TN 14 (12-17)

PS 01805.035 New York

A. PS 17-027 Would inheritance count as a resource in New York for the purposes of Supplemental Security Income if the claimant renounced her inheritance rights?

Date: December 15, 2016

1. Syllabus

The Regional Chief Counsel (RCC) opinion examines whether K~’s (claimant’s) inheritance from her father’s estate would count as a resource for the purposes of Supplemental Security Income (SSI) if the claimant renounced her inheritance rights, or whether the renunciation would count as a transfer of resources. The RCC concluded that the inheritance and renunciation would not count as a resource or resource transfer for the purposes of SSI.

2. Opinion

QUESTION PRESENTED

You asked whether claimant K~’s (claimant’s) inheritance from her father’s estate would count as a resource for the purposes of Supplemental Security Income (SSI) if the claimant renounced her inheritance rights, or whether the renunciation would count as a transfer of resources.

OPINION

It is our opinion that the inheritance and renunciation would not count as a resource or resource transfer for the purposes of SSI. The claimant appears to have properly renounced her inheritance; under New York law, this had the same effect as if the claimant had predeceased her father, and so the inheritance never legally passed to the claimant.

BACKGROUND

The claimant’s father, L~, executed his last will and testament on March XX, 1998. The testator died on November XX, 2014. His will was duly filed for probate with the N~ County Surrogate Court in New York State, and is currently in probate. The will named the claimant and her sister, V~, as co-executrixes. The will also left the testator’s residuary estate to the claimant and V~ in equal shares.

The claimant signed a Notice of Renunciation and Renunciation on January XX, 2015, disclaiming and renouncing any and all interest she might have in her father’s estate. This document included a sworn statement that the claimant had not received any consideration in money for the renunciation from any person or persons whose interests might be accelerated. The document was filed with the Surrogate Court on January XX, 2015, along with an admission of service.

ANALYSIS

According to agency regulations, an inheritance of cash or other liquid assets or any real or personal property would be considered a resource if the individual owns it and could convert it to cash to be used for his support and maintenance. 20 C.F.R. § 416.1201(a). An inheritance is not considered a resource until the month after the month it meets the definition of income. POMS SI 01120.215(A)(1). The regulations define “income” as “the receipt by an individual of any property or service which he can apply…to meeting his basic needs.” 20 C.F.R. § 416.120(c)(2). Accordingly, the agency will count unearned income at the earliest when an individual receives it, when it is credited to an individual’s account, or when it is set aside for an individual’s use. 20 C.F.R. § 416.1123(a). When and whether an inheritance is received, that is, when the claimant has a usable ownership interest over his inheritance such that the agency will consider it a resource, is largely a question of state law. See, e.g., POMS SI 00830.550(B)(2) (“To establish when the inheritance is received, check for regional instructions which may explain the effect of individual State laws.”).

In New York, real or personal property generally passes immediately upon the testator’s death. N.Y. Est. Powers & Trusts Law § 2-1.11(b)(2)(A); see also POMS NY 01120.215(A)(2). However, a beneficiary may renounce all or part of his interest within nine months of the effective date of disposition of the interest, in writing, signed and acknowledged by the person renouncing, and by filing such writing in the office of the clerk of the court having jurisdiction over the will. N.Y. Est. Powers & Trusts Law § 2-1.11(c)(2).1 The renunciation must be accompanied by an affidavit of the renouncing party that he has not received and is not to receive any consideration in money for such renunciation from a person or persons whose interest is to be accelerated, unless payment of such consideration has been authorized by the court. Id. A renunciation filed in accordance with these procedures is irrevocable. Id. at § 2-1.11(h).

Filing a renunciation “has the same effect with respect to the renounced interest as though the renouncing person had predeceased the…decedent” and “[s]uch renunciation is retroactive to the creation of a disposition.” N.Y. Est. Powers & Trusts Law § 2-1.11(e). The term “disposition” includes a disposition created under a will. N.Y. Est. Powers & Trusts Law § 2-1.11(b)(1).

