PS 01815.016 Illinois
A. PS 02-135 Review of a Resource Needed for SSI Claimant's Physical Condition Alicia W~, SSN ~
DATE: September 16, 2002
This opinion addresses whether a personal effect (in this case, a piano) owned by an SSI recipient, should be considered a countable resource for SSI purposes, or whether it can be excluded as a resource required by her physical condition under the household goods and personal effects exclusion. This is essentially an evidentiary issue; i.e., the key is whether the fact finder in the FO has sufficient evidence to determine that the piano is required by the individual's physical condition. Under 20 CFR 416.1216(c), certain household goods and personal effects are excluded from SSI resource counting if they are "required because of a person's physical condition." As long as there is sufficient evidence for the fact finder to determine that the piano (or similar item) is required as treatment or therapy for the individual's physical condition, then the item could be excluded as a resource. If the fact finder cannot determine that the piano (or similar item) is required, then the current market value of the piano (or similar item) is subject to the $2,000 maximum exclusion for household goods and personal effects [20 CFR 416.1216(a)-(b)]. It should be noted that the exclusions discussed above do not appear in the Social Security Act.
You asked whether a piano, owned by SSI claimant Alicia W~, should be considered a countable resource for SSI purposes, or whether it can be excluded as a resource required because of her physical condition. We conclude that, although there is no caselaw or other legal authority interpreting the applicable regulation, 20 C.F.R. § 416.1216(c), the Agency may consider the piano as an excludable resource, under 20 C.F.R. § 416.1216(c), provided Ms. W~ can show that playing the piano is required as treatment or therapy for her physical condition. If the Agency finds that the piano is not so required, further development and consideration may be warranted to determine the actual current market value of the piano.
Alicia W~ owns a baby grand piano that the Wausau Field Office reported is worth $7000. It is not clear how the valuation of $7000 was reached. For purposes of this memorandum, we assume that $7000 is likely the amount Ms. W~ paid for the piano. Ruth J~, a benefit specialist with the Aging and Disability Resource Center of Marathon County, has advised SSA that Ms. W~ tried to sell her piano by advertising it in a local newspaper and with the Wausau Conservatory of Music and by contacting several local churches. Two individuals expressed interest, but Ms. W~ received no offers to buy the piano. We do not know what price Ms. W~ asked or whether anyone would be willing to purchase the piano for less than her asking price. Ms. J~ stated, in April 2002, that a local music store sold only one comparable piano in the preceding year. The price that the music store charged was not reported. Although Ms. J~ indicated that she was providing the field office with a statement from the music store, no such statement was included in the materials forwarded to us. Ms. J~ also reported that Ms. W~ uses the piano daily and that she is the only member of her household.
Ms. W~ has a congestive heart condition and hypertension. On December 12, 2001, her physician, Arthur W~, M.D., wrote a letter stating that playing piano provided Ms. W~ with positive health benefits in terms of stress relief, which resulted in positive benefits for her hypertension. Dr. W~ further stated that being forced to sell her piano in order to receive SSI "would have a deleterious effect on her overall health."
The Social Security Act (the Act) provides that certain resources are excludable resources for SSI purposes. 42 U.S.C. § 1382b. Among the resources that may be excluded are household goods and personal effects, but only to the extent that their total value does not exceed the $2000 limit set by the Commissioner. 42 U.S.C. § 1382b(2)(A); 20 C.F.R. § 416.1216(b). The regulations define "personal effects" to include musical instruments. Thus, a portion of the value of Ms. W~'s piano could be excluded as a personal effect, provided the total value of her other personal effects and household goods is less than $2000. However, it appears that Ms. W~'s piano may be worth considerably more than that. We must determine, therefore, whether her piano may be excludable for some other reason, or whether the value of her piano can be considered less than previously assumed.
