TN 162 (09-19)

PS 01825.017 Indiana

A. CPM 19-105 Whether the National Foundation for Special Needs Integrity Pooled Trust is a Resource for SSI Purposes

August 21, 2019

1. Syllabus

In this opinion, the Regional Chief Counsel (RCC) examines whether The National Foundation for Special Needs Integrity, Inc., (NFSNI) Pooled Trust for the State of Indiana (the Trust) complies with pooled trust policy. The RCC finds that the trust does not comply with pooled trust requirements. Specifically, it does not meet the statutory requirements regarding management of pooled trusts by non-profit entities.

2. Opinion

You asked whether The National Foundation for Special Needs Integrity, Inc., (NFSNI) Pooled Trust for the State of Indiana (the Trust) is in compliance with the procedures governing the agency’s pooled trust policy. For the reasons discussed below, we conclude that the NFSNI Trust does not comply with pooled trust policy because multiple Trust provisions are inconsistent with the statutory requirements regarding management of pooled trusts by non-profit entities. If these defects in the Trust were cured, however, the Trust would meet the pooled trust exception to counting trust funds as a resource under 42 U.S.C. § 1396p(e). The Trust sub-accounts also would not be considered resources under the regular resource rules.

BACKGROUND

The NFSNI, an Indiana non-profit organization, established and manages the Trust, serving as the Trustee. See Declaration of Trust (“Decl. of Trust”), Introduction & Recitals, p.1. NFSNI first established the Trust on January 16, 2008, and the Trust was amended and restated in 2009. Decl. of Trust, Introduction, p.1. While NFSNI is named as the Trustee, the definition of “Trustee” in the Declaration of Trust also includes “its successor(s) in interest and capacity” and “shall include one or more Co-Trustee(s), if such Co-Trustees in the future be named as may be necessary or advisable.” Decl. of Trust, Art. 5(B). There is no requirement that a Co-Trustee or a Successor Trustee be a non-profit organization.

As set forth in Article 11 of the Declaration of Trust, the Trustee, as defined above, “shall have all of the powers provided for by the applicable Trust Codes, Fiduciary Acts, Prudent Investor Acts . . . including, but not limited to: (1) the power to act as Trustee; (2) the power to invest or not to invest the Trust property; . . . [and] (7) the power to exercise sole and absolute discretion over the decision to make a disbursement or not to make a disbursement, as may be requested by the Grantor/Beneficiary.” Decl. of Trust, Art. 11. The Declaration of Trust makes clear that the Trustee exercises “sole and unqualified discretion” to “disburse trust income or principal on behalf of the Beneficiary as it deems necessary and as advisable.” Decl. of Trust, Art. 13, § 13.2. Along the same lines, the Trustee retains ultimate authority and discretion to invest the Trust property. Decl. of Trust, Art. 13, § 13.1.

The Trust consists of separate, individual sub-accounts that are established and managed for the sole benefit of the specified beneficiary, but the Trust assets are pooled for purposes of management and investment. Decl. of Trust, Art. 2; see also Joinder Agreement, Art. VI. The individual beneficiaries of the Trust are disabled persons, as defined in 42 U.S.C. § 1382c(a)(3). Decl. of Trust, Art. 5(D). According to the Declaration of Trust, the individual beneficiaries are the sole recipients of services and benefits of their Trust sub-accounts, which are created by a grantor. Decl. of Trust, Art. 2; Art. 5(C) & (D). A “Grantor” is defined as “the person, or that person’s guardian, parent, grandparent, or pursuant to court order, whose money will be funding the trust account solely for his or her benefit.” Decl. of Trust, Art. 5(C). The individual sub-accounts are established by executing a separate “Joinder Agreement” (the Joinder Agreement). Decl. of Trust, Art. 5(F) & Art. 8; see also Joinder Agreement.

The Trust and the individual sub-accounts are established “to supplement, not supplant,” any means-tested government assistance programs for which an individual beneficiary receives or is eligible. Decl. of Trust, Art. 6 & Art. 13, §§ 13.3 & 13.4. Further, the Declaration of Trust specifies that it will not be used for basic medical care, food, or shelter and that the Trustee is expressly prohibited from making any disbursements from the Trust that would jeopardize any government benefits or public assistance that an individual beneficiary receives or is eligible to receive. Id. The Declaration of Trust also provides that:

The costs and expenses incurred by the Trustee for extraordinary administrative expenses or for the legal defense of the Trust Pool shall be apportioned pro-rata to all Sub-Accounts. In the event of extraordinary administrative expenses or legal challenge to one specific Sub-Account, such costs and expenses shall be borne by the specific Sub-Account requiring such extraordinary administrative expenses or that is the target of the claim, litigation or challenge brought against it—unless such issue requiring extraordinary administrative expenses or such claim, litigation, or challenge potentially may materially affect the integrity or administration of other sub-accounts, in which case said costs shall be apportioned pro-rata between all sub-accounts that may be materially affected by said issue giving rise to extraordinary administrative expenses or said claim, litigation or challenge.

Decl. of Trust, Art. 10, § 10.4.

If the Trustee has reasonable cause to believe that the Trust or trust income or principal is or may become liable for basic maintenance, the Trustee may, in its sole discretion, transfer the assets in the beneficiary’s sub-account to a “qualified private or geographically appropriate and qualified not-for-profit pooled special needs trust.” Id.

Pursuant to the Declaration of Trust, the “Trust property is legally unavailable to the Beneficiary, and the Beneficiary has no legal right to compel any disbursement or distribution from the Trust for any reason whatsoever, or to otherwise control or direct the actions of the Trustee, said Trustee acting under its sole, absolute, and unqualified discretion” (emphasis in original).Decl. of Trust, Art. 9, § 9.2; see also Art. 13, § 13.2.

The Declaration of Trust also states that the Trust is irrevocable and that the Trust property “shall not be refundable under any circumstances whatsoever.” Decl. of Trust, Art. 7. The Declaration of Trust also contains a spendthrift provision, that provides that “[n]o portion of the Trust Corpus or trust Sub-Account of any Beneficiary, whether in principal or in income, shall be assigned, pledged, promised, transferred, bequeathed or sold in any manner by any Beneficiary.” Decl. of Trust, Art. 9, § 9.1.

If the Trust terminates due to the resignation or dissolution of NFSNI, the Trustee “shall designate a successor Trustee.” Decl. of Trust, Art. 16, § 16.3. The Declaration of Trust also establishes a specific termination date—January 1, 2095—to comply with the rule against perpetuities. Decl. of Trust, Art. 16, § 16.2. Upon its termination on the designated date in 2095, the Trustee “shall distribute all Trust Property to [NFSNI] or its successor(s) in name and/or interest shall create a new Declaration of Trust immediately following the termination . . . contributing to the new Trust all property distributed to [NFSNI] or its successor(s) in name and/or interest from the terminating Trust.” Id. Under this termination provision, the new Trust “shall have identical terms as this Declaration of Trust, with the same Grantor/Beneficiaries having benefits from the same Trust Sub-Accounts as the terminating Trust.” Id.

Upon termination of a Trust sub-account due to the death of a beneficiary, the Declaration of Trust provides that the Trust “shall not retain more than fifty percent (50%) of any assets remaining” in the sub-account. Decl. of Trust, Art. 14. To the extent that assets are not retained by the Trust, the “first payee” is any state which will be reimbursed for any amount that the state has paid “on behalf of the Beneficiary during the Beneficiary’s lifetime.” Id. This provision also specifies that if the beneficiary “has received Medicaid benefits in more than one state, each state that has provided benefits shall be repaid” and, if there are insufficient funds, each state will receive its proportionate share. Id. Furthermore, the state(s) “shall have priority of payment over any other debts and administrative expenses, except those listed in SSA P.O.M.S. SSI SI § 01120.203.B.3.a.” Id. Finally, if any assets remain in the sub-account after the above payments are made, “such balance shall be forwarded to the Secondary Remainder Beneficiary(ies) designated in the Beneficiary’s Joinder Agreement.” Id.; see also Joinder Agreement, Art. IV & V.

DISCUSSION

A. Statutory Resource Rules

Under the Social Security Act (“Act”), a trust created on or after January 1, 2000, from the assets of an individual generally will be considered a resource to the extent that the trust is revocable or, in the case of an irrevocable trust, to the extent that any payments could be made from the trust to or for the benefit of the individual. See 42 U.S.C. § 1382b(e); POMS SI 01120.201(D). However, if a trust meets the criteria of either an individual special needs trust under 42 U.S.C. § 1396p(d)(4)(A) or a pooled trust under § 1396p(d)(4)(C), the trust is excluded from this rule. See POMS SI 01120.203.

Here, even if the trust is irrevocable, the statutory resource rules would apply because the Trustee has discretion to use the income and the principal in the individual sub-accounts for the benefit of the beneficiary for whom the sub-account was established. Decl. of Trust, Art. 11, Art. 12, Art. 13. Thus, to the extent that sub-accounts are self-funded by the disabled individual, where the disabled individual’s assets were first added to the Trust on or after January 1, 2000, the assets would be resources under the statutory provisions, unless the pooled trust exception applies.

In order to qualify for the pooled trust exception, the Trust must contain the assets belonging to a disabled individual and satisfy the following conditions:

  1. 1. 

    The trust is established and managed by a non-profit association.

  2. 2. 

    The trust maintains a separate account for each beneficiary, but pools these accounts for purposes of investment and management of funds.

  3. 3. 

    Accounts in the trust are established solely for the benefit of the disabled individual.

  4. 4. 

    The account is established through the actions of the individual, parent, grandparent, legal guardian, or court.

  5. 5. 

    To the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust will pay to the state(s) from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State Medicaid plan.

See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203(D).

Here, the Trust does not appear to meet the first and third conditions of the pooled trust exception, but would meet the other criteria for the exception.

1. The Trust, as Amended, Does Not Satisfy the Requirements Regarding Management by a Non-Profit Organization Because a For-Profit Entity Could Be Named as Successor Trustee or as Coequal Co-Trustee.

The Trust was established by NFSNI, which is a non-profit organization. Decl. of Trust, Introduction, Recitals, and Art. 5(B). NFSNI also serves as the Trustee, or manager, of the Trust. Id. However, the Trustee has authority to appoint Co-Trustees or Successor Trustees, and there is no requirement that a Co-Trustee or Successor Trustee be a non-profit organization. Decl. of Trust, Art. 5(B) & Art. 11(6); see also Decl. of Trust, Art. 16, §§ 16.1 & 16.3. And it appears from the Declaration of Trust that any Co-Trustee exercises congruent powers to that of the Trustee, as the definition of “Trustee” includes any Co-Trustee(s).[1] See id. We are concerned that NFSNI could, under the terms of the trust, name a for-profit entity as Successor Trustee or Co-Trustee, which would violate the non-profit management requirement of the pooled trust exception.

The language in Article 16.1 is also problematic. It provides that the Trustee could transfer a beneficiary’s funds into “a qualified private or geographically appropriate and qualified not-for-profit pooled special needs trust” (emphasis added). Decl. of Trust, Art. 16, § 16.1. This language is ambiguous and could be read to allow for transfer of the beneficiary’s funds into a private special needs trust at the discretion of the Trustee. Since the Trust will need to be amended to qualify for the pooled trust exception, we recommend that the agency instruct the organization to clarify this provision, as well.

Along the same lines, the Declaration of Trust also provides for early termination of the Trust on a designated date—January 1, 2095—to avoid the rule against perpetuities. Decl. of Trust, Art. 16, § 16.2. This provision permits NFSNI to distribute all of the Trust property to NFSNI “or its successor(s),” and does not specify that the “successor(s)” must be a qualifying non-profit special needs pooled trust under § 1917(d)(4)(C). Id. The provision states that NFSNI or its Successor Trustee “shall create a new Declaration of Trust immediately” under “identical terms as this Declaration of Trust.” Id. However, the current Declaration of Trust does not properly limit Successor Trustees to qualifying non-profit managers. Therefore, the provisions regarding re-creating the trust in 2095 also potentially run afoul of the requirement that the Trust be managed by a non-profit organization and should be addressed.

We acknowledge that the Trust Declaration includes a provision stating that “[t]o the extent that any provision contained within this Declaration of Trust, or the Joinder Agreement that incorporates it by reference, is deemed by any governmental authority to invalidate, reduce or disqualify any Beneficiary from eligibility for governmental assistance, said provision shall be interpreted in its broadest sense, or limited in scope, or rendered void ab initio to the extent necessary to avoid Beneficiary’s disqualification from, or reduction in, Governmental Assistance.” Decl. of Trust, Art. 15, § 15.6. However, SSA policy states that, for SSI resource counting purposes, a null and void clause does not cure an otherwise defective trust instrument. See POMS SI 01120.227(D). Therefore, the null and void clause in this trust does not cure the defective provisions regarding the ability to appoint for-profit Co-Trustees or Successor Trustees.

2. The Trust Maintains Separate Sub-Accounts That Are Pooled for Investment Purposes.

The Trust maintains separate sub-accounts for each individual beneficiary but pools the accounts for purposes of investment and management. Decl. of Trust, Art. 2.

3. Trust Sub-Accounts Are Not Established Solely for the Individual Beneficiary’s Benefit Because Account Funds Could Be Transferred to a Non-Qualifying Trust During the Lifetime of the Beneficiary.

The Declaration of Trust specifies that the individual Trust sub-accounts are maintained for the sole benefit of the individual beneficiaries. Decl. of Trust, Art. 6, Art. 13, § 13.3. However, the Trust contains two early termination provisions that potentially run afoul of the agency’s policy regarding disposition of funds when a trust is terminated during the life of the beneficiary. Both appear to suffer from the same problem in that they do not appear to clearly limit transfer of the Trust funds to another qualifying non-profit organization.

Where a trust can be terminated during a beneficiary’s lifetime, the following criteria must be met: (1) the State(s) receives all amounts remaining in the trust up to an amount equal to the amount of medical assistance paid on behalf of the individual under the State Medicaid plan(s); (2) after payment of allowable administrative expenses, all remaining funds are distributed to the trust beneficiary, and (3) the power to terminate is given to someone other than the trust beneficiary. See POMS SI 01120.199(F)(1); see also POMS SI 01120.203(B)(2)(e) (the pooled trust exception does not apply if the trust account “allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity”). An early termination clause, however, need not meet the foregoing criteria if it solely allows for a transfer of the beneficiary’s assets from one § 1917(d)(4)(C) qualifying pooled trust to another § 1917(d)(4)(C) qualifying pooled trust. Seeid.

As discussed above, if the Trustee has reason to believe that the Trust may become liable for basic maintenance and support costs during the lifetime of the beneficiary, the Trustee may transfer the assets in a beneficiary’s sub-account “to a qualified private or geographically appropriate and qualified not-for-profit pooled special needs trust.” Decl. of Trust, Art. 16, § 16.1(emphasis added). As noted above, the language of this provision is somewhat confusing and could be read to allow the Trustee to transfer funds to a private trust that is not managed by a non-profit entity. In addition, the Declaration of Trust also provides for early termination of the Trust on a designated date—January 1, 2095—to avoid the rule against perpetuities. Decl. of Trust, Art. 16, § 16.2. This could conceivably terminate the Trust during the lifetime of a beneficiary. Id. Because this provision permits NFSNI to distribute all of the Trust property to NFSNI “or its successor(s),” the provision violates the agency’s guidance regarding early termination because the Declaration of Trust does not specify that the “successor(s)” must be a qualifying non-profit special needs pooled trust under § 1917(d)(4)(C). Id. The provision does state that NFSNI or its Successor Trustee “shall create a new Declaration of Trust immediately” under “identical terms as this Declaration of Trust.” Id. However, because this Declaration of Trust does not properly limit Successor Trustees to qualifying non-profit managers, it appears that this may run afoul of the early termination exception that funds be transferred into another qualifying special needs pooled trust. However, assuming the Trust is amended to ensure that the Trust is managed by a for-profit organization, as indicated above, this should also address the issues with the early termination provisions.

We note that the Trust also includes a provision that allows NFSNI to apportion extraordinary expenses or legal fees for the defense of the Trust Pool as a whole among all Trust sub-accounts. Decl. of Trust, Art. 10, § 10.4. If there are extraordinary expenses or a legal challenge attributable to a specific sub-account, that sub-account will bear the expenses or costs, unless the Trustee determines that the expenses or costs “may materially affect the integrity or administration of other sub-accounts, in which case said costs shall be apportioned pro-rata between all sub-accounts that may be materially affected by said issue giving rise to extraordinary administrative expenses or said claim, litigation, or challenge.” Decl. of Trust, Art. 10, § 10.4. Since a beneficiary’s funds would only be used if that particular beneficiary would be materially affected, this would satisfy the requirement that funds be used for the sole benefit of that individual. Thus, this Trust is not like other trusts, where the trustee could apportion such costs among beneficiaries who were not affected. Cf. POMS PS 01825.017(A)(2)(a)(3) (May 14, 2018) (PS 18-085 Review of the Southwestern Indiana Regional Council on Aging, Inc. Pooled Trust); POMS PS 01825.011(E)(2), (G)(2) (PS 16-172 and PS 17-026 opinions regarding the Florida Public Guardianship Pooled Special Needs Trust) (Aug. 5, 2016, and Dec. 16, 2016).

4. Trust Sub-Accounts Are Established by the Individual, Parent, Grandparent, Legal Guardian, or Court.

The Declaration of Trust provides that each Trust sub-account is established by the individual, parent, grandparent, legal guardian, or a court. Decl. of Trust, Art. 5(C); see also Joinder Agreement, Art. II.

5. The Trust’s Termination Provision Upon the Death of the Beneficiary Meets the Requirements Regarding State Medicaid Reimbursements.

According to the agency’s policies, to qualify for the pooled trust exception, the Trust must contain “specific language that provides that, to the extent that amounts remaining in the individual’s account upon the death of the individual are not retained by the trust, the trust will pay to the State(s) from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the individual under the State Medicaid plan(s).” POMS SI 01120.203(D)(8). To the extent that the Trust does not retain the funds in the account, the state must be listed as the first payee and have priority over payment of other debts and administrative expenses. Id.

Here, NFSNI’s Trust complies with the state reimbursement requirements. See Decl. of Trust, Art. 14. As noted above, upon the death of a beneficiary, the Declaration of Trust provides that the Trust “shall not retain more than fifty percent (50%) of any assets remaining” in the sub-account. Decl. of Trust, Art. 14. This is permissible under POMS SI § 01120.203(D)(1) and (8). To the extent that assets are not retained by the Trust, the Declaration of Trust specifies that the “first payee” is any state which will be reimbursed for any amount that the state has paid “on behalf of the Beneficiary during the Beneficiary’s lifetime.” Decl. of Trust, Art. 14.The termination provision further specifies that if more than one state paid Medicaid benefits on behalf of the beneficiary, each will be repaid the full amount (or, if there are insufficient funds, each will receive its proportionate share). Id. According to the Declaration of Trust, the state(s) “shall have priority of payment over any other debts and administrative expenses, except those listed in SSA P.O.M.S. SSI SI § 01120.203.B.3.a.” Id. (The current POMS provision listing allowable payments is in POMS SI 01120.203(E).)

B. The Regular Resource Rules

If NFSNI is able to cure the above defects and qualify the Trust for the pooled trust exception, the regular resource rules in POMS SI 01120.200 would also apply to determine whether a Trust sub-account would be considered a resource. See 42 U.S.C. § 1382b(e)(1); POMS SI 01120.203(A), (I)(3)(Step 7); POMS SI 1120.200(D)(1)(a). Under the regular resource rules, the trust principal will be a resource if the individual can (1) revoke or terminate the trust and then use the assets to meet his needs for food or shelter, or (2) direct the use of the trust principal for his support and maintenance under the terms of the trust. POMS SI 01120.200(D)(1)(a). In addition, the individual’s beneficial interest in the trust is a resource if it can be sold. Id.

The NFSNI Trust states that it is irrevocable, and that Trust beneficiaries cannot revoke their contributions to the Trust. See Decl. of Trust, Art. 7. However, under Indiana law, when a grantor is the sole beneficiary of a trust, the trust is deemed to be revocable even if the trust document states it is irrevocable, unless the settlor identified valid residual beneficiaries.[2] See POMS SI CHI01120.200.C; Rest. (2d) of Trusts § 339. Here, the pooled trust is a beneficiary of each account, since it may retain up to 50% of remaining assets on the death of the beneficiary. In addition, the Joinder Agreement directs the grantor of each Trust sub-account to identify residual beneficiaries in the event there remain funds for distribution upon the beneficiary’s death. See Joinder Agreement, Art. V. Therefore, Trust beneficiaries would be unable to revoke their accounts.

In addition, under the terms of the Declaration of Trust, the beneficiary has no power to compel the Trustee to pay for her support and maintenance or to direct the use or disbursements from her sub-account. See POMS SI 01120.200.D A beneficiary can neither demand payments nor direct the use of the Trust funds for her support and maintenance, as NFSNI, acting in its powers as Trustee, has sole discretion in making all distributions from the Trust. Decl. of Trust, Art. 6, Art. 7, Art. 9, Art. 11, Art. 13, § 13.2.

The Declaration of Trust includes a spendthrift provision that provides, in part, that “[n]o portion of the [trust] of any Beneficiary, whether in principal or in income, shall be assigned, pledged, promised, transferred, bequeathed or sold in any manner by any Beneficiary.” Decl. of Trust, Art. 9, § 9.1. Under Indiana law, when a grantor is also a beneficiary of a trust, a spendthrift provision will not prevent creditors from satisfying claims from the grantor’s beneficial interest in the trust. See Ind. Code Ann. § 30-4-3-2(b) (West). The statute does not give transferees for value the right to reach the assets.[3] Therefore, a beneficiary of the Trust could not sell their interest in the Trust. Thus, under the regular resource rules, an account in the pooled trust would not be a resource.

CONCLUSION

For the reasons discussed above, we conclude that the NFSNI Trust does not meet the requirements for the pooled trust exception. However, if the Trust were amended to correct the issues identified above, the Trust would meet the pooled trust exception. Furthermore, the accounts would not be considered resources under the regular resource rules.

B. CPM 19-103 Six State Survey on Decanting Statutes within Region V

August 16, 2019

1. Syllabus

In this opinion, the Regional Chief Counsel (RCC) examines state laws in Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin to determine whether each state permits trust decanting. The RCC finds that each of these states permits decanting by statute.

2. Opinion

You requested a six-state survey regarding whether trust decanting is allowed in the six states in Region V (Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin). As discussed below, all six states permit decanting by statute. We have included our findings for each state.

BACKGROUND

Trust decanting occurs when a trustee “pours over” all or part of the assets of an irrevocable trust into another trust. George Gleason Bogert et al., Bogert’s Trusts and Trustees § 567 (Thomson Reuters, 2019). A trustee may choose to decant in order to correct errors or ambiguities in the original trust or to obtain a number of other benefits, such as increased flexibility, more advantageous tax law, or favorable administrative provisions. Id.

Although the common law of every jurisdiction recognizes trust decanting, many states have codified this right through statute, expressly authorizing trustees to decant from one trust to another. Id. As of October 2018, twenty-eight states, including all six states in Region V, have enacted decanting statutes. M. Patricia Culler, List of States with Decanting Statutes Passed or Proposed (The American College of Trust and Estate Counsel 2018), https://www.actec.org/assets/1/6/Culler-Decanting-Statutes-Passed-or-Proposed.pdf.

In general, states consider the decanting power as part of trustees’ discretionary authority to make distributions to or for the benefit of trust beneficiaries. Bogert et al., supra, § 567. Thus, the trust instrument generally must grant the trustee discretionary authority to distribute assets in order for the decanting statute to apply. Id. While some decanting statutes require trustees to have “absolute” discretion to distribute property, most states simply require the trustee to have authority or discretion. Id. States also differ on whether the trustee can decant only the trust principal or both income and principal. Id.

