In this opinion, the Regional Chief Counsel (RCC) evaluates whether a class action settlement award received by an SSI recipient would be countable as income and as a resource for SSI purposes. The RCC examines several approaches to exclusion of the award and concludes that there is support for excluding the award from income based on the framework of the State of Minnesota to aid crime victims fund or as a form of tort compensation. The resource exclusion is supported based on the establishment of blocked account or conservatorship account, but a time-limited exclusion could also apply based on the framework of the State of Minnesota to aid crime victims fund.

QUESTION

You asked us to evaluate whether a class action settlement award received by SSI recipient NH (name redacted) would be countable as income and as a resource for SSI purposes.

 

SHORT ANSWER

Although the settlement award does not precisely meet the requirements for exclusion from being counted as income or a resource, we believe there is support for excluding the award. Specifically, the fund from which the award came is comparable to a fund established by the State of Minnesota to aid crime victims, which would make the award excludable under both the income and resource counting rules. We note, however, that the resource exclusion would only apply for the first nine months after receipt of the funds. Alternatively, we believe there is also legal support for finding the award is not income or a resource for SSI purposes. First, the award may be considered tort compensation and, as such, does not constitute income. Second, the award may be construed as a blocked account or conservatorship account that is not a resource under the facts of this case.

 

BACKGROUND

NH was a class member in a legal action filed in 2009 against the State of Minnesota Department of Human Services (DHS), the Minnesota Extended Treatment Options (METO) program, and certain individual named defendants in the U.S. District Court for the District of Minnesota (Court).^[1] The named plaintiffs filed on behalf of their sons, who were residents at METO, a residential facility for persons with developmental disabilities. See Ombudsman for Mental Health and Development Disabilities, “Just Plain Wrong”: Excessive Use of Restraints and Law Enforcement Style Devices on Developmentally Disabled Residents at the Minnesota Department of Human Services Minnesota Extended Treatment Program (METO) Cambridge, MN iii, 11 (Sept. 2008), https://mn.gov/omhdd/assets/Just%20Plain%20Wrong%20%20%20Use%20of%20Restraints%20at%20METO%20File_tcm23-82019.pdf [hereinafter Ombudsman Report]. In their complaint, the plaintiffs alleged that the State and DHS unlawfully and unconstitutionally permitted METO to routinely impose seclusion and mechanical restraints upon residents. See Stipulated Class Action Settlement Agreement 2, http://mn.gov/mnddc/meto_settlement/documents/METO_Settlement_Agreement_6-23-11.pdf [hereinafter SA]. The lawsuit was based in part on a report by the Office of the Ombudsman for Mental Health and Developmental Disabilities, which found that METO staff regularly subjected residents to abusive and improper seclusion, use of mechanical restraints including metal handcuffs and leg hobbles, and placement in a face-down prone position, as a means of behavior modification, convenience, and retaliation for behavior resulting from their disabilities. See Ombudsman Report at 15-18.

On December 5, 2011, the Court issued an Order granting final approval of a stipulated class action settlement agreement in the matter. See Final Approval Order for Stipulated Class Action Settlement Agreement, http://mn.gov/mnddc/meto_settlement/documents/METO_Final_Approval_Order.pdf [hereinafter Final Approval Order]; SA. The settlement amount per the agreement was $3,000,000.00, which the Court reduced to $2,976,400.00 and directed to be paid in its entirety by the defendants into the settlement class counsel’s trust account. Final Approval Order ¶ 4. The settlement agreement established a procedure by which apportionment of individual class member settlement amounts would be based in part on “the number of documented times a Class Member was ‘Restrained/Secluded.’”^[2] SA pp. 31-32. Additionally, the settlement agreement gave the Court the authority, when reviewing and approving the submitted claims, to consider other factors in the interest of justice, including but not limited to “‘demonstrated serious physical injury.’” Id. at p. 32. The agreement further provided that any apportioned award of $3,000.00 or more was to be deposited with the Court. SA p. 34. In turn, before releasing the funds, the Court would “ascertain whether the class member or legal guardian ha[d] taken appropriate steps to safeguard eligibility for government benefits satisfactory to the Court including consideration of financial accounting and estate or trust planning issues involved.” Id. The express purpose of this step was to “further ensure that class members [did] not lose eligibility for any government benefits to which they may be entitled[.]” Id.

