trust corpus while considering the interests of any remainder beneficiaries. While this section does not require distributions to remainder beneficiaries prior to B~’s death, it instructs the Trustee to consider the interests of the remainder beneficiaries when administering the Trust. In other words, the Trustee must consider whether the Trust will have funds remaining after B~’s death that he could distribute to the remainder beneficiaries. Such considerations are inconsistent with the administration of the Trust for B~’s “sole” benefit.

1. 3. 

   The Trust does not provide for State Medicaid reimbursement.

The Trust’s termination clause, section 3.1, provides that the entire amount remaining in the trust at B~’s death shall “first be used to satisfy any outstanding balance of State or Federal assistance received by the Beneficiary during his lifetime.” This language lacks sufficient specificity to ensure that states receive reimbursement for medical assistance paid on B~’s behalf during his lifetime. See POMS SI 01120.203.B.1.a & B.1.h.

To qualify for the special needs trust exception, the Trust must contain specific language that provides that, upon the death of B~, the State(s) “will receive all amounts remaining in the trust, up to an amount equal to the total amount of medical assistance paid” on B~’s behalf during his lifetime. Social Security Act § 1917(d)(4)(A); POMS SI 01120.203.B.1.h. Special needs trusts must contain this exact language, or language substantially similar. Id.; see also POMS PS 01825.026.C (PS 09-021) (describing the “substantially similar” requirement as one that “only allows for slightly dissimilar language which still meets the substantive provisions of the exception”). They must also provide that reimbursement of the states will have priority over other debts and administrative expenses. See POMS SI 01120.203.B.1.h.

Here, the Trust generally provides for reimbursement of State and Federal assistance payments, but the language is too broad. The termination language does not specify that all States contributing to B~’s medical assistance shall receive reimbursement for the total amount of medical assistance paid on B~’s behalf. Furthermore, the termination language does not specify that the states will be the first payee and have priority over other debts and administrative expenses. See POMS SI 01120.203.B.1.h.

CONCLUSION

The Trust meets the first two requirements for the special needs trust exception because B~’s parents established the Trust with his assets. However, the Trust does not meet the sole beneficiary and State Medicaid reimbursement requirements of the special needs trust exception. Accordingly, as currently drafted, the Trust constitutes a resource countable to B~.

This opinion provides a summary of the law pertaining to spendthrift provisions in the states in Region IX. It gives guidance on distinguishing between third party and self-settled trusts as well as the difference between limitations on the beneficiary and creditors.

QUESTIONS

You asked whether the Region IX states recognize spendthrift clauses in trusts. ^[3]

SHORT ANSWERS

Arizona, California, Hawaii, and Nevada all recognize the validity of spendthrift provisions with respect to third party beneficiaries. With respect to self-settled trusts (where the settlor is also the beneficiary), Arizona does not recognize spendthrift provisions unless it is in an irrevocable special needs trust where discretionary payments are made to a disabled settlor.

California provides that spendthrift clauses in self-settled trusts are invalid. Hawaii and Nevada recognize the validity of spendthrift provisions in self-settled trusts if certain requirements are met. Guam appears to follow California law with respect to spendthrift provisions.

OVERVIEW:

A spendthrift clause or spendthrift trust prohibits voluntary and involuntary transfers of a trust beneficiary’s interest in the trust income or principal. See Program Operations Manual System (POMS) SI 01120.200.B.16. The spendthrift clause is a way to protect the beneficiary’s interest from creditors because they cannot reach any funds held in trust. Instead, creditors must wait until the money is paid out from the trust to the beneficiary before they can attempt to claim it to satisfy any debts. Id. Similarly, spendthrift clauses prevent the beneficiary from selling his or her right to receive future trust distributions to a third party for a lump sum. Id. Under these principles, if a trust has a valid spendthrift clause, the value of the trust beneficiary’s right to receive payments from the trust is not countable as a resource for SSI purposes. Id.; see also POMS SI 01120.200.D.1.a & D.2.