Based on this language, the claimant validly renounced her inheritance from her father’s estate. The claimant signed a written renunciation, dated January XX, 2015, and filed this with the office of the clerk within nine months of her father’s death, accompanied by the appropriate affidavit. The renunciation had the same effect as though the claimant had predeceased her father, and therefore the inheritance never legally passed to the claimant. As such, the inheritance never became “income” under the regulations, and would not be considered a resource or resource transfer for the purposes of SSI.

CONCLUSION

It is our opinion that the inheritance and renunciation do not count as a resource or resource transfer for the purposes of SSI. The claimant properly renounced her interest and, under New York law, this renunciation had the same effect as if the claimant had predeceased her father. The inheritance, therefore, never legally passed to the claimant.

B. PS 12-124 New York Structured Settlements as Resources

Date: August 3, 2012

1. Syllabus

This opinion examines whether a structured settlement agreement governed by New York’s Structured Settlement Protection Act (SSPA) is a resource for purposes of Supplemental Security Income (SSI). SSPA allows transfer agreements in which the payee obtains an immediate lump sum payment in exchange for the rights to future guaranteed settlement payments. Such transfer agreements must obtain judicial approval. The payee’s legal right to access the future structured settlement payments is restricted by the need for judicial approval. Therefore, the settlement agreement does not count as a resource because it does not meet our definition of a resource in SI 01110.100.

2. Opinion

Question

Whether claimant S~’s structured settlement agreement with the Allstate Life Insurance Company (Allstate), governed by New York’s Structured Settlement Protection Act (SSPA), is a resource for purposes of Supplemental Security Income (SSI) eligibility under § 1613(a) of the Social Security Act (the Act).

Opinion

SSPA, N.Y. Gen. Oblig. Law §§ 5-1701 et seq., allows transfer agreements in which the payee obtains an immediate lump sum payment in exchange for the rights to future guaranteed settlement payments. However, the need for judicial approval of the transfer restricts the payee’s legal right to access the future structured settlement payments under Program Operations Manuel System (POMS) SI 01120.010. Therefore, a settlement agreement that permits such transfers would not be counted as a resource.

Background

1. Claimant S~’s Structured Settlement Agreement

Claimant S~ entered into a structured settlement agreement with the Allstate in 2004, when she was 16 years old. The agreement stipulates that Allstate will make three payments to S~. The first of these payments, totaling $5,000 was paid on November 17, 2010. The agreement calls for further payments of $10,000 on November 17, 2014 and $42,059.14 on November 17, 2019. In addition, the agreement describes the process by which a payee may transfer her rights to future settlement payments in order to receive an immediate lump sum through a program known as the Allstate Advanced Funding Exchange:

. . . Allstate Settlement Corporation, in certain circumstances, will consider permitting an arrangement whereby a structured settlement payee may obtain an immediate lump sum payment (based on a specific discount rate) in exchange for the rights to future guaranteed structured settlement payments. . . . Only those Advanced Funding Exchanges that are approved by a court or applicable administrative authority are permitted. An Advanced Funding Exchange is only an option in states that have a structured settlement transfer act. . . . Allstate Settlement will consider each Advanced Funding Exchange request on a case-by-case basis and reserves the right to decline any request.

According to information received from Allstate, in order to obtain Advanced Funding, an individual payee must first request such funding from Allstate. The company has a minimum requirement of $25,000, and the same amount has to be available in the structured settlement. Proof of need must be shown in order to gain approval by Allstate. If all these criteria are met, Allstate may agree to provide Advanced Funding using an 8% annual discount rate to calculate present value. The company will then petition the court on behalf of the individual payee to approve the transfer, and will charge a $2,500 attorney fee. Depending on the state where the payee resides, the process of obtaining court approval for this transfer could take 4-6 months.

S~ is currently applying for SSI benefits as an adult. As far as we are aware, she has not taken any action to exercise the options described in the Allstate Advanced Funding Exchange.

