TN 53 (10-16)
PS 01825.012 Georgia
A. PS 16-184 State Law for Empty and Dry Trusts in Atlanta Region
Date: April 25, 2016
This Regional Chief Counsel opinion provides the State law related to trusts established with no funds (i.e., dry or empty trusts), for the States in Region IV to assist field offices in addressing questions regarding how such purported trusts should be considered under the Social Security Administration’s (agency) Supplemental Security Income (SSI) resource rules.
You asked us to provide the State law related to trusts established with no funds (i.e., dry or empty trusts), for the States in Region IV to assist field offices in addressing questions regarding how such purported trusts should be considered under the Social Security Administration’s (agency) Supplemental Security Income (SSI) resource rules.
SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Social Security Act (Act) §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2015). * “Resources” include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to use for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a). “If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual . . . .” 20 C.F.R. § 416.1201(a)(1); see Program Operations Manual System (POMS) SI 01120.010.B. Even if property has no current market value, it may still be considered a resource if it is property that an individual owns and has the right to convert to cash, and the individual is not legally restricted from using the property for his or her support and maintenance. See POMS SI 01110.100.B.2, B.3.
Property held in a trust may or may not be considered a resource for SSI purposes. See POMS SI 01120.200.A.1. Generally, the agency must consider the principal or corpus of a trust established with the assets of an individual to be a resource of the individual. See Act § 1613(e)(1)-(3); POMS SI 01120.201.A.1. Trust principal is a countable resource if the individual (claimant, recipient, deemer) has legal authority to revoke or terminate the trust and use the funds to meet his or her food or shelter needs, or if the individual can direct the use of the trust principal for his or her support and maintenance under the terms of the trust. See POMS SI 01120.200.D.1.a. Also, if an individual can sell his or her beneficial interest in the trust, that interest is a resource. See POMS SI 01120.200.D.1.a. Conversely, if an individual does not have legal authority to revoke or terminate the trust or to direct the use of the trust assets for his own her own support and maintenance, the trust principal is not a resource for SSI purposes. See POMS SI 01120.200.D.2. The revocability of a trust and the ability to direct the use of trust principal depends on the terms in the trust agreement and on State law. See POMS SI 01120.200.D.2.
Alabama statutory law indicates a trust may be established through the conveyance of property but does not otherwise explain the property requirements to establish a trust. See Ala. Code § 19-3B-401, comment (2016). Alabama case law, however, has clarified that the existence of property held by a trustee for the benefit of a trust as an essential element of a trust. See Corretti v. First Nat’l Bank of Birmingham, 276 So. 2d 141, 147 (Ala. 1973); Gordon v. Central Park Little Boys League, 119 So. 2d 23, 27 (Ala. 1960). Thus, Alabama law does not appear to recognize a trust that is established with no funds.
Florida statutory law indicates a trust may be created when property or a property interest is transferred to a trustee, but does not further explain the property requirements to establish a trust. See Fla. Stat. Ann. § 736.0401 (West 2016). Florida case law, however, indicates an express trust is not created until property is conveyed for the purpose of the trust. See McLemore v. McLemore, 675 So. 2d 202, 205 (Fla. Dist. Ct. App. 1996); In re Herskowitz’s Estate, 338 So. 2d 210, 212 (Fla. Dist. Ct. App. 1976). Thus, Florida law does not appear to recognize a trust that is established with no funds.
Georgia statutory law requires express trusts to include trust property. See Ga. Code Ann. § 53-12-20 (West 2016). Georgia case law also holds that an essential element of an express trust is the existence of trust property. See Hayes v. Clark, 530 S.E.2d 38, 39 (Ga. Ct. App. 2000); Lummus Supply Co. v. Fidelity Fed. Sav. & Loan Ass’n, 234 S.E.2d 671, 672 (Ga. Ct. App. 1977). Thus, Georgia law does not appear to recognize a trust that is established with no funds.