ARIZONA:

Arizona recognizes the validity of spendthrift provisions that restrain voluntary or involuntary transfer of a beneficiary’s interest. Ariz. Rev. Stat. Ann. § 14-10502(A). Language stating that a beneficiary’s interest is held subject to a spendthrift trust, or similar terms, are sufficient to create a spendthrift trust. Ariz. Rev. Stat. § 14-10502(B). A beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision, and neither creditors nor assignees of the beneficiary may reach the interest or a distribution by the trustee before the beneficiary receives it. ^[4] Ariz. Rev. Stat. § 14-10502(C); see also Ariz. Rev. Stat. § 1410501(B); In re Indenture of Trust Dated January 13, 1964, 2014 WL 2041881, *5 (Ariz. App. Ct. May 16, 2014) (finding that a spendthrift beneficiary does not have the power to “thwart” the purpose of the provision and cannot consent to or ratify the alienation of his beneficial interest in the trust).

The spendthrift provisions do not, however, protect the settlor in the same way that they protect the trust beneficiary. Even if a revocable trust contains a spendthrift provision, the property of the trust is subject to the claims of a settlor’s creditors during the settlor’s lifetime. See Ariz. Rev. Stat. § 14-10505(A)(1). Similarly, for irrevocable trusts with a spendthrift provision, a settlor’s assignees or creditors may reach the maximum amount that can be distributed to or for the settlor’s benefit. ^[5] See Ariz. Rev. Stat. § 14-10505(A)(2); Arizona Bank v. Morris, 6 Ariz. App. 566, 568, 435 P.2d 73, 75 (Ariz. App. Ct. 1967) (holding that a person cannot insulate his property from creditors by temporarily placing it in a spendthrift trust so that the income and principal of the trust remain payable to him).

However, during the lifetime of the settlor, a settlor’s creditors may not reach or compel distributions to or for the benefit of the beneficiary of a special needs trust. See Ariz. Rev. Stat. § 14-10505(A)(2)(c). Thus, spendthrift provisions in self-settled irrevocable special needs trusts are effective, and discretionary distributions for the benefit of the disabled individual would not be transferable. However, spendthrift provisions in self-settled revocable trusts are invalid.

Finally, creditors of beneficiaries to discretionary trusts (which may include special needs trusts), may not compel a distribution whether or not the trust contains a spendthrift provision. Ariz. Rev. Stat. § 14-10504(A); see Ariz. Rev. Stat. § 14-10506 (distinguishing mandatory distributions). Thus, discretionary trusts are not countable as resources although the distribution may be countable as income. See POMS SI 01120.200.D.2.

CALIFORNIA:

California recognizes the validity of spendthrift trusts on a third party beneficiary; that is, a beneficiary other than the settlor. ^[6] If the trust provides that a beneficiary’s interest in trust income or principal is not subject to voluntary or involuntary transfers, it may not be transferred and is not subject to enforcement of a money judgment until paid to the beneficiary. Cal. Prob. Code §§ 15300, 15301(a). Similarly, if the trust provides that the trustee shall pay income and/or principal for the beneficiary’s education or support, the income and/or principal necessary for the beneficiary’s education or support may not be transferred and is not subject to the enforcement of a money judgment until paid to the beneficiary. Cal. Prob. Code § 15302. Furthermore, if the creator’s intent is reasonably plain, no specific language is required to create a spendthrift trust. See In re De L~’s Estate, 62 Cal. App. 2d 808, 813 (Cal. App. Ct. 1944). The beneficiary’s creditors or transferees may not compel the trustee to pay any amount that is in the trustee’s discretion to pay, regardless of whether there is a standard provided for the trustee’s discretion. See Cal. Prob. Code §§ 15303(a), 15303(c).

A settlor may validly create a self-settled trust; however, the spendthrift clause in a self-settled trust is invalid against transferees or creditors. Cal. Prob. Code § 15304(a). Even if trust distributions to the settlor/beneficiary are at the discretion of a trustee, a transferee or creditor may reach the maximum amount the trustee could pay the settlor; except this amount cannot exceed the settlor’s contribution to the trust. Cal. Prob. Code § 15304(b); see also In re Brooks-Hamilton, 348 B.R. 512, 521 (N.D. Cal. 2006).