In its Order, the Court

f[ound] and conclude[d] that, both legally and as a matter of equity and fairness, the individual settlement amount being awarded to each individual class member is not a resource for eligibility purposes and, consequently, an individual settlement amount will not affect, in any way, a Class Member’s eligibility for disability benefits or other related benefits, or otherwise jeopardize the Class Member’s benefits or programming.

Final Approval Order ¶ 7. The Court went on to state that if any agency, entity, or individual, private or public, were to dispute the Court’s jurisdiction to make the above finding, both as a matter of law and equity, or were to contend that a settlement award should affect a class member’s eligibility, the agency or entity was required to file a motion and come before the Court to address the claim. Id.

Likewise, in its January 30, 2012 Order approving the individual settlement claims, the Court stated that the apportioned settlement amounts “are not deemed income, a tax liability, or a resource to any Class Member” and that to treat the individual awards as such “would be contrary to the December 5[, 2011] Order and the intent of all parties to the Settlement Agreement.” January 30, 2012 Order ¶ 2 n.2. The Court reemphasized that “if any individuals, agencies, programs, or entities take a contrary position, they must proceed by motion to this Court[.]” Id. The Court further instructed each Class Member or his or her legal guardian to submit a letter to the Court describing the steps taken to safeguard the Class Member’s funds and eligibility for government benefits. Id. ¶ 3.

Subsequently, in response to letters received by various Class Members and concerns expressed therein about settlement funds possibly affecting eligibility for Social Security disability benefits, the Court issued an Order on February 14, 2012, in which it emphasized that the settlement funds were to used solely to improve Class Members’ quality of life and were not to be used for paying costs of care. See February 14, 2012 Order¶ 1, http://mn.gov/mnddc/meto_settlement/documents/09cv1775-Doc141.pdf. In an accompanying memorandum, the Court reiterated that point and explained that the Class members were “being compensated for what they have been subjected to and the manner in which they have been treated or mistreated.” Id. at pp. 6-7.

According to a letter written by class counsel, in or about April 2012, the Court and class counsel received letters from the U.S. Attorney’s Office expressing SSA’s position that the Court’s orders notwithstanding, the issue of whether settlement awards were income or a countable resource would have to be determined on a case-by-case basis. The Court held a status conference on April 20, 2012, at which attorneys from SSA and the U.S. Attorney’s Office appeared via telephone.

Three days later, the Court issued another Order in which it stated:

Solely to the extent necessary to maintain Class Members’ eligibility for governmental benefits, including but not limited to Social Security benefits, the apportioned settlement funds to each Class Member shall be considered a “blocked account” or “conservatorship account” consistent with applicable Social Security regulations, applicable Social Security Administration guidance, including Program Operating Manual System (“POMS”) SI 01140.215 . . . and other applicable law[.]

April 23, 2012 Order ¶ 1, http://mn.gov/mnddc/meto_settlement/documents/09cv1775ord042312.pdf. The Court indicated that its prior Orders, which precluded the use of settlement funds for costs of care, unpaid bills or rent and noted that the funds were not a resource, were “consistent with the use of a conservatorship account or blocked account, and mean[t] that the Settlement Funds shall not be available or used for ‘support of maintenance,’ including expenditures for food, clothing, or shelter.” Id. The Court further stated that it had “apportioned the Settlement Funds to Class Members based on documented incidents of restraint or seclusion, including personal injuries sustained, and for the deprivation of Class Members’ civil and personal rights. As such, the settlement amounts are not income to Class Members.” Id. ¶ 3. In doing so, the Court relied on case law finding that tort compensation was excluded from income for SSI purposes. Id.

