TN 5 (07-11)

PR 07210.007 Colorado

A. PR 11-129 Representative Payee’s deposit of SSA funds into the Violet P~ Disability Trust

DATE: July 13, 2011

1. SYLLABUS

A Representative Payee cannot transfer beneficiary funds to a trust that prohibits the trustee from using trust funds for the basic care and support of the trust beneficiary or to a trust that could terminate early and cease to exist for the sole benefit of the beneficiary during the lifetime of the beneficiary.

2. OPINION

Question Presented

You asked us to review the Violet P~ Disability Trust (VPDT) to determine whether the representative payee (Community Options) can continue to transfer Social Security disability benefits into the trust.

Short Answer

We have determined that the representative payee cannot properly transfer Social Security disability benefits into the VPDT because (1) the trust prohibits the use of trust funds for the primary beneficiary’s current needs, such as food and shelter, and (2) pursuant to the trust’s early termination provisions, the trust could cease to be for the sole benefit of the Social Security beneficiary during her lifetime.

DISCUSSION

The POMS explains that:

A payee must use benefits to provide for the beneficiary’s current needs such as food, clothing, housing, medical care and personal comfort items, or for reasonably foreseeable needs. If not needed for these purposes or, in title II only, for the support of the beneficiary’s legally dependent spouse, child and/or parent, the payee must conserve or invest benefits on behalf of the beneficiary.

POMS GN 00602.001. Pursuant to the POMS, a representative payee may transfer Title II or Title XVI benefits (or both) to establish a trust or to fund an existing trust if:

We have determined that the representative payee cannot properly transfer Social Security disability benefits into the VPDT because (1) the trust prohibits the use of trust funds for the primary beneficiary’s current needs, such as food and shelter, and (2) pursuant to the trust’s early termination provisions, the trust could cease to be for the sole benefit of the Social Security beneficiary during her lifetime.

* Establishing the trust is in the beneficiary’s best interest;

* The trust is established exclusively for the use and benefit of the beneficiary to meet the beneficiary’s current and reasonably foreseeable needs; and

* The Social Security beneficiary is the sole beneficiary of the trust during his or her lifetime.

POMS GN 00602.075(C)(1). The trust must provide that funds in the account will be used only for purposes that would be permitted by a representative payee. POMS GN 00602.075(D)(3). A trust will meet this requirement if it provides for “expenditures for food, clothing, housing, medical care, recreation, education, etc.” Id. A trust will also meet this requirement if it directs that trust assets be used only to meet the beneficiary’s current maintenance needs that are not covered by public assistance, since this does not prevent the use of trust assets to meet the beneficiary’s current maintenance needs. Id. However, a trust does not meet this requirement where it prohibits the use of trust funds to meet the beneficiary’s current needs for food, clothing, housing and medical care and provides that trust funds are to be used to enhance the beneficiary’s quality of life in the broadest sense. Id. Thus, a representative payee could not properly transfer benefits to a trust with such provisions. Once the benefits are transferred into the trust, “the benefits are considered ‘expended’ or ‘used’ to meet the beneficiary’s current and reasonably foreseeable needs, just as if the payee used the funds to purchase goods and services to benefit the beneficiary.” POMS GN 00602.075(C)(2).

Violet P~ Disability Trust

The VPDT appears to conflict with the POMS in two ways. First, it prohibits the trustee from using any trust funds for the basic care and support of the trust beneficiary. Specifically, the VPDT provides that distributions of income and principal can be made only to provide for the “supplemental needs” of the primary beneficiary, and defines “supplemental needs” as “services or goods that are not considered food or shelter.”1 See Violet P~ Disability Trust, Section 3.01 (emphasis added). Therefore, because the VPDT specifically prohibits the use of trust funds for the beneficiary’s current needs such as food and shelter, 2 the representative payee cannot properly transfer Social Security disability benefits into the trust. See POMS GN 00602.075(D)(3).

Second, the VPDT could terminate early and cease to be for the sole benefit of the Social Security beneficiary during her lifetime. The VPDT provides that the trust shall terminate (1) upon the death of the beneficiary; (2) when the trust is no longer