SI CHI01120.200 Revocability of Grantor Trusts -- Chicago Region State Laws (RTN 413 -- 06/2008)

A. Background

To evaluate a trust under the SSI program, it is crucial to determine the following:

  • the grantor or grantors of the trust;

  • the beneficiary or beneficiaries of the trust; and

  • whether the trust is revocable.

B. Definition of a Grantor Trust

A grantor trust is a trust in which the grantor of the trust is also the sole beneficiary of the trust. The grantor, also called the settlor or trustor, is the individual who provides the trust principal.

Some trusts name the representative payee, legal guardian, parent, court, or other person acting on behalf of the SSI recipient as the grantor of the trust. SSA considers the individual who funds the trust to be the grantor, even if the trust agreement names a person acting on behalf of this individual as the grantor. For example, a parent might be shown as the grantor of a trust that was established with the proceeds of a personal injury settlement on behalf of a disabled child. The child is actually the grantor, because the child’s funds are being used to establish the trust.

C. State Law on Revocability of Grantor Trusts

Each of the six states in the Chicago Region permits the grantor of a trust to be the sole beneficiary. All six states also follow the general principle of trust law that if the grantor is the sole beneficiary of a trust, the trust is revocable even if the trust document states that it is irrevocable. However, Ohio excepts from this rule any trust that meet the Medicaid Payback trust exceptions in Section 1917(d)(4) of the Act and that states that it is irrevocable.

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, the trust is irrevocable. The primary beneficiary cannot unilaterally revoke the trust; he needs the consent of the residual beneficiary.

D. Residual Beneficiaries by State

In all States in the Chicago Region, specifically named persons or entities, or categories such as parents, siblings, children, issue, or descendants, are considered residual beneficiaries. The grantor’s estate or the administrator of the estate is not a residual beneficiary. If the trust provides that, upon the beneficiary’s death, the trust will reimburse the state for medical assistance provided during the beneficiary’s lifetime, the state generally should be considered a creditor, not a residual beneficiary of the trust, unless there is a clear intent that the state is an intended beneficiary of the trust, rather than a mere creditor. See Section 5 below for information on Ohio.

In the past, as a general rule in trust law, “heirs,” “heirs at law,” “next of kin”, “survivors,” and similar terms were not residual beneficiaries. In the Chicago Region, Illinois, Indiana, Minnesota, and Ohio followed this general principal, while Michigan and Wisconsin had recently begun to consider heirs to be residual beneficiaries.

A Restatement of the Law (Third) of Trusts was published in April, 2003, replacing the Restatement (Second), published in 1959. The new Restatement draws on court decisions and statutes to provide a contemporary treatment of trust law, offering authoritative guidance to legislators, judges, and attorneys.

According to this Restatement, the legal community now assumes, absent evidence to the contrary, that most grantors intended to create a remainder interest when they name heirs, next of kin, and the like to receive the remaining assets in the trust upon the grantor’s death. Therefore, they are considered to be residual beneficiaries and the trust is considered irrevocable.

1. Illinois

For trusts created after 1955, in the absence of an indication of a contrary intent, you may assume that the grantor intended to name residual beneficiaries by naming his or her heirs, heirs at law, survivors, or persons entitled to inherit on his or her death intestate or under the statute of descent and distribution. If there are such residual beneficiaries, the grantor cannot unilaterally revoke the trust, unless the grantor reserved the right to do so. This change of position is effective August 11, 2003. Trusts in this category are considered to have residual beneficiaries from the time that they were created, even if they were created before August 11, 2003. Where a final decision is questioned based upon this change of position, refer to POMS SI 04070.040.

Refer the trust to the Regional Office, for possible referral to the Office of the General Counsel for a legal opinion as to whether the trust is revocable if the trust does not reserve the power to revoke, was created in 1955 or before, and names only the grantor’s heirs, heirs at law, survivors, persons entitled to inherit on his or her death intestate or under the statute of descent and distribution, or the like, to receive remaining trust assets on the death of the grantor.

Where the trust states only that the grantor’s own estate will receive any remaining trust assets on the grantor’s death, and names no other beneficiaries to the trust, the trust should be considered revocable.

If the trust states only that assets will be distributed according to the grantor’s Last Will and Testament, send the case to the Regional Office, Center for RSI/SSI for referral to the Office of the General Counsel.

2. Indiana

For trusts created after 1971, in the absence of any trust language indicating a contrary intent, you may assume that the grantor intended to name residual beneficiaries by naming his or her heirs, heirs at law, survivors, or persons entitled to inherit on his or her death intestate or under the statute of descent and distribution. If there are such residual beneficiaries, the grantor cannot unilaterally revoke the trust, unless the grantor reserved the right to do so. This change of position is effective August 11, 2003. Trusts in this category are considered to have residual beneficiaries from the time that they were created, even if they were created before August 11, 2003. Where a final decision is questioned based upon this change of position, refer to POMS SI 04070.040.

