You asked whether an SSI claimant’s interest in a family-owned LLC would be countable
as a resource under our rules.
We believe the claimant’s interest in the LLC is countable.
Corey protectively applied for SSI on January 29, 2013 and his claim was medically
allowed on June 14, 2013. His claim is now awaiting non-medical adjudication in the
field office. The question posed is whether Corey’s interest share in Corey’s Holdings,
LLC, is countable as a resource.
In 2000, the parents of Corey (who was then a minor) established a company called
Corey Holdings, LLC, under Maine law, naming Corey as an LLC member and providing
an initial capital investment of $10,000 on Corey’s behalf via the Maine Uniform Transfers
to Minors Act. See Operating Agreement of Corey Holdings, LLC (Agreement) at Attachment 1, Exhibit A.
The Agreement provides that Corey’s interests include a 5 percent share in profits,
losses, deductions, or credits and a 13 percent share of equity, capital transactions,
and liquidation distributions. Id.
You informed us that, in his application for benefits, Corey reported he was unable
to sell his interest in the LLC “exclusively” because “the bank [had] encumbered the
property.” He also reportedly indicated that his interest held no value unless the
LLC’s managers sold the company as a whole and that the managers (Corey’s parents)
had no interest in selling in the near future.
Charles, corporate counsel for Corey Holdings, LLC, indicated that Corey’s ownership
interest had “little to no market value standing alone” because the Agreement contains
provisions that restrict the effective transfer of an ownership interest in the LLC
to an outside party. Further, he asserted that “[t]he only circumstance where this
interest could have value is if there were a sale of the entire company or its assets
and a distribution to the unit owners.” See Ltr. from Charles, dated July 18, 2013 at Attachment 2. In a second letter, Charles
asserted that, due to the cross-collaterization with the debt of other family entities,
“the prospect that a buyer would come in and actually offer value [for Corey’s LLC
share] in a fair market value transaction strikes me as virtually non-existent.” See Ltr. from Charles, to SSA dated July 23, 2013 at Attachment 3.
You have requested our opinion of whether Corey’s interest in the family business
is countable, based on our evaluation of these documents.
Under the Social Security Act (Act), a disabled individual may receive SSI benefits
if his income and resources do not exceed certain annual limits. See Act § 1611(a); 42 U.S.C. § 1382(a). The Act itself does not define “resources” but
instead provides a list of items that are excepted from resource counting. See Act § 1613(a); 42 U.S.C. § 1382b(a). The Commissioner, pursuant to the authority
granted under 42 U.S.C. § 1302, promulgated regulations that further define resources.
In particular, 20 C.F.R. § 416.1201(a) provides that resources include “any real or
personal property interest that an individual . . . owns and could convert to cash
to be used for his or her support and maintenance.” The rule further states that “[i]f
the individual has the right, authority or power to liquidate the property, or his
or her share of the property, it is considered a resource. If the property right cannot
be liquidated, the property will not be considered a resource of the individual .
. . .” 20 C.F.R. § 416.1201(a)(1).
In this case, Corey’s membership interest in the LLC is partially predicated on a
capital contribution made on his behalf under the Uniform Transfer to Minors Act.
Such transfers of money or property to a minor are irrevocable but remain under the
care of a custodian until the minor reaches the age of majority – in Maine that age
is 18. See Chapter 32, Section 1671, Termination of Custodianship. Under POMS SI 01120.205, “the minor does not have the right to liquidate property until he or she reaches
the age of majority established by State law.” Further, “[i]n the month the minor
attains the age of majority under applicable State law, all UTMA property becomes
available to him or her and is subject to income counting. The UTMA property becomes
subject to resource counting the following month.” Id. Since Corey is now an adult, he has the authority to liquidate UTMA property. The
question now becomes whether Corey has the ability to liquidate his LLC share under
Maine law and the Agreement that it governs.
In this case, the State of Maine does not restrict Corey’s ability to transfer his
interest in the LLC. See Maine Revised Statutes, Title 31, Section 1572 (stating “A transfer, in whole or
in part, of a transferable interest [in an LLC]: . . . is permissible.”).
The Agreement itself provides some restrictions on transfers but does not prohibit
them outright. For instance, in Article XI, Section 1 provides that a member may assign,
sell, pledge, encumber, or dispose of all or any portion of his membership interest
to: 1) remaining members in equal shares; 2) an affiliate of such member, or 3) to
another individual if he first obtains the consent of holders of 75% of the interests
in the Company or written agreement by all of the members. See Attachment 1 at 19. Section 2 prohibits transfer if it would result in a termination
of the company. Id. at 19-20. Article VIII, Section 6 of the Agreement also acknowledges a member’s ability
to transfer his interest, providing that “[i]n the event of a sale or exchange of
some or all of a Member’s Interest in the Company, the Capital Account of the Transferring
Member shall become the Capital Account of the Assignee, to the extent it relates
to the portion of the Interest Transferred.” Id. at 17. Although the Agreement limits the circumstances in which Corey’s beneficial
interest may be sold, he still retains the authority to liquidate his share of the
Article XI of the Operating Agreement also provides for the liquidation of a member’s
interest when the member dissociates from the LLC. Id. at 20. Section 1 of that Article explains that dissociation occurs in numerous circumstances
including a member’s resignation from the LLC or a court finding that a member is
legally incompetent. Id. Thus, the Agreement provides avenues for liquidation of Corey’s beneficial interest
in the LLC, rendering Corey’s interest countable.
We conclude that Corey’s interest in Corey Holdings, LLC, is countable as a resource
because he has the right to liquidate his share of that property.
Very truly yours,
Acting Regional Chief Counsel
Assistant Regional Counsel