Subsequently, the Court issued an Order dated May 22, 2012, instructing the Minnesota DHS to furnish SSA with a list of Class Members receiving awards, their Social Security numbers, and the amounts received; the Court specified that SSA was to use that information to ensure that the settlement funds were not a resource. See May 22, 2012 Order ¶¶ 1-2.

NH enrolled as a class member and Trillium Services, Inc. ^[3] (Trillium) assisted him with managing his settlement award. On March 13, 2012, NH was awarded $41,800.00 from the settlement agreement. His settlement check was given to Trillium, which deposited the funds in a checking account. It appears that SSA first became aware of NH’s settlement award during an SSI redetermination in December 2019.

 

DISCUSSION

1. A strict reading of the Social Security Act and regulations indicates the settlement award should be counted towards the SSI income and resource limitations.

To be eligible for SSI benefits, an individual’s (and spouse’s, if any) income and resources must not exceed the statutory limit. See 42 U.S.C. § 1382(a); see also 20 C.F.R. § 416.202(c), (d). Income is anything that an individual receives in cash or in kind that he can use to meet his needs for food and shelter. See 20 C.F.R. § 416.1102. A resource is cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his support and maintenance. See 20 C.F.R. § 416.1201(a). Under the SSI program, all income and resources are generally countable unless excluded from consideration by statute. See 42 U.S.C. § 1382(a).

As relevant here, an award is a type of unearned income. See 42 U.S.C. § 1382a(a)(2)(C). The agency’s regulation set forth at 20 C.F.R. § 416.1121(f) defines an award as “usually something you receive as the result of a decision by a court, board of arbitration, or the like.” Items received in cash or in kind during a month are evaluated first under the income counting rules and, if retained until the following month, are subject to the resource counting rules. See 20 C.F.R. § 416.1207(d).

42 U.S.C. § 1382a(b) itemizes a list of specific exclusions to the statute’s SSI income counting requirements. The corresponding regulation at 20 C.F.R. § 416.1124 reflects the unearned income exclusions of section 1382a(b) and provides for exclusions mandated by other Federal laws. Similarly, 42 U.S.C. § 1382b(a) and its implementing regulation at 20 C.F.R. § 416.1210 provide for exclusions from the SSI resource counting requirements. In particular, the regulations include an exclusion from unearned income for “[p]ayments received by you from a fund established by a State to aid victims of crime.” 20 C.F.R. § 416.1124(c)(17). Likewise, the regulations provide an exclusion from resources for “[p]ayments received as compensation for expenses incurred or losses suffered as a result of a crime as provided in § 416.1229.” 20 C.F.R. § 416.1210(p). Under Section 416.1229, in determining the resources of an individual, any amount received from a fund established by a State to aid victims of crime is excluded from resources for a period of nine months beginning with the month following the month of receipt. See 20 C.F.R. § 416.1229(a). To be excluded from resources under this section, the individual “must demonstrate that any amount received was compensation for expenses incurred or losses suffered as the result of a crime.” 20 C.F.R. § 416.1229(b).

Here, the funds in question meet the above regulatory definition of an “award,” because they were approved and awarded to NH by the Court. Thus, the funds constitute unearned income for SSI purposes. Consequently, unless they are excluded, they would be counted as income in the month that he received them (March 2012), 20 C.F.R. § 416.1123(a), and any amount retained beyond that month would be counted as a resource as of the beginning of each subsequent month. 20 C.F.R. § 416.1207(a), (d).

NH’s settlement award does not fall squarely within any of the exclusions from income or resources authorized by Congress, including the exceptions under Sections 416.1124(c)(17) and 416.1210(p) quoted above. First, as discussed below, both the victims’ compensation income and resource exclusions apply only to payments from funds established to aid crime victims. See 20 C.F.R. §§ 416.1124(c)(17), 416.1210(p), 416.1229. Here, however, the fund was not established in response to a crime or crimes, but rather pursuant to a settlement in a civil class action. Second, the resource exclusion requires the individual to show that the amount received was compensation for “expenses incurred or losses suffered as the result of a crime.” Here, NH has not produced such evidence and the Court’s Orders do not directly link the award to compensation for expenses or financial losses. Therefore, a strict reading of the statute and regulations would seem to require counting the class action settlement awards as income and resources for SSI purposes.

