TN 69 (01-17)
PS 01825.002 Alaska
A. PS 17-025 Does the M~ Irrevocable Asset Trust Meet the Special Needs Trust Requirements for Resource Exclusion Purposes?
Date: December 6, 2016
The Regional Chief Counsel (RCC) opinion examines whether Sections 4.02(d), 4.03(c), and 4.03(e) of the M~ Irrevocable Asset Trust (the Trust) meet the special needs trust requirements so that the Trust may be excluded from resources for Supplemental Security Income (SSI) eligibility. It was concluded that the provisions at issue allow Trust resource allocation in a manner that does not comply with statute. Accordingly, a trust with this language does not satisfy the special needs trust requirements.
Whether Sections 4.02(d), 4.03(c), and 4.03(e) of the M~ Irrevocable Asset Trust (the Trust) meet the special needs trust requirements so that the Trust may be excluded from resources for Supplemental Security Income (SSI) eligibility?
No. The Trust provisions violate the “sole benefit” and Medicaid payback requirements.
SUMMARY OF FACTS
Alaska’s Office of Public Advocacy established the Trust for the benefit of M~, a disabled resident of Alaska under the age of 65. It is our understanding that M~ has died; however, CDPS has several trusts with identical language. Therefore, you asked us to analyze these potentially problematic trust provisions. Accordingly, this legal opinion addresses issues with these specific sections and not the validity of the Trust as a whole.
Special needs trusts can be excluded as resources for SSI eligibility only if they meet several conditions. See 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203(B)(1). Among these conditions is a requirement that the trust be established for the “sole benefit” of the disabled individual; a second condition is that, upon the death of the individual, all funds remaining in the trust must first be used to reimburse the State for all Medicaid payments “up to an amount equal to the total medical assistance paid.” 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203(B)(1). Termination of a special needs trust before the beneficiary’s death is allowed only when, among other criteria: at the time of termination, the State is reimbursed for the medical assistance costs under the State Medicaid plan(s), and any remaining funds are distributed to the trust beneficiary. POMS SI 01120.199(F)(1).
The Trust provisions violate the “sole benefit” and Medicaid payback requirements.
You asked us to analyze three clauses in the Trust: Sections 4.02(d), 4.03(c) and 4.03(e).
Sections 4.02(d) and 4.03(c)
Section 4.02(d) allows Trust termination and distribution pursuant to court order: “In the event this Trust is terminated by a court of law, the undistributed balance at the date of termination shall be distributed, free of Trust, in accordance with orders of the court.” Section 4.02(d).
Section 4.03(c) specifies that the Trustee will distribute assets pursuant to the court’s instructions, and in the absence of such instructions, it will give priority to the State’s Medicaid program:
Should this Trust be terminated by decree of an Alaska or other court, the Trustee shall distribute the residue in accordance with the court’s instructions; and in the absence of explicit court order to the contrary, the Trustee shall distribute the residue of the Trust as follows (subject to the exception in paragraph (e) below): to the extent Alaska’s Medicaid program (or the Medicaid program of another state) has expended funds on Beneficiary’s behalf, the Trustee is directed to reimburse the Alaska Medicaid (or other state) program for such expenditures in proportion to Medicaid benefits paid by each state. The Trustee is directed to deliver any then-existing residue as ordered by the court.
Sections 4.02(d) and 4.03(c) violate the “sole benefit” requirement because both allow the court discretion in distributing the trust residue. Qualifying special needs trusts must be established for the sole benefit of the disabled individual, and not any other individuals or entities. 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203(B)(1)(e). By allowing the Trustee to distribute the balance of the Trust pursuant to court order, Sections 4.02(d) and 4.03(c) could allow distribution to a third party during the beneficiary’s life. Therefore, these provisions violate the special needs trust requirements.
Furthermore, sections 4.02(d) and 4.03(c) violate the Medicaid payback requirement by allowing the Trust to be distributed early pursuant to court order without specifying that the State must receive all Trust assets up to the total amount of medical assistance paid. See POMS SI 01120.203(B)(1)(h); cf. 42 U.S.C. § 1396p(d)(4)(A). In fact, Section 4.03(c) envisions a court-ordered distribution scheme, and it requires payment to the State “in the absence of explicit court order to the contrary.” Section 4.03(c). Sections 4.02(d) and 4.03(c) are thus too broad, allowing deviation from the Medicaid payback requirement.