HAWAII:

Hawaii recognizes spendthrift provisions in all trusts, including those that are self-settled, and those that name third party beneficiaries as well as the settlor as beneficiary. Haw. Rev. Stat. § 554G-5(d) ^[7] (trusts may provide that the beneficiary’s interest, including a beneficiary who is the transferor of the trust, may not be transferred, assigned, pledged, or mortgaged, whether voluntarily or involuntarily, before the trustee distributes the property or income to the beneficiary); see also Haw. Rev. Stat. § 554G-2 (defining “transferor” to mean the same as settlor or grantor); Welsh v. Campbell, 41 Haw. 106 (Haw. Terr. 1955) (adopting spendthrift trust rule for Hawaii). All trusts are irrevocable. See Haw. Rev. Stat. § 554G-5(a). However, a self-settled trust with a spendthrift provision is not beyond the reach of the settlor’s creditors. ^[8] See Cooke Trust Co. v. Lord, 41 Haw. 198 (Haw. Terr. 1955) (cited with approval in Holualoa Aloha, LLC v. Anekona Aloha, LLC, 129 Hawaii 106, 2013 WL 709670 at *1 (Haw. App. 2013) (unpublished order) (upholding garnishment of self-settled trust with spendthrift clause)).

NEVADA:

Nevada recognizes spendthrift provisions in trusts for third party beneficiaries as well as self-settled trusts. ^[9] Nev. Rev. Stat. § 166.040(1); see also Nev. Rev. Stat. § 166.020 (defining a spendthrift trust as a trust that contains a valid restraint on the voluntary and involuntary transfer of the beneficiary’s interest), § 166.120 (providing for restraints on beneficiary’s voluntary and involuntary transfer or assignment of trust corpus and right to future payments). However, a spendthrift trust created for the benefit of the settlor must (1) be irrevocable, (2) not require any distributions of the trust income or principal to the settlor, and (3) not be created with the intent to hinder, delay or defraud known creditors. Nev. Rev. Stat. § 166.040(1)(b). The settlor has only those powers set out in the trust instrument. Nev. Rev. Stat. § 166.045.

Although no specific language is required to create a valid spendthrift trust, so long as the creator’s intent is clear, a spendthrift trust must be in writing and clearly identify the beneficiaries in that writing. Nev. Rev. Stat. §§ 166.040(1), 166.050, 166.080. The trustee’s discretion regarding the application or payments of sums to the beneficiary as set forth in the trust is absolute. Nev. Rev. Stat. § 166.110. The beneficiary has no power or capacity to make any disposition of the income, and the beneficiary’s interest is not subject to any process of attachment nor can it be taken in execution under any form of legal process. Nev. Rev. Stat. § 166.120(3). The trustee shall apply the trust estate and income solely for the beneficiary’s benefit, discharged from all of the beneficiary’s obligations. Id.^[10]

GUAM:

Guam law mentions spendthrift trusts when discussing both wills and testamentary trusts and therefore appears to recognize at least third party spendthrift provisions. See Guam Code Ann. Tit. 15, §§ 763, 3309(d). However, every transfer of property, obligation incurred, or judicial proceeding taken with the intent to delay or defraud a creditor or other person is void against all creditors of the debtor, their successors in interest, and any person whom the debtor’s estate passes in trust for the benefit of others than the debtor. See Guam Code Ann. Tit. 20, § 6101.

Guam also appears to follow California law. See Guam Code Ann. Tit. 15, Refs. & Annos. (Title 15 of the Guam Code Annotated, effective March 16, 1982, was enacted to replace the former Probate Code of Guam, and the basis for the substantive changes was California law as of the date of drafting in 1980). Accordingly, Guam likely follows California law with respect to the treatment of spendthrift trusts. See Guam Code Ann. Tit. 15, §§ 763, 3309(d) (indicating the source of law is now-repealed sections of the California Probate Code).

This opinion addresses whether states in Region IX consider oral trusts valid under state law and whether grantor trusts (trusts where the individual who provides the trust principle is also the sole beneficiary of the trust) are revocable. Each of the states in Region IX recognizes oral trusts for personal property as valid under state law, but requires a written document for a trust conveying real property. Under Arizona, Hawaii, and California laws, grantor trusts are generally revocable even if the trust terms state it is irrevocable. Under Nevada law, grantor trusts are generally irrevocable unless the grantor expressly retains the power to revoke it. Arizona, California, Hawaii, and Nevada all recognize that the grantor’s conveyance of trust property to his or her “heirs” creates a remainder interest in a third-party beneficiary, as opposed to merely creating a reversionary interest to the grantor.

QUESTIONS

You asked for guidance on the following questions with respect to states in Region IX: ^[11]

1. Whether grantor trusts are revocable, and whether the grantor must use specific terms to establish a remainder interest in a trust beneficiary?