The issue of trust decanting may arise in the Social Security context when certain trusts for disabled beneficiaries (e.g., special needs trusts and pooled trusts pursuant to 42 U.S.C. § 1396p(d)(4)(A) and (d)(4)(C), respectively) contain a provision that contemplates the transfer of assets to another trust.[4] In that instance, the agency must determine whether the decanting provision, read in light of applicable state law, complies with SSA trust policy, including its rules regarding early termination of trusts.[5]

When analyzing decanting statutes, two items are helpful to note. First, the terminology varies depending on the statute. For example, statutes may refer to a decanted trust by that name, or use “first trust” and “second trust,” “old trust” and “new trust,” and/or “invaded/original trust” and “appointed trust.” Second, to date, decanting statutes have been the subject of few, if any, judicial decisions. Thus, little interpretative guidance is available. Bogert et al., supra, § 567.

REGION V STATE SURVEY

ILLINOIS

Illinois passed a new trust code in July 2019, which will go into effect on January 1, 2020. The new trust code includes a trust decanting statute. Until January 1, 2020, Illinois’s current trust decanting statute, 760 Ill. Comp. Stat. 5/16.4, remains in effect.

The current statute permits an authorized trustee to distribute part or all of the principal of a trust in favor of a trustee of a second trust, so long as this decanting power is not expressly prohibited by the trust’s governing instrument. Id. 5/16.4(m). Like many other states, Illinois distinguishes between trustees who have absolute discretion to distribute the principal of a trust and trustees whose discretion is not absolute. Id. 5/16.4(c)-(d). Those with absolute discretion may distribute the principal in a second trust for the benefit of one, more than one, or all of the beneficiaries of the first trust. Id. 5/16.4(c). Trustees who lack absolute discretion must ensure that the beneficiaries of the second trust remain the same as the beneficiaries of the first trust. Id. 5/16.4(d).

The current statute also includes a provision regarding supplemental needs trusts for disabled beneficiaries. Id. 5/16.4(d)(4). The provision specifically permits the trustee of a trust created for a beneficiary who has a disability to decant into a second trust that is a supplemental needs trust. Id. 5/16.4(d)(4)(i). However, if the first trust was created by the disabled beneficiary or the trust property has been distributed directly to or is otherwise under the direct control of the disabled beneficiary, the second trust must contain payback provisions that comply with the Medicaid reimbursement requirements of federal law, or the trustee may distribute to a pooled trust as defined by federal Medicaid law. Id. 5/16.4(d)(4)(iii).

The new trust decanting statute permits an authorized fiduciary to distribute the property of a first trust into one or more trusts. Illinois Trust Code, Pub. Act 101-48, §§ 1202(4), 1204, 2019 Ill. Legis. Serv. (West) (to be codified at 760 Ill. Comp. Stat. 3/1202(4), 1204). A trust instrument may restrict or prohibit the exercise of the decanting power, but the statute does not limit the authorized fiduciary’s power to decant under the common law, a court order, or a nonjudicial settlement agreement. Id. § 1203(c)-(d). The authorized fiduciary must generally give notice to specific individuals before exercising the decanting power. Id. § 1207. Like many other states, Illinois distinguishes between trustees who have limited distributive discretion and those who have “expanded distributive discretion.” Id. § 1202(5). Subject to some restrictions, trustees with expanded distributive discretion may retain or omit powers of appointment granted in the first trust, and may create or modify powers of appointment under certain circumstances. Id. § 1211(d). However, they cannot create current beneficiaries of the second trust who are not current beneficiaries of the first trust and may not reduce or eliminate any vested interests. Id. § 1211(c). Trustees with limited distributive discretion must ensure that each beneficiary of the first trust maintains a beneficial interest that is “substantially similar” in the second trust(s). Id. § 1212(c).

The new statute also includes a provision regarding trusts for beneficiaries with disabilities. Id. § 1213. Special-needs fiduciaries may exercise decanting power if the second trust is a special-needs trust that benefits the beneficiary with a disability and if decanting will further the purposes of the first trust or the best interests of the beneficiary with a disability. Id. § 1213(b). However, if the first trust was created or funded by the beneficiary with a disability, the second trust may either be a pooled trust under 42 U.S.C. § 1396p(d)(4)(C) or contain payback provisions that comply with the Medicaid reimbursement requirements under 42 U.S.C. § 1396p(d)(4)(A). Id. § 1213(c)(1).

Illinois does not appear to have a statute concerning the Medicaid payback requirement for trusts for disabled beneficiaries.

INDIANA

Indiana’s trust decanting statute, Ind. Code Ann. § 30-4-3-36, first went into effect on July 1, 2010 and was later amended in 2014. Unless the terms of a trust expressly specify otherwise, the statute provides that any trustee who has the discretion to invade the principal of a trust may instead exercise his power to appoint part or all of the principal to the trustees of a second trust. Id. § 30-4-3-36(a). The statute may not be construed to abridge a trustee’s decanting power that arises under the terms of the first trust, under any other statute, or under common law. Id. § 30-4-3-36(g). Unlike other states, Indiana does not delineate between trustees who have limited and unlimited discretion; any trustee with the discretion to invade the principal may decant the trust. Id. Beneficiaries of the second trust must be the same as the beneficiaries of the first trust. Id. § 30-4-3-36(a)(1).

Indiana’s trust code does not provide specific guidance regarding trusts for disabled beneficiaries. In addition, Indiana’s Medicaid payback statute, Ind. Code Ann. § 30-4-3-25.5 (West 2019), does not reference trust transfers.

MICHIGAN

There are two trust decanting statutes in Michigan. Administrative decantings implement minor changes and are available under the Michigan Trust Code, Mich. Comp. Laws Ann. § 700.7820a. Salvatore J. LaMendola, Trust Decanting, 96 Mich. B. J. 44, 44 (2017). Dispositive decantings implement major changes (typically affecting provisions governing who receives what, when, and how), and are available under the Michigan Powers of Appointment Act, Mich. Comp. Laws Ann. § 556.115a. Id. The effective dates of both are December 28, 2012. Mich. Comp. Laws Ann. §§ 556.115a, 700.7820a. Unless the first trust expressly provides otherwise, both statutes permit a trustee with discretionary power to distribute of all or part of the first trust to the trustee of a second trust subject to the satisfaction of certain conditions. Id. §§ 556.115a(1), 700.7820a(1). However, both statutes recognize that the decanting power might arise pursuant to the terms of the instrument, another statute, or common law, and provide that they shall not abridge the trustee’s decanting authority if it is more expansively established by these other sources. Id. §§ 556.115a(7), 700.7820a(9).

Neither the Trust Code nor the Powers of Appointment Act provides specific guidance regarding trusts for disabled beneficiaries. And Michigan does not appear to have a statute concerning the Medicaid payback requirement for trusts for disabled beneficiaries.

MINNESOTA

Minnesota enacted a trust decanting statute, Minn. Stat. § 502.851, in 2016 as part of its revised Power of Appointment statute. Under the statute, the exercise of the power to invade trust principal is not void if: (1) it is more extensive than authorized by the statute but permissible under the trust instrument; or (2) less extensive than authorized, unless the donor expressed a contrary intention. Id. § 502.851(2). Like many states, Minnesota’s decanting statute distinguishes between trustees with unlimited and limited discretion. Trustees with unlimited discretion to invade trust principal may appoint part or all of the principal of an irrevocable trust to another irrevocable trust for the benefit of one, more than one, or all of the beneficiaries of the invaded trust. Id. § 502.851(3)(a). For trustees with limited discretion, the appointed trust must contain identical beneficiaries to the invaded trust. Id. § 502.851(4)(a).

Minnesota’s trust code contains a provision regarding supplemental needs trusts, but it does not discuss trust transfers. Minn. Sta. Ann. § 501C.1205. Likewise, Minnesota’s Medicaid payback statute, Minn. Stat. Ann. § 256B.056(3b), does not discuss trust transfers.

OHIO

Ohio’s trust decanting statute, Ohio Rev. Code Ann. § 5808.18, went into effect on March 27, 2013. Unless the trust instrument expressly provides otherwise, the statute permits decanting for trustees who have absolute distribution power and trustees who have “other than absolute” distribution power. Ohio Rev. Code Ann. § 5808.18(A)-(B). Subject to the limitations set forth in each section and further limitations in § 5808.18(C), a trustee may distribute all or any part of the principal and income that is not otherwise currently required to be distributed for the benefit of one or more current beneficiaries. Id. § 5808.18(A)-(B). The statute, however, does not limit the power of any trustee to distribute trust property in further trust, whether that power arises under the terms of the trust instrument, another section of Title LVIII of the Revised Code (regarding trusts), another statute, or common law. Id. § 5808.18(N).

Ohio’s trust code does not provide specific guidance regarding trusts for disabled beneficiaries. Ohio also does not appear to have a statute concerning the Medicaid payback requirement for trusts for disabled beneficiaries.

WISCONSIN

Wisconsin’s trust decanting statute, Wis. Stat. Ann. § 701.0418, went into effect on July 1, 2014. Unless the terms of a trust expressly provide otherwise, the statute permits a trustee who has the power to invade the principal of a first trust to exercise the power to appoint part or all of the assets of the first trust in favor of a trustee of a second trust, if certain conditions apply. Id.§ 701.0418(2). The statute does not limit a trustee who has a power to invade principal to appoint property in further trust to the extent the power arises under the terms of the first trust or under any other section, another law, or common law. Id. § 701.0418(8)(c). The statute also includes several provisions regarding trusts for beneficiaries with disabilities. Specifically, if the second trust is a trust for an individual with a disability, the second trustee’s power to invade the income or principal of the second trust need not be limited to the first trustee’s power to invade the income or principal of the first trust. Id. § 701.0418(2)(a)(2). Moreover, a trustee may appoint assets to the second trust even if the trustee has a beneficial interest in the first trust.[6] Id. § 701.0418(3)(c). Furthermore, a trustee may not appoint assets to a second trust if it would impair the essential purpose of a trust for an individual with a disability. Id. § 701.0418(3)(f).

Wisconsin does not appear to have a statute concerning the Medicaid payback requirement for trusts for disabled beneficiaries.

CONCLUSION

In conclusion, all six states in OGC Region V have decanting statutes that permit a trustee, with requisite authority, to distribute part or all of the principal of a trust in favor of a trustee of a second trust . In particular, the Illinois and Wisconsin decanting statutes discuss trusts for disabled beneficiaries.

C. PS 18-085 Review of the Southwestern Indiana Regional Council on Aging, Inc. Pooled Trust

Date: May 14, 2018

1. Syllabus

This Regional Chief Counsel (RCC) opinion examines whether sub-accounts in the Southwestern Indiana Regional Council on Aging, Inc. Pooled Trust for Disabled Persons (Trust) comply with the requirements for a pooled trust exception under section 1917(d)(4)(C) of the Social Security Act (Act). The RCC concludes that a self-funded sub-account in the Trust would be considered a resource because it does not meet all of the requirements. However, a third party-funded sub-account in the Trust would not be considered a resource under our regular policy for third party trusts as resources in POMS SI 01120.200D.

2. Opinion

QUESTION

You asked whether the Southwestern Indiana Regional Council on Aging, Inc. Pooled Trust for Disabled Persons is in compliance with the procedures governing the Agency’s pooled trust policy. For the reasons discussed below, we conclude that a self-funded sub-account in the Trust would be considered a resource under the Social Security Act because it does not meet all of the requirements of the pooled trust exception. In addition, a third party sub-account in the Trust would not be considered a resource.

BACKGROUND

Southwestern Indiana Regional Council on Aging, Inc. (SWIRCA) is an Indiana non-profit corporation.[7] On June 10, 2002, SWIRCA executed a Declaration of Trust, establishing the SWIRCA Pooled Trust for Disabled Persons (SWIRCA Pooled Trust). On December 16, 2014, SWIRCA executed an Amended and Restated Declaration of Trust (Trust Declaration or TD), which amended and restated in its entirety the original Declaration of Trust. On December 15, 2015, SWIRCA revised its joinder agreement through an Amended and Restated Joinder Agreement for SWIRCA Pooled Trust (Joinder Agreement or JA). SWIRCA has submitted the Trust Declaration and Joinder Agreement for SSA’s review.

The intent of SWIRCA is to establish a supplemental needs trust, as set forth in 42 U.S.C. § 1396p(d)(4)(C), in order to supplement, but not displace, assistance which may otherwise be available to beneficiaries. TD Introduction, Art. IV.1, 3. According to the Trust Declaration, a beneficiary is defined as a person who meets the requirements of 42 U.S.C. § 1382c(a)(3). TD Art. III.1. A beneficiary also includes any remainderman eligible to receive a portion of trust assets after the primary beneficiary’s death. TD Art. III.1.[8]

According to the Trust Declaration, SWIRCA establishes and manages the Trust. See TD Introduction. SWIRCA shall receive and study all requests for disbursements and determine the extent to which disbursements should be made. TD Art. VII.1. SWIRCA is charged with preparing and providing projected disbursement levels for each sub-account to the Trustee, and shall serve as an advisor to the Trustee. Id. Old National Wealth Management is named as the initial Trustee. TD Art. II. The Trustee is given broad powers which are discussed in various sections of the Trust Declaration. See, e.g., TD Art. IV, VII, XII. The Trustee may resign only with the approval of SWIRCA or a court of competent jurisdiction, or may be removed without cause at any time by SWIRCA. TD Art. XIII. The Trustee is allowed to delegate to an agent or agents any of the fiduciary powers expressed directly or by implication in the Trust Declaration. TD Art. VII.7. The Trustee is allowed to designate a Co-Trustee to serve at the Trustee’s pleasure. TD Art. VIII.

The Trust Declaration states that it shall be irrevocable, but that it may be amended by the governing board of SWIRCA in order to effectuate the terms and purposes of the Trust. TD Art. XI. However, SWIRCA does not have the power of amendment to the extent that such amendment would alter the purpose of the Trust, make gifts revocable that are otherwise irrevocable under the Trust or a Joinder Agreement, or change the duties of the Trustee without its consent. Id.

The Trust becomes effective as to a beneficiary upon the execution of a Joinder Agreement by a grantor or by court order, subject to approval by SWIRCA and the Trustee. TD Art. VI.1. Upon the delivery to and acceptance by the Trustee of the grantor’s property, the Trust becomes irrevocable as to the grantor “and the designation of the respective Beneficiary[.]” Id. Similarly, the Joinder Agreement states that, upon execution of the Joinder Agreement and funding of the sub-account, the Trust is irrevocable as to the grantor and the beneficiary. JA at J.11.

The Trust Declaration provides that a separate sub-account shall be maintained for each beneficiary, but for the purposes of investment and management of funds, the Trustee shall pool the sub-accounts. TD Art. VII.1. Sub-accounts established with a beneficiary’s assets shall be identified as “Sub-account A” sub-accounts, and sub-accounts established by funds provided by third parties shall be identified as “Sub-account B” sub-accounts. TD Art. VII.2.

A beneficiary under the Trust shall not have any right to anticipate, sell, assign, mortgage, pledge, or otherwise dispose of or encumber any part of the Trust, nor shall any part of the Trust be liable for the beneficiary’s debts or obligations, or be subject to attachment, garnishment, execution, creditor’s bills, or other legal or equitable process. TD Art. IV.4.

The Trust Declaration and Joinder Agreement contain several paragraphs pertaining to early termination of the Trust. TD Art. XII.1-4; JA at H.2, J.5. They also contain several paragraphs regarding the distribution of trust assets upon the death of a beneficiary. TD Art. VII.2, XII.2; JA at H.1.

The Trust is governed by the laws of the United States and the State of Indiana. TD Art. XIX.4.

DISCUSSION

a. Self-Funded Sub-Account (Sub-Account A) in the SWIRCA Pooled Trust

STATUTORY RESOURCE RULES

Under the Social Security Act (Act), a trust created on or after January 1, 2000, from the assets of an individual generally will be considered a resource for SSI purposes to that individual to the extent that the trust is revocable or, in the case of an irrevocable trust, to the extent that any payments could be made from the trust to or for the benefit of the individual. See 42 U.S.C. § 1382b(e); Program Operations Manual System (POMS) SI 01120.201(D). However, an exception to this rule exists for certain trusts that meet the criteria of 42 U.S.C. § 1396p(d)(4)(C) (commonly known as pooled trust exception).

In order to qualify for the pooled trust exception, the trust must contain the assets belonging to a disabled individual and satisfy the following conditions:

  • The trust is established and managed by a non-profit association.

  • The trust maintains a separate account for each beneficiary, but pools these accounts for purposes of investment and management of funds.

  • Accounts in the trust are established solely for the benefit of the disabled individual.

  • The account is established through the actions of the individual, parent, grandparent, legal guardian, or court.

  • To the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust will pay to the State(s) the amount remaining in the account up to the total amount of medical assistance paid on behalf of the beneficiary under the State Medicaid plan(s).

See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203(B)(2).

Here, even if the Trust were irrevocable, it would be a resource, since funds are to be used for the individual’s benefit. TD Art. IV.2. Accordingly, we consider whether the Trust qualifies for the pooled trust exception. As discussed below, we do not believe the Trust satisfies all of the requirements of this exception. As such, a self-funded sub-account in the Trust would not be excepted from resource counting.

1. Established and Managed by a Non-Profit Association

To satisfy the first requirement of the pooled trust exception, the trust must be established and managed by a non-profit association. 42 U.S.C. § 1396p(d)(4)(C)(i); POMS SI 01120.203(B)(2)(c). A non-profit association may employ the services of a for-profit entity, but the non-profit association must maintain ultimate managerial control over the trust. POMS SI 01120.225(D). For example, the non-profit association must be responsible for making day-to-day decisions regarding the health and well-being of the beneficiaries. Id. Also, a for-profit entity must not be allowed to determine whether to make discretionary disbursements from the trust. POMS SI 01120.225(E).

Here, SWIRCA, a non-profit association, established and manages the SWIRCA Pooled Trust. See TD Introduction. The Trust Declaration designates the Trustee as Old National Wealth Management. Notably, Old National Wealth Management is a for-profit entity.[9] SWIRCA is charged with preparing and providing projected disbursement levels for each sub-account to the Trustee, and shall serve as an advisor to the Trustee. TD Art. VII.1. However, the Trust Declaration states that the Trustee may “pay or apply for the benefit of each Beneficiary such amounts from the principal or income, or both, of the Trust sub-account maintained for such Beneficiary, up to the whole thereof, as the Trustee, in its sole discretion may from time to time deem necessary or advisable for the satisfaction of that Beneficiary’s Supplemental Need.” TD Art. IV.2. It also states that the Trustee, in its sole discretion, or as directed by SWIRCA, may make any payment under the trust directly to a beneficiary or any person deemed suitable by the Trustee. TD Art. VII.9. Further, it indicates that the Trustee shall have full power and authority in its absolute discretion to do all acts and things necessary to accomplish the purposes of the Trust. TD Art. VII.5, 12.[10] These provisions could violate the agency policy that the non-profit association must maintain ultimate managerial control over the pooled trust. See POMS SI 01120.225(D).

The Trust Declaration also allows the Trustee to delegate to an agent or agents, any of the fiduciary powers expressed directly or by implication in the Trust. TD Art. VII.7. And it allows the Trustee to designate a Co-Trustee or Co-Trustees to serve at the Trustee’s pleasure. TD Art. VIII. A Co-Trustee is defined as a person or entity selected by the Trustee to assist with the “management, administration, allocation, and or disbursement of Trust assets and property.” TD Art. III.6. Thus, it appears that the Trustee could potentially delegate core managerial responsibilities to other for-profit entities.

Accordingly, the Trust does not appear to satisfy the first requirement of 42 U.S.C. § 1396p(d)(4)(C) and POMS SI 01120.203(B)(2).

2. Maintenance of Separate Accounts for Each Trust Beneficiary

To satisfy the second requirement of the pooled trust exception, the trust must maintain a separate account for each trust beneficiary, although it is acceptable for individual accounts to be pooled for investment and management purposes. 42 U.S.C. § 1396p(d)(4)(C)(ii); POMS SI 01120.203(B)(2)(d). The SWIRCA Pooled Trust satisfies this requirement, as it maintains a separate sub-account for each beneficiary, but for purposes of investments and management of funds, the Trustee pools the Trust sub-accounts. TD Art. VII.1. Also, the Trustee, or its authorized agent, maintains records for each Trust sub-account. Id.

3. Established for the Sole Benefit of the Individual

To satisfy the third requirement of the pooled trust exception, the trust account must be established for the sole benefit of the disabled individual. 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203(B)(2)(e). A trust is considered to be established for the sole benefit of an individual if the trust benefits no one but that individual, either at the time the trust is established or at any time for the remainder of the individual’s life. POMS SI 01120.201(F)(2).

Where a trust can be terminated during a beneficiary’s lifetime, the following criteria must be met: (1) the State(s) receives all amounts remaining in the trust up to an amount equal to the amount of medical assistance paid on behalf of the individual under the State Medicaid plan(s); (2) after payment of allowable administrative expenses, all remaining funds are distributed to the trust beneficiary, and (3) the the power to terminate is given to someone other than the trust beneficiary. See POMS SI 01120.199(F)(1); see also POMS SI 01120.203(B)(2)(e) (the pooled trust exception does not apply if the trust account “allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity”). An early termination clause, however, need not meet the forgoing criteria if it solely allows for a transfer of the beneficiary’s assets from one section 1917(d)(4)(C) qualifying pooled trust to another section 1917(d)(4)(C) qualifying pooled trust. See POMS SI 01120.199(F)(2).

Here, the Trust Declaration provides that the Trustee may pay or apply for the benefit of each beneficiary funds from his or her sub-account to meet his or her supplemental needs. TD Art. IV.2. However, the Trust Declaration also states that the Trustee has discretion to defend the Trust from any claim against a Trust sub-account to pay for equipment, medication, or services that other organizations or agencies are authorized to provide. TD Art. IV.3. It allows for the possibility that the costs and expenses of defending the Trust could be apportioned on a pro rata basis to the Trust sub-accounts in the discretion of SWIRCA or the Trustee. TD Art. VII.11. Similarly, the Joinder Agreement provides that the Trustee may assess to all sub-accounts or to certain sub-accounts assessments for specific costs such as the costs of defending a sub-account. JA at I.5. Thus, it is not entirely clear whether the Trust Declaration and Joinder Agreement contemplate the potential use of a beneficiary’s assets in a sub-account for the benefit of other beneficiaries. SWIRCA should clarify this point in order to meet this requirement of the pooled trust exception.

In addition, the Trust Declaration contains several early termination provisions. Article XII.3 provides that, if it becomes impossible to fulfill the conditions of the Trust with regard to a particular beneficiary, the Trustee may, in its sole discretion, terminate the Trust sub-account and refund all or any portion of the property in the Trust sub-account to the grantor,[11] after first reimbursing all States the total amount of medical assistance paid on behalf of the beneficiary under every such State Medicaid plan. Under this provision, if payment cannot be made to the grantor for any reason, then payment may be made in accordance with the Joinder Agreement, and if that cannot be carried out, to SWIRCA to be used for charitable purposes. TD Art. XII.2, 3. Under the Joinder Agreement, 50% of the funds remaining in the sub-account after payment to the State Medicaid plan(s) would be retained by SWIRCA and the remainder would be distributed to designated remaindermen. JA at H.1(a), (c), (d). However, under agency policy, after reimbursement to the State(s), the remaining funds may only be distributed to the trust beneficiary. See POMS SI 01120.199(F)(1). Thus, the early termination provision in Article XII.3 does not appear to be acceptable because it allows for the possibility of other contingent beneficiaries.

Article XII.1 states that, if the Trustee has reasonable cause to believe that the income or principal in a Trust sub-account will become liable for basic maintenance, support, or care of a beneficiary which would otherwise be provided by the local, state or federal government, the Trustee, in its sole discretion, may (a) terminate the Trust sub-account and distribute its property according to Article XII.3, or alternatively (b) continue to administer the Trust sub-account under separate arrangement with the affected beneficiary or his/her guardian. In addition to the problem discussed above, this does not appear to be an acceptable early termination provision because the Trustee may exercise discretion to act under alternative (b), and the terms of such arrangement are unknown.