Exclusion for Items Required for Person's Physical Condition
The exclusion for household goods and personal effects that are required because of a person's physical condition does not appear in the Act. See 42 U.S.C. §1382b. The exclusion became a part of SSI regulations effective October 20, 1975. 40 Fed. Reg. 48911, 48916 (October 20, 1975). Neither the preamble to the final regulation published on that date nor the preamble to the proposed regulation states the rationale for the exclusion or gives any further clarification as to its application. See 39 Fed. Reg. 2487 (January 22, 1974); 40 Fed. Reg. at 48911. Thus, we cannot ascertain from those publications whether the Agency intended for the exclusion to apply to items such as a piano that provide "positive health benefits" in terms of an individual's physical condition. The POMS, likewise, provides no guidance in this situation. See POMS SI 01130.430. We were unable to find any caselaw interpreting the regulatory provision or any OGC precedential opinion on the subject. Similarly, we found no caselaw regarding other needs-based federal entitlement programs that might be helpful in interpreting 20 C.F.R. § 416.1216(c).
The Internal Revenue Code (IRC), however, includes a personal income tax deduction for medical care expenses. 26 U.S.C. § 213(a). The definition of "medical care" includes amounts paid "for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body. . .." 26 U.S.C. § 213(d)(1)(A). The Internal Revenue Service (IRS) addressed the issue of whether the cost of a piano could be deducted under the IRC medical care provision in two private letter opinions. In the first, parents bought a piano so that their child, who had polio, could strengthen her finger muscles and improve her posture. Priv. Ltr. Rul. 59-03205410A (March 20, 1959), 1959 WL 59702. The IRS determined that, if the use of the piano was prescribed by a physician to mitigate the effects of the child's illness, and if the child was the only one to use the piano, a portion of the cost could be deducted as a medical care expense. Id. The portion of the piano's cost that could be deducted was "the minimum cost of a piano of a quality sufficient for the therapeutic purposes" subject to the ceiling of 7.5% of adjusted gross income, as provided in 26 U.S.C. § 213(a). Priv. Ltr. Rul. 59-03205410A. Another private letter ruling states that, after suffering a nervous breakdown, a taxpayer's daughter "was induced by her doctors to resume piano lessons, in view of her particular aptitude in this area, as it was hoped that this would be good therapeutic treatment and would create a motivation toward recovery." Priv. Ltr. Rul. 63-02264710A (February 26, 1963), 1963 WL 14192. The taxpayer could not find a suitable used piano, so he bought a new piano for $800. The IRS held that the taxpayer could take a medical care deduction for "an amount which does not exceed the minimum cost of a piano of a quality sufficient to effect the prescribed therapy," subject to the limitations in 26 U.S.C. § 213. Priv. Ltr. Rul. 63-02264710A (February 26, 1963), 1963 WL 14192. To the extent, however, that the expenditure was "elaborate," i.e., beyond the need for the prescribed medical therapy, it was not deductible because it was not directly related to medical care. Id.
The IRC provision relied upon in these two private letter rulings is not identical to the resource exclusion provision in the Social Security Regulations. The IRC section would apply to expenditures for treatment of a mental condition as well as a physical condition, but the Social Security regulation would allow exclusion of an item only if it is required because of the SSI claimant's physical condition. Compare 26 U.S.C. § 213(d)(1)(A), 20 C.F.R. § 416.1216(c). While the Social Security regulation allows for exclusion of a resource "required because of a person's physical condition," 20 C.F.R. § 416.1216(c) (emphasis added), the IRC provision, 26 U.S.C. § 213(d)(1), allows a tax deduction for "amounts paid" for treatment (emphasis added). Although the IRC section does not address whether an expenditure is medically required, the private letter rulings provide some support for the conclusion that, in some cases, piano playing may be prescribed as part of an individual's medical treatment.