2. Whether oral trusts are valid under state law?

SHORT ANSWERS

1. Under Arizona, Hawaii, and California laws, grantor trusts are generally revocable even if the trust terms state it is irrevocable. Under Nevada law, grantor trusts are generally irrevocable unless the grantor expressly retains the power to revoke it. Arizona, California, Hawaii, and Nevada all recognize that the grantor’s conveyance of trust property to his or her “heirs” creates a remainder interest in a third-party beneficiary, as opposed to merely creating a reversionary interest to the grantor.

2. Each of the states recognize oral trusts for personal property but require a written document for a trust conveying real property.

I. REVOCABILITY OF GRANTOR TRUSTS

OVERVIEW

In general, the assets of an individual are counted as a resource to that individual for purposes of Supplemental Security Income (SSI) eligibility. See generally Social Security Act § 1611(a); Program Operations Manual System (POMS) SI 01110.001. However, assets held in certain types of trusts may be exempted from counting as a resource for SSI eligibility purposes.

A grantor trust is a trust in which the individual who provides the trust principle is also the sole beneficiary of the trust. POMS SI 01120.200(B)(8). If the grantor has the legal authority to revoke or terminate the trust and use trust funds for his or her support and maintenance, the trust principle is a resource for SSI purposes. POMS SI 01120.200.D.1.a; see also POMS SI 01120.200.D.1.b. Conversely, if a trust is irrevocable, it might be excluded from resource counting (if all other necessary conditions are met).

Regarding revocability, some states follow the general rule that when a grantor is also the sole beneficiary of a trust, that trust is revocable regardless of any contrary language it contains. See POMS SI 01120.200.D.3. By the same token, many states recognize that if the trust document creates residual beneficiaries, the trust is generally considered irrevocable. POMS SI 01120.200.D.3.

Under the common law doctrine of worthier title, an inter vivos (lifetime) conveyance of property to the grantor’s “heirs” or “next of kin” was invalid because there was no designated beneficiary. See Rest. of Prop. § 314. Normally, such an invalid conveyance would mean that the grantor retained the beneficial interest. Id. at comment (d). However, a majority of states have abolished this common law rule, preferring instead to interpret a conveyance to a grantor’s heirs as a valid conveyance without reversion to the grantor. See Rest. (3d) of Prop. §§ 16.1, 16.3.

Each Region IX state’s laws regarding revocability and residual beneficiaries is discussed below.

ARIZONA

Under Arizona law, a trust is generally revocable unless the trust explicitly states it is irrevocable. See Ariz. Rev. Stat. § 14-10602 (“Unless the terms of a trust expressly provide that the trust is irrevocable, a settlor may revoke or amend the trust subject to any limitations prescribed in the terms of the trust”). However, if the grantor is the sole beneficiary of a trust, it is revocable even when the trust says it is irrevocable. See, e.g., Dreyer v. Lange, 74 Ariz. 39, 41 (Ariz. 1952).

Arizona has enacted a statute abolishing the doctrine of worthier title. See Ariz. Rev. Stat. § 14-2710. Accordingly, a conveyance to to a grantor’s “heirs, heirs at law, next of kin,” or similar language are valid and does not create a reversionary interest in the grantor. Id.

CALIFORNIA

In California, a trust is generally revocable unless it explicitly states that it is irrevocable. See Cal. Prob. Code § 15400 (“Unless a trust is expressly made irrevocable by the trust instrument, the trust is revocable by the settler.”); see also In re B~-H~, 348 B.R. 512, 519 (2006) (“Under California law, a trust is revocable unless it is expressly stated to be irrevocable.”). Further, even if the trust explicitly states that it is irrevocable, the trust is revocable if the grantor is the sole beneficiary of the trust. See Levy v. Crocker-Citizens Nat. Bank, 14 Cal. App. 3d 102, 105, 94 Cal.Rptr. 1, 3 (Cal. App. Ct. 1971) (“It is conceded that if a trustor is the sole beneficiary of a trust, he may revoke it even though by its terms the trust is irrevocable”); Bixby v. California Trust, 33 Cal. 2d 495, 497 (1949) (“Where the trustor is the sole beneficiary no problem arises of defeating the trust against the trustor's wishes”) (citing Rest. (2d) of Trusts § 339 (“If the settlor is the sole beneficiary of a trust and is not under an incapacity, he can compel the termination of the trust;” commenting that this rule stands “even though it is provided in specific words by the terms of the trust that the trust shall be irrevocable”)); Cal. Prob. Code § 15404 (if the settlor and all beneficiaries of a trust consent, they may compel modification or termination of the trust).