Article XII.4 states that, if it becomes impossible or impracticable to carry out the Trust’s purpose with respect to all or substantially all beneficiaries, the Trustee may terminate the Trust and distribute the Trust property to all States the total amount of medical assistance paid on behalf of the beneficiary under every such State Medicaid plan, then according to Article XII.3. This provision does not appear to be acceptable for the same reason as in Article XII.3.

The Joinder Agreement also provides for early termination of a Trust sub-account upon nonpayment of required fees or failure to fund the sub-account. JA at J.5. In such event, the State(s) will first be reimbursed up to an amount equal to the total medical assistance paid on behalf of the beneficiary under every such State Medicaid Plan based on each State’s proportionate share, and after payment of taxes and reasonable administrative fees/expenses, no entity other than the beneficiary shall benefit from the early termination of the sub-account. JA at J.5. This language appears to meet the requirement for the pooled trust exception. However, we believe that the phrase “no entity other than the Beneficiary shall benefit from the early termination” is vague, and therefore recommend that SWIRCA clarify that all remaining funds shall be distributed to the beneficiary.

The Joinder Agreement further states that if the beneficiary’s residence changes from Indiana to another state, and the Trustee cannot make appropriate arrangements for distributions that are satisfactory to the Trustee, the Trustee can terminate the beneficiary’s sub-account and the property will be distributed according to section H.1 of the Joinder Agreement. JA at H.2. Section H.1, in turn, indicates that for a Sub-account A sub-account: 50% will be retained by the SWIRCA Pooled Trust, up to 50% will be distributed to all States up to an amount equal to the total medical assistance paid on behalf of the beneficiary under every such State Medicaid Plan based on each State’s proportionate share of the total amount of Medicaid benefits paid by all of the States on the beneficiary’s behalf, and any remaining balance will be distributed to designated remaindermen in the Joinder Agreement. TD Art. VII.2; JA at H.1(a), (c), (d). This appears to be in conflict with the requirements of POMS SI 01120.199(F)(1) regarding early termination.

4. Established by the Beneficiary, a Parent, Grandparent, Legal Guardian, or a Court

The fourth requirement of the pooled trust exception requires that the trust account be established through the actions of the account beneficiary, his or her parent, grandparent, legal guardian, or a court. 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203(B)(2)(f). The SWIRCA Pooled Trust meets this requirement, as Sub-account A sub-accounts are established with the beneficiary’s own assets by the beneficiary, or a parent, a grandparent, a legal guardian, or the court. TD Art. VII.2.

5. Reimbursement to the State(s) Upon the Beneficiary’s Death

To satisfy the fifth requirement of the pooled trust exception, the trust must contain “specific language” that provides that upon a beneficiary’s death, to the extent amounts remaining in the beneficiary’s account are not retained by the trust, the State(s) are reimbursed equal to the total amount of medical assistance paid on behalf of the deceased beneficiary during his or her lifetime. 42 U.S.C. § 1396p(d)(4)(C)(iv); POMS SI 01120.203(B)(2)(g).

The Trust includes several provisions concerning termination upon death. First, the Trust Declaration states that, upon the death of the beneficiary, the funds remaining in the sub-account shall be distributed in accordance with the terms of the Joinder Agreement, which in the case of a Sub-account A sub-account “shall be subject to the payback requirements, if any, mandated by 42 U.S.C. 1396[p](d)(4).” TD Art. VII.2. Second, the Joinder Agreement states that, upon the death of the beneficiary, funds that remain in his or her trust sub-account (Sub-account A sub-account) will be distributed as follows: 50% will be retained by the SWIRCA Pooled Trust, up to 50% will be distributed to all States up to an amount equal to the total medical assistance paid on behalf of the beneficiary under every such State Medicaid Plan based on each State’s proportionate share of the total amount of Medicaid benefits paid by all of the States on the beneficiary’s behalf, and any remaining balance will be distributed to designated remaindermen in the Joinder Agreement. TD Art. VII.2; JA at H.1(a), (c), (d). When the Trust Declaration and Joinder Agreement are read together, they comply with the Medicaid payback requirement of the pooled trust exception. However, the Trust Declaration should remove the reference to “if any” as the payback requirement clearly exists under the statute.

Third, Article XII.2 of the Trust Declaration states that, upon the death of a beneficiary, for whose benefit any contribution was made by a grantor and held in the Trust, any amount remaining in the beneficiary’s trust sub-account shall be distributed in accordance with the Joinder Agreement, and if the Joinder Agreement cannot be carried out, the sub-account shall be distributed free of trust to SWIRCA to be used for its charitable purposes. To the extent that the alternative distribution where the Joinder Agreement cannot be carried out relates to a Sub-account A sub-account, such does not comply with the pooled trust exception, because a Medicaid payback provision is required to the extent that the trust does not retain any amount remaining in the beneficiary’s trust sub-account. We recommend that SWIRCA indicate that such alternative applies strictly to Sub-Account B sub-accounts.

REGULAR RESOURCE RULES

If SWIRCA is able to cure the above defects and qualify for the pooled trust exception, a self-funded sub-account in the Trust is still subject to the regular resource counting rules. See POMS SI 01120.203(B)(1)(a). Pursuant to POMS SI 01120.200(D)(1)(a), trust principal is a resource if the beneficiary has the legal authority to revoke or terminate the trust and then use the funds to meet his or her food or shelter needs, or if the beneficiary can direct use of the trust principal for his or her support and maintenance under the terms of the trust. Moreover, if the beneficiary can sell his or her beneficial interest in the trust, that interest is a resource. Id.

We must first determine the revocability of the self-funded sub-accounts in the SWIRCA Pooled Trust. Whether a trust can be revoked depends on the terms of the trust and applicable state law—here, Indiana. See POMS SI 01120.200(D)(2). The Trust Declaration states that the Trust is irrevocable, except that it may be amended from time to time by the governing board of SWIRCA to effectuate the terms and purposes of the Trust, but that it does not have the power of amendment to the extent that such amendment would make gifts revocable that otherwise are irrevocable under the Trust or Joinder Agreement. TD Art. XI. Upon the delivery and acceptance of property by the Trustee, the Trust shall be irrevocable as to the grantor of such property. TD Art. VI.1. Because the definition of “grantor” can include the beneficiary,[12] the Trust is irrevocable as to the beneficiary. Likewise, the Joinder Agreement states that the grantor acknowledges that upon execution of the Joinder Agreement by the grantor, the Trust is irrevocable as to the grantor and beneficiary. JA at J.11.

Notwithstanding these provisions, under Indiana law, when a grantor is the sole beneficiary of a trust, the trust is deemed to be revocable even if the trust document states it is irrevocable. See POMS SI CHI01120.200(C). The Trust Declaration and Joinder Agreement specify that upon the grantor’s death, a Sub-account A sub-account will be distributed as follows: 50% will be retained by the SWIRCA Pooled Trust, up to 50% will be distributed to all States up to an amount equal to the total medical assistance paid on behalf of the beneficiary under every such State Medicaid Plan based on each State’s proportionate share of the total amount of Medicaid benefits paid by all of the States on the beneficiary’s behalf, and any remaining balance will be distributed to designated remaindermen in the Joinder Agreement. TD Art. VII.2; JA at H.1(a), (c), (d). Accordingly, there is at least one residual beneficiary. As such, a self-funded sub-account in the Trust is not revocable. See POMS SI CHI01120.200(C), (D).

Further, the Trustee, in its sole discretion, or as directed by SWIRCA, may make any payments under the Trust directly to a beneficiary, in any form allowed, to any person deemed suitable, or by direct payment of a beneficiary’s expenses. TD Art. VII.9. Neither the Trust Declaration nor the Joinder Agreement provide for mandatory disbursements to the beneficiary. Additionally, the Joinder Agreement provides that the grantor, after funding the sub-account, shall have no further interest in and relinquishes control over the contributed assets and all income therefrom. JA at J.11. Thus, the grantor cannot direct the use of the account principal for support and maintenance.

With respect to the grantor’s ability to sell his or her beneficial interest in the Trust, the Trust Declaration contains a spendthrift provision which provides that a beneficiary shall not have any right to anticipate, sell, assign, mortgage, pledge, or otherwise dispose of or encumber any part of the Trust, nor shall any part of the Trust be liable for the beneficiary’s debts or obligations, or be subject to attachment, garnishment, execution, creditor’s bills, or other legal or equitable process. TD Art. IV.4.Generally, states that allow spendthrift trusts do not allow a grantor to establish a spendthrift trust for his or her own benefit. See POMS SI 01120.200(B)(16). This principle is consistent with Indiana law. See Ind. Code § 30–4–3–2(b) (“if the settlor is also a beneficiary of the trust, a provision restraining the voluntary or involuntary transfer of his beneficial interest will not prevent his creditors from satisfying claims from his interest in the trust estate”). Even though the Trust’s spendthrift provision is not valid in Indiana, the grantor’s beneficial interest in the account would have no significant market value, since the Trustee cannot be compelled to make any distributions from the account. See TD Art. VII.9; Restatement (Third) of Trusts § 60 & cmt. e, f (2003).

Therefore, if SWIRCA can cure the above-discussed defects and satisfy the requirements of the pooled trust exception, a self-funded sub-account in the Trust would not constitute a resource under the regular resource rules.

b. Third Party Sub-Account (Sub-Account B) in the SWIRCA Pooled Trust

In the case of a trust established solely with the assets of a third party, as in the third party sub-accounts in the SWIRCA Pooled Trust, the regular resource rules set forth in POMS SI 01120.200 apply to determine whether the assets in the trust are a resource. As explained below, these third party sub-accounts—Sub-account B sub-accounts—would not be a resource under the regular resource rules. See POMS SI 01120.200(D)(1)(a).

First, a beneficiary generally does not have the power to terminate a trust. See POMS SI 01120.200(D)(1)(b). Here, the Trust does not give a beneficiary any right to terminate a third party sub-account in the Trust. TD Art. VI.1; JA at J.11.

Second, as discussed above, the Trustee, in its sole discretion, or as directed by SWIRCA, may make any payments under the Trust directly to a beneficiary, in any form allowed, to any person deemed suitable, or by direct payment of a beneficiary’s expenses. TD Art. VII.9. Neither the Trust Declaration nor the Joinder Agreement provide for mandatory disbursements to the beneficiary. Thus, the beneficiary cannot direct the use of the sub-account principal for his or her support and maintenance.

Finally, with respect to the beneficiary’s ability to sell his or her beneficial interest in the Trust, the Trust contains a spendthrift provision. TD Art. IV.4. Spendthrift trusts are allowed in Indiana. See Ind. Code § 30–4–3–2(a) (“The settlor may provide in the terms of the trust that the interest of a beneficiary may not be either voluntarily or involuntarily transferred before payment or delivery of the interest to the beneficiary by the trustee.”). Thus, a third party sub-account in the Trust should not be considered a resource.

CONCLUSION

For the reasons discussed above, we conclude that self-funded sub-accounts in the SWIRCA Pooled Trust would not meet all the requirements for an exception to resource counting under 42 U.S.C. § 1396p(d)(4)(C). We also conclude that third party sub-accounts in the Trust would not be considered resources under the Act.

D. PS 17-145  SSI — Updated Six State Survey on “Dry” or “Empty” Trusts within Region V

 

Date:  August 24, 2017

NOTE: This opinion supersedes PS 05-038.

We are replacing our 2004 memorandum (found in POMS sections PS 01205.016, PS 01205.017, PS 01205.025, PS 01205.026, PS 01205.039, and PS 01205.055 (A. PS 05-038)) with this updated opinion. However, we are placing the new six state survey in POMS subchapter PS 01825.000 Trusts.

1. Syllabus

The Regional Chief Counsel (RCC) examined whether a “dry” or “empty” trust is a valid legal entity for purposes of determining eligibility for Supplemental Security Income (SSI) in the six States of Region V. The RCC concluded that a dry trust is only a valid legal entity in Wisconsin because the state adopted a statute that permits dry trusts. It is not a valid legal entity in Minnesota, Illinois, Indiana, Michigan, or Ohio because they do not have statutes that permit dry trusts.

2. Opinion

QUESTION

You have asked for an update on whether a “dry” or “empty” trust is a valid legal entity for purposes of determining eligibility for Supplemental Security Income (SSI) in the six States of Region V. As discussed below, we conclude that a dry trust is only a valid legal entity in Wisconsin. It is not a valid legal entity in Minnesota, Illinois, Indiana, Michigan, or Ohio.

BACKGROUND

On November 30, 2004, we provided advice on whether a “dry” or “empty” trust—a trust without any property as of the inception of the trust—is a valid legal entity for purposes of determining eligibility for SSI in the six States of Region V.  Our 2004 memorandum concluded that a dry trust was not a valid legal entity in any of the States in our region, based on the applicable State statutory and case law. However, many of the States in Region V have since updated their trust laws.

DISCUSSION

For SSI purposes, a trust established with the assets of an individual on or after January 1, 2000, will generally be considered a resource even if the trust is irrevocable. 42 U.S.C. § 1382b(e)(3); POMS SI 1120.201(D). There are, however, Medicaid trust exceptions to these resource counting provisions. In particular, under the special needs trust exception, a trust established before December 13, 2016, is not subject to the resource counting provisions where it: (1) contains the assets of an individual under age 65 who is disabled; (2) is established for the benefit of such individual through the actions of a parent, grandparent, legal guardian or a court; and (3) provides that, on the death of the individual, any funds remaining in the trust will be used to reimburse the State(s) for medical assistance paid on behalf of the individual under a State Medicaid plan. See 42 U.S.C. § 1396p(d)(4)(A) (2016); POMS SI 01120.203(B)(1).  Effective with trusts established on or after December 13, 2016, the special needs trust exception has been expanded to include a trust established through the actions of the individual himself or herself. See 21st Century Cures Act, Pub. L. No. 114-255, § 5007(a), 130 Stat. 1197 (2016) (codified as amended at 42 U.S.C. § 1396p(d)(4)(A)); POMS EM-16053.

A parent or grandparent who creates a trust with a legally competent, disabled adult’s funds may satisfy 42 U.S.C. § 1396p(d)(4)(A) using two methods: (1) the parent or grandparent can establish a “seed trust” using a nominal amount of his or her own money prior to transferring the individual’s funds to the trust, or (2) the State must allow a “dry” or “empty” trust. See POMS SI 01120.203(B)(1)(f).

In 2004, we concluded that none of the States in our region recognized the existence of a dry trust. Since we prepared our 2004 memorandum, one State has changed its position on dry trusts. Effective July 1, 2014, the Wisconsin Trust Code allows for the creation of dry trusts. Wis. Stat. § 701.0401(2) allows the creation of a trust by a “declaration by any person who intends to create a trust with the expectation that property of the person or others will be transferred to the trust.” Therefore, Wisconsin does not require property to exist at the inception of the trust. Rather, Wisconsin requires only an expectation that property will be transferred to the trust.

The remaining States in Region V have either passed laws that are incompatible with dry trusts or have not changed their trust laws since 2004. Three States—Michigan, Ohio, and Minnesota—have adopted § 401 of the Uniform Trust Code (UTC), which states in relevant part that a trust may be created by “declaration by the owner of property that the owner holds identifiable property as trustee.” Unif. Trust Code § 401(2) (2000); Mich. Comp. Laws § 700.7401(b) (effective December 28, 2012); Ohio Rev. Code § 5804.01(B) (effective January 1, 2007); Minn. Stat. § 501C.0401 (effective January 1, 2016). The comments to § 401 of the UTC indicate that “a trust is not created until it receives property.” Therefore, each of these States requires a trust to contain identifiable property. Similar to § 401 of the UTC, the Restatement (Third) of Trusts (2003) provides that “[a] trust cannot be created unless there is a trust property in existence and ascertainable at the time of the creation of the trust.” Id. at § 2 cmt. i.

Illinois and Indiana have not updated their relevant trust statutes, which do not recognize dry trusts. Indiana’s statute requires that a trust have property. See Ind. Code § 30-4-1-1. Although Illinois’s statute[[13] 1] does not set forth the elements of a trust, 760 Ill. Comp. Stat. 5/2, case law suggests that property is an essential element of a trust. See Eychaner v. Gross, 779 N.E.2d 1115, 1131 (Ill. 2002).   

CONCLUSION

In summary, only one jurisdiction within Region V (Wisconsin) has adopted a statute that permits dry trusts. Three of the jurisdictions within Region V (Michigan, Ohio, Minnesota) have adopted the UTC provision requiring identifiable trust property, thus prohibiting dry trusts. The two jurisdictions (Indiana, Illinois) that have not yet adopted the UTC provision do not have statutes that permit dry trusts. Therefore, we conclude that a dry trust only exists as a valid legal entity in Wisconsin; it does not exist as a valid legal entity in any of the remaining States of our region.

E. PS 17-065 Supplemental Security Income – Indiana Review of the Life Enrichment Pooled Trust Master Trust Agreement

Date: March 15, 2017

1. Syllabus

The Regional Chief Counsel (RCC) opinion examines whether a sub-account in the Life Enrichment Pooled Trust constitutes a resource for purposes of determining an individual’s eligibility for Supplemental Security Income (SSI). The RCC concluded that the Pooled Trust does not meet the requirements for an exception to resource counting under section 1917(d)(4)(C) of the Social Security Act because the master trust agreement permits early termination and the possibility of disbursement other than to a secondary qualifying pooled trust.

2. Opinion

QUESTION

You asked whether a sub-account in the Life Enrichment Pooled Trust constitutes a resource for purposes of determining an individual’s eligibility for Supplemental Security Income (SSI).

ANSWER

We conclude that a sub-account in the Life Enrichment Pooled Trust is not excepted from resource counting under Social Security Act § 1917(d)(4)(C), 42 U.S.C. § 1396p(d)(4)(C). Specifically, the Trust contains an impermissible early termination provision.

BACKGROUND

The Life Enrichment Trust (“LET”), through the State of Indiana’s Master Trust Agreement (“MTA”), restated and amended on December 22, 2016, established the Life Enrichment Pooled Trust (“Pooled Trust”). See MTA, par. 1-2. The purpose of the Pooled Trust was to comply with Social Security Act § 1917(d)(4)(C), 42 U.S.C. § 1396p(d)(4)(C), and supplement funds and services account beneficiaries received from SSI and Medicaid. See MTA, par. 2.

LET, a non-profit corporation, established and manages the Pooled Trust, and serves as Trustee. See MTA, par. 3, 6. The MTA provides that, should LET employ the services of a for-profit entity, LET will maintain ultimate managerial control over the Trust. See MAT, par. 12. While the for-profit entity may handle certain trust functions on LET’s behalf, the use of the for profit entity will always be subordinate to LET’s managers. See MAT, par. 12.

The MTA further provides that while LET pools funds in various sub-accounts for investment and managerial purposes, it maintains separate accounts for each beneficiary, and LET issues statements for each account on a quarterly basis. See MTA, par. 3-4.

To establish an account in the MTA, the “Settlor” must sign and date a copy of the MTA, as well as fill out the information requested in the Joinder Agreement. See MTA, par. 4. A “Settlor” is the parent, grandparent, or legal guardian of a disabled individual, or the disabled individual himself or herself, or a court. See MTA, par. 4-5.

Funds deposited into an account, as well as the account itself, is irrevocable and non-refundable. See MTA, par. 4. No sub-account funds or property shall be subject to encumbrance, pledge, assignment or transfer by the beneficiary or remainderman. See MTA, par. 7. Additionally, no trust properly shall be available to a beneficiary or remainderman until actually delivered to or for the benefit or him or her. See MTA, par. 7. LET has absolute and sole discretion on distribution of trust account funds. See MTA, par. 6.

If LET determines that it is impossible or impractical to carry out the purpose of the Trust, it may choose, in its sole and absolute discretion, to terminate the Trust and/or resign as Trustee. See MTA, par. 11. In such case, LET will first try to transfer the funds to a section 1917(d)(4)(C) pooled trust. See MTA, par. 11.

Upon the death of a beneficiary, LET will reimburse each State that provided medical assistance on behalf of the individual. See MTA, par. 14. If, after such payment, less than fifty percent of the residual account funds remain, LET will retain those funds. See MTA, par. 14. If fifty percent or more of the residual account funds remain, then LET will distribute those funds pursuant to the Joinder Agreement. See MTA, par. 14. The Joinder Agreement permits a beneficiary to select a residual beneficiary(ies) for any amounts remaining in his or her account after his or her death and after payment to the State of Indiana and any other State that provided the beneficiary medical assistance. See Joinder Agreement, pg. 3.

DISCUSSION

Generally, a trust established after January 1, 2000, with the assets of an individual will be a resource countable to that individual for purposes of determining SSI eligibility. See Social Security Act §§ 1613(e), 1917(d); 42 U.S.C. §§ 1382b(e), 1396p(d); Program Operations Manual System (POMS) SI 01120.201.A. However, a trust established with the assets of a disabled individual that is part of a pooled trust may be excepted under certain circumstances. Social Security Act §§ 1613(e)(5), 1917(d)(4)(C); 42 U.S.C. §§ 1382b(e)(5), 1396p(d)(4)(C); POMS SI 01120.203.B.2. To meet this pooled trust exception: (1) the trust must be managed by a non-profit association; (2) a separate account must be maintained for each beneficiary of the trust; (3) the beneficiary’s account must be established for his or her sole benefit by a parent, grandparent, legal guardian, by the beneficiary, or by a court; and (4) upon the beneficiary’s death, to the extent that amounts remaining in the beneficiary’s account are not retained by the trust, the trust must pay the State(s) the amount remaining in the account up to the total amount of medical assistance paid on behalf of the beneficiary under State Medicaid plan(s). Social Security Act § 1917(d)(4)(C), 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203.B.2.a.

Here, as discussed in greater detail below, the Pooled Trust does not satisfy the requirements of Social Security Act § 1917(d)(4)(C), 42 U.S.C. § 1396p(d)(4)(C). Accordingly, an account in the Pooled Trust is not excepted from resource counting.

1. Managed by a Non-Profit Association

To satisfy the pooled trust exception, the trust must be established and managed by a non-profit association. Social Security Act § 1917(d)(4)(C)(i), 42 U.S.C. § 1396p(d)(4)(C)(i); POMS SI 01120.203.B.2.c. A non-profit entity may employ the services of a for-profit entity, but the non-profit entity must maintain ultimate managerial control over the trust. POMS SI 01120.225.D. The for-profit entity may handle certain trust functions on behalf of the non-profit association; however, the use of a for-profit entity must always be subordinate to the non-profit managers of a pooled trust. Id.

LET, a non-profit corporation, established and manages the Pooled Trust. See MAT, par. 3, 6. Furthermore, the MTA provides that should LET employ the services of a for-profit entity, LET will maintain ultimate managerial control, and the for-profit entity would always be subordinate to LET’s managers. See MTA, par. 12. The foregoing provisions appear to satisfy first requirement of the pooled trust exception.

2. Maintenance of Separate Accounts for Each Trust Beneficiary

To satisfy the pooled trust exception, the pooled trust must maintain a separate account for each trust beneficiary, although it is acceptable under POMS for individual accounts to be pooled for investment and management purposes. Social Security Act § 1917(d)(4)(C)(ii), 42 U.S.C. § 1396p(d)(4)(C)(ii); POMS SI 01120.203.B.2.d.

The MTA provides that although LET may pool funds from various accounts for purposes of investment and management, LET will maintain separate accounts for each beneficiary, and issue quarterly statements for each account. See MTA, par. 3-4. The foregoing provisions appear to satisfy the second requirement of the pooled trust exception.

3. Established for the Beneficiary’s Sole Benefit by the Beneficiary, a Parent, Grandparent, Legal Guardian, or a Court

To satisfy the third requirement of the pooled trust exception, the trust sub-account must be established by the sub-account beneficiary, his or her parent, grandparent, legal guardian, or a court. Social Security Act § 1917(d)(4)(C)(iii), 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203.B.2.f. The MTA provides that only a parent, grandparent, or legal guardian of a disabled individual, or the disabled individual himself or herself, or a court can establish an account in the Pooled Trust. See MTA, par. 4-5.

