You asked whether the trust established for Neal P~ is a countable resource for SSI
purposes. Mr. P~ 's attorney has requested a reconsideration of SSA's prior determination
that the trust is a countable resource, arguing that an individual without capacity
has no ability to revoke a trust, and citing three recent Michigan ALJ decisions as
support. For the following reasons, it is our opinion that the trust agreement is
a revocable grantor trust and that the trust property can be considered a countable
According to the trust, Mr. P~ has multiple special needs arising from circumstances
surrounding his birth in 1980, and Shailesh B. P~ and Kalpana S. P~ have been appointed
by the Oakland County Probate Court as co-conservators of Mr. P~'s estate. See Trust, Introduction. In April 1999, a trust was established for Mr. P~, using the
proceeds from the revoked "Neal P~ Revocable Living Trust" which had been established
with proceeds received from a medical malpractice action filed on behalf of Mr. P~.
See Protective Order, items 1 and 2. The trust was approved by the Probate Court of Oakland
County, Michigan. Id.
A resource, for SSI purposes, is any property that an individual owns and could convert
to cash to be used for his support or maintenance. See 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to
liquidate the property or his share of the property, it is considered a resource.
See 20 C.F.R. § 416.1201(a)(1). Trust assets are considered to be resources if the individual
can revoke the trust and obtain unrestricted access to the trust assets. See Program Operations Manual System (POMS) SI 01120.200 (D). We apply state trust law to determine whether trust property is a resource.
See POMS SI 01120.200(A). There are two questions at issue in Mr. P~'s case. First, is his trust a grantor
trust and second, does his incapacity, if any, result in an inability to terminate
Mr. P~'s Trust is a Revocable Grantor Trust
Under general trust law, a grantor trust is revocable, even when, as in this case,
the trust states that it is irrevocable. See Trust, Articles 3 and 5(A); see also Restatement (Second) of Trusts § 339, comment a. Michigan law appears to follow
this principle, just as it follows other sections of the Restatement. In Ronney v. Department of Social Services, 532 N.W.2d 910 (Mich. Ct. App. 1995), a claimant inherited assets which her guardian placed in an
"irrevocable" Michigan trust with the claimant as beneficiary. Because the claimant
was both the settlor and the sole beneficiary, the trust was revocable under Michigan
law. Id. at 913. Again, in Hein v. Hein 543 N.W. 2d 19, 21 (Mich. Ct. App. 1995), the court held that even an "irrevocable" trust may be terminated
with consent of the settlor and all beneficiaries. More recently, the Michigan Supreme
Court has held that where an individual provides the assets for the trust, that individual
is the settlor. See In re Hertsberg Intervivos Trust, 578 N.W.2d 289 (1998).
The trust is a grantor trust because Mr. P~ is both the grantor and the sole beneficiary.
Where a beneficiary acting through his guardian establishes a trust with funds that
actually belong to the beneficiary, the beneficiary can legally be considered the
grantor of the trust. See POMS SI 01120.200(J)(3). Here, Mr. P~ acted through his guardians to establish a trust with his own
funds. Michigan courts have ruled that if the beneficiary of a trust held legal title
to the assets of the trust (or the trust beneficiary's guardian held legal title on
behalf of the trust beneficiary) immediately prior to the transfer of the assets,
the trust beneficiary was the settlor of the trust, even though the declaration of
the trust might state otherwise. See Hertsberg, 578 N.W. 2d at 289; In re Johannes Trust, 479 N.W. 2d 25, 29 (Mich. Ct. App. 1991). As a result, although Shailesh B. P~ and Kalpana S. P~ are
named as grantors, it is Neal P~ who is, in fact, the grantor of the trust agreement
since the funds for the trust actually belong to him. See Trust, signatures; see also Protective Order, item 4.
Mr. P~ is also the sole beneficiary of the trust, notwithstanding the trust provision
that, upon his death, the assets are to be distributed to the State of Michigan for
reimbursement of medical assistance benefits; taxes, expenses of his last illness
and funeral, and reasonable administrative expenses; and the residue in accordance
with his last will and testament; or failing probate of a will, to his heirs-at-law
as determined by the intestate laws in effect at the time of his death. See Trust, Article 6. That the trust agreement directs the trustee to repay any medical
assistance state claims does not mean that there is a named beneficiary. Instead,
the medical assistance claims must be repaid because of statutorily-imposed reimbursement
requirements. See 42 U.S.C. 1396p(4)(B); see also Michigan Compiled Laws Annotated (West 199) (M.C.L.A.) § 400.77.