California enacted law abolishing the doctrine of worthier title. ^[12] See Cal. Prob. Code § 21108. Thus, a trust provision conveying a remainder interest to the grantor’s “heirs” or “next of kin” is valid and does not result in a reversionary interest to the grantor. Id.; Cal. Prob. Code § 15205 (a trust requires a beneficiary; this requirement is met if there is a beneficiary or class of reasonably ascertainable beneficiaries or the class is sufficiently described so as to determine that some person meets the class description); POMS PS 01825.006.E (PS 12-122, California Trust Law: “Heirs” or “Heirs at Law”as Residual Beneficiary). Likewise, the identification of an individual or category of people (for instance, a “spouse” or “living issue”) would also establish a remainder interest. See C.I.R. v. Goodan, 195 F.2d 498, 499 n.1 (9th Cir. 1952).

HAWAII

Under Hawaii law, a trust is irrevocable unless the grantor explicitly retains the power to revoke the trust. Miller v. First Hawaiian Bank, 61 Haw. 346, 349 n.5 (1979) (citing Restatement (2d) of Trusts § 331 (generally, a settlor cannot modify the trust if he did not expressly reserve a power of modification)). But where the grantor is the sole beneficiary of a trust, it is revocable even if the trust says it is irrevocable. See Cooke Trust Co. v. Lord, 41 Haw. 198 (1955) (citing Weymouth v. Deleware Trust Co., 45 A.2d 427, 428 (Del. Ch. 1946) (Generally, “where the settlor is the sole beneficiary and is not under an incapacity, he may compel the termination of the trust”)); Security Pacific Bank Washington v. Chang, 80 F.3d 1412, 1415 (9th Cir. 1996) (Hawaii follows the majority rule on self-settled spendthrift trusts); Rest. (2d) of Trusts § 339 (“If the settlor is the sole beneficiary of a trust and is not under an incapacity, he can compel the termination of the trust”).

Hawaii enacted a statute abolishing the doctrine of worthier title. See Haw. Rev. Stat. § 560:2710. Language in a trust describing the beneficiaries of a disposition as the grantor’s “heirs,” “heirs at law,” “next of kin” or similar language does not create a reversionary interest in the grantor. Id.; see also In re K~’s Trust Estate, 47 Haw. 610, 620 (1964) (recognizing the term “heirs of the body” as establishing a remainder interest).

NEVADA

In Nevada, a trust is irrevocable unless the grantor expressly retains the power to revoke it. See Nev. Rev. Stat. § 163.560 (2013); Nicosia v. Turzin, 97 Nev. 93, 94 (1981) (per curiam) (“unless a power of revocation is specifically provided for in the trust, revocation will not be permitted”). “Such a trust shall, under no circumstances, be construed to be revocable for the reason that the settlor and the beneficiary is the same person.” Nev. Rev. Stat. § 163.560.2.

Nevada does not require any specific language for creating a remainder interest; however, the trust must have a reasonably ascertainable beneficiary or class of beneficiaries. ^[13] Nev. Rev. Stat. § 163.006; see also Hannam v. Brown, 114 Nev. 350, 356 (Nev. 1998) (construing trusts in a manner effecting the apparent intent of settlors).

II. VALIDITY OF ORAL TRUSTS

Generally, a writing is not necessary to create an enforceable inter vivos trust. See Rest (3d) of Trusts § 20. However, pursuant to the Statute of Frauds, a writing is necessary for the a trust involving real property. Id. This rule is followed by all states in Region IX, as detailed below.

ARIZONA

Arizona recognizes oral trusts for personal property, but requires a written trust for real property. See O’Brien v. Bank of Douglas, 17 Ariz. 203, 207 (Ariz. 1915) (recognizing oral trust for personal property); Ariz. Rev. Stat. § 14-10407 (“a trust need not be evidenced by a trust instrument, but the creation of an oral trust shall be established only by clear and convincing evidence and the terms of the oral trust shall be established by a preponderance of the evidence); Hall v. World Sav. and Loan Ass’n, 189 Ariz. 495, 504 (Ariz. 1977) (an oral trust for land falls “within the statute of frauds,” i.e., it requires written document(s) setting forth with reasonable definiteness the trust property, beneficiaries, and purpose).

