TN 1 (12-06)
PS 01205.017 Indiana
A. PS 05-038 SSI - Six State Survey on "Dry" or "Empty" Trusts Your Reference: S2D5G6 Our Reference: 05-006
DATE: November 30, 2004
NOTE: We replaced our 2004 memorandum (found in POMS sections PS 01205.016, PS 01205.017, PS 01205.025, PS 01205.026, PS 01205.039, and PS 01205.055 (A. PS 05-038)) with opinion PS 17-145. However, we placed the new six state survey in POMS subchapter PS 01825.000 Trusts, in sections PS 01825.016, PS 01825.017, PS 01825.025, PS 01825.026, PS 01825.039, and PS 01825.055.
The RCC opinion establishes the precedent that in the Region V states "dry" or "empty" trusts cannot be used. In the states named below trusts established without property are not considered trusts.
You have asked whether a "dry" or "empty" trust is a valid legal entity for the purposes of determining eligibility for Supplemental Security Income (SSI) in the six States of Region V. As discussed below, we conclude that it is not a valid legal entity in any of the States of our region.
As you know, under federal law, a trust established by an individual after January 2000 generally will be considered a resource if the trust is revocable. 42 U.S.C. § 1382b(e)(3)(A); POMS SI 01120.201(D)(1). If the trust is irrevocable, the trust is still a resource if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual. In that case, the value of the resource is the portion of the trust corpus which could be made to or for the benefit of the individual. 42 U.S.C. § 1382b(e)(3)(B); POMS SI 01120.201(D)(2)(a).
Even if it is irrevocable, however, a trust will still be a resource under the statute unless an exception applies. The Medicaid payback trust exception for individual trusts applies where the trust is: (1) established with the property of an individual under age 65 who is disabled; (2) established for the benefit of such individual by a parent, grandparent, legal guardian or a court; and (3) provides 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. See 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203(B)(1).
We were recently advised that, under Agency policy, where a parent or grandparent creates a trust with a competent adult's funds, to satisfy 42 U.S.C. § 1396p(d)(4)(A), the parent or grandparent must either (1) create a "seed trust", i.e., contribute some amount of funds not belonging to the individual prior to transferring the individual's funds to the trust, or (2) the State must recognize the existence of a "dry" or "empty" trust, i.e., a trust without any trust property created by the parent or grandparent, into which the competent disabled adult's funds can be placed. Thus a "dry" or "empty" trust for our purposes is a trust without any property as of the inception of the trust.
A dry or empty trust, however, would appear to violate a basic trust principle that a trust governs property. The Restatement (Third) of Trusts (2003) provides that "[a] trust cannot be created unless there is trust property in existence and ascertainable at the time of the creation of the trust." Id. at § 2 cmt. i. Mark L. A~, Austin W. S~, William F. F~, Scott on Trusts (4th ed. 2001), a leading authority on trusts, agrees, stating that a trust is, among other things, "a relationship with respect to property." Id. at § 2.3. Accordingly, the two States of the region whose statutes set forth the elements of a trust, Indiana and Wisconsin, both require that a trust have property, Ind. Code § 30-4-1-1; Wis. Stat. § 701.01(7), (the other four States' statutes do not set forth the elements of a trust, e.g., 760 Ill. Comp. Stat. 5/2; Mich. Comp. Laws § 555; Minn. Stat. § 501B), and case law from all six States uniformly recognizes that property is an essential element of a trust. Wagner v. Clauson, 78 N.E.2d 203, 207-08 (Ill. 1948); Pavy v. Peoples Bank & Trust Co., 195 N.E.2d 862, 867 (Ind. App. 1964); Equitable Trust Co. v. Milton Realty Co., 246 N.W. 500, 502 (Mich. 1933); Bush v. Crowther, 81 N.W.2d 615, 620 (Minn. 1957); First Nat'l Bank of Middletown v. Gregory, 468 N.E.2d 729, 741 (Ohio App. 1983); Warsco v. Oshkosh Savings & Trust Co., 196 N.W. 829, 831 (Wis. 1924).
In a dry or empty trust, however, there is no trust property. Absent such property, for the six States in our region, there would appear to be no trust. Moreover, it is insufficient that in the future assets may be transferred into the trust, as "[a]n expectation or hope of receiving property in the future . . . cannot be held in trust." Restatement at § 41. Consistent with these principles, therefore, we are unaware of any State in the region that recognizes a dry or empty trust, as we have defined them.
Thus, given the basic trust principles, statutes, and case law discussed above, which require that a trust have property, a dry or empty trust, as we have defined them, would not be considered to be a "trust" within the six States of our region. Therefore, we conclude that a dry or empty trust does not exist as a valid legal entity in any of the states of our region.