Additionally, section 1917(d)(4)(C)(iii) of the Social Security Act requires that the trust account be for the sole benefit of the disabled individual. Social Security Act § 1917(d)(4)(C)(iii), 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203.B.2.e. A trust subaccount will not meet the “sole benefit” requirement if the trustee has power to terminate the trust prior to the beneficiary’s death, unless the early termination clause provides that, upon termination of the trust:

(1) the State receives all amounts remaining in the trust up to an amount equal to the amount of medical assistance paid on behalf of the individual, and

(2) after payment of allowable administrative expenses and reimbursement to the State, all remaining funds are distributed to the beneficiary, and

(3) the beneficiary does not have power to terminate the trust. POMS SI 01120.199.F.1; see also POMS SI 01120.203.B.2.e (the pooled trust exception does not apply if the trust account “allows for termination of the trust account prior to the individual's death and payment of the corpus to another individual or entity”).

An early termination provision need not meet the forgoing criteria if the clause solely allows for a transfer of the beneficiary’s assets from one section 1917(d)(4)(C) qualifying pooled trust to another section 1917(d)(4)(C) qualifying pooled trust. See POMS SI 01120.199.F.2. In such event, the early termination clause “must contain specific limiting language that precludes the early termination from resulting in disbursements other than to the secondary section 1917(d)(4)(C) trust,” with the exception of allowable administrative expenses. Id.

Here, the MTA provides that LET shall have discretion to terminate the Trust and/or resign as Trustee if it becomes impossible or impractical to carry out the purpose of the Trust. See MTA, par. 11. In such event, LET will first “try” to transfer account funds to another section 1917(d)(4)(C) pooled trust. See id.

The foregoing provision violates the sole benefit requirement of the pooled trust exception. The provision permits termination of the trust prior to a beneficiary’s death. Although the MTA provides the Trustee will “try” to transfer the Trust’s funds to another qualifying pooled trust, the provision does not ensure such a transfer will take place. See id. Nor does the MTA clarify the disposition of the Trust’s assets in the event such a transfer is unsuccessful. See id. Therefore, the MTA does not contain the requisite “specific limiting language” ensuring that the early termination will not allow disbursement of Trust assets other than to a qualifying secondary pooled trust. As a result, the Pooled Trust does not satisfy the requirements of the pooled trust exception, and constitutes a countable resource to the Trust beneficiary.

LET could bring the Pooled Trust into compliance with section 1917(d)(4)(C)(iii) of the Social Security Act either through removal of the problematic early termination provision or through the inclusion of additional language ensuring that the early termination will not allow disbursement of Trust assets other than to a qualifying secondary pooled trust.

4. Reimbursement to the State(s) Upon the Beneficiary’s Death

To satisfy the fourth requirement of the pooled trust exception, the trust must ensure that upon a beneficiary’s death, the State(s) are reimbursed from any remaining trust balance equal to the total amount of medical assistance paid on behalf of the deceased beneficiary during his or her lifetime. Social Security Act §§ 1917(d)(4)(C)(iv), 42 U.S.C. § 1917(d)(4)(c)(iv); POMS SI 01120.203.B.2.g. The State(s) must be listed as the first payee(s) and have priority over payment of other debts and administrative expenses. Id. The trust must provide payback for any State(s) that may have provided medical assistance under the State Medicaid plan(s) and not be limited to any particular State(s). Id.

The MTA provides that, upon the beneficiary’s death, LET will reimburse each State that provided medical assistance to the beneficiary up to the total amount of Medicaid payments made on behalf of the beneficiary. See MTA, par. 14. Likewise, the Joinder Agreement provides that distributions to residual beneficiaries shall be made upon the beneficiary’s death only after reimbursement to the State of Indiana and any other State that provided Medical Assistance to the beneficiary. See Joinder Agreement. Accordingly, the Pooled Trust satisfies the fourth requirement of the pooled trust exception.

APPLICATION OF REGULAR RESOURCE RULES

As discussed, the Pooled Trust contains an impermissible early termination provision, which violates the “sole benefit” requirement of section 1917(d)(4)(C)(iii) of the Social Security Act. Social Security Act § 1917(d)(4)(C)(iii), 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203.B.2.e; POMS SI 01120.199.F.2. Should LET modify the MTA, removing or otherwise bringing the early termination provision into compliance with POMS SI 01120.199.F.2, the Pooled Trust would satisfy the requirements of section 1917(d)(4)(C) of the Social Security Act, and be excepted from resource counting. Nevertheless, even if a tust meets an exception to resource counting, it is still subject to the regular resource counting rules. See POMS SI 01120.203.B.1.a.

Pursuant to POMS SI 01120.200.D.1.a, trust principal is a resource if the beneficiary has the legal authority to revoke or terminate the trust and then use the funds to meet his food or shelter needs, or if the beneficiary can direct 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. Moreover, if the beneficiary can sell his or her beneficial interst in the trust, that interest is a resource. Id.

Here, the MTA provides that a beneficiary may not pledge, assign, transfer, or encumber money or property in his or her trust account. See MTA, par. 7. Additionally, the beneficiary does not have power to direct use of trust funds for his or her support and maintenance; rather, the Trustee has sole and absolute discretion to distribute funds. See MTA, par. 6-7.

Finally, the MTA provides that deposits into a trust account are non-refundable and irrevocable, and the trust account is irrevocable once established. See MTA, par. 4. However, under Indiana law, when a grantor is the sole beneficiary of a trust, the trust is deemed to be revocable even if the trust document states it is irrevocable. See POMS SI CHI01120.200.C; Rest. (2d) of Trusts § 339.[14]

The Joinder Agreement gives the settlor of each trust account the opportunity to identify residual beneficiaries in the event there remain funds for distribution upon the beneficiary’s death. See Joinder Agreement. Furthermore, LET maintains a contingent residual beneficiary interest in each trust account. See MTA, par. 14 (if, upon a beneficiary’s death, less than fifty percent of the account funds remain after reimbursing the State(s), then the remaining funds shall be retained by LET). Accordingly, an otherwise irrevocable self-settled account in the Pooled Trust is not revocable by operation of Indiana law.

Therefore, should LET modify the Pooled Trust to satisfy the requirements of the pooled trust exception, the Trust would not constitute a resource under regular resource counting rules.

CONCLUSION

The Pooled Trust does not meet the requirements for an exception to resource counting under section 1917(d)(4)(C) of the Social Security Act. The MTA permits early termination and the possibility of disbursement other than to a secondary qualifying pooled trust.

Should LET remove or otherwise rectify the problematic provision, the agency would except the Pooled Trust from resource counting. Furthermore, because a beneficiary of the Pooled Trust does not have power to revoke or terminate his or her trust account, or direct use of the account principal for his or her support or maintenance, the trust account would not constitute a resource under regular resource counting rules.

F. PS 17-004 SSI—Review of the A~ Irrevocable Trust — Indiana

Date: October 5, 2016

1. Syllabus

This Regional Chief Counsel (RCC) opinion discusses whether the A~. Irrevocable Trust (the Trust) is excepted as a special needs trust under section 1917(d)(4)(A) of the Social Security Act (the Act). Additionally, if the agency determines that the exception applies, is the Trust a countable resource for purposes of determining eligibility for supplemental security income (SSI)? It was concluded that the Trust is not excepted from resource counting under section 1917(d)(4)(A) of the Act because it contains an improper early termination provision. Additionally, modification of the Trust to meet the foregoing exception would not result in an exclusion from resource counting. As settlor and sole beneficiary, the beneficiary has power to revoke the Trust and use the Trust assets to meet her basic needs. Therefore, even with removal of the improper early termination provision, the Trust is a countable resource.

2. Opinion

QUESTION

You asked whether the A~ Irrevocable Trust (the Trust) is excepted as a special needs trust under section 1917(d)(4)(A) of the Social Security Act (the Act). Additionally, even should the agency determine that the exception applies, you asked if the Trust is a countable resource for purposes of determining A~ eligibility for supplemental security income (SSI).

The Trust is not excepted from resource counting under section 1917(d)(4)(A) of the Act because it contains an improper early termination provision. Furthermore, even if the Trust met the special needs trust exception it still constitutes a countable resource because, as the settlor and sole beneficiary, A~ has power to revoke the Trust and use the Trust assets to meet her basic needs.

FACTS

R~, A~’s mother and guardian, executed the Trust on A~’s behalf on July XX, 2005, pursuant to order of the Marion County Superior Court. A~’s settlement from medical malpractice litigation funded the Trust.

Article Three of the Trust provides that the Trust is irrevocable, except a court may amend or revoke the Trust in order to accomplish its stated purpose. Article Four of the Trust gives the trustee sole discretion to spend or retain the Trust income or principal for A~’s benefit.

Article Five provides that, upon the A~’s death, any remaining balance in the Trust will be used to reimburse Indiana and other applicable state(s) for Medicaid assistance paid on the A~’s behalf, with any remainder paid to “the Personal Representative of the Beneficiary’s probate estate.”

Article Seven provides that, should the trustee determine that the Trust is not economical or if it is in A~’s best interest to receive services through the Arc Pooled Trust, then the trustee may distribute the entire trust principal and undistributed trust income to the Arc Pooled Trust for A~’s benefit, enrolling her in that pooled trust.

Article Ten provides that Indiana law shall govern the Trust.

DISCUSSION

Generally, a trust established after January 1, 2000, with the assets of an individual will be a countable resource to that individual for purposes of determining his or her SSI eligibility. See Social Security Act § 1613(e), 42 U.S.C. § 1382b(e); POMS SI 01120.201.A. However, pursuant to section 1917(d)(4)(A) of the Act, commonly referred to as the Special Needs Trust exception, a trust will be excepted as a resource if:

It contains the assets of a disabled individual under the age 65;

It is established for the individual’s benefit by the individual’s parent, grandparent, legal guardian, or a court; and

It contains language that the State(s) will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan.

Social Security Act § 1917(d)(4)(A), 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203.B.1. The agency has interpreted section 1917(d)(4)(A)(ii) to require that the trust be for the sole benefit of the individual. POMS SI 01120.203.B.1.e. The trust will not be for the individual’s sole benefit if it (1) provides benefits to other individuals or entities during the disabled individual’s lifetime, or (2) allows for termination of the trust prior to the individual’s death and payment of the trust corpus to another individual or entity (other than the State(s) for reimbursement of medical assistance). Id.

Accordingly, if a trust contains an early termination clause, it will only meet the requirements of section 1917(d)(4)(A)(ii) of the Act if: (1) the State is designated to receive all amounts remaining in the trust at the time of termination up to the total amount of medical services paid on behalf of the beneficiary by the State, (2) after reimbursement to the State, all remaining funds are to be distributed to the beneficiary with the exception of certain specified expenses, and (3) the beneficiary does not have the power to terminate the trust. POMS SI 01120.199.F.1.

Article Seven of the A~ Trust violates the sole benefit requirement of section 1917(d)(4)(A) of the Act. Specifically, Article Seven provides that, should the trustee determine that the Trust is not economical or if it is in A~’s best interest to receive services through the Arc Pooled Trust,[15] then the trustee may distribute the entire trust principal and undistributed trust income to the Arc Pooled Trust for A~’s benefit, enrolling her in that pooled trust. Article Seven, therefore, allows termination of the Trust during A~’s lifetime and distribution of the Trust corpus without reimbursement to the State(s) for medical services paid on A~’s behalf. Such a provision is in direct violation of POMS SI 01120.199.F.1, which requires that any early termination and distribution to or for the beneficiary may occur only after the State(s) receive reimbursement.[16]

Agency policy provides a 90-day period during which an SSI recipient may have his or her trust amended without the agency counting the trust as a resource. This 90-day period applies where the agency previously determined that a trust was an excepted resource under 1917(d)(4)(A) or (C), and the trust is currently non-compliant because of an invalid early termination clause. See POMS SI 01120.199.A.

This 90-day amendment period shall begin upon the SSI recipient receiving notice that the trust is non-compliant with the criteria for a special needs trust. Id. If the trust still fails to meet the special needs trust requirements upon expiration of the 90-day period, the agency will begin counting the trust as a resource. Id. Each previously excepted trust is permitted only one 90-day amendment period. Id.

Here, the agency previously determined that the Trust was not a countable resource when A~ applied for SSI as a minor. The agency later determined that the Trust was not excepted under section 1917(d)(4)(A) of the Act due to an improper early termination provision. However, A~ is not entitled to a 90-day amendment period to remove the improper early termination provision because the Trust is otherwise a countable resource, as explained below.

Even if a trust is excepted under section 1917(d)(4)(A) of the Act, it is still subject to regular resource counting rules. See POMS SI 01120.203.B.1.a (“A trust which meets the exception to counting the trust under the SSI statutory trust provisions of Section 1613(e) must still be evaluated under the instructions in SI 01120.200, to determine if it is a countable resource”).

Under the regular resource counting rules, trust property is a resource for SSI purposes if the individual (1) has the authority to revoke the trust and then use the funds to meet his or her basic needs for food or shelter; or (2) can direct the use of the trust principal for his or her support and maintenance. See POMS SI 01120.200.D.1.a. Additionally, if the individual can sell his or her beneficial interest in the trust, that interest is a resource. See id.

Whether a trust can be revoked or terminated depends on the terms of the trust and applicable State law. See POMS SI 01120.201.D.3. Here, Article Three provides that the Trust is irrevocable, except that a court may order revocation or amendment of the trust terms in order to accomplish the trust’s stated purpose. To the extent a trust purports to be irrevocable, most states follow the general principle of trust law that if a grantor is also the sole beneficiary of the trust, the trust is revocable regardless of language in the trust to the contrary. See POMS SI 01120.200.D.3; SI CHI01120.200.C; Rest. (Second) of Trusts § 339 (“If the settlor is the sole beneficiary of a trust and is not under an incapacity, he can compel the termination of the trust, although the purposes of the trust have not been accomplished”); Bogert's The Law of Trusts and Trustees, § 1004 (“Numerous courts have found a trust to be terminated or terminable at the instance of the settlor who is also the sole beneficiary”).

Here, Indiana law governs the Trust. Neither Indiana statute nor case law addresses the revocability of self-settled trusts where the settlor is the sole beneficiary. However, Indiana courts have followed the Restatement (Second) of Trusts, particularly concerning a settlor’s powers of revocation. See Breeze v. Breeze, 428 N.E.2d 286 (Ind. Ct. App. 1981) (finding opinion consistent with Restatement (Second) of Trusts § 330 regarding a settlor’s mode of revocation); Hinds v. McNair, 413 N.E.2d 586, 594 (Ind. Ct. App. 1980) (citing Restatement (Second) of Trusts § 330 on for general principal related to a settlor’s power to amend or revoke an irrevocable trust); see also Zoeller v. East Chicago Second Century, Inc., 904 N.E.2d 213, 221 (Ind. 2009) (following general notion of a constructive trust as outlined in Restatement (Second) of Trusts); Kesling v. Kesling, 967 N.E.2d 66, 81-82 (Ind. Ct. App. 2012) (citing to Restatement (Second) of Trusts and Restatement (Third) of Trusts for evolving legal status of trusts). Likewise, Indiana’s legislature has followed the Restatement (Second) of Trusts in drafting several sections of Indiana’s Trust Code. See e.g., Ind. Code Ann. §§ 30-4-3-2, 30-4-3-7, 30-4-3-10, 30-4-3-11, 30-4-3-26. It follows that, should the scenario arise, an Indiana court would adopt the general trust principle that a settlor could revoke a trust for which he or she is the sole beneficiary regardless of any terms in the trust to the contrary. See POMS SI CHI01120.200.C.

Thus, the only remaining question is whether the Trust contained any identifiable residual beneficiaries. Article Five provides that, upon the beneficiary’s death, any remaining balance in the Trust will be used to reimburse Indiana and other applicable state(s) for Medicaid assistance paid on the beneficiary’s behalf, and then pay any remaining amount to “the Personal Representative of the Beneficiary’s probate estate.”

Under the common law doctrine of worthier title, when a settlor designated his children, issue, heirs, or next of kin as remainder beneficiaries, such successors of the settlor’s estate were regarded as taking through the settlor and not as remaindermen; thus, the settlor was treated as the sole owner of the equitable interest in the trust. See Bogert's The Law of Trusts and Trustees, § 1004. Indiana has followed the modern view, and abolished the doctrine of worthier title. Ind. Code Ann. § 30-4-2-7; see also POMS SI 01120.200.D.3 (“Under the modern view, residual beneficiaries are assumed to be created, absent evidence of a contrary intent, when a grantor names heirs, next of kin, or similar groups to receive the remaining assets in the trust upon the grantor's death.”). However, even with the abolishment of the doctrine of worthier title, designating the settlor’s estate as recipient of a remainder share of the trust corpus does not create an identifiable residual beneficiary. See POMS SI CHI01120.200.D.2 (“Where the trust states only that the grantor’s own estate will receive any remaining trust assets on the grantor’s death, and names no other beneficiaries to the trust, the trust should be considered revocable.”). Here, an Indiana court would likely construe any conveyance to A~’s estate as no more than her retention of a future reversionary interest.

As there are no identifiable remainder beneficiaries, A~ is the sole beneficiary of the Trust. As such, under Indiana law, A~ has power to terminate the Trust and use the Trust funds to meet her basic needs. The Trust, therefore, is a countable resource. See POMS SI 01120.200.D.1.a.

CONCLUSION

The Trust is not excepted from resource counting under section 1917(d)(4)(A) of the Act because it contains an improper early termination provision. Additionally, modification of the Trust to meet the foregoing exception would not result in an exclusion from resource counting. As settlor and sole beneficiary, A~ has power to revoke the Trust and use the Trust assets to meet her basic needs. Therefore, even with removal of the improper early termination provision, the Trust is a countable resource.

G. PS 09-015 SSI - Review of the Trust and Annuity for Savanna

Date: November 3, 2008

1. Syllabus

This opinion examines whether or not the trust and annuity in question are a resource for SSI purposes. In this case, the trust meets all of the criteria required to meet the special needs trust exception. Likewise, the annuity is not currently a resource because the claimant does not have the ability to sell her right to receive future payments. The claimant is eligible to receive payments from the annuity beginning in August 2022. The annuity payments may be income to the claimant beginning in 2022 and should be evaluated at that time

2. Opinion

You asked us whether the Trust and Annuity constitutes a resource or income for SSI purposes. For the reasons stated below, we believe that the Trust is not a resource and that the Annuity also is not a resource and does not currently result in any income to Savanna. The Annuity, though, may be income beginning in August 2022.

BACKGROUND

The Trust for the Sole Benefit of Savanna R. W~ was established in 2007, pursuant to court order. The Trust indicates that Savanna suffers from a severe and permanent brain injury, as well as from permanent physical injuries, arising from substandard care during her birth. The Trust was established around the time of settlement of two related lawsuits.

One lawsuit was a medical malpractice lawsuit against Dr. Z~-B~ brought by Ronnie and Mollie W~, individually and as parents and natural guardians on behalf of Savanna W~. The June 2007 Settlement Agreement and Release provided that the W~s were to receive $150,000, and that the guardians of the estate of Savanna W~ were to receive periodic payments of $1,000 per month for 100 months beginning August 10, 2022.

According to a subsequent court order, the $150,000 lump sum was distributed with:

a) a total of $96,700 paid to the attorneys; and

b) $53,300 held in escrow pending resolution of an unidentified ERISA subrogation claim (which was ultimately waived).

The Settlement Agreement gave the defendant or its insurer the right to purchase an annuity policy, of which the defendant/insurer would be the sole owner, for the purpose of funding the periodic payments. The Agreement also states that the W~s have no power to sell, mortgage, encumber or anticipate the periodic payments, by assignment or otherwise.

In or around May 2007, Prudential Assigned Settlement Services Corporation (PASSCorp) assumed the annuity payment obligations to the W~s, and purchased an annuity contract from the Prudential Insurance Company. The Annuity Certificate indicates that the certificate holder (i.e., PASSCorp) had sole and exclusive ownership rights in the Certificate, and that no other person had any right to anticipate, sell or absolutely assign payments under the Certificate. The Certificate indicated that Prudential Insurance would make $1,000 payments each month for 100 months, beginning on August 10, 2022, to Ronnie and Mollie W~ as guardians of Savanna R. W~, for her benefit.

On June 13, 2007, the Lawrence County Circuit Court issued an order directing Mollie W~ to establish the Trust for the Sole Benefit of Savanna R. W~ with Fifth Third Bank as the Trustee, and to pay the portion of the settlement that would otherwise be payable to Savanna to the Trust. The Trust was established that same day.

On June 29, 2007, Ronnie W~ and Mollie W~, individually and as parents and natural guardians on behalf of Savanna W~, settled a suit they had filed against the Indiana Patient Compensation Fund for $1,000,000. Of this amount, the W~'s proceeds were $726,430.33.

According to a court order dated December 3, 2007, the net settlement proceeds from both the Z~-B~ suit (including the $53,300 previously held in escrow) and the IPCF suit were $779,730.33, after payment of fees and costs. From that amount, $51,806.36 was paid to Ronnie and Mollie W~ for their own claims, and the remaining $727,923.97 was ordered to be paid to the Trustee. The Trustee received that amount on December 12, 2007.

Trust Terms

Article I of the Trust indicates that its purpose is to "protect Savanna's long-term interests, to generally provide supplemental care . . . and to increase the quality of her life, after utilizing available assistance from governmental and private agencies and when such assistance or benefits are incomplete or insufficient, and not to replace assistance or benefits or to render Savanna ineligible for any assistance or benefits to which she would otherwise be entitled . . ."

Article II indicates that the Trust estate is to consist of funds ordered by a court to be paid to the Trust, including a lump sum amount as well as a periodic annuity payment for a term certain, and any funds or property ordered by the court to be paid to the Trust.

Article III states that the Trust is irrevocable, other than by order of the court. The Trustee has the discretion and authority to distribute the principal and income of the Trust, but is not to "supplant services, assistance, and medical care available to Savanna from any such source [as Medicaid or SSI benefits]" and the Trustee is authorized to deny requests to release income or principal to pay for expenses otherwise covered by public assistance programs. Trust, Art. IV, C. The Trustee is also authorized to take those steps necessary to ensure that Savanna remains eligible for public assistance, unless it determines that such is contrary to Savanna's best interests. Trust, Art. IV, C. The Trustee may make disbursements directly to Savanna. Trust, Art. IV, C-D.

Article V of the Trust provides that upon Savanna's death, the Trustee shall repay the State of Indiana, or any other state that may provide Savanna with Medicaid assistance, that amount required to satisfy 42 U.S.C. § 1396p(d)(4)(A). Trust, Art. V. The Trustee then to pay Mollie W~ $10 and to pay the remainder of the Trust estate to the personal representative of Savanna's estate. The Trust contains a spendthrift clause which prohibits attachment by creditors, or transfer or assignment by any beneficiary. Trust, Art. V.

DISCUSSION

Under regular resource rules, assets are resources for SSI purposes if the individual owns them and can convert them to cash for her support and maintenance. 20 C.F.R. § 416.1201(a). Under special statutory trust resource rules, trusts established with the assets of an individual after January 1, 2000 will also generally be considered resources. 42 U.S.C. § 1382b(e).

Certain trusts - known as Medicaid payback trusts or special needs trusts - are excluded from the statutory trust resource rules. See 42 U.S.C. §§ 1382b(e), 1396p(d)(4); POMS SI 01120.203. These trusts, however, must still be evaluated under regular resource rules to determine whether they are resources. POMS SI 01120.203(B)(1)(a).

A Medicaid payback trust will be exempt from the statutory rules if it: (a) contains the assets of a disabled individual under the age of 65; (b) is established for the benefit of that individual by a parent, grandparent, guardian or court order; and (c) provides that the state will receive all amounts remaining in the trust upon the death of the individual up to an amount equal to the total medical assistance pain on behalf of the individual under a state Medicaid plan. POMS SI 01120.203(B)(1)(a); 42 U.S.C. § 1396p(d)(4)(A).

A Medicaid payback trust, though exempt from statutory trust resource rules, will nonetheless be a resource under regular resource rules if: (a) it is revocable; (b) the claimant can compel the trustee to use the funds for her support and maintenance; or (c) the claimant can sell her beneficial interest in the Trust. POMS SI 01120.200(D)(1)(a); 01120.200(D)(2).

