TN 4 (11-06)
PS 01805.006 California
A. PS 07-003 Appeal of SSI Denial Due to Excess Resources, Number Holder (NH) Margaret M~
DATE: October 31, 2006
This issue is whether life insurance purchased as a viatical investment, and the individually-held account set up as part of the investment, and any withdrawals made from that account are treated as income or resources to the claimant for SSI purposes.
In this case, the claimant invested $25,000 in a life settlement contract. Of this total, $17,606.00 is not accessible to the claimant. This part of the claimant's investment is not a resource. The death benefit will not be paid until the insured dies and there is no established secondary market for viatical investments. When the viator dies, the claimant will receive the death benefit, which may be considered unearned income.
The claimant elected monthly payments from the trust account. The claimant can withdraw any or all funds from this trust account and use them for her support or maintenance. Therefore, the account is a countable resource for SSI purposes
The claimant filed a claim for Supplemental Security Income (SSI) payments. More than a year before she filed the claim, she invested in a life settlement investment (or viatical investment) with a monthly income option. You requested information about viatical investments and guidance on how to treat the individually-held account set up as part of the investment and any withdrawals made from that account. We will first explain viatical investments and then discuss the specifics of the claimant's investment.
In a typical viatical investment, the viator assigns his or her life insurance policy to a viatical settlement broker in exchange for a lump-sum cash payment in an amount less than the death benefit. An investor purchases the viatical settlement based on the estimated life expectancy of the viator, who usually has a life-threatening or catastrophic illness or condition that prompts the need for immediate cash. In essence, the investor puts up the money that is paid to the viator. The investor also becomes an irrevocable beneficiary on the permanent records for that death benefit, and receives the death benefit when the viator dies. The death benefit should be more than just the investment principal. If the viator lives beyond his or her estimated life-expectancy, the investor may have to pay additional premiums to maintain the policy.
Another key feature of the viatical investment is the fixed rate of return the investor will receive on his or her total investment. If the investor elects to receive a monthly income option, this will yield a lower return; no monthly income option will yield a higher return. See, e.g., <http://www.sec.gov/ answers/viaticalsettle.htm>; http:/www.insurance.ca.gov/0100-consumers/0100-insurance-guides/0200-life-series/viatical.
Here, the claimant invested $25,000 in a life settlement contract with a 48-monthly income option through Nationwide Consultants, Inc. Of her total investment, $17,606.00 was "invested" in a 36-month life expectancy policy. The claimant is the irrevocable beneficiary on this policy, and is expected to receive her investment principal of $25,000 upon the death of the insured person (who was not named in the agreement). Premiums on this life expectancy policy will be paid by an escrow company for the estimated life expectancy (36 months) plus 12 months.
According to the Monthly Income Agreement, the claimant elected the monthly income option, which will provide her a 7.6% fixed rate return. Using the remaining investment amount ($7,394.00), Nationwide Consultants established the monthly income option by depositing an amount equal to 48 payments of $158.33 into a trust account at Ford Motor Credit/Northern Trust Company. Each month for 48 months, $158.33 is paid out of the trust account to the claimant, and these payments will continue even if the viator dies before the full 48-monthly income option is satisfied. The claimant is allowed to withdraw funds from this trust account "in any increments, up to the entire balance, without penalty or surrender charges."
Assuming that monthly payments specified in the Monthly Income Agreement have been paid to the claimant on the first of each month since April 2005, there have been at most eighteen payments of $158.33, totaling $2,849.94. Assuming she has not withdrawn any additional amounts from the trust account, the remaining balance in the trust account is $4,544.06.
An aged, blind, or disabled individual with no eligible spouse is eligible for SSI payments if his or her nonexcludable resources do not exceed $2,000 after January 1, 1989, and all other eligibility requirements are met. 20 C.F.R. §§ 416.1205(a) and (c). The regulations define resources as 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 or maintenance. 20 C.F.R. § 416.1201(a). If the individual has the right, authority or power to liquidate the property, it is considered a resource. 20 C.F.R. § 416.1201(a). If a property right cannot be liquidated, the property will not be considered a resource. Id.
Liquid resources are cash or other property that generally can be converted to cash within 20 days. Examples of resources that are ordinarily liquid are stocks, bonds, mutual fund shares, promissory notes, mortgages, life insurance policies, financial institution accounts (including savings, checking, and time deposits, also known as certificates of deposit) and similar items. Liquid resources, other than cash, are evaluated according to the individual's equity in the resources. 20 C.F.R. § 416.1201(b); Program Operations Manual System (POMS) SI 01110.300(A).
The portion of the claimant's investment that established the 36-month life expectancy policy ($17,606.00) is not accessible to the claimant. The death benefit on that policy will not be paid until the insured dies, and there is no established secondary market for viatical investments. See NASAA Guidelines Regarding Viatical Investments, 12A Blue Sky Law Appendix H § VIII.C.2.i. Accordingly, this part of the claimant's investment is not a countable resource. When the viator dies, the claimant will receive the death benefit, which may be considered unearned income. 20 C.F.R. § 416.1121(e).
The Monthly Income Agreement gives claimant the right to withdraw at any time the entire balance of the trust account established for purposes of the monthly income option. Because she can withdraw from this account and use the funds for her support or maintenance, the account is a countable resource. See 20 C.F.R. § 416.1208 (funds held in financial institution accounts are countable resources); POMS SI 01140.200(A)(5). Because the monthly payments of $158.33 come from the trust account, which is a countable resource, any portion of such payments that the claimant has retained is also a countable resource. See 20 C.F.R.§ 416.1103(c).