QUESTION
Whether the Disabilities Foundation of Charleston County, Inc. Pooled Fund Trust (Trust)
meets the requirements for a pooled trust under section 1917(d)(4)(C) of the Social
Security Act (Act) and the relevant provisions of the Program Operations Manual System
(POMS).
ANSWER
For the reason discussed below, the Trust does not comply with all the requirements
for a pooled trust under section 1917(d)(4)(C) of the Act and relevant provisions
of the POMS.
BACKGROUND
According to the information provided, N~, the number holder (NH), has been receiving
Supplemental Security Income (SSI) since 1981. NH enrolled in the Trust on August
XX, 2016, and is currently a beneficiary of the Trust.
Purpose and Establishment of the Trust
In October 2007, the Disabilities Foundation of Charleston County Inc. (DFCC or Grantor),
established the Trust. See Trust, Art. III, ¶ 1. The Trust states the intention of DFCC was to establish a pooled
fund trust pursuant to 42 U.S.C. § 1396p (section 1917 of the Act) for the benefit
of beneficiaries under the Trust. See id. In July 2016, DFCC changed its name to The Able Life Foundation, Inc. (Able Life).
See State of South Carolina Secretary of State Nonprofit Corporation Articles of Amendment.
A letter from the Internal Revenue Service (IRS) dated March 28, 2017, states that
Able Life is an exempt organization under section 501(c)(3) of the Internal Revenue
Code.[36]
The Trust identifies Branch Banking and Trust Company (BB&T) as the Trustee.[37] See Trust, pmbl. The Grantor maintains sole discretion to change the Trustee. See Trust, Art. VIII.
The Trust provides that a separate Trust sub-account shall be maintained for each
beneficiary, but for purposes of investment and management of funds, the Trust will
pool the Trust sub-accounts. See Trust, Art. VII, ¶ 1. The Trustee, or the Trustee’s authorized agent, must maintain
records for each Trust sub-account in the name of, and showing the contributed property
for, each beneficiary. See Trust, Art. VII, ¶ 1. The Trustee must also provide an accounting, at least annually,
to each beneficiary or the beneficiary’s legal representative. See Trust, Art. VII, ¶ 3.
The Trust defines “Beneficiary” as an individual who, at the time the sub-account
is established or at the time additional funds are added to the sub-account, is disabled
as defined in § 1614(a)(3) of the Act. See Trust, Art. II, ¶ 1. A “Sponsor” is defined as a parent, grandparent, guardian, or
other legal representative of the beneficiary, the beneficiary, or any court. See Trust, Art. II, ¶ 6. A Sponsor can also be the Grantor, a person appointed by the
Grantor, or any person or entity that contributes assets or property to the Trust
for the benefit of a beneficiary. See id. The Trust becomes effective with respect to a beneficiary upon execution of a Joinder
Agreement by the Sponsor and the Grantor. See Trust, Art. III, ¶ 1, Art. V, ¶ 1. A Sponsor must make a minimum contribution of
$1000 to establish a sub-account. See Trust, Art. V, ¶ 1.
NH’s Joinder Agreement identifies NH as both the Sponsor and Beneficiary and states
the agreement was entered on August 31, 2016. See Joinder Agreement, ¶¶ B, C, G. The Joinder Agreement also identifies NH as a recipient
of SSI. See Joinder Agreement, ¶ C. NH’s Joinder Agreement provides that her sub-account will
be administered for her benefit. See Joinder Agreement, ¶ E. NH’s Joinder Agreement also permits NH as Sponsor to enroll
more than one beneficiary under the sub-account, provided there is an additional agreement
between the Sponsor and Grantor. See Joinder Agreement, ¶ G.