This Trust meets the special needs trust exception. Based on the information we have, Savanna is under 65, and she is disabled. The Trust was funded solely with Savanna's assets. Under the terms of the June court order, the Trust had the right to Savanna's settlement funds at that time, despite not receiving the actual monies until December. Ind. Code § 30-4-2-1(c) ("it is not necessary to the validity of a trust that the trust be funded with or have a corpus that includes property other than the present or future, vested or contingent right of the trustee to receive proceeds or property").

The Trust was established for Savanna's benefit by her mother upon court order. Finally, the Trust provides that the state of Indiana, as well as any other state that provides Savanna medical assistance, will receive that amount required to satisfy 42 U.S.C. § 1396p(d)(4)(A). POMS SI 01120.203(B)(1)(f); Trust, Art. V.

While the Trust is therefore exempt from the statutory trust resource rules, it still must be analyzed under regular resource rules. Here, the Trust is not a resource under the regular resource rules.

The Trust is irrevocable. As a general rule, under Indiana law, a trust is presumed to be irrevocable absent an explicit reservation of power to revoke by the grantor at the time of creation of the trust. Ind. Code Ann. § 30-4-3-1.5(a); Hinds v. McNair, 413 N.E.2d 586, 594 (Ind. App. 1980). Here, the Trust explicitly states that it is irrevocable, except by court order. However, a trust that purports to be irrevocable can nonetheless be revoked where the settlor/grantor and all the beneficiaries agree. See Colbo v. Buyer, 134 N.E.2d 45 (Ind. 1956); Restatement (Second) of Trusts § 339 comment a (settlor who is sole beneficiary can revoke irrevocable trust). Here, Savanna is the true settlor/grantor of the Trust, POMS SI 01120.200(L)(3), but she is not the sole beneficiary, because the Trust provides that, upon her death, her mother is to receive $10. Breeze v. Breeze, 428 N.E.2d 286, 287-88 (Ind. App. 1981). Thus, Savanna does not have the power to revoke the Trust unilaterally.

Further, Savanna has no power to direct the use of Trust principal; the Trustee has sole discretion to make disbursements. Finally, the Trust has a spendthrift provision, which purports to prohibit attachment by creditors or transfer or assignment by any beneficiary. Trust, Art. V. Indiana law provides that if the settlor is also the beneficiary of the trust, a provision restraining the voluntary or involuntary transfer of her interest will not prevent her creditors from satisfying claims from the trust. Ind. Code § 30-4-3-2. This statute does not state, though, that a transferee could reach the settlor's interest in such a case. Therefore, any attempt by Savanna to sell her beneficial interest in the Trust would likely fail. And even if she could sell it, it would have no significant value, for the trust is discretionary. Thus, under regular resource rules, the Trust is not a resource.

Also relevant is the annuity, under which payments do not begin until 2022. The Settlement Agreement and the Annuity Certificate specify that the annuity cannot be assigned. Therefore, the annuity is not currently a resource because Savanna cannot sell her right to receive the future payments. The question, then, is whether the annuity payments will be income to Savanna beginning in 2022, or whether the future payments have been irrevocably assigned to the Trust. See POMS SI 01120.200(G)(1)(d). While the court order of June 2007 requires that Mollie W~ "pay and distribute the remaining balance of the settlement that would otherwise be payable to Savanna to the Trustee of the Trust for the Sole Benefit of Savanna R. W~," and the Trust Agreement also explicitly references "a periodic annuity payment . . . to be made to the Trust for a term certain," it is not clear that the annuity has been assigned irrevocably to the Trust, particularly since the Settlement Agreement and the Annuity both state that the payments cannot be assigned. When the payments begin in 2022: (a) Savanna may be emancipated, and she may be able to receive the annuity payments directly; or (b) Savanna's guardians could petition the court to use the payments for Savanna's support instead of placing the payments in the Trust. Thus, the payments may be income when they begin in 2022, and this issue should be reevaluated at that time.

CONCLUSION

The terms of the Proposed Trust II and the Proposed Joinder Agreement eliminate the possibility that other individuals could benefit from the disabled beneficiary's sub-account during her lifetime. However, the amendments outlined in the Proposed Trust II and Proposed Joinder Agreement are "modifications." As such, they would become effective on the date of execution of the new Trust II and new Joinder Agreement. Consequently, any sub-account created under the Joinder Agreement or Proposed Joinder Agreement would be considered a resource for SSI purposes. However, the Joinder Agreement and Proposed Joinder Agreement should be further modified to provide that, when an individual has received Medicaid benefits from more than one State, the funds remaining in the trust will be distributed to each State from which the individual received Medicaid, based on the State's proportionate share of the total amount of Medicaid benefits paid by all of the States on the individual's behalf. If such modification occurs, the Joinder Agreement and Proposed Joinder Agreement would satisfy the statutory requirements for the Medicaid trust exception. However, we also recommend that the trust be clarified to state that, if and when a new trust is established in or after 2078, that trust will include all amendments made to the current trust as of that date.

Conclusion

The Trust is not a resource to Savanna for SSI purposes. The anticipated annuity payments are not a resource to Savanna now. They may be income to her beginning in 2022 and should be evaluated at that time.

Donna L. C~
Regional Chief Counsel, Region V
By: Allen D~
Assistant Regional Counsel

H. PS 07-170 SSI-Indiana-Review of Proposed Restatement of the ARC of Indiana Master Trust II

Date: July 2, 2007

1. Syllabus

The Chicago Regional Counsel previously determined that a sub-account created under the ARC of Indiana Master Trust (Trust II) and Joinder Agreement was a resource for SSI purposes. This opinion addresses proposed amendments to the trust which are intended to make it a non-countable resource for SSI purposes. Upon review, the proposed changes would be considered modifications, not revisions, and would only be effective on the date they were executed. Even with the modifications, the trust amendments still are not sufficient to change the previous determination. Two areas remain which make this trust a countable resource. One is that no provision is made for a change of residence so that more than one state would be eligible for the Medicaid assistance payback on the death of the claimant. Another is that the potential exists for distribution to others on the "deemed death" of the claimant. Therefore, the distribution resulting from this early termination would not be for the sole use of the claimant. The precedent here is that revisions or modifications to trusts that do not address and solve the central issues for exclusion remain a countable resource for SSI purposes.

2. Opinion

We previously reviewed the ARC of Indiana Master Trust II (Trust II) and Joinder Agreement and concluded that a sub-account created under Trust II and the Joinder Agreement was a resource for purposes of determining eligibility for Supplemental Security Income (SSI). The ARC recently submitted proposed revisions to the Trust II (Proposed Trust II) and the Joinder Agreement (Proposed Joinder Agreement). You asked whether sub-accounts in the Proposed Trust II would be a resource for SSI purposes. For the reasons discussed below, we conclude that sub-accounts in the Proposed Trust II still would be considered a resource for SSI purposes.

BACKGROUND

We previously identified three problems with Trust II and the Joinder Agreement. First, we advised that a sub-account created under Trust II did not qualify for the Medicaid payback exception because it was not established for the sole benefit the disabled individual. See 42 U.S.C. §§ 1382b(e)(3)(B), 1396d(4)(C); Program Operations Manual Systems (POMS) SI 01120.203(B) (2); Memorandum from Reg. Chief Counsel, Chicago, to Asst. Reg. Comm'r. - MOS, Chicago, SSI-Indiana-Review of the Sub-Account of D~ in the ARC of Indiana Master Trust II (March 21, 2007). Under certain circumstances, the trustee could terminate Trust II as though the beneficiary had died. Upon the beneficiary's "deemed death," the Trustee would distribute property held in the beneficiary's name in accordance with the Joinder Agreement. Trust II, Articles Nine and Ten. Pursuant to the Joinder Agreement, the Arc of Indiana would retain 50% of the disabled beneficiary's assets, and the remaining 50% would be distributed to the State of Indiana, up to an amount equal to the total medical assistance paid on the disabled beneficiary's behalf. Joinder Agreement, section F. This created the possibility that individuals other than the beneficiary could benefit from the beneficiary's sub-account during her lifetime. Thus, the sub-account was not established solely for the benefit of the beneficiary.

Second, we previously advised that, even if the "deemed death" clause were removed, the Trust would still fail to qualify for the Medicaid payback exception. Pursuant to the Joinder Agreement, the Trustee could terminate the beneficiary's sub-account if she changed residence from Indiana to another state and the Trustee was unable to make appropriate arrangements for distributions. If that occurred, the Trustee could distribute the beneficiary's remaining sub-account property in the same manner as if the beneficiary had died. Joinder Agreement, Sections D and F, n..1. Thus, the potential distribution on change of residency provision was inconsistent with the requirements that pooled trust accounts be created for the beneficiary's sole benefit during her lifetime.

Third, we noted that Trust II was scheduled to terminate in the year 2078, theoretically within the beneficiary's lifetime. Upon such termination, a New Trust II would be created into which all ARC trust property would be contributed. Except for a new termination date, the New Trust II would contain identical terms as Trust II. Trust, Article Nine, Section IV. We noted that, unless the New Trust II was amended to remove the "deemed death" clause and amend the "change of residence" provisions, the 2078 termination would effectively resurrect the provisions from Trust II that caused a sub-account to constitute a resource for SSI purposes.

DISCUSSION

The proposed amendments to the trust address most of our concerns. Namely, the proposed language would eliminate our concerns that the trust was not for the sole benefit of the disabled individual during his or her lifetime. However, the attempt to make these changes effective "ab initio" is ineffective. The changes will only be effective prospectively. Furthermore, although the revised provisions for moving out of the State of Indiana no longer would raise concern that the trust could benefit individuals other than the disabled beneficiary during the disabled beneficiary's lifetime, we are concerned that the trust does not provide for re-payment of Medicaid expenditures made by any other State. We also recommend further clarification of the provisions relating to the new trust that may be established in 2078.

The proposed Trust II eliminates the "deemed death" clause. We note, however, that the proposed Trust II attempts to delete the "deemed death" clause "ab initio," i.e., as of January 9, 1995, the date Trust II was originally created. Proposed Trust II, Article Nine, Section II. This appears inappropriate. The Restatement (Third) of Trusts distinguishes between two types of alteration of a trust document. A "'reformation' involves the use of interpretation (including evidence of mistake, etc.) in order to ascertain - and properly restate - the true, legally effective intent of a settlor with respect to the original terms of trusts they have created." Restatement (Third) of Trusts § 62, Reporter's Notes. A reformation alters the text of a donative document so that it expresses the intention it was intended to express." See Restatement (Third) of Property, § 12.1. It relates back to alter the text as of the date of the original declaration of trust. See Id. In contrast, a "modification involves a change in - a departure from - the true, original terms of the trust, whether the modification is done by a court [cites omitted] or by the beneficiaries." Restatement (Third) of Trusts § 62, Reporter's Notes. Because a modification is a "departure from the true, original terms of the trust," a modification becomes effective upon its execution. Id.

It appears that the original intent of the Trust was to allow for distributions upon a beneficiary's deemed death and that the proposed alteration changes the original intent of the parties. Thus, the proposed alteration is a modification, rather than a reformation. Id. See Restatement (Third) of Trusts, § 62, Reporter's Notes. By stating that the deletion is effective "ab initio," the proposed Trust II attempts to apply modified trust terms retroactively to January 9, 1995, the original date of the Trust II Declaration. Such retroactive application is inconsistent with modification. Because the proposed deletion of the deemed death clause is a "departure from the true, original terms of the trust," the proposed deletion would become effective upon its execution and would not relate back ab initio to January 9, 1995. See Restatement (Third) of Trusts § 62, Reporter's Notes.

The proposed Joinder Agreement also deletes the provision that previously allowed the Trustee to distribute the beneficiary's remaining sub-account property in Trust II if she changed residence from Indiana to another state. Proposed Joinder Agreement, Section F, n.1. We note, however, that the Proposed Joinder Agreement similarly attempts to apply the deletion "ab initio." Proposed Joinder Agreement, Section F., n.1. For the same reasons explained above, we believe that a retroactive application of this clause to January 9, 1995, would be inconsistent with the Restatement (Third) of Trusts. Such modification would, instead, become effective upon its execution.

The Proposed Trust II also contains slightly altered language concerning termination in the year 2078. The new provision states that, upon such termination, a New Trust II will be created that, except for a new termination date, will contain identical terms as Trust II, "as amended." Proposed Trust II, Section IV. Because Trust II has previously been amended several times, we believe it would be prudent to clarify that "as amended" refers to the proposed 2007 amendments or all amendments made to the trust as of 2078 or the creation of the new trust.

Finally, we note that Section F of the Joinder Agreement allows the ARC to retain 50% of the Trust assets at the time of the beneficiary's death, and requires that the remaining 50% be distributed to the State of Indiana up to an amount equal to the total medical assistance paid on the beneficiary's behalf under the State Medicaid plan, appeared consistent with this POMS provision. See Memorandum from Reg. Chief Counsel, Chicago, to Asst. Reg. Comm'r. - MOS, Chicago, SSI-Indiana-Review of the Sub-Account of D~ in the ARC of Indiana Master Trust II (March 21, 2007). The trust does not provide for reimbursing any other State for Medicaid payments. The Office of Income and Security Programs (OISP) recently clarified that language such as this is problematic because it frustrates any State Agency's (other than Indiana's) ability to recoup medical assistance paid on behalf of the individual. See Memorandum from Reg. Chief Counsel, Chicago, to Asst. Reg. Comm'r. - MOS, Chicago, SSI-Illinois-Review of the D~~ f/k/a Karr Supplemental Care and Need Trust (June 11, 2007). OISP informed us that the trust must provide that the funds remaining in the trust are distributed to each State from which the individual received Medicaid, based on the State's proportionate share of the total amount of Medicaid benefits paid by all of the States on the individual's behalf. This is in keeping with the Act's requirement that the trust must provide for reimbursement of "the total medical assistance paid on behalf of the individual under a State plan under this subchapter." 42 U.S.C. § 1396p(d)(4)(a). Because the Joinder Agreement and Proposed Joinder Agreement permit reimbursement for payments made under only the Indiana Medicaid plan, they do not meet the statutory standard. Thus, any sub-account created under the Joinder Agreement or Proposed Joinder Agreement would not satisfy all of the elements of the Medicaid trust exception and would be considered a resource for SSI purposes.

CONCLUSION

The terms of the Proposed Trust II and the Proposed Joinder Agreement eliminate the possibility that other individuals could benefit from the disabled beneficiary's sub-account during her lifetime. However, the amendments outlined in the Proposed Trust II and Proposed Joinder Agreement are "modifications." As such, they would become effective on the date of execution of the new Trust II and new Joinder Agreement. Consequently, any sub-account created under the Joinder Agreement or Proposed Joinder Agreement would be considered a resource for SSI purposes. However, the Joinder Agreement and Proposed Joinder Agreement should be further modified to provide that, when an individual has received Medicaid benefits from more than one State, the funds remaining in the trust will be distributed to each State from which the individual received Medicaid, based on the State's proportionate share of the total amount of Medicaid benefits paid by all of the States on the individual's behalf. If such modification occurs, the Joinder Agreement and Proposed Joinder Agreement would satisfy the statutory requirements for the Medicaid trust exception. However, we also recommend that the trust be clarified to state that, if and when a new trust is established in or after 2078, that trust will include all amendments made to the current trust as of that date.

Donna L. C~
Regional Chief Counsel, Region V
By: Anne K. K~
Assistant Regional Counsel

I. PS 05-224 SSI-Indiana-Review of the Brooke G~ Irrevocable Trust Number One and the Sub-Account of Brooke G~, ~, in the ARC of Indiana Master Trust I

Date: August 17, 2005

1. Syllabus

An irrevocable trust was established by an SSI beneficiary's grandparents in 1993. The trust contained a spendthrift provision and the grandparents served as trustees and had absolute authority over distributions. In 2002, the Superior Court ordered that the trust be reformed and the assets were subsequently placed in a sub account of the Association for Retarded Citizens (ARC) of Indiana Master Trust I. Barring an explicit statement to the contrary, reformation of a trust relates back and serves to alter the text of the trust as of the original date of execution. Additionally, a trustee to trustee transfer does not constitute the establishment of a new trust for SSI purposes unless there is an indication that the beneficiary is using the transfer as an estate planning tool. Thus, the beneficiary's sub account in the ARC Trust is considered a continuation of the original Trust. Since the original trust was not a resource for SSI purposes, the second trust created by the reformation is also not a resource for SSI purposes. Due to a change in the Social Security Act, this precedent may only be applicable to a trust established before 1/1/00.

2. Opinion

You asked whether the former Brooke G~ Irrevocable Trust Number One ("G~ Trust") and the current subaccount of Brooke G~ in the Association for Retarded Citizens ("ARC") of Indiana Master Trust I ("ARC Trust") were/are resources for purposes of SSI eligibility.

BACKGROUND

On December 28, 1993, G~ and H~, Brooke G~'s grandparents, established the G~ Trust, in which they named themselves as the trustees and Brooke as the beneficiary. G~ and H~ irrevocably transferred into the Trust an initial gift of $15,000.00. The trust indicated that this initial gift, as well as an additional anticipated gift of $15,000.00, was to be used to purchase an interest in a hog farm.

The Trust provided that the trustees had sole discretion to make distributions of income and principal to or for the benefit of Brooke in order to provide for her support, maintenance, health, and other benefit. The Trust added that the trustees had complete and absolute authority to take any action with respect to the trust as long as it was in the best interest of the beneficiaries.

Under the terms of the Trust, the beneficiary could not alienate, encumber, or hypothecate her interest in the principal or income of the trust, and her interest in the Trust was protected from the claims of any creditors. Upon Brooke's death, the remaining assets, after payments of all proper expenses, were to be distributed equally to the lineal descendants of Deborah G~.

Upon the petition of Deborah S~, the Jasper Superior Court issued an "Order Reforming Trust" on August 21, 2002. The Court order showed that Brooke, considered an incapacitated person, was a ward of the Court. The Court found that the assets of the G~ Trust included an interest in Penbrook Oak Farm, LLC, with an approximate value of $22,893.00. The Court also found that it was in Brooke's best interests that the G~ Trust be reformed, as it did not allow her to qualify for Medicaid. The Court therefore ordered that the interest in Penbrook Oak Farm be liquidated and the proceeds be paid to the ARC of Indiana Master Trust under a joinder agreement for Brooke's benefit.

Shortly thereafter, G~ purchased the shares of Penbrook Oak Farm contained in the G~ Trust for $22,500.00. On September 10, 2002, G~ and H~ executed a joinder agreement, enrolling in the ARC Trust. Brooke's sub account in the ARC Trust was funded immediately with the proceeds of $22,500.00 from the sale of the shares of Penbrook Oak Farm.

DISCUSSION

I. G~ Trust

Because Brooke's grandparents funded this Trust, it met the definition of a third party trust and only the regular resource rules apply. Under the regular resource rules, trust principal will be a resource if the individual can (1) revoke or terminate the trust and use the assets to meet her needs for food or shelter, or (2) direct the use of the trust assets for her support and maintenance. See POMS SI 01120.200(D)(1)(a). In addition, the current value of the individual's future interest in mandatory disbursements, if any, may be a resource if it can be sold. See id. Applying these rules, the Trust was not a resource to Brooke.

The Trust stated that it was irrevocable, and no provision allowed Brooke to terminate the Trust. Additionally, the trustees had sole discretion to make distributions from the trust. Thus, Brooke had no power to direct the use of the Trust assets for her support or maintenance. Moreover, the Trust did not provide for mandatory disbursements to Brooke. With respect to Brook's power to otherwise sell her beneficial interest in the Trust, the Trust contained a "spendthrift" provision, which prohibited her from alienating, encumbering, or hypothecating her interest in the Trust. Consequently, the Trust was not a resource to Brooke.

II. Brooke's Subaccount in the ARC Trust

Brooke's sub account in the ARC Trust was created by an order of the Jasper Superior Court reforming the G~ Trust. Following Restatement (Third) of Trusts § 62, Ind. Code § 30-4-3-25 provides that "[u]nder petition by an interested party, the court may rescind or reform a trust according to the same general rules applying to the recission or reformation of non-trust transfers of property." According to the Restatement, reformation "involves the use of interpretation (including evidence of mistake, etc.) in order to ascertain-and properly restate-the true, legally effective intent of settlors with respect to the original terms of trusts they have created." Restatement (Third) of Trusts § 62 reporter's notes (2003). From the materials provided to us, it appears that G~ and H~ intended that the G~ Trust would provide for Brooke's support and maintenance, without preventing her from qualifying for Medicaid or SSI. It further appears that Deborah S~, with the approval of G~ and H~, sought judicial reformation of the G~ Trust due to their mistaken belief that the Trust did indeed disqualify Brooke from receiving such assistance. In response, the Jasper Superior Court reformed the G~ Trust by essentially terminating the Trust and transferring its assets to a sub account in the ARC Trust.

The Restatement indicates that when reformation occurs, the changes relate back to the creation of the instrument. See Restatement (Third) of Property § 12.1 cmt. f (2003) ("An order of reformation alters the text of a donative document so that it expresses the intention it was intended to express. Thus, unless otherwise stated, a judicial order of reformation relates back and operates to alter the text as of the date of execution rather than as of the date of the order or any other post-execution date."). Moreover, we have recently opined that a trustee-to-trustee transfer, such as occurred here, does not constitute the "establishment" of a new trust for purposes of applying the statutory trust resource rules, so long as there is no indication that the claimant is using the transfer as an estate planning tool. See Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, SSI-Review of the WisPACT I Trust (July 29, 2005). There is no indication here that the claimant is using the transfer to circumvent our counting rules. Thus, under both rationales, Brooke's subaccount in the ARC Trust is considered a continuation of the G~ Trust. Accordingly, the proper inquiry is whether the G~ Trust was a resource under the rules applicable when the Trust was first created, not whether the subaccount in the ARC Trust would be a resource under the rules applicable at the time of the transfer. And, as indicated above, the G~ Trust was not a resource under the regular resource rules that were applicable when it was created. Therefore, Brooke's subaccount in the ARC Trust should not be considered a resource.

CONCLUSION

For the reasons discussed above, we conclude that neither the G~ Trust nor Brooke's subaccount in the ARC Trust should be considered a resource.

J. PS 05-125 SSI-Indiana-Review of the Sub-Account of Michael D~ in the Association of Retarded Citizens Pooled Trust

Date: April 2, 2005

1. Syllabus

The issue is whether a subaccount established for an individual in the Association for Retarded Citizens of Indiana Master Trust is a resource. Also, would court-ordered support payments into the Trust be considered income to the individual for SSI purposes.

The purpose of the Trust is to provide the comfort and happiness of disabled beneficiaries and provide for their supplemental needs, over and above their basic maintenance, support, medical, dental and therapeudic care. Within the Trust, individual Trust accounts (subaccounts) are created and maintained for each beneficiary, but pooled for investment and management of the funds. The trustee has full power, authority, and absolute discretion to perform all acts necessary to accomplish the purpose of the Trust.

The Trust was established in 1989 by joinder agreement. However, the parents did not deposit any funds into the subaccount at that time,. Instead, they noted their intention to fund the account upon the death of the last surviving parent. The parents are complying with a December 17, 2004 court order to deposit support funds into this account monthly. Thus, the account is currently funded with support money from the father beginning 2004.

The Trust is a third party Trust established after January 1, 2000. The individual has no authority over the Trust account and cannot direct its use or sell his interest in the Trust. Therefore, the subaccount would not constitute a resource and the support payments to the Trust would not be considered income for SSI purposes. However, any cash disbursements made directly to the individual would be income, and any disbursements to third parties that result in the individual's receipt of food, clothing, or shelter would be considered income in the form of in-kind support and maintenance.