There is nothing in the Social Security Act or Social Security Regulations to direct a conclusion on this issue. We think it reasonable, however, to conclude, based on the private letter rulings, that there are situations in which a doctor may reasonably require a patient to play a piano as a necessary part of treatment or therapy for the patient's physical condition. Unlike the medical care deduction provision in the IRC, the SSI exclusion for items required for a person's physical condition does not place any limitation on the value of items which can be excluded, even though some of the items listed, such as an engagement ring or a dialysis machine, could have considerable monetary value. 20 C.F.R. § 416.1216(c); see also POMS SI 01130.430 ("Items Excluded Regardless of Value") (emphasis added).
The letter from Ms. W~'s physician states that it is important that she enjoy the benefits of her piano because it relieves her stress and, consequently, has a positive effect on her hypertension. The doctor further states that selling the piano to receive SSI benefits would be "deleterious" to her health. In the absence of evidence casting doubt on the doctor's credibility, we think this statement may be sufficient for a fact-finder to conclude that the piano is required for Ms. W~'s physical condition. You may want to obtain clarification from the doctor, however, that he considers playing the piano a required part of Ms. W~'s treatment or therapy for her hypertension or her congestive heart condition. You may also want to verify that the "deleterious" effect of selling the piano refers to her inability to receive the therapeutic benefit of playing the piano, rather than to other factors, such as a contemplated elevation of her blood pressure because selling the piano would upset her.
If you find that playing a piano is required for Ms. W~'s physical condition and she is the only person who will use the piano, the entire value of the piano should be considered an excludable resource. If, however, you find that playing piano is not required for Ms. W~'s physical condition, it will be necessary to determine the piano's value.
Determining the Current Market Value
If you determine that the piano is not an excludable resource under 20 C.F.R. § 416.1216(c), the current market value of the piano will be subject to the $2000 maximum exclusion for household goods and personal effects. 20 C.F.R. § 416.1216(a)-(b). Contrary to Ms. J~'s contention, the fact that Ms. W~ was unable to sell her piano does not necessarily mean that the value of the piano is zero. The piano likely has some value, even if it is not the $7000 purchase price. It is possible that the value of the piano is zero, however, if, for example, a buyer's expense to move the piano from Ms.W~'s home to a new location exceeds the price that a buyer would ordinarily pay for the piano.
The information provided to us did not indicate what price Ms. W~ was asking for the piano when she advertised it. It may be that she was simply asking a higher price than the current market value and, therefore, did not get an offer. We suggest further development to ascertain the current market value of the piano. For example, did Ms. W~ get any offers to buy the piano and, if so, what amount was offered? Ms. J~ indicated that the local music store sold one comparable piano over the past year. What was the sale price? Are there other music stores in the area that carry comparable pianos? If so, what price do they charge? Has Ms. W~'s piano been appraised? How much would a pawn shop pay for the piano, given that it could be difficult to sell quickly?
We note that POMS SI 01150.200 contains a provision that, under certain circumstances, allows for conditional SSI benefits for a limited period while an individual attempts to sell a non-liquid resource. The individual must agree to sell the resource at the current market value within a specified period and use the proceeds to refund the overpayment of conditional benefits. POMS SI 01150.200B.1. The period of conditional benefits where personal property is concerned would generally end after three months, except that there could be one three-month extension granted for good cause. SI 01150.201A. The individual must make reasonable efforts to sell the resource, taking all necessary steps to sell the resource through the local media. SI 01150.201B.1. The information provided to us does not indicate whether Ms. W~ was eligible for, or received, conditional benefits under these POMS provisions.