Distribution and Powers of the Trustee
NH’s Joinder Agreement states that all distributions from her sub-account are at the
Trustee’s “sole” discretion. Joinder Agreement, ¶ E. The Trust provides that a beneficiary
has no entitlement to the income or corpus of the Trust except as the Trustee, in
consultation with a Special Advisor, elects to disburse. See Trust, Art. III, ¶¶ 3, 5. A “Special Advisor” is defined as a person who is responsible
for determining the needs of the beneficiary and the effect of distributions on the
beneficiary’s eligibility for government benefits. See Trust, Art. II, ¶ 5. NH’s Joinder Agreement does not specifically identify a Special
Advisor but designates Able Life (formally DFCC) as a substitute or successor Special
Advisor in the event any Special Advisor the Sponsor does name is unable or unwilling
to serve as a Special Advisor. See Joinder Agreement, ¶ E.
The Trust provides that Trustee, as directed by the Grantor, may make any payment
directly to a beneficiary; in any form allowed by law; to any person deemed suitable
by Trustee; by direct payment of a beneficiary’s expenses; or to the Grantor in reimbursement
for advances made to or for the benefit of a beneficiary. See Trust, Art. VII, ¶ 6.
The Trust provides that the Trustee may pay or apply for the supplemental care of
each beneficiary any principal or income from the beneficiary’s Trust sub-account
as the Special Advisor may request and the Grantor shall approve for the satisfaction
of the beneficiary’s supplemental care needs. See Trust, Art. III, ¶ 4. The Trust defines “supplemental needs” or “supplemental care”
to include distributions that supplement and do not replace public or private benefits.
See Trust, Art. II, ¶ 4. Supplemental needs may include educational, medical, and dental
expenses; personal care services; equipment; travel; and recreation. See
id. They may also include expenditures for travel, companionship, cultural experiences,
and expenses in bringing a beneficiary’s siblings, children, and others for visitation
with him or her. See id. NH’s Joinder Agreement incorporates by reference any supplemental needs plan established
for NH[38] and provides that pending the preparation of such a plan, the Trustee has discretion
to provide NH any nonsupport items that are required for her health, safety, and welfare
that are not being provided for by a public agency or by other income. See Joinder Agreement, ¶ E.
The Trust also provides that the Trustee, in consultation with the Grantor’s representative,
has absolute discretion to refuse to make distributions which may disqualify the beneficiary
from government benefits and may refuse to make distributions for any reason if it
is determined by the appropriate advisor that such distributions are not in the beneficiary’s
best interest. See Trust, Art. III, ¶ 4.
In addition to payments made for supplemental care, the Trustee also has complete
and absolute discretion to make disbursements to a beneficiary that are recommended
by the Special Advisor even if it reduces or eliminates benefits from one or more
programs. See Trust, Art. III, ¶ 6. A beneficiary’s future needs may be considered by the Trustee
in connection with disbursements made and the interests of remainder beneficiary shall
be secondary to those of the primary beneficiary. See Trust, Art. III, ¶ 5.
The Trust permits payments to a beneficiary’s dependent with the consent of the beneficiary
and states such payments are considered to be made for the benefit of the beneficiary.
See Trust, Art. VII, ¶ 6.
In addition to any other rights, powers, authority, and privileges granted under the
Trust, the Trustee has absolute discretion with respect to any property held by the
Trust to engage in a variety of activities related to investing and managing the Trust
property. See Trust Art. VI. Such rights include the right to invest all or part of the Trust estate.
See Trust, Art. VI, ¶ 1.
The Trust also provides that the Trustee, in its discretion, has the authority to
allocate assets received in kind solely to the sub-account for which the assets were
contributed. See Trust, Art. VII, ¶ 2. In such cases, only the sub-account in question shall be credited
or charged with its share of income, profits, gains, and losses derived from such
segregated assets. See id. The Trustee also has the right to charge the sub-account for administrative services
and expenses attributable to the segregated assets in addition to general administrative
services and expenses. See id.
The Trust provides that the Trust’s general administrative expenses may be allocated
equally among all sub-accounts. See Trust, Art. VII, ¶ 9. Any necessary expenses connected to a particular sub-account
or particular sub-accounts, including attorney or accountant fees, management fees,
taxes, debts, or charges may be paid by the Trustee out of the affected sub-account
or sub-accounts. See id. Expenses that are not incurred for the benefit of a specific sub-account or specific
group of sub-accounts may be allocated between all sub-accounts. See id. Also, the Grantor’s compensation for services may at the Trustee’s discretion be
charged at a pro rata basis to all sub-accounts or between specific affected sub-accounts.