2. Opinion

You asked whether the sub-account established for Michael D~ (Michael) in the Association for Retarded Citizens of Indiana Master Trust I (ARC Master Trust) is a resource to Michael for purposes of determining his eligibility for Supplemental Security Income (SSI). You also asked whether court-ordered support payments into the Trust would be considered income to Michael for SSI purposes. For the reasons discussed below, we conclude that the sub-account would not constitute a resource, and the support payments would not be considered income, for purposes of Michael's SSI eligibility. However, any cash disbursements made directly to Michael would be considered income, and any disbursements to third parties that resulted in Michael's receipt of food, clothing or shelter would be considered income in the form of in-kind support and maintenance.

BACKGROUND

The Association for Retarded Citizens of Indiana (ARC), an Indiana not-for-profit corporation, established the ARC Master Trust on October 24, 1988. ARC Master Trust, Article 1. The purpose of the Trust is to promote the comfort and happiness of disabled beneficiaries, and provide for their supplemental needs, over and above their basic maintenance, support, medical, dental and therapeutic care. ARC Master Trust, Article 2. Within the Trust, individual trust accounts, called "sub-accounts," are created and maintained for each disabled beneficiary, but apparently pooled for investment and management of the funds. ARC Master Trust, Article 6. Enrollment becomes effective for a donor and disabled individual upon execution of a Joinder Agreement and receipt of an enrollment fee. ARC Master Trust, Article 3; Joinder Agreement, Article I. Once trust property from the donor has been accepted, neither the donor nor the disabled beneficiary may revoke the Trust. ARC Master Trust, Article 3. If a property interest is designated for future transfer, that designation is revocable. ARC Master Trust, Article 3.

The Trustee has full power and authority, and absolute discretion, to perform all acts necessary to accomplish the purposes of the Trust. ARC Master Trust, Article 6. The Trustee has sole and unqualified discretion to make disbursements for the benefit of the disabled beneficiary or refrain from making such disbursements. ARC Master Trust, Article 2. The Trustee may, in his sole discretion, disburse Trust income or principal in order to purchase services or property for the benefit of the disabled beneficiary, consistent with the purposes of the Trust. ARC Master Trust, Article 4. "The Trustee is prohibited from using or applying trust property in any way that would reduce the Government Assistance otherwise available to the disabled beneficiary, except that the Trustee may, in the Trustee's sole discretion, make disbursements or distributions that result in a reduction of the disabled beneficiaries' Government Assistance if such reduction is less than the amount of the disbursement or distribution." ARC Master Trust, Article 2. In addition, the Trustee has absolute and discretionary power to receive, hold, manage and control all income arising from such Trust and the corpus thereof. ARC Master Trust, Article 6. The Trustee s maintain records for each sub-account, and provide an annual accounting to each donor documenting the activity in the sub-account. ARC Master Trust, Article 6. No money or property of the Trust (either income or principal) s be pledged, assigned, transferred, sold or encumbered in any manner by the disabled beneficiary. ARC Master Trust, Article 6.

Upon the death of the disabled beneficiary, the Trust property held in Michael's name s be distributed in accordance with the Joinder Agreement. ARC Master Trust, Article 8. The Joinder Agreement contains the following proportionate distribution: 50% to the ARC, 20% to John R~ (Michael's grandfather); 20% to Robert and Virginia D~ (Michael's grandparents); and 10% to Dawn D~ (Michael's aunt). Joinder Agreement, Article G. The Trustee may, in his sole discretion, terminate the Trust sooner as to Michael if the Trustee has reasonable cause to believe that the Trust income or principal is, or may become, liable for basic maintenance, support and care which was, or would otherwise be, provided by a government agency or department. ARC Master Trust, Article 8. The Trustee may also terminate the Trust with regard to all disabled beneficiaries if it becomes impracticable to carry out the purpose of the Trust. ARC Master Trust, Article 8. In such events, the Trustee s distribute the Trust property held in the disabled beneficiary's name in the same proportionate shares noted above. ARC Master Trust, Article 8. If, however, the ARC has ceased to exist, any property remaining in the Trust s be transferred to another organization which, in the sole discretion of the Trustee, would serve the interests and needs of people with disabilities in a manner consistent with the purposes of the Trust. ARC Master Trust, Article 8. Lastly, if not terminated earlier, the Trust s terminate on July 1, 2078. At that time, the Trustee s distribute all trust property to the ARC and create a new Master Trust. ARC Master Trust, Article 8.

On October 25, 1989, Robert D~, Jr. and Patricia D~ (Michael's parents) executed a Joinder Agreement, enrolling in the ARC Master Trust. According to the Joinder Agreement, Michael's parents intend to fund Michael's sub-account by way of life insurance, or another means, upon the death of Michael's last surviving parent. Joinder Agreement, Article E. In the meantime, following Michael's eighteenth birthday, and pursuant to a court order, Michael's father must make weekly payments to the Marion County Clerk's Office, and Michael's mother must deposit these funds into the ARC Master Trust at least monthly. Order Approving Agreed Entry for Modification of Child Support (Order), Paragraphs 1-2. The Order modified Michael's parents' December 13, 1993 agreement concerning custody, visitation, support and property. Under the terms of the December 13, 1993 agreement, Michael's father was required to provide "supplemental assistance" through monthly deposits into the ARC Master Trust after Michael attained the age of eighteen. Agreed Entry, Paragraph 3. "The intent of these payments is to supplement, not supplant, means-tested benefits for which Michael might be eligible now or in the future." Agreed Entry, Paragraph 7. The December 13, 1993 agreement indicated that the exact amount to be deposited by Michael's father following Michael's eighteenth birthday would be agreed upon at a later date; otherwise it would be not less than twenty percent of Michael's father's gross income for the year 2004 and every year thereafter. On December 17, 2004, Michael's parents agreed that Michael's father should make weekly payments of $107.00. Agreed Entry, Paragraph 4. The same day, the Marion County Superior Court approved the Agreed Entry. Order. The court noted that the payments made by Michael's father "s be considered to be supplemental assistance in addition to means-tested benefits for which Michael N. D~ might be eligible now or in the future." Order, Paragraph 3.

DISCUSSION

"Resources" are "[c]ash or other liquid assets or any other real or personal property that an individual (or spouse, if any) owns and can convert to cash to be used for his support and maintenance." 20 C.F.R. § 416.1201(a). If an individual has the right, authority or power to liquidate the property, it is considered a resource. 20 C.F.R. § 416.1201(a)(1). A trust established on or after January 1, 2000 that contains assets of only third parties constitutes a resource to the beneficiary if the beneficiary (1) has authority to revoke or terminate the trust and use the funds to meet his food, clothing or shelter needs, (2) can direct the use of the trust principal for his support and maintenance under the terms of the trust, or (3) can sell his beneficial interest in the trust. 20 C.F.R. § 416.1201(a); POMS SI 01120.200(D)(1)-(3). Applying these rules, the ARC Master Trust, the trust would not be a resource to Michael.

A. The Trust is a Third-Party Trust Established After January 1, 2000

A trust established by a person other than the beneficiary is a third-party trust if the person who established the trust is also the grantor - i.e., the individual who supplied the consideration for the trust. POMS SI 01120.200(A)(2)(b), (B). In the present case, Michael's parents executed the Joinder Agreement in October 1989. Joinder Agreement, Paragraph J. However, Michael's parents did not deposit any funds into the sub-account at the time they executed the Joinder Agreement. Joinder Agreement, Paragraph E. Instead, they noted their intent to fund Michael's sub-account upon the death of his last surviving parent. Joinder Agreement, Article E. We assume that Michael's parents are complying with the court's December 17, 2004 Order, which requires Michael's father to make weekly payments to the Marion County Clerk's Office, and Michael's mother to deposit the funds into the ARC Master Trust at least monthly. Order, Paragraphs 1-2. Thus, Michael's sub-account is currently funded by money from Michael's father. Also, pursuant to the Order, these funds constitute "supplemental assistance" rather than child support. Order, Paragraph 3. Thus, the funds are not income to Michael under POMS SI 00830.420B or any other POMS section of which we are aware. Accordingly, because the trust is funded with assets that belong to a third party (Michael's father) and are not income to Michael, Michael's sub-account meets the definition of a third party trust, and the regular resource rules apply.

B. Under the Regular Resource Rules, the Trust Principal is not a Resource to Michael

As previously noted, a trust established on or after January 1, 2000, that contains assets of only third parties constitutes a resource to the beneficiary if the beneficiary (1) has authority to revoke or terminate the trust and use the funds to meet his food, clothing or shelter needs, (2) can direct the use of the trust principal for his support and maintenance under the terms of the trust, or (3) can sell his beneficial interest in the trust. 20 C.F.R. § 416.1201(a); POMS SI 01120.200(D)(1)-(3). Here, Article 3 of the ARC Master Trust provides that the Trust is not revocable by Michael. In addition, Michael does not have the ability to direct the use of Trust assets. ARC Master Trust, Articles 2 and 4. Instead, the Trust agreement gives the Trustee the authority to make such distributions and payments as the Trustee, in his sole discretion, deems appropriate. ARC Master Trust, Articles 2, 4 and 6. Thus, according to the terms of the Trust, Michael has no right to direct the use of the Trust assets to meet his food, clothing and shelter needs. The Trust also contains a "spendthrift" provision, which is valid in the state of Indiana. See In. Code Ann. § 30-4-3-2 ("The settlor may provide in the terms of the trust that the interest of a beneficiary may not be either voluntarily or involuntarily transferred before payment or delivery of the interest to the beneficiary by the trustee"); see also Restatement (Second) of Trusts § 152(2). Under this clause, Michael cannot pledge, assign, transfer, sell or encumber any money or property of the Trust (either income or principal). ARC Master Trust, Article 6. Consequently, the Trust is not a resource to Michael.

C. Certain Disbursements or In-Kind Payments Would Constitute Unearned Income

Although the Trust principal is not considered a resource, certain distributions may be considered income. The Trust provides that "[t]he Trustee is prohibited from using or applying trust property in any way that would reduce the Government Assistance otherwise available to the disabled beneficiary, except that the Trustee may, in the Trustee's sole discretion, make disbursements or distributions that result in a reduction of the disabled beneficiaries' Government Assistance if such reduction is less than the amount of the disbursement or distribution." ARC Master Trust, Article 2. Thus, under the Trust agreement, the Trustee could make cash disbursements to Michael. Such disbursements would be considered unearned income for SSI purposes. 20 C.F.R. §§ 416.1120-416.1121; POMS SI 01120.200(E)(1)(a). In addition, this Trust provision would allow for disbursements made to a third party that result in Michael's receipt of food, clothing or shelter. ARC Master Trust, Article 2. These could be considered income in the form of in-kind support and maintenance. 20 C.F.R. § 416.1102; POMS SI 01120.200(E)(1)(b).

CONCLUSION

For the reasons discussed above, we conclude that the Trust is not a resource to Michael for SSI eligibility purposes and the supplemental support payments from Michael's father are not income to Michael. However, cash distributions from the Trust directly to Michael or to third parties for Michael's receipt of food, clothing or shelter may be considered unearned income and/or in-kind support and maintenance.

K. PS 05- 091 SSI-Indiana - Trust for Sole Benefit of Nicole

Date: February 18, 2005

1. Syllabus

A discretionary special needs trust was created for a competent, adult SSI beneficiary on July 6, 2002. Although the trust names a third party as the grantor and trustee, it was entirely funded with the SSI beneficiary's own insurance settlement proceeds. The trust is determined irrevocable because it contains a spendthrift clause and establishes residual beneficiaries in the event the SSI beneficiary dies. While Medicaid reimbursement language is included, it is determined that the trust does not meet any of the Medicaid trust exceptions presented in section 1917(d)(4)(A) of the SSACT. The requirement that the trust be established by a parent, grandparent, legal guardian or court is not satisfied in this case since the corpus was comprised entirely of the beneficiary's own funds. The CD renewed on April 4, 2004 is determined to represent the remaining proceeds of the trust and an asset of the trust. Since no exceptions are met, the trust is determined to be a countable resource to the SSI beneficiary since its inception in 2002.

2. Opinion

You asked whether a discretionary special needs trust for the benefit of SSI beneficiary Nicole (Nicole) is a resource to Nicole for SSI purposes. You also asked whether a certificate of deposit (CD) in the amount of $10,000, renewed on April 1, 2004, and re-titled on May 5, 2004, is a resource to Nicole for SSI purposes. We conclude that, because the trust was created with Nicole's funds after January 1, 2000, and none of the Medicaid exceptions in POMS SI 01120.203 apply, the trust should be considered as Nicole's resource for SSI purposes. We further conclude that, since it appears that the $10,000 CD represents the remaining proceeds of the personal injury property settlement, it is an asset held by the trust from its date of issue.

BACKGROUND

On July 6, 2002, Donna R~ established the "Trust for the Sole Benefit of Nicole" (hereinafter referred to as "Nicole's Trust"), naming herself as the grantor and trustee and Nicole as the beneficiary. The declaration of trust (Trust Agreement) recites that Nicole was injured in an automobile accident and, as a result, has "ongoing motor disabilities." Trust Agreement Preamble at 2. At its creation, Nicole's Trust was funded with a certificate of deposit (CD) for $34,003.03, which represents part of a settlement from an insurance company on June 2, 2002. See Time Deposit Inquiry of March 16, 2004; Report of Contact dated March 10, 2004; Schedule A; Trust Agreement Preamble at 3. The Trust Agreement allows additions to be made to Nicole's Trust. Trust Agreement, Art. II.

The purpose of Nicole's Trust is to provide for Nicole when assistance available from government and private agencies is "incomplete or insufficient" and not to replace assistance or benefits from such sources. Declaration, Art. 1. All disbursements are at the discretion of the Trustee, who is instructed not to supplant services, assistance, and medical care available to Nicole from government agencies, including SSI benefits, unless the benefits of such assistance are outweighed by the burdens of the program requirements. Trust Agreement, Art. IV, § B. The Trustee is specifically authorized to deny any request for a disbursement if it will pay for expenses otherwise paid for by a public assistance program. Trust Agreement, Art. IV, § B. The Trust Agreement also contains a "spendthrift clause," which prohibits attachment by creditors or transfer or assignment by Nicole. Trust Agreement, Art. VI. The terms of the Trust Agreement are to be construed under the laws of Indiana. Trust Agreement, Art. VIII, § A.

The Trust Agreement states that Nicole's Trust is irrevocable, except that it may be amended or revoked if a change in the law or other circumstance will frustrate the purpose. Trust Agreement, Art. III. When Nicole dies, the trust terminates and the trust estate is to be distributed first to the State in the amount legally required as reimbursement for Medicaid assistance to Nicole. Trust Agreement, Art. V, § A. After Medicaid reimbursement, the remainder is to be distributed in equal shares to Donna R~ (the Trustee), Daniel R~ II, and Allison R~. Trust Agreement, Art. V, § B. The Trust Agreement also contains provisions for distribution of the share of any beneficiary who predeceases Nicole. Trust Agreement, Art. V, § B.

Although Article III of the Trust Agreement specifically states that the trust is irrevocable, Article VII allows the Trustee to terminate Nicole's Trust if she determines that continued administration of Nicole's Trust is not economical. Upon termination for this reason, the Trustee is to distribute the entire trust estate into The ARC of Indiana Master Trust, dated October 24, 1988, for Nicole's benefit. Trust Agreement, Art. VII, § A. The Trustee also has discretion to make distributions from Nicole's Trust into the ARC of Indiana Master Trust, without terminating Nicole's Trust, if she determines that receiving services from the ARC through the ARC trust is in Nicole's best interests. Trust Agreement, Art. VII, § B. The Trustee is authorized to "enroll Nicole in The Arc (sic) of Indiana Master Trust, notwithstanding the fact that the terms of that Trust may vary from the terms of this Trust, and to conform the terms of such enrollment to the terms of 42 U.S.C. § 1396p(d)(4)" (the Medicaid payback provisions). Trust Agreement, Art. VII, § B.

Schedule A, titled "Trust for the Sole Benefit of Nicole," contains a July 1, 2002 entry that the balance of the insurance settlement was $34,003.03, placed in CD #21208. Schedule A lists various items, some of which appear to be expenditures from Nicole's Trust, e.g., hotel, plane tickets, and rental van charges for two trips. Schedule A also contains a notation "Renewal of CD #21769 - value $10,000" for April 4, 2004.

A Time Deposit Inquiry, dated March 16, 2004, bearing the name Nicole and account number 21208, shows an initial deposit of $34,003.03 on July 1, 2002, and a balance of $15,349.33 remaining as of March 1, 2004. You also provided us with a copy of a CD in the amount of $10,000, issued to "Trust for the Sole Benefit of Nicole C. R~" with May 5, 2004, shown as a revision date and "To Retitle" shown as the reason for the revision. The fax transmittal from Jackie P~ of the Indianapolis Field Office indicates that the revision was made because that office determined, by the title of the CD, that it was not a part of Nicole's Trust. In a letter dated March 31, 2004, a bank official referred to a "CD" and stated that it had been set up as a trust with Nicole as the sole beneficiary, but the official did not know whether the funds for the CD were from a trust or represented the remaining balance of the trust.

On February 3, 2005, you verified by telephone that Nicole does not have a guardian and, although she is physically disabled, there is no indication that she is mentally incompetent. You indicated that Nicole may have executed a power of attorney, under which Donna R~ created Nicole's Trust.

DISCUSSION

Assets are a resource for SSI purposes if the individual owns them and can convert them to cash for her support and maintenance. 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate the property, it is a resource. 20 C.F.R. § 416.1201(a). The Trust document states that it is irrevocable. Trust Agreement, Art. III. Even if there were no such explicit statement, Nicole's Trust would be irrevocable because, under Indiana law, a trust is presumed to be irrevocable unless there is an express reservation of the power to revoke by the grantor when the trust is created. Hinds v. McNair, 413 N.E.2d 586, 594 (Ind. App. 1980). Here, Nicole is the true grantor of Nicole's Trust because the trust was established with settlement funds that belonged to her. If Nicole were the sole beneficiary of the trust, she could unilaterally revoke the trust notwithstanding the language to the contrary in the Trust Agreement. POMS SI CHI01120.200C. Nicole is not the sole beneficiary of the trust, however. The Trust Agreement provides that, at Nicole's death, the remainder is to be distributed to three named individuals. Trust Agreement, Art. V § B. Accordingly, Nicole's Trust is irrevocable.

Pursuant to POMS SI 01120.201(D)(2), an irrevocable trust established with an individual's assets on or after January 1, 2000 is a resource if payments from the trust could be made to or for the benefit of the individual or the individual's spouse, unless one of the exceptions in POMS SI 01120.203 applies. Because Nicole's Trust was created with Nicole's assets (the insurance settlement money) after January 1, 2000, it is a resource to Nicole unless a Medicaid trust exception in SI 01120.203 applies. See POMS SI 01120.203. We conclude, however, that none of the exceptions are applicable.

In particular, the exception under § 1917(d)(4)(A) of the Social Security Act, 42 U.S.C. § 1396p, does not apply. See POMS SI 01120.203(B)(1). Under that exception, trust assets are not a resource to the individual if: (1) the individual is disabled and under age 65; (2) the trust was established for the individual's benefit by a parent, grandparent, legal guardian, or court; and (3) the terms of the trust provide that, upon the individual's death, the State will be reimbursed for the total medical assistance paid on the individual's behalf under a State Medicaid plan. POMS SI 01120.203B.1.a. Where an individual's assets form only a part of the trust, these rules apply to that portion of the trust attributable to the individual.

Although Nicole is disabled and under age 65, and the Trust Agreement contains a provision to reimburse Medicaid when Nicole dies and the trust terminates, the second requirement for the Medicaid trust exception is not met, i.e., the requirement that the trust be established for Nicole's benefit by a parent, grandparent, legal guardian, or court. The Trust Agreement recites that Nicole's Trust was initially funded with the proceeds of a settlement paid by an insurance company in connection with a motor vehicle accident that caused Nicole's disability. Trust Agreement, Preamble 2-3. The Trust Agreement specifically recites that there was no lawsuit involved. Trust Agreement, Preamble 3. Thus, it appears that Nicole's Trust was not established by a court. Nor was Nicole's Trust established by a guardian, since you have informed us that Nicole does not have a guardian.

Although we presume that Donna R~ is Nicole's mother, or perhaps her grandmother, and we know that she created Nicole's Trust with Nicole's funds and for Nicole's benefit, the trust nevertheless fails to meet the Medicaid trust exception. We have been advised by the Team Leader of the Office of Disability and Income Security Programs' Deeming, Income, and Resources Team that, where a parent (or grandparent) acting as the agent for a competent adult creates a trust by merely transferring a competent adult's funds (as was done here), the parent (or grandparent) has not "established" the trust for purposes of 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203(B)(1)(e). The term "individual" is absent from the list of entities that are permitted to establish a trust under 42 U.S.C, § 1396p(d)(4)(A). Compare 42 U.S.C. § 1396p(d)(4)(C) (permitting an "individual" to establish his or her own "account" in a pooled trust). We have been further advised that a parent (or grandparent) may establish a trust under 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203(B)(1) for a competent adult (1) by creating a "seed trust," i.e., contributing some amounts of funds not belonging to the individual prior to transferring the individual's funds to the trust, or (2) where the State recognizes the existence of a "dry" or "empty" trust, i.e., a trust without any trust assets which is created by the parent or grandparent, and into which the competent disabled adult's funds can then be placed. However, there is no indication that Donna R~ created a seed trust. Moreover, Indiana does not recognize dry or empty trusts. See Leazenby v. Clinton County Bank and Trust Company, 355 N.E.2d 861, 864 (Ind. 1976); Pavy v. Peoples Bank and Trust Company, 195 N.E.2d 862, 866-67 (Ind. 1964); Restatement (Third) of Trusts, § 2(i)(2003) ("A trust cannot be created unless there is trust property in existence and ascertainable at the time of the creation of the trust"). Thus, to satisfy 42 U.S.C. § 1396p(d)(4)(A), Donna R~ would have had to initially fund Nicole's Trust with some assets not belonging to Nicole before transferring Nicole's assets into the trust. Because Nicole's Trust was established with Nicole's assets after January 1, 2000, and because none of the exceptions in POMS SI 01120.203 apply, the trust is a resource to Nicole. In addition, we note that items on Schedule A appear to mirror larger deductions on the Time Deposit Inquiry of March 16, 2004, such that they would constitute either assets of the trust or disbursements from the trust, but, in either case, they would represent conversion of a resource, which may or may not be excludable. For example, the electronic wheelchair would appear to be an excludable resource. See 20 C.F.R. § 416.1216(c).

We turn to the issue of whether CD 21769 should be considered part of Nicole's Trust. You provided us with a copy of CD 21769, with a revision date of May 5, 2004, and a reason for revision as "To Retitle." Schedule A shows an entry for April 4, 2004, indicating renewal of CD 21769 in the amount of $10,000. The number of the $10,000 CD (21769) is different from the number of the CD used to fund Nicole's Trust when it was created (21208). However, it appears that CD 21769 represents the remaining proceeds of CD 21208. As such, it should be considered an asset of the Trust and a resource. If, however, there is any indication that CD 21769 came from some source other than the personal injury settlement proceeds, then further development should be undertaken to determine whether CD 21769 represents the assets of a third-party trust. See POMS 01120.200.

CONCLUSION

We conclude that Nicole's Trust is a resource to Nicole because no exception in POMS SI 01120.203 applies. We further conclude, since it appears that CD 21769 represents the remaining proceeds of CD 21208, i.e., the remainder of the personal injury settlement proceeds, it is a trust asset back to the date the CD was first issued.

L. PS 04-312 Indiana Trust for Angela

Date: December 28, 1999

1. Syllabus

On 11/30/93, an irrevocable trust was created for an SSI recipient. The trust has a spendthrift provision and names her mother as the settler (grantor) of the trust; however, it is unclear whose money was used to fund the trust. Per the terms of the trust, the trustee "may" use the income or principal of the trust for the recipient's health, education and support. The trust is not determined to be a countable resource for the following three reasons:

1) The NH is not the sole beneficiary of the trust and, therefore, cannot revoke or terminate the trust and obtain the assets contained therein.

2) The trustee retains the power to determine when, and if, to make any payments from the trust (i.e. the beneficiary cannot direct use of the trust to meet her basic needs).