Refer the trust to the Regional Office, for possible referral to the Office of the General Counsel for a legal opinion as to whether the trust is revocable if the trust does not reserve the power to revoke, was created in 1971 or before, and names only the grantor’s heirs, heirs at law, survivors, persons entitled to inherit on his or her death intestate or under the statute of descent and distribution, or the like, to receive remaining trust assets on the death of the grantor.

Where the trust states only that the grantor’s own estate will receive any remaining trust assets on the grantor’s death, and names no other beneficiaries to the trust, the trust should be considered revocable.

If the trust states only that assets will be distributed according to the grantor’s Last Will and Testament, send the case to the Regional Office, Center for RSI/SSI for referral to the Office of the General Counsel.

3. Michigan

Effective April 1, 2000, any trust that indicates that upon the beneficiary’s death, assets will be paid to heirs at law, heirs, next of kin, relatives, family, distributees, or similar language is considered to have residual beneficiaries, unless there is evidence that the individual intended that this language create only a reversionary interest in the grantor. Trusts using such language are considered to have residual beneficiaries from the time that they were created, even if they were created before April 1, 2000.

If the trust states only that assets will be distributed according to the grantor’s Last Will and Testament, send the case to the Regional Office, Center for RSI/SSI for referral to the Office of the General Counsel.

4. Minnesota

For trusts created prior to 1939, a grantor could not create a remainder interest in his or her heirs, next of kin, or the like; rather, such language created only a reversionary interest in the grantor. Such language would not create additional beneficiaries who could prevent the grantor from revoking the trust.

For trusts created after 1939, in the absence of a contrary intent, you may assume that the grantor intended to name residual beneficiaries by naming his or her heirs, heirs at law, survivors, or persons entitled to inherit on his or her death intestate or under the statute of descent and distribution. If there are such residual beneficiaries, the grantor cannot unilaterally revoke the trust, unless the grantor reserved the right to do so. This change of position is effective August 11, 2003. Trusts in this category are considered to have residual beneficiaries from the time that they were created, even if they were created before August 11, 2003. Where a final decision is questioned based upon this change of position, refer to POMS SI 04070.040.

If the trust states only that assets will be distributed according to the grantor’s Last Will and Testament, send the case to the Regional Office, Center for RSI/SSI for referral to the Office of the General Counsel.

5. Ohio

For trusts governed by Ohio law, if the trust meets the Medicaid Payback trust criteria of Section 1917(d)(4) of the Act (see POMS SI 01120.203), and if the trust states that it is irrevocable, then the trust should be considered irrevocable, regardless of whether any residual beneficiaries are identified in the trust.

6. Wisconsin

For trusts created January 1, 1999, or later, a residual beneficiary generally can be assumed to exist, absent evidence of contrary intent on the part of the grantor, if the trust indicates that, upon the grantor/beneficiary’s death, assets will be paid to the grantor’s “heirs,” “heirs at law,” “next of kin,” “relatives,” “family,” “distributees” of the grantor’s estate, or a term that has similar meaning. Therefore, trusts that contain this language for distribution of remaining assets generally should be considered irrevocable, unless the evidence suggests that such designation was not intended to create a beneficial interest in any individual other than the grantor himself or herself, or unless the grantor reserved the power to revoke or amend the trust. A trust should be referred to the Regional Office, for possible referral to the Office of the General Counsel, if the trust was created prior to January 1, 1999, contains such language for distribution of remaining assets, and identifies no other beneficiaries.

Where the trust states only that the grantor’s estate will receive any remaining trust assets on the grantor’s death, and names no other beneficiaries to the trust, the trust should be considered revocable, absent evidence that the grantor intended to designate beneficiaries other than his or her own estate.

If the trust states only that assets will be distributed according to the grantor’s Last Will and Testament, send the case to the Regional Office, Center for RSI/SSI for referral to the Office of the General Counsel.

E. New Trust Law

During your review of trusts for SSI cases, also refer to SI 01120.203 for trusts established on or after January 1, 2000. A trust established by an individual on or after January 1, 2000, generally will be considered a resource, even if it is irrevocable, unless the trust meets one of the exceptions described in that POMS section (e.g., Medicaid exception or undue hardship).

F. Treatment of Trust Disbursements

If you determine that a trust is not a resource for SSI purposes, disbursements from the trust may still be considered income. See SI 01120.200 E.1 and SI 01120.201I for instructions on evaluating such disbursements.


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