Section 4.03(e) allows “advance payment” of the assets
At the request of, or with the consent of, Alaska’s (or other state’s) Division of Public or Medical Assistance, or its successor, the Trustee may make advance payments to the State of Alaska (or another state) on the obligation under paragraph 4.03(c) above to use any remaining post-termination Trust monies to reimburse it for Medicaid expenditures made for the Beneficiary during this Trust’s existence. The Trustee may do this by disbursing the accumulated income in the Trust to Alaska’s (or other state’s) Division of Public or Medical Assistance at such times and in such amounts as the Trustee, in the Trustee’s sole discretion deems advisable. Such disbursements are to be credited against the trust’s post-termination payment obligation under paragraph 4.03(c) above. At the request of, or with the consent of, Alaska’s (or other state’s) Division of Public or Medical Assistance, the Trustee may make such advance payments in the form of disbursements directly to Beneficiary’s medical providers to reduce the Medicaid expenditures Alaska’s (or other state’s) Division of Public or Medical Assistance pays for the Beneficiary, but only after receiving adequate assurances from the appropriate public or Medical Assistance staff that such disbursements will not affect the Beneficiary’s Medicaid eligibility for the remaining expenses.
The purpose and wording of Section 4.03(e) is not entirely clear. Regardless, this section violates the special needs trust requirements for multiple reasons. As discussed above, Section 4.03(c) violates the sole-benefit and Medicaid-payback rules. Therefore, as an initial matter, if paragraph 4.03(c) were removed from the Trust, then paragraph 4.03(e), which pertains to the obligation under paragraph 4.03(c), would also have to be removed.
Furthermore, Section 4.03(e) appears to authorize the Trustee to satisfy the Medicaid repayment obligation that attaches upon termination by making “advance payments” prior to termination. Such payments are inconsistent with the sole-benefit rule. If the payments are “to reduce the Medicaid expenditures . . . pa[id] for the Beneficiary,” as the paragraph indicates, then the payments might not work to the benefit of the beneficiary. Instead, it would be preferable for the beneficiary if Medicaid covered the expenses and the Trust funds remained available for the beneficiary’s use prior to termination.
Finally, we consulted with the Office of Program Law, who contacted policy components, regarding Section 403(e)’s allowance of “advance payments.” In their opinion, these payments may violate the Medicaid payback requirement. The obligation to repay any State cannot be determined until the Trust beneficiary dies or the Trust is terminated early prior to death. Advance payment of tentative repayment obligations does not consider that other States may be entitled to repayment in the future based on providing Medicaid services. Therefore, the advance payments made to State A may not be proportional to the obligation to pay State B. Hypothetically, State A could be repaid completely while there may be no money remaining to repay State B. The fact that the sole discretion as to amounts of payments and to whom rests with the Trustee is also contrary to the preference for proportional reimbursement.
Based on these issues, Section 403(e) also violates the sole-benefit and Medicaid-payback requirements.
The provisions at issue allow Trust resource allocation in a manner that does not comply with statute. Accordingly, a trust with this language does not satisfy the special needs trust requirements.
B. PS 00-341 Trust Document re: Tim L~
DATE: September 27, 2000
The grantor trust rule provides that a trust is revocable if the grantor of the trust is the sole beneficiary. In this case, the SSI recipient is both the grantor and the beneficiary. Therefore, the trust is revocable.
However, since the trust consists of dividends from stock in a Native Corporation, the Alaska Native Settlement Claims Act (ANSCA) applies and up to $2,000 per year from the Native Corporation is excluded from resources. (See POMS instructions at SI 00830.830 and Seattle regional instructions at SI SEA00830.830 regarding ANCSA.)
You have requested a legal opinion regarding the "Tim L~ Irrevocable Trust" (hereafter "Trust") to determine whether this trust document is revocable. You have specifically asked whether the beneficiary of the trust would be considered the grantor.
The Trust names Goldbelt, Inc., a Native Village Corporation established pursuant to the Alaska Native Claims Settlement Act (ANCSA), Pub. L. 92-203, codified at 43 U.S.C. § 1601 et seq., as the settlor of the Trust. Goldbelt, Inc. established the Trust on July 19, 1994 with dividends otherwise payable to the beneficiary of the Trust, Tim L~. Article II of the Trust names the State of Alaska's Office of Public Advocacy, Tim L~'s court-appointed full guardian, as the trustee. Trust, at p.1.
Article III of the Trust provides that "[t]he corpus of this Irrevocable Trust consists of monies which would otherwise be paid by Goldbelt, Inc. as dividends to Tim L~ by virtue of his ownership, pursuant to federal and state law, of 100 shares of stock in Goldbelt, Inc." Trust, at pp. 1-2. Section 4.01(a) of Article IV of the Trust provides that the trustee may not make any payments for L~'s ongoing support and maintenance and that L~ may not specify, control or direct any payments. Trust, at p. 2. Section 4.02(b) of Article IV of the Trust provides that "[n]o part of the Trust corpus created herein shall be used to supplant or replace public assistance benefits, if any, in the form of cash, services, or otherwise, available from any state, federal, or other governmental agency." Trust, at p. 4.
