You requested a legal opinion regarding a document creating a discretionary supplemental
trust with SSI recipient Lorraine S~ (Lorraine) as beneficiary. You inquired whether
Lorraine has unrestricted access to the trust principal for her support and maintenance,
i.e., whether the trust principal is a resource for SSI purposes. You also inquired
as to the validity of the Statement of Intent by which Lorraine's father agreed that
support payments would be paid into the trust.
We conclude that the Statement of Intent, which sought to modify the court order of
support, would be held invalid under applicable state law, and that the trust assets
should be considered Lorraine's income or resources for SSI purposes, at least to
the extent that the assets were derived from payments made pursuant to the Statement
of Intent or from other property which had been owned by Lorraine or by her guardian
on Lorraine's behalf.
Pertinent Documents Other than the Declaration of Trust
Lorraine, currently twenty-one years old, is the disabled daughter of Deborah S~ (Deborah)
and David S~ (David). Deborah and David were divorced in Missouri in 1995. The Judgment/Decree
of Dissolution (divorce decree), entered on November 1, 1995, states that there were
two children of the marriage: Lorraine, born March 15, 1976, and Lynne, born October
4, 1978. Divorce Decree at 2. The divorce decree awards child support "for the parties'
minor children" in the amount of $566 per month per child to be paid by David to Deborah.
It further states, "The Court hereby finds that the child LORRAINE is incapacitated
and in need of parental support past the age of emancipation." Divorce Decree at 3.
It incorporates all terms of a Marital Settlement Agreement (settlement agreement).
Divorce Decree at 2. It also permits Deborah to remove the residency of the children
to Illinois. Divorce Decree at 4.
The notarized settlement agreement, signed by David on August 15, 1995, in Missouri,
and by Deborah on October 25, 1995, in Illinois, requires David to pay to Deborah
$566 per month, per child "for the parties' children as and for child support for
the care, support and education of the parties' minor children." Settlement agreement
at 6. It further states: The parties agree and stipulate that the child LORRAINE S~
is incapacitated and is in need of parental support past the age of emancipation,
and said support shall continue until her death, the death of the Respondent, or further
Order of the Court. Settlement agreement at 6. Paragraph 15 provides that no modification
or waiver of any of the terms will be valid unless it is made in writing and executed
with the same formality as the settlement agreement. Settlement Agreement at 10.
On October 24, 1995, one day before the settlement agreement was finally executed,
David signed a notarized Statement of Intent agreeing to contribute monthly to a trust
to be created for Lorraine's benefit, in lieu of the court ordered child support payments.
On January 26, 1996, the Circuit Court of Kane County, Illinois appointed Deborah
as Lorraine's guardian.
Declaration of Trust
On January 30, 1996, Deborah executed, in Illinois, a declaration of trust (declaration),
as "Settlor and Trustee," creating the "Lorraine S~ Discretionary Supplemental Trust."
The declaration recites that Deborah transferred $10.00 to the trustee which, along
with any additional property received from her or any other person and all investments
and reinvestments, was to constitute the trust estate. Declaration at 1.
The declaration makes clear that Deborah's intent as settlor is to provide supplemental
support beyond any support which can be provided by any governmental, public, or private
agency. To this end, it states that no part of the trust is to be considered owned
by Lorraine, that Lorraine has no vested right or interest in the income or principal,
and that no property, goods or services purchased or owned by the trust for Lorraine's
use is to be considered as under Lorraine's control. 1. The declaration prohibits
any expenditure for "basic food, clothing and shelter" or making any trust income
or principal available to Lorraine for conversion into such items, unless all governmental
and private agency benefits for which Lorraine may be eligible because of her disability
have been fully exhausted. 3, § 4. The declaration also prohibits any direct payment
to Lorraine and prohibits the trustee from making any distribution for Lorraine's
support if such support is otherwise available through a governmental agency. 1,3.
Within this framework, the Trustee has sole discretion to distribute principal or
income for Lorraine's exclusive benefit to provide for her supplemental support and
maintenance, but only to the extent that such items are not otherwise available through
any governmental entity or private agency. 2; 3, §§ 5-9. The declaration also contains
spendthrift provisions, protecting the trust estate from the creditors' claims and
prohibiting assignment of a beneficiary's interest. 3, § 3; 5, § 2.
Deborah is Trustee. If her acting as Trustee in any way jeopardizes Lorraine's entitlement
to government benefits or subjects the trust to claims of reimbursement by any private
or governmental body, successor trustees are named. 5.