Kentucky statutory law indicates a trust may be created through the transfer of property to a trustee or by a declaration that an owner of property has made that the owner holds identifiable property as trustee, but does not further explain the property requirements to establish a trust. See Ky. Rev. Stat. Ann. § 386B.4-010 (West 2016). Kentucky case law clarifies that a fundamental element of a trust is the devotion of trust property to the benefit of the trust beneficiaries. See Siter v. Hall, 294 S.W. 767, 770 (Ky. Ct. App. 1927). Such property must be in existence and identified to establish the trust. See DeLeuil’s Ex’rs v. DeLeuil, 74 S.W.2d 474, 477 (Ky. Ct. App. 1934). Thus, Kentucky law does not appear to recognize a trust that is established with no funds.
Under the Family Trust Preservation Act of 1998, Mississippi statutory law defines trusts to mean an express trust, private or charitable, or a trust created or determined by a judgment or decree under which the trust is to be administered in the manner of an express trust. See Miss. Code Ann. § 91-9-501(a) (West 2016). Mississippi excludes from this definition of a trust the following: constructive trusts, other than those created by a judgment or decree under which the trust is to be administered in the manner of an express trust, and resulting trusts; guardianships and conservatorships; executors and administrators of decedent's estates; totten trust accounts; custodial arrangements pursuant to the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act of any state; business trusts that are taxed as partnerships or corporations; investment trusts subject to regulation under the laws of this state or any other jurisdiction; common trust funds; voting trusts; security arrangements; transfers in trust for purpose of suit or enforcement of a claim of right; liquidation trusts; or any arrangement under which a person is nominee or escrowee for another. See Miss. Code Ann. § 91-9-501(b). Missisippi statutory law does not appear to contain any additional definition of a trust or further explanation regarding any property requirements to establish a trust.
Mississippi case law also does not appear to address whether there are property requirements to establish a trust. Cases that describe the essentials of an express trust do not address this question. See, e.g., Smiley v. Yllander, 105 So. 3d 1171, 1175 (Miss. Ct. App. 2012) (identifying two types of trusts, express and implied, and noting express trusts or any trust holding real property must be written, while implied may either be constructive or resulting, without addressing whether property is a prerequisite to establishing any type of trust); Sligh v. First Nat’l Bank of Holmes Cty., 735 So. 2d 963, 974 (Miss. 1999) (describing a trustee’s duties and noting guarantorships and conservatorships are not trusts); Ogle v. Durley, 77 So. 2d 688, 691-92 (Miss. 1955) (explaining that real property that was devised to a survivor in a will with condition of splitting the income of said property with another survivor did not create trust, but instead created an equitable charge). Thus, we found no Mississippi statute or case law authorizing the establishment of a trust with no funds.
North Carolina statutory law indicates a trust may be established when property is transferred to or held by a trustee, but does not further describe the property requirements to establish a trust. See N.C. Gen Stat. Ann. § 36C-4-401 (West 2016). North Carolina case law, however, requires the conveyance of property in order for a trust to be created. See Bissette v. Harrod, 738 S.E.2d 792, 799 (N.C. Ct. App. 2013). Thus, North Carolina law does not appear to recognize a trust that is established with no funds.
South Carolina statutory law indicates a trust may be established when property is transferred to a trustee or through a written, signed declaration from an owner of property that the owner is holding the property as a trustee, but does not further explain the property requirements to establish a trust. See S.C. Code Ann. § 62-7-401 (2016). South Carolina case law, however, indicates that a trust generally can exist only if it is funded. See Foster v. Foster, 682 S.E.2d 312, 314 (S.C. Ct. App. 2009) (listing trust res as a necessary element to establish a trust); Mayer v. M.S. Bailey & Son, 555 S.E.2d 406, 410 (S.C. Ct. App. 2001) (noting a trust generally can exist only if it is funded). Thus, South Carolina law does not appear to recognize a trust that is established with no funds.