We also note that, even if Ms. W~ purchased the piano for $7000, and if the Agency determines that the current market value of her piano is less than $7000, it does not necessarily mean that her purchase was a transfer for less than fair market value. See POMS SI 01150.005A. (transfers of resources for less than fair market value after December 14, 1999 may result in a period of SSI ineligibility). Nor does the fact that Ms. W~ may not be able to sell her piano for the same price she paid mean that she paid more than the fair market value. Fair market value is the current market value of a resource at the time the resource is transferred, i.e., the going price for which it could reasonably be expected to sell at the time, on the open market in the geographic area involved. POMS SI 01150.005. If Ms. W~ bought her piano on the open market, e.g., from a merchant, the $7000 purchase price is assumed to be the fair market value at the time of the transfer. POMS SI 01140.005C.4.a. It may be that the value of the piano has depreciated since its purchase, or simply that the going price for a comparable piano was $7000 at the time of the purchase but is less now due to economic conditions. A prospective buyer might be willing to pay more for a piano bought from a merchant whose reputation is known than he would pay in a private sale by a stranger. A merchant might also be in a position to charge more because he could offer a factory guarantee or a store guarantee that a private seller like Ms. W~ cannot offer. Finally, a merchant might be in a position to wait until a buyer came along who was willing to pay a higher price. Thus, the current market value of the piano, in Ms. W~'s hands, may be less than the amount she paid for the piano, even though the original purchase was not a transfer for less than fair market value.
In summary, we conclude that, if the Agency fact-finder concludes that Ms. W~ has shown that playing piano is required as part of her treatment or therapy for her physical condition, the piano's entire value may be excluded under 20 C.F.R. § 416.1216(c). If the fact-finder concludes that playing piano is not required for Ms. W~'s physical condition, the current market value of the piano should be considered a household good or personal effect subject to the $2000 maximum exclusion for all household goods and personal effects. However, the Agency may want to give further consideration to the current market value of the piano in Ms. W~'s hands.
Thomas W. C~
Regional Chief Counsel
Nancy L. B~
Assistant Regional Counsel
B. PS 00-327 Illinois—Forethought Prepaid Burial Agreement for Edward M~, ~; Your Ref. S2D5G3
DATE: April 6, 1998
Funding a pre-paid funeral contract by irrevocably transferring ownership of a life insurance policy to an irrevocable trust that is not the funeral provider or the seller is valid under Illinois law.
This is in reply to your November 18, 1997, inquiry concerning whether the life insurance funded burial trust agreement for Edward M~, an aged SSI recipient, is valid under Illinois law. For the following reasons, we conclude that the burial trust agreement is valid, and the cash surrender value of the life insurance policy is not a countable resource.
On October 28, 1997, Mr. M~ purchased pre-paid funeral services of $4544.57 from the Modell Funeral Home. The services were funded by a concurrently purchased life insurance policy, issued by the Forethought Life Insurance Company. Mr. M~ also transferred that Policy to the Modell Funeral Home, in an Agreement called "Change of Policy/Certificate/Annuity Ownership To The Forethought Trust." In the agreement, the Modell Funeral Home promised to immediately transfer ownership to the Forethought Trust on Mr. M~'s behalf. The agreement specified that the proceeds of the policy were to be used to fund burial expenses and that Mr. M~ retained the right to change the designated funeral firm and the name of the beneficiary. The agreement with the funeral firm included the full range of funeral services and products, such as embalming, a funeral ceremony, a graveside ceremony, a casket and outer burial container, as well as such miscellaneous items as the services of a clergyman, and obituary notices. Mr. M~ already owns a burial site.
The "Transfer Of Ownership To Funeral Firm" section of the document states specifically that the transfer of ownership was "permanent," except as provided for in that document, and that Mr. M~ gave up his right to control the policy, surrender it for cash, or obtain a loan against it. The document indicates, however, that Mr. M~ retained the option to designate a different funeral home and that he could change the name of the beneficiary. You noted that the "Funeral Planning Agreement" accompanying the pre-need contract indicated that the funeral plan could be canceled in accordance with the terms of the Forethought documents, and that, under certain conditions, the purchaser could receive the cash value of his policy. You asked whether, under these facts, the life insurance funded trust agreement was valid and irrevocable.