CALIFORNIA

California recognizes oral trusts for personal property, but requires a written trust for real property. See Cal. Prob. Code § 15207 (recognizing oral trusts for personal property; stating that an oral declaration is not sufficient to create a trust of real property); Cal. Prob. Code § 15206 (a trust in relation to real property must be evidenced by a written instrument signed by either the trustee or the settlor).

HAWAII

Hawaii recognizes oral trusts for personal property, but requires a written trust for real property. See Wery v. Pacific Trust Co., 33 Haw. 701 (1936) (recognizing oral trust for personal property); Teixeira v. Teixeira, 37 Haw. 64 (1945) (a trust for land falls within the “statute of frauds,” i.e., it requires a writing of its terms).

NEVADA

Nevada recognizes oral trusts for personal property, but requires a written document for trusts including real property. See Nev. Rev. Stat. § 163.009 (recognizing oral trust for personal property); § 163.008 (requiring trust for real property to be created by written instrument or operation of law; such a trust may be recorded in the county where the real property is located); Hardy v. U.S., 918 F.Supp. 312, 317 (D.Nev. 1996) (under Nevada law, a trust for real property is not valid unless “created by operation of law or evidenced by a written instrument[.]”) (citing Nev. Rev. Stat. § 163.008). A written trust may be in electronic form. See Nev. Rev. Stat. § 163.0095 (effective 2001).

This guide from the San Francisco Regional Chief Counsel's office informs us that the establishment of "empty" or "dry" trusts are not valid in the state of Nevada with regard to SSI excluded trusts.

OVERVIEW

You asked whether an unfunded, or “empty,” Nevada trust established under Section 1917(d)(4)(A) of the Social Security Act (the Act) is a valid trust for the purpose of determining Supplemental Security Income (SSI) eligibility. As discussed below, we conclude that an empty trust is not a valid trust under Nevada law.

BACKGROUND

In general, when determining an individual’s eligibility for SSI, all assets in a revocable trust established by the individual, as well as those assets in an irrevocable trust which could be paid to the individual, will be considered a resource. See Act § 1613, 42 U.S.C. § 1382b(e)(3); POMS SI 01120.201(D). Assets in a trust may be excluded as a resource, however, if a statutory exception applies.

Section 1917(d)(4)(A), 42 U.S.C. § 1396p(d)(4)(A), provides for one such exception, commonly known as the Medicaid payback trust or “special needs trust.” To qualify for the exception, a trust must:

1. be established with the property of an individual under age 65 who is disabled;

2. be established for the benefit of such individual by a parent, grandparent, legal guardian, or court; and

3. provide that, on the death of the individual, any funds remaining in the trust will be used to reimburse the state for Medicaid payments made for the benefit of the individual during his lifetime.

Act § 1917(d)(4)(A); POMS SI 01120.203(B)(1).

Where a parent or grandparent creates such a trust, the parent or grandparent must either (1) create a “seed” trust, i.e., establish a trust using a nominal amount of his or her own funds, after which the disabled individual may transfer his or her own funds to the trust, or (2) create an empty or dry trust, if state law permits, into which the competent disabled adult’s funds can be placed. POMS SI 01120.203(B)(1)(f).

Thus, if Nevada law recognizes the validity of an empty trust, trusts created in this manner may be eligible for the Medicaid payback trust exception. Conversely, if Nevada law does not recognize the validity of an empty trust, such trusts will not qualify for the exception.

DISCUSSION

Nevada has not directly addressed whether it would recognize an empty Section 1917(d)(4)(A) trust. As a general rule, however, Nevada law does not recognize empty trusts as valid. The relevant statute on this issue is clear: “A trust is created only if . . . [t]here is trust property.” Nev. Rev. Stat. § 163.003 (2009); accord Restatement (Second) of Trusts § 74 (requiring tangible trust property for creation of trust).

Longstanding Nevada case law likewise requires that a trust contain an ascertainable subject matter. See, e.g., Soady v. First Nat’l Bank of Nevada, 411 P.2d 482, 484-85 (Nev. 1966) (holding that “[i]t is essential to the validity of a trust . . . that the subject matter thereof be certain”); see also In re S~, 46 B.R. 880, 884-85 (B~. D. Nev. 1985) (citing S~, 411 P.2d 482, among other authority) (providing that the “general characteristics of an express trust include . . . a clearly defined trust res [property]”)

CONCLUSION

Nevada law does not recognize empty trusts as valid. Consequently, such trusts would not qualify for the exception to counting set forth in Section 1917(d)(4)(A).