3) According to the terms of the trust, the recipient cannot sell or transfer her beneficial interest in the trust.

While it is noted that the trust contains language allowing amendments to the trust, it is determined that since the trustee has discretion to deny consent, the trust remains a non-countable resource. Any disbursements from the trust, whether cash or in-kind, may constitute income for SSI purposes and, therefore, must be reported when received.

2. Opinion

You have asked whether the trust established for Angela (Angela) is a countable resource for the purposes of determining Angela's eligibility for Supplemental Security Income (SSI). We believe, for the reasons stated below, that the trust is not a resource to Angela, although any distribution made to Angela could be considered income for SSI purposes at the time of the distribution.

FACTS

The Angela Trust (the trust) was created on November 30, 1993 with the funds held in a particular bank account. The trust names Paula (presumably Angela's mother) as the settlor of the trust, but it is not clear whose money was in the bank account that funded the trust.

The purpose of the trust is "the benefit of Angela." Sec. 2. Under the terms of the trust, the trustee "may" distribute the income or principal of the trust for Angela's health, education, and support and maintenance only to the extent that her needs are not met by any and all available governmental benefits. The trust has authority only to make payments to supplement, not to replace, government benefits. Sec. 6 The trust further states that the trustee's discretion in expending income and principal is limited to the purchase of items or services not provided by government programs or benefits. Sec. 7.

The trust states that it is "irrevocable." Sec. 4. The trust may be amended with the consent of the settlor and the trustee, but the trust cannot be made revocable. Sec. 5.

The trust has a spendthrift provision with respect to Angela's interest in the trust. Sec. 9 The trust will terminate when Angela dies or if the trust is found subject to the claims of any government or private agency. On termination, the remaining trust property will be distributed to the settlor's surviving children. Secs. 10-11.

DISCUSSION

A resource, for SSI purposes, includes cash or other liquid assets or any real or personal property that the individual owns and could convert to cash to be used for her own support and maintenance. 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate the property or her share of the property, it is considered a resource. 20 C.F.R. § 416.1201(a)(1); see also POMS SI 01110.100(B). Trust property can be a resource for SSI purposes. POMS SI 01120.200(A). The trust is a resource to Angela if she can (1) revoke or terminate the trust and use the funds to meet her needs for food, clothing or shelter; (2) direct the use of the trust principal for her support and maintenance; or (3) sell her beneficial interest in the trust. POMS SI 01120.200(D)(1)(a); Zebley Trust as an SSI Resource-Wisconsin, Bernard Walton (~), RA V (M~) to M~, Acting ARC-POS (Feb. 23, 1993). Our analysis of this case is somewhat complicated because, from the information we were provided, we cannot determine whether this trust was established with Angela's funds or her mother's. However, we conclude that the trust at issue here is not a resource to Angela under any of these three theories, regardless of the source of the funds.

1. Angela Cannot Revoke or Terminate the Trust and Obtain the Assets

If the trust was established with the mother's funds (or anyone's funds other than Angela's own funds), Angela would not have the power to terminate the trust and obtain the trust assets. By its terms, the trust will terminate only if Angela dies or if the trust is found subject to the claims of any governmental or public agency.

If Angela's funds were used to fund the trust, she could not revoke the trust on her own because she is not the sole beneficiary of the trust. Under general trust law, a trust that purports to be irrevocable may be revoked if the settlor (also called a "grantor") and all beneficiaries agree. See Restatement (Second) of Trusts § 338(1), 339 (1959). Here, if the funds used to create the trust belonged to Angela, she is the true settlor of the trust, even if the trusts names another person as the settlor. See 76 Am. Jur. 2d Trusts § 55 (1992). But even if Angela is the settlor of the trust, she is not the sole beneficiary of the trust. There are additional, residual beneficiaries to the trust because, on termination of the trust, any remaining assets will be distributed to the settlor's children._/1 Angela could not revoke the trust without the consent of other beneficiaries, some of which may not even exist yet. See Restatement (Second) of Trusts § 338(1), 339 (1959). As a matter of policy, we presume that the additional beneficiaries would not consent to revocation of the trust. See Trusts Established as the Result of Zebley Underpayments, SSD, Chief, SSI Branch (K~) to B~, Director, Division of Program Requirements Policy (8/28/91); Walton Memo, supra, at 3.

2. Angela Cannot Direct the Trustee to Use the Funds for Her Support and Maintenance

Angela also does not have power to direct use of the trust property to meet her needs for food, clothing, or shelter. According to the terms of the trust, the trustee has discretion as to whether and when to make any payments from the trust. The trust states that the trustee "may" distribute funds for Angela's supplemental needs, although "[t]he trustee's discretion" is limited to expenditures to purchase items or services not provided by government programs or benefits. Secs. 6-7. Therefore, under the terms of the trust, Angela cannot compel the trustee to make payments for her basic support and maintenance.

We note that the trust allows an amendment to the trust with the consent of the settlor and the trustee, although the trust cannot be modified to be made revocable. Sec. 5. Under this provision, if Angela is the settlor, she could modify the trust, with the trustee's consent, so that the trustee would be required to use the trust assets for her support and maintenance. However, Angela would have to obtain the trustee's consent to make such an amendment to the trust, and the trustee would have discretion to deny the amendment. See Restatement (Second) of Trusts § 330 comment l, 331(1) and comment (1959). Because the trustee could withhold consent, the trust should not be considered a resource to Angela. _/2

3. Angela Cannot Sell Her Beneficial Interest in the Trust

If Angela's mother (or anyone but Angela) is the settlor of the trust, Angela would be unable to sell her beneficial interest in the trust because of the spendthrift provision in Section 9 of the trust. If Angela is the settlor of the trust, the spendthrift provision presumably would be invalid. However, we would assume that the beneficial interest has no significant value because of the discretionary nature of the trust. See Zebley Trust as an SSI Resource-Wisconsin, Bernard Walton (~), RA V (M~) to M~, Acting ARC-POS (Feb. 23, 1993) at 5; Tentative Draft No. 2: Restatement (Third) of Trusts § 60 and comment f (March 10, 1999). As explained above, Angela could amend the trust, such that the trustee was required to make certain payments to her from the trust. In that case, Angela could, in theory, have a beneficial interest of value that she could sell. But since Angela cannot amend the trust without the trustee's consent, and since the trustee has discretion to deny consent, we will not consider the trust to be a resource.

4. Disbursements From the Trust May Be Income to Angela.

As noted above, the trustee is not required to make disbursements from the trust. However, if the trustee makes any disbursements, those disbursements may be income for SSI purposes. POMS 01120.200(E)(1). Therefore, Angela should be required to report any expenditures made to her or on her behalf.

CONCLUSION

In sum, this trust is not a resource to Angela because she cannot revoke or terminate the trust, direct the trustee to provide for her support and maintenance, or sell her beneficial interest in the trust. However, Angela should be required to report any disbursements from the trust made to her or for her benefit, since those disbursements could represent income for SSI purposes.

Sincerely,
Thomas W. C~
Regional Chief Counsel

By: Carole J. K~
Assistant Regional Counsel

 

_/1 We need not determine whether (if Angela's funds were used to fund the trust) the "settlor's children" refers to Angela's children, as the true settlor of the trust, or Paula's children, as the named settlor of the trust. In either case, there would be residual beneficiaries who would have to consent to any revocation of the trust.

_/2 We discussed this issue with attorneys in our central office in Baltimore. They agreed that the agency should not require Angela to show that the trustee will not consent to an amendment to the trust.

M. PS 04-198 Indiana Trust for David, ~

Date: November 16, 1999

1. Syllabus

The individual has a trust sub-account in the ARC of Indiana Master Trust, funded by the individual's insurance settlement. The trust monies provide for the comfort and happiness of disabled beneficiaries by using the trust property to serve their interests over and above their basic maintenance, support, medical, dental, and therapeudic care or any other appropriate care or service which may be paid for or provided by other sources. The trustee has discretion to make disbursements. The trustee, however, cannot make any disbursements which would jeopardize a disabled beneficiary's eligibility for Government assistance. The trustee is also prohibited from using trust property to reimburse any local, State, or Federal Government agency for such assistance.

The individual does not have the power to direct use of the trust property to meet his needs for food, clothing, or shelter. Nor can the individual sell his beneficial interest in the trust, or revoke the trust and obtain the trust assets. Since the individual is the trust settler, but is not the sole beneficiary of the trust (after his death, the money goes to his heirs and the ARC), the individual cannot revoke the trust without consent of the other beneficiaries.

Since the trust is irrevocable, and the individual cannot direct any disbursements from the account or convert trust property to cash to be used for his support, the property in the sub-account is not a resource for SSI purposes.

2. Opinion

The individual has a trust sub-account in the ARC of Indiana Master Trust, funded by the individual's insurance settlement. The trust monies provide for the comfort and happiness of disabled beneficiaries by using the trust property to serve their interests over and above their basic maintenance, support, medical, dental, and therapeudic care or any other appropriate care or service which may be paid for or provided by other sources. The trustee has discretion to make disbursements. The trustee, however, cannot make any disbursements which would jeopardize a disabled beneficiary's eligibility for Government assistance. The trustee is also prohibited from using trust property to reimburse any local, State, or Federal Government agency for such assistance.

The individual does not have the power to direct use of the trust property to meet his needs for food, clothing, or shelter. Nor can the individual sell his beneficial interest in the trust, or revoke the trust and obtain the trust assets. Since the individual is the trust settler, but is not the sole beneficiary of the trust (after his death, the money goes to his heirs and the ARC), the individual cannot revoke the trust without consent of the other beneficiaries.

Since the trust is irrevocable, and the individual cannot direct any disbursements from the account or convert trust property to cash to be used for his support, the property in the sub-account is not a resource for SSI purposes.

This is in reference to your request for assistance in determining whether, for SSI entitlement purposes, the property comprising a trust sub-account formed by joinder agreement between the Association for Retarded Citizens (ARC) of Indiana and David can be considered a resource. The trust was created under Indiana law. We conclude that any property in a sub-account of the ARC of Indiana Master Trust I (Trust I) for which David is beneficiary is not a resource to David for SSI purposes, although any distribution made to David would be considered income for SSI purposes at the time of the distribution.

FACTS

The materials you provided indicate that a trust sub-account was established for David in 1990 in the Association for Retarded Citizens (ARC) of Indiana Master Trust. The ARC of Indiana Master Trust I was created on October 24, 1988. See declaration entitled, "The ARC of Indiana Master Trust I" at 1. In 1990, a joinder agreement was executed enrolling David, the disabled beneficiary, in the ARC Master Trust, and provides that the donor of the trust assets is "Defendant's Insurer," Colonial Penn Insurance Company. David's sub-account authorized distributions to be made.

The declarations of Trust I provide that its purpose is to promote the comfort and happiness of disabled beneficiaries by using the trust property to serve their interests "over and above their basic maintenance, support, medical, dental, and therapeutic care, or any other appropriate care or service which may be paid for or provided by other sources." Trust I at Article 2. The trustee has unqualified discretion to make disbursements, taking into account the services and financial resources available to the beneficiary from other sources. The trustee, however, cannot make any distribution or use of the trust property which would jeopardize a disabled beneficiary's eligibility for Government Assistance or for any services or financial assistance for basic maintenance, support, medical, dental and therapeutic care, or other "appropriate" care or service from any local, state, or federal government agency or department. The trustee is also prohibited from using trust property to reimburse any local, state or federal governmental agency or department for such assistance. Trust I at Articles 2, 4. The trustee is authorized to terminate the trust as to a particular disabled beneficiary if the trustee reasonably believes that it will be required to reimburse any local, state, or federal governmental agency or department from the trust income or principal. Trust I at Article 8, Section II. Distribution of the trust property upon termination must be made in accordance with the provisions of the Joinder Agreement. Id.

The trust is irrevocable as to any particular beneficiary upon execution of a Joinder Agreement and delivery to, and acceptance by, ARC of the assets to be deposited in the applicable sub-account. See Trust I at Article 3.

The trust declaration contains a "spendthrift clause" which prohibits any beneficiary from transferring, assigning, or otherwise encumbering any trust property in satisfaction of creditors' claims. Trust I at Article 6(d). Trust property is not available to a beneficiary until actually delivered to him or delivered for his benefit. Id.

There is a limited power to amend the trust and the Joinder Agreement, but amendments cannot alter the purpose of the trust or provide for the revocability of gifts otherwise irrevocable under ARC I or the joinder agreement. Trust I at Article 8, Section I.

The trust terminates either upon the death of the disabled beneficiary or on July 1, 2009 if there has been no written notice by ARC that the trust term is extended. Upon termination, all trust property must be distributed in accordance with the Joinder Agreement, except that, if termination occurs because ARC has not extended the term of the trust, no part of the trust property can be distributed to ARC. Trust I at Article 8.

DISCUSSION

Resources, for SSI purposes, include assets that a person owns and can convert to cash to be used for the person's support or maintenance. See 20 C.F.R. § 416.1201(a). If the person has the right or power to liquidate property, or his share of the property, it is a resource. Id. Trust assets are an SSI recipient's resources: (1) if the SSI recipient has the power to revoke the trust and use the trust assets to meet his needs for food, clothing, or shelter; (2) if he can direct use of the trust assets for such purposes; or (3) if he can sell his beneficial interest in the trust. See POMS SI 01120.200D.1.a. Whether the person can revoke the trust or direct use of the trust assets depends on the terms of the trust declaration and on applicable State law. POMS SI 01120.200D.2.

David does not have power to direct use of the trust property to meet his needs for food, clothing, or shelter. According to the terms of the trust, the trustee has complete discretion over whether or not to make disbursements. Trust I at Articles 2, 4, 6(b). Moreover, any disbursements which the trustee chooses to make must be consistent with the purpose of trust, which is to promote David's comfort and happiness by using the trust property to serve his interests over and above his basic maintenance, support, medical, dental and therapeutic care, and other care provided by other sources. Trust I at Article 2. The trustee is expressly prohibited from making disbursements that would jeopardize David's receipt of assistance from governmental bodies. Id.

Nor can David sell his beneficial interest in the trust. As explained below, it appears that David is the settlor of the trust. Because he is the settlor of the trust, the spendthrift provision is invalid and would not prevent David from selling his interest in the trust. See Restatement (Second) of Trusts § 156(1) (1957); cf. Ind. Code Ann. § 30-4-3-2(b). However, since disbursements are completely within the trustee's discretion, David's interest in the trust has no significant market value. Since his interest in the trust property would be of no real value to a potential transferee, any attempts by David to convert his interest in the trust into cash would likely fail. See Bernard Walton, ~, RA V (M~) to RC SSA V (M~), 2-23-93; see also Tentative Draft No. 2: Restatement (Third) of Trusts § 60 & comment f (March 10, 1999).

Finally, David cannot revoke the trust and obtain the trust assets. Under Indiana law, a trust is presumed to be irrevocable unless there is an express reservation of the power to revoke by the settlor when the trust is created. Hinds v. McNair, 413 N.E. 2d 586, 594 (Ind. App. 1980). An unrestricted power to modify the trust includes the power to revoke. Ind. Code Ann. § 30-4-3-1. This is in accord with general trust law. See Restatement (Second) of Trusts §§ 330-31 (1957). Here, the master trust declaration specifically states that the trust is irrevocable as to any particular sub-account upon execution of the joinder agreement and funding of the sub-account. This provision cannot be amended even with the consent of the ARC.

Even if a trust purports to be irrevocable, however, it can be revoked if the settlor and all beneficiaries agree. See Restatement (Second) of Trusts § 338 & comment a (1957). Therefore, if David is the settlor and sole beneficiary of the trust, he can revoke the trust on his own and obtain the assets. The ARC is nominally the settlor of the trusts, and the insurance company is listed as the donor of the trust assets. However, David's sub-account was apparently funded with the proceeds of an insurance award or settlement that presumably belongs to David. Thus, David appears to be the actual trust settlor. A settlor is the sole beneficiary of a trust where he transfers property in trust designating himself as beneficiary with the remainder to his estate or his heirs. Restatement (Second) of Trusts § 127 & comment b (1957). Where a settlor manifests an intention to create a vested or contingent interest in others, however, he is not the sole beneficiary. Id. at § 339, comment b.

In Breeze v. Breeze, 428 N.E.2d 286, 287-88 (Ind. App. 1981), the court found that a trust settlor was not the sole beneficiary of a trust where the settlor was the only beneficiary during his lifetime, but the trust declaration provided for the remainder to be distributed to others upon the settlor/beneficiary's death. Since at least part of the remainder after David's death is to be paid to someone other than David's heirs (i.e., the ARC of Indiana), David would not be considered the sole beneficiary of the trust and he cannot revoke the trust without the consent of the remaindermen who are also considered beneficiaries. See Restatement (Second) of Trusts § 127 comment b (1957) (where settlor is not the sole beneficiary, he cannot revoke the trust without the consent of the other beneficiaries).

CONCLUSION

Since David cannot revoke the trust, cannot direct any disbursements for his support, and cannot convert trust property into cash to be used for his support, the property in his trust sub-account is not a resource for SSI purposes.

Sincerely,
Thomas W. C~
Regional Chief Counsel

By: Mary T~
Assistant Regional Counsel

N. PS 04-084 SSI-Indiana-Review of the Trust for the Benefit of Zachary

Date: February 27, 2004

1. Syllabus

This case involves a testamentary trust that was established by the individual's grandmother. The trust was to distribute any remaining trust principal to the individual upon attainment of age 30. Prior to his attainment of age 30, the individual's parents petitioned the Court to modify the distribution clause of the trust to "make the trust a special needs trust." Indiana law allows judicial modification of a trust when the modification would be necessary to prevent the failure of the purposes of the original trust. In this case, the grandmother had created the original trust to provide for her grandson's needs because he had a "learning disability." However, the grandson was more severely disabled due to autism and mental retardation. For this reason, OGC concluded that the judicial modification of the trust was allowed under Indiana law.

The pre-01/01/00 rules for trusts still apply because the trust remains a third party trust. Since the individual cannot terminate the trust, direct distributions from the trust for his support and maintenance, or sell his beneficial interest in the trust, the trust is not a resource for SSI purposes. However, disbursements from the trust may be income.

2. Opinion

You have asked us whether the Trust for the Benefit of Zachary is a countable resource to Zachary for purposes of SSI. For the reasons discussed below, we conclude that the trust, as amended, is not a countable resource. However, any distributions from the trust paid directly to Zachary and any distributions used for his support and maintenance would be considered income for SSI purposes.

FACTS

On October 28, 1986, Martha H~, Zachary's grandmother, a resident of Indiana, executed her Last Will and Testament. On June 17, 1991, Ms. H~ executed the Seventh Codicil to her Last Will and Testament. The codicil contained the following provision:

I make the following gifts:

1. To Bank One, Bloomington, N.A., as Trustee for the benefit of my grandson, ZACHARY, of Carmel, Indiana, the sum of Five Hundred Thousand and no/100 Dollars ($500,000.00), in Trust nevertheless for the purpose of providing for his medical and educational needs resulting from his learning disability. Upon his attaining age Thirty (30), the Trustee H~ distribute to Zachary, if living, and if not then living to his estate, the then remaining balance.

Ms. H~ subsequently died, _/1 and the trust became effective.

Thereafter, Timothy and Nancy S~, Zachary's parents, filed a petition to modify the trust in the Marion County Superior Court, Probate Division. On December 26, 2002, the court granted their petition and authorized their proposed modification. The "Amendment to Trust for the Benefit of Zachary," executed on December 27, 2002, stated that "it will be most advantageous to Zachary if the trust is amended to be administered as a 'special needs trust,' so that Zachary can have funds available to pay for his supplemental needs over his lifetime, without jeopardizing his eligibility for SSI and or Medicaid." Amd. at 1.

According to the amended trust, the trustee has "sole and absolute discretion" to distribute principal or income from the trust, after considering "the advisability of making such distribution in light of the amount to which Zachary may be entitled from any governmental agency." Amd. Art. 2, 1(A). The trustee's discretion is only limited to the extent that "no assets sH~ be paid or expended when the Trustee determines that appropriate and reasonable care, comfort, support and habilitation are available and can be provided or funded by private, local, state or federal government agencies." Id.

Upon Zachary's death, the trust will terminate and the trustee sH~ pay any necessary funeral and burial expenses in its discretion. Amd. Art. 2, 1(B). The remaining trust property and accumulated income sH~ be distributed to his siblings in equal shares, with certain exceptions. Id.

DISCUSSION

1. The December 2002 Amendment to the Trust Constituted A Valid Judicial Modification of the Testamentary Trust

Ms. H~ created the testamentary trust for Zachary in June 1991 in the seventh codicil to her will. Subsequently, Zachary's parents petitioned the Marion County Probate Court to modify the testamentary trust to become a "special needs" trust. In December 2002, the court granted Zachary's parents' petition and issued an order modifying the trust. Thus, we must determine whether the court's action complied with Indiana law.

In Indiana, judicial modification of a trust is allowed under certain circumstances. Ind. Code § 30-4-3-26 provides:

Upon petition by the trustee or a beneficiary, the court s direct or permit the trustee to deviate from a term of the trust if, owing to circumstances not known to the settlor and not anticipated by him, compliance would defeat or substantially impair the accomplishment of the purposes of the trust. In that case, if necessary to carry out the purposes of the trust, the court may direct or permit the trustee to do acts which are not authorized or are forbidden by the terms of the trust, or may prohibit the trustee from performing acts required by the terms of the trust.

This provision follows Restatement (Second) of Trusts § 167(1), and is known as the "doctrine of equitable deviation." See also In re Will of Scheele, 517 N.E.2d 418, 426 (Ind. Ct. App. 1987). This doctrine does not apply where the modification would merely be more advantageous to the beneficiaries; rather, it must be necessary to prevent the failure or substantial impairment of the purposes of the trust. See Restatement (Second) of Trusts § 167 cmt. b (1959).

Here, Zachary's parents related that he was diagnosed with autism and mild mental retardation, and that subsequent to Ms. H~'s death, he applied for SSI because he had difficulty maintaining steady employment as a result of these disorders. Amd. at 1. There is no indication in the materials provided to us that Ms. H~ was aware of or anticipated these circumstances, especially since she stated that Zachary had a learning disability. See also Restatement (Third) of Trusts § 66 cmt. b (2003) ("Failure to provide in the terms of trust for subsequent developments involved in a case reinforces an inference that the circumstances were not anticipated by the settlor.").

The purpose of the trust was to provide for Zachary's medical and educational needs resulting from his learning disability. It is questionable whether the December 2002 modification was necessary to prevent the failure or substantial impairment of the purpose of the trust, or whether the modification was merely advantageous to Zachary. However, in the absence of evidence that casts doubt on the validity of the court's action, we defer to the court's action and conclude that the court's order complied with Ind. Code § 30-4-3-26.

2. The Amended Trust is not A Countable Resource

Since the court's action was a valid modification of the testamentary trust created by Ms. H~ in 1991, the amended trust still remained a trust established solely with the assets of a third party. Therefore, the regular resource rules in POMS SI 01120.200 apply to determine whether the assets in the amended trust are a resource. Under this provision, trust assets are a resource if an individual can:

(1) revoke or terminate the trust and use the assets to meet his needs for food, clothing, or shelter;

(2) direct the use of the trust assets for his support and maintenance under the terms of the trust; or

(3) sell his beneficial interest in the trust.

See POMS SI 01120.200(D)(1)(a).

Whether a trust can be revoked or terminated depends on the terms of the trust and the applicable state law. See POMS SI 01120.200(D)(2). Here, the terms of the amended trust do not give Zachary the right to terminate the trust. Moreover, no provision in the Indiana Code allows a beneficiary to otherwise terminate a trust. This is consistent with the general trust principle that beneficiaries may terminate a trust only if that power is granted in the terms of the trust. See Restatement (Third) of Trusts § 64 (2003). Therefore, Zachary cannot terminate the trust.