2. New York’s Structured Settlement Protection Act (SSPA)

Generally, a structured settlement agreement results from the resolution of a tort claim, and arranges periodic payment of damages. See N.Y. Gen. Oblig. Law §§ 5-1701(l), (m). In some cases, individual payees may try to circumvent the agreement by transferring their rights to future payments in exchange for an immediate lump sum. However, such transfers may leave the payees vulnerable to businesses that demand unfair concessions, leaving payees with a substantially discounted lump sum and depriving them of long-term financial security. See 27 A.L.R.6th 323; In re Settlement Capital Corp., 1 Misc. 3d 446, 448 n.1 (N.Y. Sup. 2003). Many state legislatures, concerned about the hazards posed by such transfers, have enacted legislation to limit their use by requiring court approval. See, e.g., Fla. Stat. Ann. § 626.99296; Mass. Gen. Laws Ann. ch. 231C, § 2; Tex. Civ. Prac. & Rem. Code Ann. § 141.004.

In 2002, New York enacted the SSPA due to concern that structured settlement payees were prone to being victimized. See 73 N.Y. Jur. 2d Judgments § 34; see also In re Petition of Settlement Funding of New York, LLC, 195 Misc. 2d 721, 722 (N.Y. Sup. 2003). The SSPA requires judicial approval for all proposed transfers The statute defines a transfer as “any sale, assignment, pledge, hypothecation, or other alienation or encumbrance of structured settlement payment rights made by a payee for consideration[.]” N.Y. Gen. Oblig. Law § 5-1701(q). of structured settlement payment rights. N.Y. Gen. Oblig. Law § 5-1706. In addition to meeting certain procedural requirements, the transfer must be in the best interest of the payee, and its terms, including the discount rate, must be fair and reasonable. N.Y. Gen. Oblig. Law § 5-1706(b).

3. Resources

An individual’s assets and property are evaluated under § 1613(a) of the Act to determine whether they may be counted as resources for the purposes of SSI eligibility. See § 1613(a); 42 U.S.C. § 1382b. Not all of an individual’s assets are resources. See POMS SI 01110.100. The Social Security regulations define a resource 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 and maintenance.” 20 C.F.R. § 416.1201(a); see also POMS SI 01110.100(B)(1).

When determining whether an asset may be counted as a resource in a month for purposes of SSI eligibility, POMS SI 01120.010 outlines three criteria that must be satisfied as of the first moment of that month. First, the individual must have some form of ownership interest in the property. Second, he or she must have the legal right to access the property, which refers to the ability to spend or convert the property to cash. Third, the individual must have the legal ability to use the property for his or her own support and maintenance. See POMS SI 01120.010(B)(1)-(3). An asset that fails to satisfy any one of these criteria may not be counted as a resource.

Although the POMS requires a legal right to access in order to count property as a resource, it also recognizes the significance of certain impediments to access. In particular, an individual need not undertake litigation to gain access where there is a legal bar to the sale of property. In such circumstances, the property will not be a resource. POMS SI 01120.010(C)(2).

Legal Analysis

New York’s SSPA, N.Y. Gen. Oblig. Law §§ 5-1701 et seq., would allow transfer agreements in which the payee obtains an immediate lump sum payment in exchange for the rights to future guaranteed settlement payments. However, the need for judicial approval of the transfer restricts the payee’s legal right to access under POMS SI 01120.010. Therefore, a settlement agreement that permits such transfers would not be counted as a resource.

As discussed above, property cannot be a resource in a month unless, as of the first moment of that month, the individual claimant has an ownership interest, a legal right to access (spend or convert) the property, and the legal ability to use the property for his or her personal support and maintenance. POMS SI 01120.010(B). Concerning the future structured settlement payments, S~ has an ownership interest in these funds. Under the various state structured settlement protection laws, the payee transfers that ownership interest in future payments in exchange for an immediate discounted lump sum. See N.Y. Gen. Oblig. Law § 5-1701(q). Similarly, as far as we are aware, there are no restrictions on her use of the funds for her own support and maintenance. In one POMS example, subtitled “Insurance Settlement Restricts Use,” an SSI recipient is injured in an accident and awarded damages by a court to be used solely for medical expenses relating to the accident. There, the award of damages is not a resource since the SSI recipient is not free to use them for her own support and maintenance. POMS SI 01120.010(D)(5). There is no indication that any such limitation exists here. However, the requirement of access poses more difficult questions.