Tennessee’s Uniform Trust Code includes a provision identifying the requirements for creating a trust particularly with respect to identifying a settlor with the requisite capacity and intention, a trustee with duties to perform, and a definite beneficiary. See Tenn. Code Ann. § 35-15-402 (West 2016). However, neither this provision nor other provisions of Tennessee statutory law appear to discuss whether the trust must contain property. Under Tennessee case law, however, for an express trust to exist, the trust must contain a corpus, or property. See Myers v. Myers, 891 S.W.2d 216, 218 (Tenn. Ct. App. 1994). Thus, Tennessee law does not appear to recognize a trust that is established with no funds.
If you have any questions regarding this memorandum, please contact the undersigned at (404) 562-1094.
Mary Ann Sloan
Regional Chief Counsel
Assistant Regional Counsel
B. PS 08-109 Requirements for an irrevocable Special Needs Trust according to Georgia Law
DATE: May 9, 2008
This opinion examines whether or not the trust in question (established in 1996) is considered irrevocable under Georgia law. A trust is a countable resource for SSI purposes if an individual has legal authority to revoke the trust and then use the funds to meet his/her food or shelter needs, or if the individual can direct the use of the trust principal for his/her support and maintenance. The revocability of a trust and the ability to use the trust principal is determined by the terms of the trust and/or State law. In this case, the trust identifies the claimant's "heirs" as the residual beneficiary. Under Georgia law, a trust must specify a particular person or entity as the residual beneficiary. The reference to "heirs" in this trust is too indefinite to create a residual interest under Georgia law thus making the trust revocable and a countable resource for SSI purposes.
You asked whether a the "Jaime M. N~ Irrevocable Trust" (the N~ Trust) established under Georgia law is irrevocable when it only designates that, upon the death of Jaime M. N~ (Claimant), the residual funds in the trust pass to the State of Georgia and then to "the heirs of" Claimant. You also asked whether Program Operations Manual System (POMS) SI ATL 01120.201 correctly interprets Georgia law regarding when a trust should be considered revocable.
Although the trust meets requirements under the Agency's special needs trust exception, it is countable as a resource available to Claimant under ordinary resource rules, because it is not irrevocable under Georgia law. As stated in POMS SI ATL 01120.201, a trust in Georgia is considered revocable when the trust states that the residual of the trust will go "to my estate" or "to my heirs."
Claimant is child of Geoffrey and Diane N~ (Claimant's parents). On September 21, 1991, when Claimant was five years old, she experienced an anoxic brain injury, which left her with extensive brain damage, primarily on the left side of her brain. On August 15, 1996, when Claimant was about ten years old, Claimant's parents established a trust for Claimant. The trust corpus was comprised of an initial $10.00 and settlement funds that were payable to Claimant because of a lawsuit her parents filed on her behalf against an ambulance company. The N~ Trust, Art. 2, §§ 1, 2. The provisions state that its intended purpose is "to be in full compliance with . . . the provisions and requirements contained in 42 U.S.C. Section 1396p or related Statutes . . . ." Id., Art. 3, § 1. The trust provisions further indicates that the trustee "shall pay to . . . [Claimant] in monthly or other convenient installments, that amount of net income that will not cause [Claimant] to be ineligible for governmental financial assistance" in the event that she receives such assistance. Id., Art. 4, § 1.1 (emphasis supplied). The trust provisions also state that the trustee "may distribute discretionary amounts of principal for [Claimant's] special needs" that are not otherwise provided by governmental financial assistance and benefit providers. Id., Art. 3, § 1.2 (emphasis supplied). Finally, the trust provisions state that, upon Claimant's death, the Trustee shall distribute "the balance of the trust property to the Department of Human Services, or its successor agency, as reimbursement to the Medical Assistance Program of the State of Georgia, for benefits provided by them to the Beneficiary during the Beneficiary's lifetime." Id., Art. 4, § 1.3. If any assets remain after reimbursing the State of Georgia for medical assistance, "the remainder, after reasonable expenses and costs for maintaining the trust, shall be distributed to the estate of [Claimant]." Id. The same distribution plan to the State and then to Claimant's "estate" would occur if the trust were to terminate; and if there are no other persons to receive such property, the trust balance would be distributed under the law of Georgia to Claimant's heirs as if she died intestate. Id., Art. 5.