See id. The charges of the Trustee will be prorated among all the sub-accounts. See Trust, Art. XIII, ¶ 3.
Costs and expenses of defending the Trust from any claim, demand, legal or equitable
action, suit, or proceeding may, in the sole discretion of the Grantor, either be
apportioned on a pro rata basis to all trust sub-accounts, be charged only against
the Trust sub-account of the affected beneficiary, or be charged to the sub-accounts
of a group of affected beneficiaries or to a group of beneficiaries whose interests
may be reasonably expected to be affected by the outcome of the action. See Trust, Art. VII, ¶ 8.
Irrevocability and Spendthrift
Upon delivery to and acceptance by the Trustee of property, the Trust, as to the Sponsor
of such property and the designation of the respective beneficiary shall be irrevocable
and the contributed property shall not be refundable unless a Committee established
by the Grantor determines the Trust is unable to meet the needs of a beneficiary.
See Trust, Art. V, ¶ 1, Art. XII, ¶ 3. A designation to transfer property to the Trust
in the future that has not yet been made may be revoked by the Sponsor at any time
during the Sponsor’s life and continued competence, upon prior written notice from
the Sponsor to the Trustee. See Trust, Art. V, ¶ 2.
The Trust agreement is irrevocable, except that it may be amended from time to time
by agreement between the Trustee and the Grantor or by the Grantor to conform with
rules, regulations, and related statutes. See Trust, Art. XI. No beneficiary has the right to amend or revoke the Trust. See id.
The Trust is not available to the beneficiaries’ creditors. See Trust, Art. III, ¶ 2. The Trust also includes a provision stating that no part of
the Trust principal or income shall be subject to anticipation or assignment by a
beneficiary. See Trust, Art. III, ¶ 9. Also, no Trust principal or income is subject to legal or equitable
process by any voluntary or involuntary creditor of any beneficiary and the beneficiary
cannot compel a distribution from her sub-account. See id.
Termination
If the Trustee has reasonable cause to believe that income or principal in a Trust
sub-account is or will become liable for basic maintenance, support, or care for the
beneficiary, which had been or otherwise would have been provided by a local government,
a state, or the federal government, the Trustee, in its sole discretion may: (a) terminate
the Trust sub-account as if the affected beneficiary has died; (b) determine the Trust
is impossible to implement; or (c) continue to administer the Trust sub-account under
a separate arrangement with the affected beneficiary or his or her guardian or other
legal representative. See Trust, Art. XII, ¶ 1.
Before or on the death of a beneficiary or within three months of a beneficiary’s
death, the Trustee, upon the request of the Special Advisor, may pay all or part of
the beneficiary’s funeral and estate administrative expenses, including taxes and
attorney’s fees, from his or her Trust sub-account. See Trust, Art. III, ¶ 11. When a beneficiary dies, any remaining amounts in the beneficiary’s
sub-account after payment of final expenses shall be deemed surplus trust property
and shall be retained by the Trust to be used for operational and charitable purposes.
See Trust, Art. XII, ¶ 2. To the extent that amounts are not retained by the Trust, such
sums will be paid to the South Carolina Department of Health and Human Services up
to an amount equal to the total amount of medical expenses paid on behalf of the beneficiary
for Medicaid assistance. See id.
If the Trustee determines the Trust is impossible to implement or a Committee determines
the Trust is unable to meet a beneficiary’s needs, the Trustee may pay over all or
any portion of the sub-account property to a beneficiary, the probate court, another
Trust for the benefit of the beneficiary, a third party as agreed upon by the beneficiary,
or the beneficiary’s guardian or legal representative. See Trust, Art. XII, ¶¶ 1,3.