Deborah, as settlor, has reserved the right to amend the trust "in whole or in part
for whatever reason" and has given the Trustee the right to amend or reform the trust
provisions the Trustee deems it necessary, due to changes in law, in order to preserve
the stated intent of the trust. 3, § 10. In the event of a court determination that
reimbursement is required or disqualification from, or reduction, in governmental
benefits, the declaration directs the Trustee to amend or reform the trust to effect
the Settlor's purpose and, if that cannot be done, to terminate the trust and distribute
the trust principal and income to Deborah, "not in any fiduciary capacity, but as
[Deborah's] sole and exclusive property without any preconditions or requirements
on the use or application of those funds." 3, § 11. If Deborah is deceased at the
termination of the trust, distribution is to be made to Lorraine's guardians, also
as their sole and exclusive property and not in any fiduciary capacity, or, if no
guardian to the Trustees as their sole and exclusive property and not in any fiduciary
capacity. Id. If the trust is still in existence at Lorraine's death, the trust estate
is to be distributed to Deborah or to her heirs, per stirpes. 4.
Resources, for SSI purposes, include assets that a person owns and can convert to
cash to be used for the person's support and maintenance. See 20 C.F.R. § 416.1201(a).
If the person has the right or power to liquidate property, or her share of the property,
it is a resource. Id. Trust assets are considered an SSI recipient's resource if the
SSI recipient has the power to revoke the trust and use the trust assets to meet his
needs for food, clothing, or shelter, or if he can direct use of the trust assets
for such purposes. See POMS SI 01120.200(D)(1)(a). Whether the person can revoke the trust or direct use of the trust assets
depends on the terms of the declaration of trust and on applicable State law. POMS
We deal first with the additions to the trust made pursuant to the Statement of Intent
signed by Lorraine's father, David. If the support payments had been made by Lorraine's
father to Deborah in compliance with the settlement agreement that the Missouri court
incorporated into the divorce decree, the payments would have been considered Lorraine's
income for SSI purposes. See 20 C.F.R. 416.1121(b). The Statement of Intent seeks
to modify the court's support order in two ways. First, instead of making support
payments directly to Deborah for Lorraine's benefit, in accordance with divorce decree,
the Statement of Intent contemplates payment of the same amount to Deborah as Trustee
of the discretionary trust. Second, the divorce decree required that the payments
be used for Lorraine's "support." As Lorraine's guardian, Deborah has a duty to use
the funds for Lorraine's support. Under the terms of the discretionary trust, however,
Deborah could use the funds for supplemental costs, but she would be precluded from
making disbursements for basic food, clothing and shelter, and she would have no obligation
to make any disbursements at all.
The question is whether Lorraine's parents can enter into an agreement which affects
Lorraine's rights and effectively modifies the order of the Missouri court. The duty
of support which is applicable is that of the law of the state where the obligor is
present, in this case the father's domiciliary state of Missouri. See 750 ILCS 20/7.
Illinois law also recognizes a child support order issued in another state, if it
is the only such order. 750 ILCS 22/207. In addition, a post-majority child support
obligation entered into pursuant to a divorce settlement agreement will be recognized
by Illinois courts. See In re Marriage of Leming, 590 N.E.2d 1027, 1028 (Ill. App.
1992). Thus, the support order encompassed by the Missouri court's divorce decree
is controlling and would be recognized by an Illinois court.
Under Missouri law, a party cannot, by contract or agreement, alter his obligation
to pay future child support. Because child support payments are for the benefit of
the child, the parties cannot settle or compromise future payments without judicial
modification of the support decree. Only a court has the power to alter future child
support payments. Mora v. Mora, 861 S.W.2d 226, 227 (Mo. App. 1993); see also, Boland
v. State of Missouri, Dept. of Social Services, 910 S.W.2d 754, 758 (Mo. App. 1995),
McLaughlin v. Horrocks, 883 S.W.2d 95, 97 (Mo. App. 1994).
Illinois case law is in accord. See Blisset v. Blisset, 526 N.E.2d 125, 127 (Ill.
1988) (parents may modify an agreement for child support only by petitioning the court
for modification); Miller v. Miller, 516 N.E.2d 837 (Ill. App. 1987)(mother could
not consent to modification of settlement, incorporated into divorce decree, which
provided that father would pay college expenses for child, even after age 18).
Although David signed the Statement of Intent prior to the date of the divorce decree,
in the divorce decree the court refers only to the settlement agreement. There is
no indication that the court was aware at that time, or was subsequently informed,
of the Statement of Intent or the plans to create a discretionary trust. Since payment
of the support into the discretionary trust amounts to a modification of the court's
support order, we conclude that such modification would not be valid without court
approval. Therefore, the payments made by David to the trust in lieu of the court
ordered support payments should be considered Lorraine's income, available for her
support and maintenance, the purpose apparently intended by the Missouri court's divorce
Even if the Statement of Intent were found to be valid, we believe that the portion
of the trust assets derived from the payments made pursuant to the Statement of Intent
should, nevertheless, be treated as Lorraine's income for SSI purposes. We also think
it reasonable to conclude, in the absence of any indication that the rest of the trust
assets were derived from property belonging to someone other Lorraine, that all of
the trust assets should be considered Lorraine's resource. This is especially true
since the Declaration of Trust suggests that Deborah, as settlor, contributed only
$10.00 to the trust.