 

2. There is support for excluding the settlement award under the victims’ compensation income and resource exclusions.

Notwithstanding the foregoing, we believe that there is legal support for excluding NH’s award from income and resource counting. We believe that a broader interpretation of the statute and regulations is appropriate here, because the settlement award is consistent with the policy and restitutionary nature of the victims’ compensation exclusions discussed above.

A. The “Victims of Crime” Requirement

Both the income and resource exclusions apply to payments received from a fund established by a State to aid victims of crime. See 20 C.F.R. §§ 416.1124(c)(17), 416.1210(p), 416.1229. As stated above, NH’s settlement award came from a fund established by the State of Minnesota. But the fund was not established specifically in response to a crime per se; rather, it was pursuant to a settlement in a civil class action. However, we believe it would be inequitable to count the settlement awards as income or resources based on that technicality alone.

We believe the objectives of the settlement award are analogous to those considered under the state victims’ compensation exclusions considered by sections 416.1124(c)(17) and 416.1210(p). For example, the Minnesota Crime Victims Reparations Board (Board), established under the Minnesota Crime Victims Reparations Act (codified at Minn. Stat. §§ 611A.51-611A.68), is a program established to “help victims with their financial losses and aid their recovery from a violent crime.” Minn. Dep’t of Public Safety, Minnesota Crime Victims Reparations Board,https://dps.mn.gov/divisions/ojp/help-for-crime-victims/Pages/crime-victims-reparations.aspx (last visited Apr. 23, 2020). The Board’s mission is to “help crime victims and their family members recover their health and economic stability by providing compensation for losses incurred as a direct result of a crime.” Minn. Legislative Reference Library, Crime Victims Reparations Board,https://www.leg.state.mn.us/lrl/agencies/detail?AgencyID=336 (last visited Apr. 23, 2020).

Similarly, the Court stated that the Class Members, in receiving portions of the class settlement, were “being compensated for what they have been subjected to and the manner in which they have been treated or mistreated.” April 23, 2012 Order ¶ 3. The Court additionally specified that it was apportioning the awards “based on documented incidents of restraint or seclusion, including personal injuries sustained, and for the deprivation of Class Members’ civil and personal rights.” Id. Thus, both funds – those awarded by the Board and those awarded by the Court – are intended to compensate recipients financially for harm suffered. In NH’s case, his settlement award was based on documented instances of seclusion and/or restraint he was subjected to by METO staff, and the amount he received ($41,800.00) suggests that he had been so subjected at least 200 times. See SA pp. 2, 32.

B. Additional Resource Exclusion Requirement

The resource exclusion for victims’ compensation payments under 20 C.F.R. § 416.1210(p) has an additional requirement. Specifically, it requires the individual to demonstrate that the amount received was compensation for expenses incurred or losses suffered as the result of a crime. See 20 C.F.R. § 416.1229(b). Here, NH has not offered evidence that the settlement award related to specific expenses or losses that he suffered, as required under the resource exclusion. However, as discussed above, METO staff allegedly subjected NH, a developmentally disabled individual, to hundreds of instances of seclusion and/or restraint. Such mistreatment could have reasonably resulted in the need for NH or his family to incur expenses for legal fees, medical bills, and/or mental health treatment. Thus, we believe that you could reasonably find that the settlement award meets the resource exclusion requirements.

C. Previous OGC opinions support excluding the settlement award even though it does not precisely match the requirements for exclusion.