Governing law and Severability Clause
The validity of the Trust is determined by the laws and regulations of the United
States and the State of South Carolina. See Trust, Art. XIII, ¶ 4. The Trust provides that should any provision of the Agreement
be or become invalid or unenforceable, the remaining provisions of the Agreement continue
to remain fully effective. See Trust, Art. III, ¶ 10.
DISCUSSION
SSI is a general public assistance program for aged, blind, or disabled individuals
who meet certain income and resource restrictions and other eligibility requirements.
See Act §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2018).[39] “Resources” include cash or other liquid assets or any real or personal property
that an individual owns and could convert to cash to be used for his or her support
and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a). “If the individual has the right, authority
or power to liquidate the property or his or her share of the property, it is considered
a resource. If a property right cannot be liquidated, the property will not be considered
a resource of the individual . . . .” 20 C.F.R. § 416.1201(a)(1); see SI 01120.010.B.
Generally, SSA must consider the principal or corpus of a trust established with the
assets of an individual to be a resource of the individual. See Act § 1613(e)(1)-(3); SI 01120.201.A.1. However, the rules in section 1613(e) of the Act do not apply to trusts described
in section 1917(d)(4) of the Act. See Act § 1613(e)(5); SI 01120.201.A.1; SI 01120.203.A. Trusts created in accordance with paragraphs (A) and (C) of section 1917(d)(4)
are commonly known as Medicaid trust exceptions and consist of two types: Special
Needs Trusts (paragraph (A)) and Pooled Trusts (paragraph (C)). See SI 01120.203.A.
To satisfy the exception for pooled trusts under section 1917(d)(4)(C), a trust must
contain the assets of an individual who is disabled (as defined in section 1614(a)(3))
and meet the following conditions:
(i) The trust is established and managed by a nonprofit association;
(ii) A separate account is maintained for each beneficiary of the trust, but, for
purposes of investment and management of funds, the trust pools these accounts;
(iii) Accounts in the trust are established solely for the benefit of individuals
who are disabled (as defined in section 1614(a)(3)) by the parent, grandparent, or
legal guardian of such individuals, by such individuals, or by a court; and,
(iv) To the extent that amounts remaining in the beneficiary’s account upon the death
of the beneficiary are not retained by the trust, the trust pays to the State 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 plan under this title.
Act § 1917(d)(4)(C); SI 01120.203.D.1. As written, the Trust does not comply with all the requirements for a pooled
trust under section 1917(d)(4)(C) of Act and the implementing POMS provisions. Specifically,
the Trust is not managed by a nonprofit association; the Joinder Agreement allows
the NH to add multiple beneficiaries under her sub-account; the sub-accounts are not
established for the sole benefit of each beneficiary; and the Trust’s termination
provisions do not comply with the Medicaid reimbursement provision.
The Trust is not managed by a nonprofit association. See Act § 1917(d)(4)(C)(i). Although a nonprofit organization may employ the services
of a for-profit entity, the nonprofit organization must maintain “ultimate managerial
control” over the trust. SI 01120.225.D. The nonprofit association must remain responsible for (among other things) determining
the amount of the trust corpus to invest and making the day-to-day decisions regarding
the health and well-being of the pooled trust beneficiaries. See id.
Although Able Life (formally DFCC), a nonprofit entity, established the Trust and
maintains some powers as Grantor, the Trust gives Trustee BB&T, a for profit entity,
significant managerial control over the Trust. BB&T has absolute discretion to engage
in a variety of activities related to managing the Trust, including the power to invest
all or part of the Trust estate. See Trust Art. VI, ¶ 1. NH’s Joinder Agreement also gives BB&T, as Trustee, “sole discretion”
in making distributions to her from her sub-account. See Joinder Agreement, § E. Likewise, the Trust document gives BB&T significant discretion
in making distributions or in refusing to make distributions to the Trust’s beneficiaries.
See Trust, Art. III, ¶ 4, Art. III, ¶ 5, Art. III, ¶ 6.