Next, we determine whether Zachary has the power to direct the use of the trust assets for his support and maintenance. The trust contains no provision allowing Zachary to direct any actions by the trustee or to act on his own behalf. See POMS SI 01120.200(D)(1)(b). Instead, the trust gives the trustee discretion to make such distributions and payments as it determines appropriate. _/2 Amd. Art. 2, 1(A). Thus, Zachary does not have authority to direct the use of the trust assets to meet his support and maintenance needs.

Lastly, we determine whether Zachary has the power to sell his beneficial interest in the amended trust. Since this is a discretionary trust and the trustee cannot be compelled to make any distributions, Zachary's interest in the trust would have little or no value to a potential transferee. As such, any attempts by Zachary to convert his interest in the trust to cash would likely fail. Therefore, Zachary's beneficial interest in the trust would have no significant market value. See Restatement (Third) of Trusts § 60 and cmt. e (2003).

Because Zachary does not meet any of the above three criteria, we conclude that the assets in his trust are not a countable resource. However, certain distributions from the trust may be considered income. For example, any disbursements of cash made directly to Zachary would be considered unearned income for SSI purposes. See 20 C.F.R. § 416.1102; POMS SI 01120.200(E)(1)(a). In addition, any disbursements made to a third party resulting in Zachary's receipt of food, clothing, or shelter would be considered income in the form of in-kind support and maintenance. See 20 C.F.R. § 416.1102; POMS SI 01120.200(E)(1)(b).

CONCLUSION

The judicial modification of the testamentary trust for Zachary created by Ms. H~ was valid under Indiana law. As modified, Zachary's trust is not considered a resource to him for SSI purposes because he cannot terminate the trust, direct distributions from the trust for his support and maintenance, or sell his beneficial interest in the trust. Certain distributions from the trust, however, may be considered income to him.

Sincerely,
Kim L. B~
Regional Chief Counsel

By: Cristine H. K~
Assistant Regional Counsel

 

_/1We do not know the date of Ms. H~'s death.

_/2The only limitation on the trustee's discretion is in the form of a prohibition from making distributions.

O. PS 02-039 Indiana Irrevocable Funeral Trust Agreement for Franklin; Your Reference: S2D5G3

Date: March 11, 2002

1. Syllabus

The issue in this case concerns whether or not an Irrevocable Funeral Trust Agreement (IFT Agreement) is valid under Indiana law and constitutes a countable resource for SSI purposes. This IFT Agreement provided that it is irrevocable after the first 30 days, that the deposit to the trust of the life insurance policy is irrevocable, and that the assignment of the policy proceeds to the funeral home and of ownership to the Trustee is irrevocable. While the IFT Agreement meets the requirements to be valid under Indiana law, the cash surrender value is considered a resource for SSI purposes during the first 30 days because it could be revoked by the recipient. After 30 days, the policy would not be a countable resource because the policy was irrevocably assigned to the trust.

2. Opinion

You requested an opinion whether the Indiana Irrevocable Funeral Trust Agreement entered into by Franklin, an elderly SSI claimant, is valid under Indiana law and constitutes a countable resource. Provided nothing in the life insurance policy itself precluded this arrangement, the irrevocable funeral trust agreement would be valid, and the cash surrender value of the life insurance policy would be a resource for the first thirty days after the agreement was made, but not thereafter.

FACTS

On November 21, 1997, F~ (Purchaser) purchased prepaid funeral services and/or merchandise from the Dickerson Funeral Home (Seller) by entering into an Irrevocable Funeral Trust Agreement ("IFT Agreement"). The services were funded by a life insurance policy issued by Western & Southern with a death benefit of $7000, which named Tom D~ d/b/a Dickerson Funeral Home as the designated beneficiary. The IFT Agreement provided for irrevocable deposit to trust of the life insurance policy and irrevocable assignment of the death benefit to the Dickerson Funeral Home and ownership to the trustee, NBD Bank, N.A.

The IFT Agreement acknowledged that, on November 3, 1994, the Indiana Funeral Trust Fund was established under a Second Amended Master Trust Agreement ("Master Trust Agreement") entered into between Hightower Services, Inc. and NBD Bank, N.A., as Trustee. The IFT Agreement also contained an adoption clause whereby the provisions of the Master Trust Agreement became binding on the parties to the IFT Agreement. The IFT Agreement and the Master Trust Agreement became irrevocable thirty days after the date it was signed by F~ and Mr. D~.

The Master Trust Agreement requires that a separate sub-trust account be established by the Seller for each IFT Agreement between a Purchaser and a Seller; that the accounts of all Purchasers establishing IFT Agreements be commingled and invested and that all income drawn from investments be added periodically on a pro rata basis and with a separate accounting for each sub-trust account; that the money on deposit and the interest earned be paid to the Seller when it provides evidence satisfactory to the Trustee that it has performed its obligations under the IFT Agreement and provided all funeral services and/or merchandise required of it; and that the Trustee may receive from interest earned on the commingled funds its reasonable compensation for services. Pursuant to the Master Trust Agreement, each Seller is required to sign an Adoption Agreement which acknowledges that the Purchaser received a summary of the Master Trust Agreement and acknowledges that Seller is to be a party and individual Settlor to the Master Trust Agreement.

The IFT Agreement also provides that F~ may change the funeral home who is to provide funeral services and merchandise at any time. However, under the agreement, F~ does not have any right to withdraw income from or reduce the account balance of the sub-trust account for any reason.

Other documents forwarded to us include a June 3, 2000, Notice of Change of Ownership and an undated "Data Page." The June 3, 2000, Notice of Change of Ownership indicates a change in ownership was "recently" requested, and the Dickerson Funeral Home is the new owner of F~‘s life insurance policy, as well as the Class 1 beneficiary. The undated Data Page, which has a fax date of January 25, 2001, reflects that F~ is the owner of the life insurance policy and Mary, Wife, is the Class 1 beneficiary.

DISCUSSION

A life insurance funded burial contract involves an individual purchasing a life insurance policy in his name and then assigning, revocably or irrevocably, either the proceeds or ownership of the policy to a third party, generally a funeral provider. The purpose of the assignment is to fund a prearranged burial contract. POMS § SI 01130.425(A)(1). Assuming the policy allowed F~ to assign ownership, ownership of F~' life insurance policy was assigned to NBD Bank, N.A. and the policy was deposited to trust. Since the policy was placed in trust, the rules governing trust funds determine whether it is a resource for SSI purposes. POMS §§ SI 01130.425(E); SI 01120.200 (B)(1) (for trusts created before 1/1/00).

A resource, for SSI purposes, is defined as property that the SSI claimant owns and can convert to cash or property, or over which he has the right, authority, or power to liquidate. 20 C.F.R. § 416.1201(a)(1). Applying this definition to trusts, the POMS provides that if: (1) the individual neither owns nor has the legal right to direct the use of trust assets to meet his or her support and maintenance needs, and (2) state law allows a life insurance policy that funds a funeral contract to be placed irrevocably in trust, then the policy's cash surrender value is not a resource for SSI purposes. POMS § SI 01130.425(E)(1).

The IFT Agreement in this case provides that F~' transfer of ownership was irrevocable after the first thirty days, as was the deposit of the life insurance policy in trust, and F~ does not have any right to withdraw income from or reduce the account balance of the sub-trust account for any reason after that time. Because this transfer was permissible under Indiana law, as described below, the trust was irrevocable and the life insurance policy is not a countable resource for SSI purposes.

Indiana law specifically regulates pre-need funeral and burial contracts. See Ind. Code Ann. § 30-2-13 et. seq. Contracts for prepaid funeral services and/or merchandise entered into after December 31, 1995, and before July 1, 1999, (as the one in this case) may be funded with an insurance policy and may be revoked within thirty days after it is signed. See Ind. Code Ann. § 30-2-13-12.1(b). Thirty days after the contract is signed all property paid or delivered to the seller s be irrevocably deposited to trust as authorized by statute. Id. When the contract is funded with an insurance policy, the ownership of the insurance policy must be irrevocably assigned to a trustee. See Ind. Code Ann. § 30-2-13-12.1(c).

A trust account authorized and established under Indiana's statute must:

(1) be irrevocable and require the seller to deposit to trust all sums or property received from the purchaser;

(2) designate the seller as settlor and the seller as beneficiary;

(3) designate a trustee qualified under this chapter and authorize the trustee to charge a reasonable fee for services;

(4) require that a separate account be maintained in the name of each purchaser;

(5) require that the interest earned on the account be added to the principal and reinvested;

(6) permit assets of the separate accounts of several purchasers to be commingled for investment; and

(7) require that on delivery of services or merchandise the trustee s remit to the seller the amount on deposit in the purchaser's trust.

Ind. Code Ann. § 30-2-13-12.1(h)(1)-(7). The chapter further provides that a trust account:

(1) must include the provisions set forth in subsection (h) above;

(2) may be included as an integral part of a seller's contract through the execution of an adoption agreement that references the trust account; and

(3) is not required to be represented by a separate trust document for each contract.

Ind. Code Ann. § 30-2-13-12.1(j). Finally, a contract for prepaid funeral services and/or merchandise entered into after June 30, 1997, must contain a statement that:

(1) the purchaser may revoke the contract within thirty days after the contract is signed; and

(2) after thirty days the contract is irrevocable.

Ind. Code Ann. § 30-2-13-12.1(j). However, this chapter does not prohibit a purchaser from immediately making the trust irrevocable and assigning ownership of an insurance policy used to fund a contract to obtain favorable consideration for Medicaid, SSI, or another public assistance program under federal or state law. Ind. Code Ann. § 30-2-13-12.1(m).

As discussed in our "Facts" section above, it appears that the IFT Agreement and Master Trust Agreement complies with these requirements. The IFT Agreement expressly provides that it is irrevocable after the first thirty days, that the deposit to trust of a life insurance policy is irrevocable, and that the assignment of the policy proceeds to Dickerson Funeral Home and of ownership to the Trustee is irrevocable. Since F~ could have revoked the IFT Agreement within thirty days after signing it, the cash surrender value was a resource during this time period. Although it appears F~ did not notify the insurance company of the agreement until recently, F~ signed the IFT Agreement on November 21, 1997; thus, the cash surrender value was a resource until December 21, 1997. After that time, however, the policy was not a resource. F~ simply retained the right to change funeral providers; he does not have any right to withdraw income from or reduce the account balance of the sub-trust account established for him for any reason. Therefore, it appears that he is not able to surrender the policy for cash. Further, pursuant to Indiana law, the IFT Agreement is valid. The insurance policy has been transferred to a valid irrevocable trust, and F~ no longer owns the policy or has the power to use it for his support and maintenance. Consequently, the cash surrender value of F~' life insurance is not a resource for SSI purposes.

CONCLUSION

For the above reasons, we conclude that, assuming nothing in the insurance policy itself precluded this arrangement, F~' irrevocable life insurance-funded funeral trust agreement is valid under Indiana law. The cash surrender value of the life insurance policy was a resource for the first thirty days after the assignment, since F~ could revoke the agreement and obtain the cash surrender value of the policy. After the first thirty days, the policy would not be a resource because the policy was irrevocably assigned to trust.

P. PS 00-339 Indiana Trust for Angela

Date: December 28, 1999

1. Syllabus

This irrevocable trust is not a resource for SSI because the beneficiary cannot revoke the trust, direct the use of the funds for her support and maintenance or sell her beneficial interest. However, disbursements from the trust may be income to the beneficiary. Because of a change in the Social Security Act, this precedent may only be applicable to a trust established by an individual before 1/1/00.

2. Opinion

You have asked whether the trust established for Angela M~ (Angela) is a countable resource for the purposes of determining Angela's eligibility for Supplemental Security Income (SSI). We believe, for the reasons stated below, that the trust is not a resource to Angela, although any distribution made to Angela could be considered income for SSI purposes at the time of the distribution.

FACTS

The Angela R. M~ Trust (the trust) was created on November 30, 1993 with the funds held in a particular bank account. The trust names Paula A. M~ (presumably Angela's mother) as the settlor of the trust, but it is not clear whose money was in the bank account that funded the trust.

The purpose of the trust is "the benefit of Angela R. M~." Sec. 2. Under the terms of the trust, the trustee "may" distribute the income or principal of the trust for Angela's health, education, and support and maintenance only to the extent that her needs are not met by any and all available governmental benefits. The trust has authority only to make payments to supplement, not to replace, government benefits. Sec. 6 The trust further states that the trustee's discretion in expending income and principal is limited to the purchase of items or services not provided by government programs or benefits. Sec. 7.

The trust states that it is "irrevocable." Sec. 4. The trust may be amended with the consent of the settlor and the trustee, but the trust cannot be made revocable. Sec. 5.

The trust has a spendthrift provision with respect to Angela's interest in the trust. Sec. 9 The trust will terminate when Angela dies or if the trust is found subject to the claims of any government or private agency. On termination, the remaining trust property will be distributed to the settlor's surviving children. Secs. 10-11.

DISCUSSION

A resource, for SSI purposes, includes cash or other liquid assets or any real or personal property that the individual owns and could convert to cash to be used for her own support and maintenance. 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate the property or her share of the property, it is considered a resource. 20 C.F.R. § 416.1201(a)(1); see also POMS SI 01110.100(B). Trust property can be a resource for SSI purposes. POMS SI 01120.200(A). The trust is a resource to Angela if she can (1) revoke or terminate the trust and use the funds to meet her needs for food, clothing or shelter; (2) direct the use of the trust principal for her support and maintenance; or (3) sell her beneficial interest in the trust. POMS SI 01120.200(D)(1)(a); Zebley Trust as an SSI Resource-Wisconsin, Bernard W~ (~), RA V (M~) to M~, Acting ARC-POS (Feb. 23, 1993). Our analysis of this case is somewhat complicated because, from the information we were provided, we cannot determine whether this trust was established with Angela's funds or her mother's. However, we conclude that the trust at issue here is not a resource to Angela under any of these three theories, regardless of the source of the funds.

1. Angela Cannot Revoke or Terminate the Trust and Obtain the Assets

If the trust was established with the mother's funds (or anyone's funds other than Angela's own funds), Angela would not have the power to terminate the trust and obtain the trust assets. By its terms, the trust will terminate only if Angela dies or if the trust is found subject to the claims of any governmental or public agency.

If Angela's funds were used to fund the trust, she could not revoke the trust on her own because she is not the sole beneficiary of the trust. Under general trust law, a trust that purports to be irrevocable may be revoked if the settlor (also called a "grantor") and all beneficiaries agree. See Restatement (Second) of Trusts § 338(1), 339 (1959). Here, if the funds used to create the trust belonged to Angela, she is the true settlor of the trust, even if the trusts names another person as the settlor. See 76 Am. Jur. 2d Trusts § 55 (1992). But even if Angela is the settlor of the trust, she is not the sole beneficiary of the trust. There are additional, residual beneficiaries to the trust because, on termination of the trust, any remaining assets will be distributed to the settlor's children. Angela could not revoke the trust without the consent of other beneficiaries, some of which may not even exist yet. See

Restatement (Second) of Trusts § 338(1), 339 (1959). As a matter of policy, we presume that the additional beneficiaries would not consent to revocation of the trust. See Trusts Established as the Result of Zebley Underpayments, SSD, Chief, SSI Branch (K~) to B~, Director, Division of Program Requirements Policy (8/28/91); W~ Memo, supra, at 3.

2. Angela Cannot Direct the Trustee to Use the Funds for Her Support and Maintenance

Angela also does not have power to direct use of the trust property to meet her needs for food, clothing, or shelter. According to the terms of the trust, the trustee has discretion as to whether and when to make any payments from the trust. The trust states that the trustee "may" distribute funds for Angela's supplemental needs, although "[t]he trustee's discretion" is limited to expenditures to purchase items or services not provided by government programs or benefits. Secs. 6-7. Therefore, under the terms of the trust, Angela cannot compel the trustee to make payments for her basic support and maintenance.

We note that the trust allows an amendment to the trust with the consent of the settlor and the trustee, although the trust cannot be modified to be made revocable. Sec. 5. Under this provision, if Angela is the settlor, she could modify the trust, with the trustee's consent, so that the trustee would be required to use the trust assets for her support and maintenance. However, Angela would have to obtain the trustee's consent to make such an amendment to the trust, and the trustee would have discretion to deny the amendment. See Restatement (Second) of Trusts § 330 comment l, 331(1) and comment e (1959). Because the trustee could withhold consent, the trust should not be considered a resource to Angela.

3. Angela Cannot Sell Her Beneficial Interest in the Trust

If Angela's mother (or anyone but Angela) is the settlor of the trust, Angela would be unable to sell her beneficial interest in the trust because of the spendthrift provision in Section 9 of the trust. If Angela is the settlor of the trust, the spendthrift provision presumably would be invalid. However, we would assume that the beneficial interest has no significant value because of the discretionary nature of the trust. See Zebley Trust as an SSI Resource-Wisconsin, Bernard W~ (~), RA V (M~) to M~, Acting ARC-POS (Feb. 23, 1993) at 5; Tentative Draft No. 2: Restatement (Third) of Trusts § 60 and comment f (March 10, 1999). As explained above, Angela could amend the trust, such that the trustee was required to make certain payments to her from the trust. In that case, Angela could, in theory, have a beneficial interest of value that she could sell. But since Angela cannot amend the trust without the trustee's consent, and since the trustee has discretion to deny consent, we will not consider the trust to be a resource.

4. Disbursements From the Trust May Be Income to Angela

As noted above, the trustee is not required to make disbursements from the trust. However, if the trustee makes any disbursements, those disbursements may be income for SSI purposes. POMS 01120.200(E)(1). Therefore, Angela should be required to report any expenditures made to her or on her behalf.

CONCLUSION

In sum, this trust is not a resource to Angela because she cannot revoke or terminate the trust, direct the trustee to provide for her support and maintenance, or sell her beneficial interest in the trust. However, Angela should be required to report any disbursements from the trust made to her or for her benefit, since those disbursements could represent income for SSI purposes.


Footnotes:

[1]

We note that agency policy would allow for the use of a for-profit organization to assist with managing the Trust, so long as the for-profit organization maintains ultimate managerial control over the Trust and does not delegate certain key management functions. See POMS SI 10020.225. However, this Trust places no such limitations on any other co-trustee.

[2]

Neither Indiana statutory nor case law addresses the revocability of self-settled trusts where the settlor is the sole beneficiary. However, Indiana courts have followed the Restatement (Second) of Trusts, particularly concerning a settlor’s powers of revocation. See, e.g., Breeze v. Breeze, 428 N.E.2d 286 (Ind. Ct. App. 1981) (finding opinion consistent with Restatement (Second) of Trusts § 330 regarding a settlor’s mode of revocation); Hinds v. McNair, 413 N.E.2d 586, 594 (Ind. Ct. App. 1980) (citing Restatement (Second) of Trusts § 330 for general principle related to a settlor’s power to amend or revoke an irrevocable trust). Likewise, Indiana’s legislature has followed the Restatement (Second) of Trusts in drafting several sections of Indiana’s Trust Code. See, e.g., Ind. Code Ann. §§ 30-4-3-2, 30-4-3-7, 30-4-3-10, 30-4-3-11, 30-4-3-26. Thus, an Indiana court would likely adopt the general trust principle that a settlor could revoke a trust for which he or she is the sole beneficiary, regardless of any terms in the trust to the contrary. See POMS SI CHI01120.200(C).

[3]

According to the comments for Indiana Code § 30-4-3-2(b), this subsection follows Restatement (Second) of Trusts § 156. See id. The Restatement, in turn, provides in relevant part: “Where a person creates for his own benefit a trust for support or a discretionary trust, his transferee or creditors can reach the maximum amount which the trustee under the terms of the trust could pay to him or apply for his benefit.” Restatement (Second) of Trusts § 156(2). However, the plain language of the Indiana statute adopts the policy only with respect to creditors, not transferees. For transferees, we believe that Indiana would apply the more recently adopted Restatement (Third) of Trusts at Section 60, comment 4, which states that a transferee cannot reach the assets of a discretionary trust, even where the discretionary beneficiary is also the settlor of the trust. See Restatement (Third) of Trusts § 60 & cmt. f (2003).

[4]

The agency’s trust policy generally contemplates, and applies in the context of, the agency’s evaluation of a trust document. If the Regional Office becomes aware of potentially relevant decanting activity, proposed or completed, the Regional Office should contact the Office of the Regional Chief Counsel and the Office of Income Security Programs for guidance.

[5]

Currently, SSA does not have a published national policy on decanting. However, the agency’s default practice generally is to consider total decanting (i.e., decanting of all trust assets) as a form of early termination and to evaluate a provision for such decanting in a (d)(4)(A) or (d)(4)(C) trust against the instructions on early termination in POMS SI 01120.199(F). Subsection (F)(1) sets out criteria that an early termination provision generally must satisfy. And subsection (F)(2) sets out an exception for a trust provision that allows for a transfer of assets solely from one (d)(4)(C) trust to another (d)(4)(C) trust. The instructions in POMS SI 01120.199(F) currently are under review and likely will be revised in the near future. This information is based on our consultation with the Office of Program Law at staff level.

[6]

The trustee may only be a remainder beneficiary of the first trust, and the trustee’s beneficial interest in the second trust may not be greater than the trustee’s beneficial interest in the first trust. Wis. Stat. Ann. § 701.0418(3)(c).

[7]

According to its website, SWIRCA is an Indiana not-for-profit, 501(c)(3), public service organization. SeeAbout SWIRCA & More, http://www.swirca.org/about-swirca-and-more/ (last visited April 30, 2018); 501(c)3 Letter, http://www.swirca.org/wp-content/uploads/2016/03/501c3-letter.pdf (last visited April 30, 2018).

[8]

Although the Trust Declaration provides a second definition of “beneficiary,” it seems reasonably clear the Trust pertains to disabled individuals under 42 U.S.C. § 1382c(a)(3), not to remaindermen after the beneficiary’s death. But to be entirely clear, the second definition of beneficiary could be removed.

[9]

On February 20, 2018, an agency SSI Program Specialist verified with K~, a Trust Officer for Old National Wealth Management, that such entity is for-profit.

[10]

The Joinder Agreement indicates that the Trust is managed by SWIRCA and administered by the Trustee, but indicates that to the extent that any terms of the Trust are inconsistent with 42 U.S.C. § 1396p, the law and regulations control. JA at J.8. Regardless of this language, the Trust must still meet all the required criteria to meet the pooled trust exception. See POMS SI 01120.227(D)(1).

[11]

In the case of a self-funded trust sub-account, the grantor is also the beneficiary.

[12]

Grantor is defined as “any person or entity which contributes his, her or its own assets or property to the Trust for the benefit of a Beneficiary, by gift, will, contract, or agreement.” TD Art. III.3.

[13]

. . [1] There is currently proposed legislation in the Illinois General Assembly which would create a new Illinois Trust Code, effective January 1, 2018. See H.B. 2526, 100th Gen. Assemb., 1st Reg. Sess. (Ill. 2017). This legislation contains a provision that would adopt § 401 of the UTC. See id. § 401.

[14]

. . The MTA does not explicitly provide that Indiana law governs the Pooled Trust, but both the MTA and the Joinder Agreement identify the State of Indiana in their titles, and make specific reference to the State of Indiana within their provisions. See MTA, par. 1, 11; Joinder Agreement.

[15]

. . . According to the introductory paragraph to Article Seven, the Arc of Indiana is an organization that provides services to developmentally disabled individuals.

[16]

. . . POMS SI 01120.199.F.2 permits an exception for transfer of a beneficiary’s trust account from one pooled trust to another. See POMS SI 01120.199.F.2 (the trust need not meet the above criteria to be excepted as a resource if the early termination clause (1) “solely allows for transfer of the beneficiary’s assets from one [pooled] trust to another [pooled] trust,” and (2) contains specific language precluding disbursements other than to the secondary trust (or for the payment of taxes or reasonable administrative expenses). Under this exception, the State(s) need not receive reimbursement prior to transfer of the beneficiary’s trust account. See id. However, no such exception exists for the transfer of a beneficiary’s trust corpus from a special needs trust to a qualifying pooled trust. See id.


To Link to this section - Use this URL:
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PS 01825.017 - Indiana - 05/18/2018
Batch run: 09/20/2019
Rev:05/18/2018