Access refers to the ability to spend or convert the property to cash. POMS SI 01120.010(B)(2). Accordingly, it does not matter that S~ has not yet received the future structured settlement payments. If she has the ability to spend or convert the property to cash as of the first moment of the month, the requirement of access is satisfied and the future payment rights may be counted as a resource for that month. Such a conversion may be possible under the Allstate Advanced Funding Exchange.

As a preliminary matter, we must first determine whether Advanced Funding would be an available option for a payee like S~, whose structured settlement agreement is governed by New York law. The Allstate structured settlement agreement indicates that such a transfer “is only an option in states that have a structured settlement transfer act.” New York’s SSPA qualifies as such a statute because it mandates court approval for any proposed transfer of structured settlement rights. See N.Y. Gen. Oblig. Law § 5-1706. Further, Allstate has submitted similar transfers for judicial approval pursuant to the statute, confirming that the Advanced Funding option is viable under New York law. See, e.g., In re L~, 28 Misc. 3d 1203(A) (N.Y. Sup. Ct. 2010).

Some businesses, known as “factoring companies,” may offer to purchase structured settlement payment rights in exchange for discounted lump sums. Such a transfer would allow the payee to circumvent Allstate’s veto power, even if the structured settlement agreement prohibits assignment, so long as the requirements of the SSPA are satisfied. See In re Settlement Funding of New York, LLC, 2 Misc. 3d 872, 877 (Sup. Ct. 2003). Therefore, Allstate’s ability to decline a requested transfer under the Advanced Funding Exchange does not restrict the payee’s access to future settlement payments, and would not prevent SSA from counting those payment rights as a resource for purposes of SSI eligibility.

However, as noted above, an individual need not undertake litigation to gain access where there is a legal bar to the sale of property. In such circumstances, the property will not be a resource. POMS SI 01120.010(C)(2). Both Allstate’s policy and the SSPA require judicial approval for the transfer of settlement payment rights to be effective. See N.Y. Gen. Oblig. Law § 5-1706. The SSPA specifies, “[a]n action for approval of a transfer of a structured settlement shall be by a special proceeding brought on only by order to show cause.” N.Y. Gen. Oblig. Law § 5-1705(a). Such an action may constitute “litigation” under the POMS, even though it differs from the divorce proceedings given as an illustrative example. See POMS SI 01120.010(D)(7). The proceedings are not necessarily adversarial in either case; an uncontested divorce might operate in much the same way, with the parties agreeing to a set of terms and submitting them to the court. An SSPA action arguably has an even greater impact on an individual’s ability to access property because it requires a showing of best interest as well as fairness and reasonableness. See N.Y. Gen. Oblig. Law § 5-1706(b). Judicial approval is by no means automatic. See Petition of 321 Henderson Receivables L.P. v. Martinez, 11 Misc. 3d 892, 895 (Sup. Ct. 2006) (noting that courts are not intended to be “mere rubber stamps” and should analyze whether the proposed transfer agreement is truly in the best interests of the payee). Although the POMS offers no definition of “litigation,” at least one court has declined to construe the term narrowly. See Kubetin v. Astrue, 637 F. Supp. 2d 59, 65 (D. Mass. 2009) (“[T]he text of the POMS instruction makes no such distinction between types of “litigation” and the court declines to read that limitation into an otherwise clear policy statement.”). Accordingly, we believe that an SSPA action is “litigation” within the meaning of POMS SI 01120.010, and the requirement of court approval constitutes a legal bar to access. Therefore, the future structured settlement payments are not a resource.

Conclusion

New York’s SSPA, N.Y. Gen. Oblig. Law §§ 5-1701 et seq., would allow transfer agreements in which the payee obtains an immediate lump sum payment in exchange for the rights to future guaranteed settlement payments. However, the need for judicial approval of the transfer restricts the payee’s legal right to access under POMS SI 01120.010. Therefore, a settlement agreement that permits such transfers would not be counted as a resource.

Stephen P. Conte
Regional Chief Counsel, Region II

By: Peter Jewett

Assistant Regional Counsel


Footnotes:

[1]

. The time to file and serve notice of the renunciation may be extended in the discretion of the court. N.Y. Est. Powers & Trusts Law § 2-1.11(c)(2).


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PS 01805.035 - New York - 12/13/2017
Batch run: 12/13/2017
Rev:12/13/2017