Claimant applied for SSI on August 9, 2004, and the Agency subsequently approved her application. After a "limited issue" redetermination, the Agency found that Claimant's trust was revocable due to the general language designating beneficiaries. According to POMS SI ATL 01120.201, the residual beneficiary language in Claimant's trust was too non-specific to render the trust, funded mostly with Claimant's assets, irrevocable under Georgia law. Thus, Claimant was no longer eligible for SSI due to the value of her trust, which, per the Agency's interpretation, was a countable resource. Claimant disagrees with the redetermination finding and contends that her trust is irrevocable.
Under the Social Security Act (Act), aged, blind, or disabled individuals who meet certain income and resource limitations are eligible for SSI. See Act § 1611(a) (42 U.S.C. § 1382(a)). "Income" is defined as funds that are earned as wages or other employment-type compensation or as unearned income from a variety of sources, which can be used to meet a claimant's food and shelter needs. See Act at § 1612(a)(1)-(2) (42 U.S.C. § 1382a(a)(1)-(2)); accord 20 C.F.R. § 416.1102 (2007). Resources are cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to be used for his or her support and maintenance. See 20 C.F.R. § 416.1201(a) (2007).
The Act did not contain a specific SSI resource provisions for trusts created prior to December 30, 1999; however, the Act contained other provisions for Medicaid trusts. The Omnibus Budget Reconciliation Act of 1993 (OBRA) amended § 1917 of the Act to incorporate new provisions for the treatment of trusts established on or after August 11, 1993. See OBRA, Pub. L. 103-66, 107 Stat 312, § 13611 (Aug. 10, 1993). Of relevance here, a trust could be established for the purpose of an individual's Medicaid eligibility, if: (1) the trust is composed only of pension, Social Security, and other income to the individual, including accumulated income in the trust; (2) upon the death of the individual, funds remaining in the trust are paid to the State in an amount equal to the total medical assistance paid on behalf of the individual; and (3) the state makes Medicaid available to individuals with incomes at or below a special income level, but does not make Medicaid available to medically needy individuals for nursing facility services. Act at § 1917(d)(4)(B) (42 U.S.C. § 1396p(d)(4)(B)); accord POMS § SI 0730.048 Medicaid Trusts.
For trusts created with an individual's assets before January 1, 2000, the principal is countable as a resource for SSI purposes "if an individual (claimant, recipient, or deemor) has legal authority to revoke the trust and then use the funds to meet his food or shelter needs, or if the individual can direct the use to the trust principal for his/her support and maintenance . . ." or if the trust provides for mandatory disbursements to the beneficiary that the beneficiary could assign. See POMS SI 01120.200D. However, if the individual does not have the legal authority to revoke the trust or direct the use of the trust assets for his or her own support and maintenance, then the trust principal is not the individual's resource for SSI purposes. See id. The revocability of a trust and the ability to use the trust principal is determined by the terms of the trust and/or State law. See POMS SI 01120.200D.2.
Our analysis applies through September 11, 2007 only. On September 12, 2007, Claimant's representative amended her trust to read that upon her death, after Medicaid reimbursement, taxes, etc, the remaining funds would be distributed to the Claimant's spouse and descendents, per stirpes, and, if none, to Claimant's parents in equal shares, per stirpes.
Georgia law controls in this case because this trust was established in Fulton County, Georgia. See The N~ Trust, p. 10-8. Georgia law defines a trust as an equitable obligation, either express or implied, resting upon a person by reason of a confidence reposed in him or her, to apply or deal with property for the benefit of some other person, or for the benefit of himself or herself and another or others, according to such confidence. See Peach Consolidated Properties, L.L.C. v. Carter, 628 S.E.2d 680 (2006) (citing Smith v. Francis, 144 S.E.2d 439 (1965)). In Georgia, an express trust, as is present here, requires the following:
(a) An express trust shall be created or declared in writing;
(b) An express trust shall have each of the following elements, ascertainable with reasonable certainty;
(1) An intention by a settlor to create a trust;
(2) Trust property;
(3) A beneficiary;
(4) A trustee; and
(5) Active duties imposed on the trustee, which duties may be specified in the writing or implied by law.