NH’s Joinder Agreement also allows NH, as Sponsor, to enroll more than one beneficiary
under her Trust sub-account. See Joinder Agreement, ¶ G.3; Act § 1917(d)(4)(C)(ii). The Trust document does provide
that a separate Trust sub-account shall be maintained for each beneficiary. See Trust, Art. VII, ¶ 1. However, this conflicts with the language in the Joinder Agreement
specifically allowing more than one beneficiary under NH’s sub-account. See Joinder Agreement, ¶ G. If NH has enrolled another individual as beneficiary in her
Trust sub-account or does so in the future, a separate account would not be maintained
for each beneficiary of the Trust.
The Trust sub-accounts are also not established solely for the benefit of each beneficiary.
See Act § 1917(d)(4)(C)(iii); SI 01120.203.D.5. A trust is established for the sole benefit of the individual if it benefits
no one but the individual, whether at the time the trust is established or at any
time during the individual’s lifetime. See POMS SI 01120.201.F.1. Generally, a trust is not for the sole benefit of an individual if the trust
account: (a) provides a benefit to another individual or entity during the individual’s
lifetime; or (b) allows for termination of the trust account prior to the individual’s
death and payment of the corpus to another individual or entity. See SI 01120.203.D.5.
Payments for goods and services to a third party are for the sole benefit of the trust
beneficiary if the goods and services are for the beneficiary’s “primary benefit.”
SI 01120.201.F.3.a. As written, the Trust permits the Trustee to make payments to a beneficiary’s
dependents with the consent of the beneficiary. See Trust, Art. VII, ¶ 6. Although the Trust states that such payments are considered
for the benefit of the beneficiary, even if the beneficiary derives some benefit,
such payments would appear to primarily benefit the dependent rather than the beneficiary.
See SI 01120.201.F.3.a (providing as an example that the purchase of a car for a beneficiary’s family
member to take the beneficiary to appointments a few times a month is not for the
beneficiary’s sole benefit, if the family member uses the car daily for purposes that
are not benefiting the beneficiary such as driving to work).
The Trust also gives the Trustee discretion to allocate administrative expenses, including
attorney fees and accountant fees, on a pro rata basis to all sub-accounts regardless
of whether the expenses are only associated with a particular sub-account or group
of sub-accounts. See Trust, Art. VII, ¶ 9. Although the Trust states necessary expenses “may” only be
charged against affected sub-accounts, the Trust does not require this restriction.
As such, the Trustee could potentially charge a beneficiary costs associated with
investment, legal, or other services that are not rendered “on behalf of the [beneficiary]
with regard to the trust.” SI 01120.201.F.4.
The Trust also includes a non-exhaustive list of appropriate distributions that include
expenditures for travel, companionship, cultural experiences, and expenses in bringing
a beneficiary’s siblings, children, and others for visitation with him or her. See Trust, Art. II, ¶ 4. Travel expenses to a third party for visiting a beneficiary
do not violate the sole benefit rule if the travel is to oversee a beneficiary’s living
arrangements if the beneficiary is residing in an institution or similar facility
or if the travel is for a trustee or trust advisor to ensure the beneficiary’s well-being.
See SI 01120.201.F.3.c. Also, the travel must be for the purpose of ensuring the “safety” and/or “medical
well-being” of the individual. See id. As written, the Trust allows for travel of family, friends, and others, regardless
of whether it is to oversee a beneficiary’s living arrangements where the beneficiary
is residing in an institution or similar facility and regardless of whether it is
for the beneficiary’s safety or medical well-being. See Trust, Art. II, ¶ 4. Thus, the Trust sub-accounts would not solely benefit each beneficiary.