Mr. P~'s trust merely requires that the trust reimburse the appropriate state agencies
for benefits already conferred on him during his lifetime. The money repaid is for
Mr. P~'s benefit, and not the State's benefit. Nor does the trust establish additional
beneficiaries by a provision that allows payments to be made to cover taxes and expenses
of his last illness and funeral costs, and reasonable administrative expenses. These
payments relate either to trust administration or providing goods or services for
Mr. P~ benefits. The trust does provide distribution to a class of beneficiaries designated
by Mr. P~ though a will, or by Michigan intestate law. However, this description does
not create additional beneficiaries because there are no identifiable residual beneficiaries,
either by name or by class. See Restatement (Second) of Trusts, § 127, comment b. We have discovered no Michigan
cases that run contrary to these general trust rules and, therefore, at least on the
face of the document, Mr. P~'s trust is a grantor trust.
Although Mr. P~ is "incompetent" his trust can be revoked
SSA defines the term "legal incompetency" as "a decision by a court of law that a
claimant is unable to manage his/her affairs." See POMS GN 00501.010. For all practical purposes, the term is interchangeable with "legal incapacity."
See Black's Law Dictionary at 764, 768 ( 17th ed. 1990). The trust document states that
Mr. P~ has been determined to be "a person in need of protection" but does not state
that he has been judged legally incapacitated or incompetent. See Trust, Introduction. The appointment of a conservator for a claimant does not necessarily
mean that the claimant is legally incapacitated or incompetent. See POMS GN 00502.139. In fact, Michigan law specifies that the appointment of a conservator does not constitute
a finding of legal incapacity or incompetency. See .M.C.L.A. § 400.468(2). However, the Michigan Probate Code provides for appointment
of a conservator where the individual is unable to manage his property and affairs.
See M.C.L.A. § 700.461(b). When we compare Michigan's definition of "legally incapacitated
person" with the grounds for appointment of a conservator, we see a great deal of overlap. Compare M.C.L.A. § 700.8(3) with M.C.L.A. § 700.461(b).
The issue in Mr. P~'s case is whether the court order of protection demonstrates,
on its face, that the court made a finding equivalent to "legal incompetency", i.e.,
whether the court has found that he is unable to manage his own affairs. Since we
do not have a copy of the original court order of protection, we cannot know if the
court specified any of the grounds to be the same as those that define a legally incapacitated
person. However, since M.C.L.A. § 700.21(c) gives Probate Courts exclusive legal and
equitable jurisdiction over protected individuals, and the Probate Court has continued
its protection of Mr. P~, it is reasonable to assume that the Probate Court considers
him to be legally incompetent. See Thornell
v. Chesapeake & Ohio Railway Co., 166 F.Supp. 61 (W.D.Mich 1958). For purposes of this opinion, we assume that Mr.
P~ has been judged incompetent as contemplated by 20 C.F.R. § 416.615(a).
While a competent person could establish and/or revoke a trust without court approval,
it is our opinion that approval of the court would be necessary for Mr. P~ to establish
or to revoke a trust agreement. See M.C.L. § 700.21. The question is whether the Probate Court would allow Mr. P~, through
his conservator, to establish a trust and to revoke that same trust and, further,
whether the Michigan Supreme Court would uphold the Probate Court's decisions. It
is our opinion that the Probate Court would allow both actions and that the Michigan
Supreme Court would uphold the decisions.
Mr. P~, through his conservator, could create a trust, albeit with Probate Court approval.
The Michigan statute that confers powers and duties of a conservator states that a
conservator may acquire or dispose of an estate asset, manage, develop, improve, exchange,
partition, change the character of, or abandon an estate asset. See M.C.L.A. § 700.484(3)(g). The Probate Court has certain powers which may be exercised
directly, or through a conservator, with respect to the estate and affairs of protected
persons. See M.C.L.A. § 700.468 (1). These powers include, but are not limited to, creation of
revocable or irrevocable trusts of property of the protected person's estate. See M.C.L.A. § 700.468(1)(c). A reasonable reading of this statute is that a conservator
could establish a trust with the permission of the Probate Court. The fact that the
Probate Court has already allowed Mr. P~ to establish two different trusts supports
our contention that he has the power to establish a trust. See Protective Order, item 3. Then, the fact that Mr. P~'s first trust was revoked supports
our contention that Mr. P~, through his conservator, and with the permission of the
Probate Court, can revoke a trust. Id. Although the current trust claims to be irrevocable, the Court has the power to revoke
Mr. P~'s trust because it is a grantor trust.