Past OGC opinions provide support for excluding NH’s settlement funds from income and resource counting, despite the fact that the funds do not meet the precise statutory or regulatory requirements for exclusion. For example, OGC opined that there was support for excluding payments made by the City of Chicago from its Reparations Fund for Burge Torture Victims. See Memorandum from Reg’l Chief Counsel, Chicago, to Assistant Reg’l Comm’r-MOS, Chicago, Whether Payments from the Reparations Fund for Burge Torture Victims Should Be Excluded from Income or Resources (July 25, 2016). Although the fund in question was established by a city rather than by a State, it was intended to provide assistance to victims of crimes, which was in accordance with the purpose of the Illinois Crime Victims Compensation Act. See id. at 4. Additionally, although the recipient had not offered evidence that the payment he received was related to specific expenses or financial losses incurred, he reasonably could have incurred legal fees, lost wages, and costs for medical or mental health treatment as a result of the mistreatment he had suffered. See id.

Similarly, in another opinion OGC opined that there was some support for excluding payments made pursuant to the Redress Agreement between the Government of Canada and the National Association of Japanese Canadians. See Memorandum from Chief Attorney to Office of SSI Div. of Program Requirements Policy, Treatment of Canadian Reparations Payments to Individuals of Japanese Ancestry (July 12, 1991). At that time, SSA had no specific exclusion for such payments to Japanese Canadians, although analogous payments from the United States government to Japanese Americans were excludable. OGC noted that “Although Congress focused on the actions taken by the U.S. Government against these individuals , we believe it would be reasonable for the Agency to assume that Congress would have the same concern for individuals who suffered by similar Canadian actions.” Id .

Likewise, OGC opined that there was some support for a broader position of excluding various payments made by the Lower Manhattan Development Corporation after the September 11, 2001 terrorist attacks. See Memorandum from General Counsel to Deputy Comm’r for Disability and Income Security Programs, The Effects of Grants Made by the Lower Manhattan Development Corporation (“LMDC”) on the Supplemental Security Income (“SSI”) Program (February 12, 2003). Although not all of those payments met the precise exclusion requirements, we noted that a broader interpretation might be appropriate, considering the unusual circumstances surrounding the terrorist attacks. See id.

 

3. The settlement award may be considered tort compensation, which would not constitute income.

Alternatively, we believe the award would not constitute income because it serves to compensate injured parties for torts committed by METO staff. The Court highlighted the non-income nature of the settlement awards in explaining that it apportioned the settlement funds “based on documented incidents of restraint or seclusion, including personal injuries sustained, and for the deprivation of Class Members’ civil and personal rights” and that, “[a]s such, the settlement amounts [we]re not income to Class Members.” April 23, 2012 Order ¶ 3. The Court emphasized that the Class Members were “being compensated for what they ha[d] been subjected to and the manner in which they ha[d] been treated or mistreated.” Id. In doing so, the Court specifically relied on case law finding that tort compensation (including personal injury settlements and reparations payments for deprivation of personal rights) did not constitute income, either for SSI or federal tax purposes. Id.

The case law cited by the Court supports its position that the settlement awards are not income. For example, in Grunfeder v. Heckler, 748 F.2d 503, 509 (9th Cir. 1984) (en banc), the Ninth Circuit Court of Appeals held that reparations payments the German Federal Republic made to survivors of the Holocaust did not constitute countable income in determining eligibility for SSI, even though Congress had not addressed the question at that time. Noting that Congress had excluded the German government’s reparations payments from Federal income tax, the Grunfeder court found that “Congress’s reaction to the Holocaust and its recognition of the restitutionary nature of the reparations payments indicate an intent to exclude those payments from countable income for SSI purposes.” Id. at 507. Notably, in a concurring opinion, Judge Ferguson emphasized that the focus of the analysis was “on the status of the funds received. Tort compensation traditionally has been excluded from the definition of income and, unless Congress specifically states otherwise, the Social Security Act . . . should not be construed as modifying this longstanding definition. Because the reparations payments at issue here are in the nature of tort compensation . . . they neither constitute ‘income’ under the income tax laws . . . nor under the Act for purposes of determining eligibility for supplemental security income.” Id. at 510.