The Trust also allows for termination prior to a beneficiary’s death and payment of
the corpus to another individual or entity. A provision that allows a trust to terminate
before a beneficiary’s death is an “early termination provision.”SI 01120.199.D. A pooled trust with an early termination provision must require that any funds
from an early termination either be paid to another pooled trust, see SI 01120.199.F.2, or be paid first to the State(s) for medical assistance provided to the individual
under the State Medicaid Plan(s), with any remaining funds used only for allowable
administrative expenses, reasonable compensation to the trustee, reasonable costs
for services rendered on behalf of the beneficiary, or distributions to the trust
beneficiary, see SI 01120.199.F.1. The Trust’s early termination provision is not acceptable because it gives the
Trustee discretion to pay amounts remaining to either the Trust for operational or
charitable expenses or to a third party (with the beneficiary’s agreement) depending
on if the Trustee treats the beneficiary “as though” she had died or determines the
Trust has become impossible to implement for the beneficiary. Trust, Art. XII. The
Trust’s early termination provision does not conform to the criteria listed for an
acceptable early termination clause enumerated in SI 01120.199.F.
The Trust’s termination provision for when the beneficiary has died also does not
comply with the Act’s Medicaid reimbursement provision. See Act § 1917(d)(4)(C)(iv). To qualify, any amounts not retained by a trust must be
paid to “any State(s)” that have provided medical assistance under a Medicaid plan.
SI 01120.203.D.8. The trust cannot limit payback to any particular State and if the trust does
not have sufficient funds to reimburse each State that had provided medical assistance,
the trust must reimburse each State on a pro-rata basis. See
id. As written, the Trust only permits payback to the South Carolina Department of Health
and Human Services. See Trust, Art. XII, ¶ 2.
The Trust also allows for the payment of prohibited expenses upon a beneficiary’s
death. Upon a beneficiary’s death, the trust may pay for taxes due from the trust
because of the beneficiary’s death and reasonable fees for administration of the trust
estate before reimbursement to the State(s) for medical assistance. See SI 01120.203.E.1. However, some types of expenses and payments are not permitted prior to reimbursement
of the States including funeral expenses and taxes due the estate of the beneficiary
other than those arising from inclusion of the trust in the estate. See SI 01120.203.E.2. As written, the Trust allows prohibited expenses and payments upon the Beneficiary’s
death, including funeral expenses and estate taxes that are not due to inclusion of
the Trust in the estate. See Trust, Art. III, ¶ 11.
The Trust contains a severability clause for severing invalid or unenforceable provisions
without invalidating any remaining provisions. See Trust, Art. III, ¶ 10. For SSI purposes, however, a null and void clause or savings
clause does not cure an otherwise defective trust instrument. See SI 01120.227.D. To qualify for the pooled trust exception, the Trust must meet the criteria in
1917(d)(4)(C) without regard to its severability clause. See SI 01120.227.D.1. Thus, the Trust’s severability clause does not nullify or sever the Trust provisions
discussed above that do not comply with section 1917(d)(4)(C) of Act and the implementing
POMS provisions. See SI 01120.227.D.
The Trust complies with the remaining requirements of section 1917(d)(4)(C) and the
implementing POMS provisions. As discussed above, the Trust was established by Able
Life (formally DFCC), a nonprofit entity. See Trust, Art. III, ¶ 1; IRS Non-Profit Determination Letter; Act § 1917(d)(4)(C)(i);
SI 01120.203.D.3. The Trust also provides for an accounting to each beneficiary annually, unless
NH has added another beneficiary to her sub-account. See Trust, Art. VII, ¶ 3; SI 01120.203.D.4 (providing the Trust must be able to provide an individual accounting for each
individual). Finally, NH’s sub-account was established in August 2016 by her, with
her assets, at a time the agency had already determined she was disabled and she was
receiving SSI. See Joinder Agreement, §§ B, C; Trust, Art. V.1; Act § 1917(d)(4)(C)(iii);SI 01120.203.D.1, 6.
CONCLUSION
The Trust and Joinder Agreement do not comply with all the requirements for a pooled
trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions.
As written, the Trust is managed by a for profit organization; the Joinder Agreement
allows for multiple beneficiaries under NH’s sub-account; the trust sub-accounts are
not established for the sole benefit of each beneficiary; and the Trust’s termination
provisions do not comply with the Medicaid reimbursement provision.