PS 01815.026 Minnesota

A. PS 03-173 SSI-Minnesota-Review of the Life Insurance Funded Burial Trust for Kevin J~

DATE: August 19, 2003

1. SYLLABUS

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.

2. OPINION

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 received1 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).2 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.3

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.4Also, 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 trust5 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

B. PS 02-135 Review of a Resource Needed for SSI Claimant's Physical Condition Alicia W~, SSN ~

DATE: September 16, 2002

1. SYLLABUS

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.

2. OPINION

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


Footnotes:

[1]

The materials supplied to us included only the application and an August 2001 letter from the insurance company confirming purchase of the policy.

[2]

Attached to the document is a Statement of Funeral Goods and Services Selected, which was signed by a representative of the Wright Funeral Home. The total value of the merchandise and services selected is $6,351.

[3]

If the provisions of 42 U.S.C. § 1382b(e) were applicable, the burial arrangement here might be considered a trust resource to Kevin since, under the deeming rules noted above, Mary's assets are deemed to be Kevin's assets, and thus, arguably, the trust was funded with Kevin's assets. Kevin also received a benefit from the trust in that, upon his death, trust assets would be used to pay for his funeral expenses. Exclusion Memo at 4 n.1. Accordingly, if 42 U.S.C. § 1382b(e) were applicable, the corpus of the trust might be considered a resource to Kevin. Id. (referring to 42 U.S.C. § 1382b(e)(3)(B)).

[4]

The burial arrangement-whether considered as a life insurance funded burial contract or, as discussed below, as a trust-clearly resulted in a transfer for less than fair market value as to Mary (who does not benefit at all under the arrangement), but would not result in a period of ineligibility under 42 U.S.C. § 1382b(c) because that section does not apply to transfers made by a deemor (here Mary) unless the deemor is a coowner of the resource or is an ineligible spouse. SI 01150.110(E). The POMS explains that “[f]or example, the provision does not apply to a resource transfer made by a parent who is a deemor (unless the eligible child and parent are co-owners of the resource).”

[5]

The Wright Funeral Home has a beneficial interest in the trust notwithstanding the possibility that this interest might be divested in favor of another funeral home. Restatement (Second) Trusts §129, cmt. e ("The interest of the beneficiary may be subject to being divested upon the happening of a condition subsequent.") (1959).


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PS 01815.026 - Minnesota - 07/24/2008
Batch run: 01/27/2009
Rev:07/24/2008