 

4. The settlement funds may be considered a blocked account or conservatorship account that is not a resource in NH’s case.

In addition, we believe that the checking account into which Trillium deposited NH’s settlement award could reasonably be construed as a blocked account or conservatorship account, which would not be a resource under the facts of this case. In its April 2012 order, the Court stated:

Solely to the extent necessary to maintain Class Members’ eligibility for governmental benefits, including but not limited to Social Security benefits, the apportioned settlement funds to each Class Member shall be considered a “blocked account” or “conservatorship account” consistent with applicable Social Security regulations, applicable Social Security Administration guidance, including Program Operating Manual System (“POMS”) SI 01140.215 . . . and other applicable law[.]

April 23, 2012 Order ¶ 1. A blocked account or conservatorship account is a financial account in which a person or institution has been appointed by a court to manage and preserve the assets of an individual which are held in the account. POMS SI 01140.215(A). Under agency policy, if State law requires that funds in a conservatorship account be made available for the care and maintenance of an individual, then SSA assumes, absent evidence to the contrary, that the funds are available for the individual’s support and maintenance and, therefore, are a resource. POMS SI 01140.215(B).

Here, the Regional Office informed us that NH does not have a legal guardian and that Trillium was not appointed as conservator. However, Trillium’s Director, Mr. L., wrote to the Court in February 2012 about the funds NH was to receive from the settlement, and the Court’s response to Mr. L. noted that he was “assisting NH A. Johnson in managing and protecting the funds he will be receiving from the METO Class Action settlement.” The Court stated it would honor Mr. L.’s apparent decision to place NH’s funds in a Master Pooled trust. This suggests that Trillium, although not appointed by a court, was acting in a capacity akin to a conservator. See Minn. Stat. §§ 524.5-102(3) (conservator is appointed by court to manage estate of protected person), 524.5-602(c) (conservator is appointed by court to administer property of an adult). As noted above, Trillium ultimately placed the funds awarded to NH in a checking account. Therefore, it appears that the checking account in which the funds are held may reasonably be considered a blocked account.

It does not appear that Minnesota law requires funds in a blocked account to be made available for the care and maintenance of an individual. Under Minnesota law, unless specified in the court’s order, the conservator of the estate is not required to use funds to pay expenses associated with the protected person’s support and maintenance. See Minn. Stat § 524.5-417(a) (conservator is subject to the complete control and direction of the court), (c)(1) (identifying duty to pay for “support, maintenance, and education of the protected person” as among the powers and duties of conservator that may be granted by the court); see also POMS SI CHI01140.215(B)(4). As such, any funds in a blocked account cannot be presumed to be a resource under POMS SI 01140.215(B)(1). Rather, a review of any court order related to the account is necessary to determine whether the expenditure of funds for support and maintenance is one of the conservator’s duties. POMS SI CHI01140.215(B)(4). If the court order so directs, then the funds in a blocked account should be considered accessible and countable as a resource. Id.

Here, the Court issued several orders about the use of the settlement funds, stressing repeatedly that the funds awarded to a Class Member: (a) were not to be used for any “residential costs of care” or “unidentified or unpaid bills;” (b) were instead to be used specifically to improve the Class Member’s “quality of life;” and (c) were not countable income or a resource. See Final Approval Order ¶ 7; January 30, 2012 Order ¶¶ 2 n.2, 3 n.4; February 14, 2012 Order ¶ 1; April 23, 2012 Order ¶¶ 1, 3. Indeed, the Court even specified that funds were to be considered blocked accounts or conservatorship accounts and, as such, “shall not be available or used for ‘support of maintenance,’ including expenditures for food, clothing, or shelter.” April 23, 2012 Order ¶ 1 (emphasis added). Instead, class members were to “use their apportioned settlement amounts as a supplement to enhance the quality of their lives.” Id. Therefore, since the checking account in which NH’s settlement award was deposited may be considered a blocked account, and the funds cannot be used for support and maintenance, we believe you may reasonably find they are not a resource.^[4]

CONCLUSION

For the reasons discussed above, we believe that there is legal support for excluding NH’s settlement award from income and resource counting despite the fact that the award does not precisely match the victims’ compensation exclusion requirements. Alternatively, we believe the award reasonably may be considered tort compensation, which is not income. We also believe the account in which NH’s award is held reasonably may be considered a blocked account, and the funds in the account are not a resource because they cannot be used for support and maintenance.