It is our opinion that, if asked, the Probate Court would likely allow the current
trust to be revoked if the assets were used for Mr. P~'s support and maintenance.
Mr. P~'s guardian might argue that revocation is not in his best interest because,
under the current trust, SSA meets his basic needs, and the Trust meets his supplemental
needs and, if revoked, he would lose his eligibility for SSI. This argument is unavailing.
The appropriate resource question is whether the individual has the right, power or
authority to obtain the assets and use them for his support and maintenance. Michigan
statutes contemplate that basic needs of a protected person will be met by his own
assets. M.C.L.A. § 5425(b) states that a protected person's assets are to be used
for his "support, education, care, or benefit." There is no reason to assume that
the Probate Court would deny access to Mr. P~'s funds for his own support, education,
care or benefit. While there are no Michigan Supreme Court cases on point, it is clear
that the Probate Court has jurisdiction in matters of both protective persons and
trust instruments. See M.C.L.A. § 555.82. There is no reason to assume that the Michigan Supreme Court would
overturn a reasoned decision by the Probate Court.
Other ALJ decisions do not impact this opinion
Mr. P~ argues, through his attorney, that his trust cannot be revoked because an individual
without capacity has no ability to revoke a trust, and cites three recent Michigan
ALJ decisions as support. He argues that his trust agreement is similar to those described
in the ALJ decisions, and should thus be construed in the same manner, that is, as
not a countable resource. We believe that the three ALJ decisions have no impact on
our opinion in Mr. P~'s case because (1) the three ALJ decisions are not precedential,
and (2) in our opinion, are incorrectly decided.
Under general principles of administrative law, an agency can choose to proceed either
"by general rule or by individual ad hoc litigation." See SEC v. Chenery Corp., 332 U.S. 194, 203 (1947).
The SSA has been given broad rule-making authority. 42 U.S.C. § 405(a). Further, its
regulations establish no binding precedent for ALJ decisions. See 20 C.F.R. § 402.45 (1997) (records that will be used as precedent must be published).
Individual ALJ adjudications, therefore, are not binding beyond the parties to the
hearing. See 20 C.F.R. § 416.1455. Therefore, individual ALJ decisions are not binding in adjudicating
other claims. See Kenneth Culp Davis, Administrative Law Treatise, § 11.5 (1994); see also Mashaw et
al., Social Security Hearings and Appeals, 90 (1978). In only one instance is a decision
in an individual case precedential. That instance is when SSA adopts the decision
as a Social Security Ruling and publishes it in the Federal Register. 20 C.F.R. §
402.35. That exception does not apply here.
Moreover, in our opinion, the three ALJ decisions were incorrectly decided. On April
27, 1999, ALJ William E. D~ found claimant's trust was irrevocable because she was
not the grantor. See ALJ D~ decision at 6-7. However, as discussed above, if the trust was established
with funds that actually belong to the claimant, then the claimant is the grantor
of the trust. See POMS SI 01120.200(J)(3). The Michigan Supreme Court has expressly held that a settlor is one who provides
the consideration. Hertsberg, 578 N.W. 2d at 292. On November 18, 1998, ALJ Edward
P. G~ found that claimant's trust was irrevocable because the State of Michigan was
a beneficiary. See ALJ G~ decision at 3. However, as discussed above, repayment of any medical assistance
state claims does not mean that there is a named beneficiary. Instead, the medical
assistance claims must be repaid because of statutorily-imposed reimbursement requirements,
and, ultimately, the reason for the repayment is for claimant's benefit and not the
State's benefit. Indeed, the Hertsberg decision held that the state was a creditor
that could attack the trust. See Hertsberg, 578 N.W. 2d
at 291. On December 22, 1998, ALJ John A. R~ found that claimant's trust was irrevocable
because it was under the jurisdiction of Probate Court with no provision for the claimant
to liquidate the trust or have access to the funds. See ALJ R~ decision at 3. Further, ALJ R~ found that this jurisdiction, since there was
no Michigan law to the contrary, had precedence over general trust laws. Id. However, Mr. P~'s history directly contradicts this finding. In Mr. P~'s case, the
Probate Court did dissolve a trust, and, although that trust was revocable, the Probate
Court action demonstrated that it had the power to revoke a trust as well as establish
one. In our opinion, the decisions in these three cases were not correctly decided
and do not create a precedent for Mr. P~.
Because Mr. P~ is both the grantor and the sole beneficiary of the trust, he can compel
termination of the trust through permission of the Probate Court and use the trust
assets for his support and maintenance, thus making the current trust a countable
resource for SSI purposes.