A life insurance funded burial contract involves an individual purchasing a life insurance policy in his name and then assigning, revocably or irrevocably, either the proceeds or ownership of the policy to a third party, generally a funeral provider. The purpose of the assignment is to fund a pre-arranged burial contract. See Program Operating Manual System (POMS) § SI 01130.425(A)(2). Here, ownership of Mr. M~'s life insurance policy was transferred to the funeral provider, and then to an irrevocable trust. Since the policy was placed in trust, the resource value of the trust must be evaluated according to the rules governing trust funds in order to determine whether it is a countable resource for SSI purposes. POMS §§ SI 01130.425(A)(2), SI 01120.200(E).
The "Change of Policy/Certificate/Annuity Ownership to the Forethought Trust" agreement in this case provided that Mr. M~'s transfer of ownership was "permanent" and that Mr. M~ waived all rights under the insurance policy to surrender it for cash or to obtain a loan against it. Because this transfer was permissible under state law, as described below, the trust was irrevocable.
The agreement also provided that Mr. M~ "retain[ed] the right to change the designated funeral firm" as well as the "beneficiary." So the question becomes whether, in light of these provisions, a life insurance policy placed in an irrevocable trust is a countable resource.
A resource, for SSI purposes, is defined as property that the SSI beneficiary owns and can convert to cash, or property or over which the beneficiary has the right, authority, or power to liquidate. 20 C.F.R. § 416.1201. In applying this definition to trusts, the POMS states that if the claimant neither owns nor has the legal right to direct the use of trust assets to meet his support or maintenance needs, and state law allows a revocably assigned life insurance policy that funds a funeral contact to be placed irrevocably in trust, the policy's cash surrender value is not a resource for SSI purposes. SI 01130.425(E)(1). The trust at issue meets these standards.
The above-mentioned provision of the "Funeral Planning Agreement," indicating that, under certain circumstances, when the funeral plan is canceled, the "certificateholder" may receive the cash value of the life insurance policy, is not applicable to this case. Here, the life insurance policy had been irrevocably transferred to the Forethought Trust, as plaintiff has given up all rights control, including the right to surrender the policy for cash.
Further, the irrevocable assignment of the pre-needs contract is in accordance with Illinois law. Effective January 1, 1994, the state of Illinois revised the Illinois Funeral or Burial Funds Act, which regulates pre-needs burial contracts. See 225 ILCS 45. The Act states specifically that "[n]othing shall prohibit the purchaser [of a life insurance or annuity funded pre-need contract] from irrevocably assigning ownership of the policy or annuity used to fund a guaranteed price pre-need contract to a person or trust for the purpose of obtaining favorable consideration for Medicaid, Supplemental Security Income, or another public assistance program, except that neither the seller nor the contract provider shall be named the owner of the policy or annuity." 222 ILCS 45/2a(c). That is precisely what was done here. While another section of this statute specifies that pre-need contracts are generally revocable, see 222 ILCS 45/4(a), (c), that section reiterates the provision that the purchaser of the pre-need contract may make the contract irrevocable for purposes of obtaining SSI or another government benefit. 222 ILCS 45/4(a).
Here, the trust agreement makes clear that the trust itself is irrevocable and that Mr. M~ simply retained the right to change funeral providers, not that he was able to surrender the policy for cash or to obtain a loan against it. The Forethought Trust is not a funeral provider, and thus could receive irrevocable assignment of the policy under 225 ILCS 45-2a(c). Consequently, pursuant to Illinois law, the life insurance trust in this case is valid. The insurance policy has been transferred to a valid irrevocable trust, and Mr. M~ no longer owns the policy or has the power to use it for his support and maintenance. Consequently, the cash surrender value of Mr. M~'s life insurance is not a countable resource for SSI purposes. See 20 C.F.R. § 416.1201(a); POMS SI 01130.425(E).
We conclude that Mr. M~'s irrevocable life insurance- funded burial trust agreement is valid under Illinois law, despite his retained ability to change funeral providers. Additionally, the cash surrender value of the life insurance policy is not a countable resource for SSI purposes.