Under Illinois law, a discretionary trust for the benefit of a disabled person is
not liable to pay or reimburse the State or any public agency for financial aid or
services to the disabled person, except to the extent that the trust was created by
the disabled person or the trust assets are distributed to, or under the control of,
the disabled person. 760 ILCS 5/15.1 (1996 Supp.). Although the exception is not applicable
where the trust complies with federal Medicaid reimbursement requirements, id., the
declaration in this case, while referring to the applicable Illinois statute, see
1, does not provide for Medicaid reimbursement. See POMS SI 01730.048.
Under the terms of the declaration of trust, Lorraine does not, herself, have any
right to revoke the trust or direct use of the trust assets for her support. Nor is
Lorraine named as the person who created the trust (settlor). However, Lorraine's
mother and guardian, Deborah, has virtually total control over use of the trust assets.
As settlor, Deborah retained the right to amend the trust, in whole or in part, for
any reason, which amounts to the power to revoke. See Bogert, Trusts 516 (6th ed.
1987)(under a power to amend, an irrevocable trust may be made revocable).
Deborah is also Lorraine's guardian. Where a guardian holds legal title, on behalf
of a sole beneficiary of a trust, to assets which are subsequently transferred into
a trust, the trust beneficiary is, in effect, the settlor of the trust. See In re
Estate of Hickey, 635 N.E.2d 853, 855 (Ill. App. 1994), cert. denied, 642 N.E.2d 1281
(one who furnishes consideration is the settlor of the trust). Therefore, if Lorraine
is the sole beneficiary of the trust, she is the settlor, at least with regard to
whatever portion of the trust res was derived from assets which were hers or which
her guardian held for her benefit. As we discuss below, contributions of the support
payments to the trust should be considered contributions from Lorraine.
In this case, it is not clear from the documents submitted whether Deborah created
the trust in her own right or in her capacity as Lorraine's guardian; nor is it clear
what portion of the trust assets were derived from property which had been owned by
Lorraine or which Deborah held on Lorraine's behalf. The declaration does not indicate
whether even the $10.00 that initially funded the trust was Deborah's money or Lorraine's
money. Nor is there any information about additions to the trust other than the payments
made by David pursuant to the Statement of Intent. If Deborah created the trust as
Lorraine's guardian, or if all of the assets of the trust derived from property previously
held by Lorraine or by Deborah on Lorraine's behalf as guardian, then Lorraine is
the true settlor of the trust and can revoke the entire trust, or amend it to allow
access for her support and maintenance. Thus, all of the trust assets would be her
resources for SSI purposes.
Under the agreement between Lorraine's parents, Deborah receives the "support" payments
as trustee for Lorraine. Nevertheless, those support payments are, in effect, Lorraine's
income. Thus, as to the portion of the trust res traceable to those "support" payments,
Lorraine is actually the settlor of the trust. Through her guardian, she has the power
to revoke the trust by virtue of Deborah's retention of the unconditional power to
amend the trust. If she is the sole beneficiary of the trust, Lorraine also has the
power to revoke any portion of the trust for which she can be considered the settlor.
See Stewart v. Merchants National Bank of Aurora, 278 N.E.2d 10, 12 (Ill. App. 1972)
(trust settlor who is also the sole beneficiary can revoke the trust without the trustee's
consent, even though no power of revocation was reserved when the trust was created).
Thus, the portion of the trust which is derived from the "support" payments should
be considered Lorraine's resource for SSI purposes.
That the declaration calls for disbursement, upon termination of the trust, to Deborah
in her own right, rather than on Lorraine's behalf does not change the result. Since
Deborah retained the unconditional right to amend the trust, including the right to
amend the provisions for disbursement upon termination of the trust, no intent to
create a remainder interest in someone other than Lorraine can be implied. Thus, Lorraine
is the sole beneficiary of the trust and has the power to revoke the portion of the
trust as to which she is the settlor. Furthermore, as Lorraine's guardian, Deborah
would have a fiduciary duty to use that portion of the trust assets which derived
from Lorraine's assets not for her own benefit, but for Lorraine's benefit. To receive
the assets of the trust in her own right would be a violation of Deborah's fiduciary
duty as Lorraine's guardian.
While the declaration recites that Deborah paid $10.00 into the trust at its creation,
there is no clear indication whose funds were used to create the trust, nor is there
any indication as to whether there were any subsequent additions to the trust res.
We think it unlikely that Deborah, who would have to provide an accounting as guardian,
would combine Lorraine's property with another person's property in forming the trust
res. Deborah is receiving additions to the trust from David in lieu of the court ordered
support payments, additions which are actually Lorraine's property. This implies that
the trust was created by Deborah as Lorraine's guardian with Lorraine's assets and
that Lorraine is, therefore, the true settlor. As settlor, Lorraine would have the
power, through her guardian, to revoke the trust or to compel payments from the trust
for her support and maintenance. We conclude that, unless Deborah can show that she
did not create the trust in her capacity as guardian and that certain trust assets
were derived from sources other than Lorraine's property, all of the assets of the
trust should be considered Lorraine's resources for SSI purposes.