 

The owner of the life insurance policy is a parent deemor who permanently and irrevocably assigned the ownership of the policy to a funeral home which subsequently transferred the policy to the Forethought Trust. Per POMS SI 01120.201(H)(1), the trust is not subject to the statutory trust provisions. Under regular resources rules, neither the claimant nor the deemor has the legal authority to revoke the trust and use the funds for claimant's support and maintenance since the funeral provider is also a beneficiary of the trust. Since the sole purpose of the trust is to fund beneficiary's funeral, and the deemor has no beneficial interest in the trust, the trust has no discernable market value. Hence, if a life insurance funded burial arrangement is considered to be an irrevocable trust with no discernable market value, then the trust is not considered as a resource to the deemor and is not a resource to the claimant.

The owner of the life insurance policy is a parent deemor who permanently and irrevocably assigned the ownership of the policy to a funeral home which subsequently transferred the policy to the Forethought Trust. Per POMS SI 01120.201(H)(1), the trust is not subject to the statutory trust provisions. Under regular resources rules, neither the claimant nor the deemor has the legal authority to revoke the trust and use the funds for claimant's support and maintenance since the funeral provider is also a beneficiary of the trust. Since the sole purpose of the trust is to fund beneficiary's funeral, and the deemor has no beneficial interest in the trust, the trust has no discernable market value. Hence, if a life insurance funded burial arrangement is considered to be an irrevocable trust with no discernable market value, then the trust is not considered as a resource to the deemor and is not a resource to the claimant.

BACKGROUND

In July 2001, Mary J~, Kevin's mother, applied for and apparently received^[5] a life insurance policy based on the life of Kevin (the insured), then a minor, with a face amount of $9,576.50 and an annual premium requirement of $890.73. You indicated that the premium payments have been made from Mary's personal funds. The beneficiary listed on the application is the estate of insured (Kevin), but, the application indicated that the beneficiary could be changed at any time by giving written notice to the insurance company.

On the same date as the policy application was signed, Mary also executed a Change of Policy/Certificate/Annuity Ownership to the Forethought Trust (Permanent and Irrevocable). This document purports to irrevocably assign ownership of the life insurance policy to the Wright Funeral Home in exchange for the home's promise to deliver funeral services and merchandise (presumably for Kevin, the insured).^[6] The document also states that Wright Funeral Home will immediately transfer ownership of the policy to the Forethought Trust, which shall ensure payment to the Wright Funeral Home, or any subsequently designated funeral home for the provision of funeral services and merchandise. The document also states that Mary renounces her power to control the policy; waives all rights to surrender it for cash or obtain a loan against the policy; agrees to pay all premiums as they become due; and retains the right to change the designated funeral home and named beneficiary. Finally, the document is also signed by a representative of the Wright Funeral Home.

DISCUSSION

A resource includes “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). Until Kevin reaches the age of 18 (which he did on January 4, 2003), his resources are deemed to include those of his mother, Mary. 42 U.S.C. § 1382c(f)(2)(A); 20 C.F.R. § 416.1202(b); POMS SI 01330.200. Thus, it is necessary to decide whether, prior to January 4, 2003, the burial arrangement described above gives rise to a resource for Mary (which would be deemed a resource for Kevin) and whether, before or after January 4, 2003, the burial arrangement gives rise to a resource for Kevin.