Section 4.03(a) of Article IV of the Trust provides that the Trust will terminate upon the earliest of the following events: distribution of all of the corpus, L~'s death, or entry of a judgment terminating the Trust after petition of the trustee because the Trust has rendered L~ ineligible for a public benefit. Trust, at p. 6. Section 4.03(d) governs termination of the trust due to L~'s death. In that situation, the trustee is directed to pay expenses for the efficient administration and termination of the Trust and then to pay Alaska's Division of Medical Assistance to reimburse it for Medicaid benefits paid on L~'s behalf during the Trust's existence. The Trust then directs that if there is any balance remaining in the Trust, the trustee is to pay it in accordance with L~'s last will and testament or in accordance with the laws of intestate succession if they apply. Trust, at pp. 6-7.
Your question is whether the beneficiary of the Trust, Tim L~, is also the grantor, thereby making the Trust revocable.
The Social Security Administration considers property an available resource if an individual has the right, authority or power to liquidate it. 20 C.F.R. §416.1201(a)(1) (1997). See also POMS SI 01120.200(D)(1).
The general rule is that a trust is established by the person who provides the consideration for the trust for which he is beneficiary even though in form, the trust is created by someone else. Restatement (Second) of Trusts, § 156, comment f (1959). Alaska follows the Restatement (Second) of Trusts. See e.g., Aiello v. Clark, 680 P.2d 1162 (Alaska 1984). Because the trust has been established by money which represents dividends on shares of stock owned by Mr. L~, it can be said that L~ provided the consideration for the trust.
The grantor trust rule provides that a grantor may revoke a trust if he is the sole beneficiary even if the trust is labeled "irrevocable." Am.Jur.2d Trusts, § 96. See Hal v. Malstrom, 29 Wn.2d 746, 189 P.2d 471 (1948). If the trust remainder vests immediately in a specifically named person, the trust is not revocable. See Lucas v. Velikanje, 2 Wash.App. 888, 471 P.2d 103 (1970). See also Restatement (Second) of Trusts, § 112 (1959). While we could not find any Alaska cases directly on point, an Alaska court would most likely follow the above rules as they are longstanding principles of trust law.
Under the grantor trust rule, the Trust would be revocable. However, because the trust corpus consists of dividends from stock in a Native Corporation, the Alaska Native Settlement Claims Act (ANSCA), 43 U.S.C. § 1601 et seq. applies.
ANSCA was enacted to provide a "fair and just settlement of all claims by Natives and Native groups of Alaska, based on aboriginal land claims..." 43 U.S.C. § 1601(a). It provides for the formation of Native Corporations which issue 100 shares of stock to each Native living in a Corporation's region. 43 U.S.C. § 1606(g).
43 U.S.C. § 1626(c) specifically addresses the interplay of ANCSA and the Social Security Act. The statute states in pertinent part:
In determining the eligibility of ...an individual Native ... to—-
...(2) receive aid, assistance, or benefits, based on need, under the Social Security Act [42 U.S.C. § 301 et seq.], ...
none of the following received from a Native Corporation, shall be considered or taken into account as an asset or resource:
(A) cash (including cash dividends on stock received from a Native Corporation) to the extent that it does not, in the aggregate, exceed $2,000 per individual per annum;
Given the direct applicability of the above federal statute, the first issue to analyze would be whether the Trust receives over $2,000 per year in dividend monies from the Native Corporation. Under the above statute, up to $2,000 per year cannot be counted as a resource. Under the grantor trust rules, any dividends received by the Trust above $2,000 per year could be counted. The Trust does not specifically name a remainder beneficiary. Regarding the issue of a specifically named remainder beneficiary, see also our previous opinion regarding the Jeannette B~ Living Trust, the Surrana G~ Trust, and the H~ Family Trust, dated October 21, 1996.
Under 43 U.S.C. § 1626(c), up to $2,000 per year of dividends on stock in a Native Corporation may not be counted as a resource for SSI eligibility purposes. L~ is the grantor of the trust because he has provided the consideration for the Trust. He owns stock in a Native Corporation by virtue of ANCSA. His shares of stock and the dividends received therefrom are analogous to settlement proceeds. He received the stock by virtue of his loss of claim to aboriginal lands. Because the Trust does not specifically name a remainder beneficiary, the grantor trust rule would apply to any annual dividends over $2,000.
. In addition to the issues discussed below, the section may also conflict with other sections of the Trust. Section 4.02(a) reads: “No part of the Trust corpus created herein shall be used to supplant or replace public assistance benefits, if any, in the form of cash, services, or otherwise, available from any state, federal, or other governmental agency.” Making payments from the Trust to cover medical expenses that would otherwise be covered by Medicaid might constitute using part of the Trust corpus “to supplant or replace” Medicaid benefits.