CODE OF GA. ANN., § 53-12-20 (1991). Also, Georgia law states that a settlor is not empowered to modify or revoke trust without reservation of such power -- specifically, that "a settlor shall have no power to modify or revoke a trust in the absence of an express reservation of such power. A power to revoke will be deemed to include a power to modify and an unrestricted power to modify will be deemed to include a power to revoke. Any revocation or modification of an express trust must be in writing." CODE OF GA. ANN., § 53-12-150 (1991).
Despite these general provisions within the Georgia Code, however, longstanding caselaw has held a settler, who is the sole beneficiary of a trust, has the right to termination the trust despite language in the trust instrument that states the trust is irrevocable. See Moore v. First Nat'l Bank & Trust Co. of Macon, 130 S.E. 2d 718, 721-22 (Ga. 1963). This holding was reiterated in a later Georgia case. See Woodruff v. Trust Co. of Ga., 210 S.E. 2d 321, 324 (Ga. 1974). In 1996, several years after the current Georgia trust law had been in effect, the court again cited with favor the holding from Moore, but distinguished that holding on the basis that the settler in that case was another party, the beneficiary's father. See Ivey v. Ivey, 465 S.E. 2d 434, 438 (Ga. 1996). Thus, even after the 1991 law went into effect, the concept from Moore persists that a settler/sole-beneficiary trust is revocable.
Regional POMS state that, in Georgia, the language of a trust must specify a particular person or entity as the residual beneficiary. See POMS SI ATL 01120.201. A trust provision that states that after death of the individual the trust will go to a specifically named person or entity or states that the trust is to go "to my children, or issue, or descendants" is specific enough to identify a person and the trust is irrevocable. See id. On the other hand, trust language that says that after the individual's death, the trust will go "to my estate" or "to the heirs" of the primary beneficiary (or some other non-specific general term) is too indefinite to create an interest in someone who could prevent revocation. See id. Given the review of the above caselaw, this POMS remains unchanged with regard to Georgia.
Here, while the Claimant's trust intended to create an irrevocable trust per the specific language of the trust instrument, this trust is revocable under the laws of Georgia as established in Moore. Thus, even though the trust indicates that Claimant, as the true grantor, shall have no power to control and direct payment, remove trust property, or alter, amend, revoke, or terminate this trust, see The N~ Trust, Art. 1, § 3, Claimant as the grantor and sole beneficiary of the trust had unrestricted ability to revoke the trust and use the funds for her support. Her actions of amending and reforming this trust to include appropriate residual beneficiaries as of September 12, 2007, provides further evidence that this trust was not irrevocable.
Finally, even though this trust provides that, either at Claimant's death or at the termination of the trust, the trustee shall first reimburse the State of Georgia for medical assistance Claimant received for medical care, before distributing any remaining trust amounts Claimant's estate or heirs," see The N~ Trust, Art. 4, Art. 5, those provision do not create any remainder interest for the state. Instead, these provisions creates a "creditor" interest in the state. See Carden v. Astrue, 2008 WL 867942, *4 (S.D. W.Va. 2008) (finding that West Virginia had not indicated that the state was a beneficiary). The state's interest is only payable if there are funds left in the trust when Claimant dies, after administrative costs are paid. If nothing is left, nothing is owed the state(s). As in Carden, no Georgia statute or caselaw indicates that the state should be a residual beneficiary rather than a creditor.
For the reasons stated above, this trust is countable as a resource available to Claimant under ordinary resource rules because it is not irrevocable under Georgia law. Also, the guidance stated in POMS SI ATL 01120.201 remains in force with regard to Georgia trusts.
Mary A. S~
Regional Chief Counsel
Jerome M. A~
Assistant Regional Counsel
. * All references to Code of Federal Regulations are to the 2015 edition.