Where an individual contracts with a provider of burial services, prepaying the provider for services to be performed in the future, and the provider subsequently places the funds in trust, the trust resource rules codified at 42 U.S.C. § 1382b(e) are not applicable. Memorandum from Associate General Counsel Office of Program Law to Associate Comm. For Legislative Development, SSD, Exclusion of Certain Burial Trusts from Section 205 of Public Law Number 106-169, at 3 (August 29, 2000) (hereinafter Exclusion Memo); POMS SI 01120.201(H)(1). Instead, regular resource rules apply to determine whether the burial arrangement is a resource. Id.^[7]

Using regular resource rules, the burial arrangement here could be characterized as a life insurance funded burial contract in that Mary prepaid the provider of burial services (Wright Funeral Home or another designated funeral home) by irrevocably assigning the life insurance policy on Kevin's life. See Memorandum from Regional Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Minnesota-Review of Minnesota Life Insurance Contract from CNA and American Memorial Life Insurance Companies, at 3-5 (March 21, 2000); Memorandum from Regional Chief Counsel, Chicago, to Ass't Reg. Comm. - MOS, Chicago, SSI-Minnesota-Request for Review of OGC Opinion on Life Insurance Funded Burial Agreements, at 5-6 (December 15, 1999); see also POMS SI 01330.425(C)(2)(b). So characterized, the burial arrangement would not be a resource as to Mary (and thus to Kevin until his 18th birthday), assuming the policy permits such assignments (and we assume that most policies would). Id.^[8] Also, since the right to have Kevin's funeral paid for when he dies (assuming he has a funeral) would have no discernable market value, Kevin's interest in the life insurance funded burial contract would not be a resource to him. Cf. SI 01130.420 (B)(2) (“If a burial contract cannot be . . . sold without significant hardship, it is not a resource.”).

Using regular resource rules, the burial arrangement here could also be characterized (under state law) as a trust created by Mary (the settlor) since Mary assigned the life insurance policy to the Wright Funeral Home only insofar as the funeral home (acting as an intermediary) would then transfer the policy to the Forethought Trust where it would be held for the benefit of the Wright Funeral Home, or some other funeral home. See Restatement (Second) Trusts §24, cmt. b (“A trust may be created although the settlor does not use the word 'trust.”) (1959).

However, even characterized as a trust, the burial arrangement would not be a resource to either Mary or Kevin. As to either individual, the trust would be a resource only if the “individual (claimant, recipient, or deemor) has legal authority to revoke the trust and then use the funds to meet his [or her] food, clothing or shelter needs, or if the individual can direct the use of the trust principal for his/her support and maintenance under the terms of the trust . . . .” SI 01120.200(D)(1)(a). The trust would also be a resource to a trust beneficiary to the extent that the beneficiary's beneficial interest has some discernable market value. Here, the trust would not be revocable, even if Mary (settlor) and Kevin (beneficiary) were to consent to its revocation, since the Wright Funeral Home is also a beneficiary of the trust^[9] and would presumably not consent to a revocation. In Re Boright, 377 N.W.2d 9 (Minn. 1985) (“we decline to depart from the accepted rule that unless all of the beneficiaries consent, the beneficiaries cannot compel termination of the trust except in accordance with its terms.”). There is also no indication that either Mary or Kevin could direct the use of trust principal for his/her support or maintenance, since the sole purpose of the trust is to fund Kevin's funeral, if he has one. Finally, Mary has no beneficial interest in the trust, and, as discussed above, Kevin's interest would have no discernable market value. Accordingly, the burial arrangement, considered as trust, would not be a resource to either Mary (and thus to Kevin before his 18th birthday) or to Kevin.

CONCLUSION

For these reasons, we conclude that neither the life insurance policy nor the life insurance funded burial trust is a resource to either Mary or Kevin J~.

Leslie B~

Regional Chief Counsel

By: __________________________

Todd A. D~

Assistant Regional Counsel

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.

FACTS

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.”

DISCUSSION

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.

CONCLUSION

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.

Sincerely,

Thomas W. C~

Regional Chief Counsel

By:_______________________

Nancy L. B~

Assistant Regional Counsel