TN 178 (03-20)

PS 01825.020 Kentucky

A. PS 20-025 Validity of Charities Pooled Trust as a Pooled Trust - Region IV Survey

Date: February 27, 2020

1. Syllabus

This Regional Chief Counsel opinion examines whether the Charities Pooled Trust (CPT), which operates in every state of Region IV (Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, and Tennessee), qualifies as a pooled trust under the Social Security Act, 42 U.S.C. § 1396p(d)(4)(C), and the implementing provisions of the Program Operations Manual System. The opinion concludes that the CPT qualifies as a pooled trust in all states of Region IV.

2. Opinion

QUESTION

Whether the Charities Pooled Trust (CPT), which operates in every state in this region, qualifies as a pooled trust under the Social Security Act (Act), 42 U.S.C. § 1396p(d)(4)(C), and the relevant provisions of the Program Operations Manual System (POMS).

OPINION

CPT qualifies as a pooled trust under 42 U.S.C. § 1396p(d)(4)(C) and the relevant POMS provisions.

BACKGROUND

Between October 2016 and July 2018, CPT executive director, W~, executed Master Trust Agreements (MTAs) in Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, and Tennessee. Each trust established CPT as a pooled trust in these respective states. The MTA for each state includes identical provisions, except with respect to the extent to which the MTA addresses directed trustees, whether the trustee will notify the state’s Medicaid agency about a beneficiary’s death, and how the trust will distribute the remainder funds in an individual benefit account (IBA) upon a beneficiary’s death. The MTAs also have identical joinder agreements.

NH1, a number holder living in Kentucky, NH2, a number holder living in Tennessee, and NH3, a number holder living in Florida, receive Supplemental Security Income (SSI). NH1 signed a Joinder Agreement with CPT under the Kentucky MTA on February 13, 2017. NH2’s parent and grandparent signed a Joinder Agreement with CPT under the Tennessee MTA on July 3, 2019. NH3 signed a Joinder Agreement with CPT under the Florida MTA on August 22, 2018. NH1, NH2, and NH3 funded the IBAs of their respective trusts through the transfer of their own assets to the trusts.

I. Purpose and Establishment of the Trust

CPT’s MTAs identify CPT as the Trustee. See MTA, § 2.2.[1] They identify CPT as a non-profit corporation recognized as tax-exempt under section 501(c)(3) of the Internal Revenue Code. Seeid.

The MTAs indicate that the trust intends to comply with 42 U.S.C. § 1396p(d)(4)(C) (§ 1917(d)(4)(A) of the Act). See MTA, § 1.5. They indicate that each trust shall establish a separate account for each beneficiary, but may pool the amounts in the separate accounts for investment and management purposes. See MTA, §§ 4.1, 9.1.

The MTAs classify a trust beneficiary as a person with a disability, as defined by 42 U.S.C. § 1382c(a)(3) (codifying § 1614(a)(3) of the Act), whom a grantor identifies as the sole recipient of services and benefits from the individual account created within the trust for such person with a disability. See MTA, § 13.12; Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.4; Florida, Kentucky, Tennessee MTA, § 2.6. A trust beneficiary, or the trust beneficiary’s parent, grandparent, or legal guardian, or another person or entity acting pursuant to a court order or other legal authority, can be a grantor and can establish an account for a trust beneficiary in the Trust and contribute assets to the trust for the sole benefit of the trust beneficiary. See MTA, § 3.1; Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.3; Florida, Kentucky, Tennessee MTA, § 2.5. The stated purpose of the trust is to supplement, not displace, a beneficiary’s government benefits. See MTA, § 3.2.

II. Distribution and Powers of the Trustee

The Trustee is responsible for overseeing the custody, investment asset allocation model selection, and disbursement of funds contributed to the trusts. See MTA, § 2.2. In carrying out this responsibility, the Trustee may retain an independent investment advisor to handle the custody, investment, and management of the trust assets. See Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.5; Florida, Kentucky, Tennessee MTA, § 2.7. The Trustee and any investment advisor shall perform their duties provided in the trusts to receive, hold, manage, and control all income and principal in the IBAs comprising the Trust as may be appropriate to effectuate the intent and purpose of the trusts. See MTA, § 10.1.

The Trustee shall hold, administer, and distribute all property and income from an individual trust beneficiary’s IBA for the sole benefit of the beneficiary. See MTA, §§ 6.1, 6.2. Distributions are solely within the Trustee’s discretion, but the Trustee must make them for the sole benefit of a beneficiary and should make them if the distribution has the effect of supplanting or replacing any government assistance or disqualifying a beneficiary from receiving government assistance. See MTA, § 6.1.

The Trustee assesses enrollment fees for the fees and expenses associated with a beneficiary enrolling in one of the trusts and establishing an IBA and annual administration fees for the administration and maintenance of an IBA at the time a beneficiary enrolls in the trust. See MTA, § 9.2. The Trustee may adjust the enrollment fees schedule and annual administration fees schedule from time to time. See id.

III. Irrevocability and Spendthrift

The trusts established under each state’s MTA are irrevocable upon the Trustee’s acceptance of a beneficiary’s joinder agreement and related required documents, and the grantor’s contributed amount, and upon the grantor and beneficiary completing the enrollment requirements to join the trust. See MTA, § 1.3. The MTA treats the amount contributed to a beneficiary’s IBA as irrevocably assigned, transferred, conveyed and delivered to the Trustee to be used for the sole benefit of the beneficiary. MTA, § 4.2. Once the Trustee accepts the contributed amount, it is not refundable to the beneficiary. Seeid. A beneficiary has no right to demand a distribution from the trust for his or her own support or maintenance. See MTA, § 9.8.

Each trust is a spendthrift trust. See MTA, § 9.9. No beneficiary can subject any part of either trust to an assignment; attachment; levy; a creditor’s control; a creditor’s legal or equitable action, proceeding, suit, or procedure to take from the Trust; or a compelled distribution to any beneficiary’s creditor. Seeid.

IV. Termination

Upon a beneficiary’s death, the Trustee will use remaining funds in the beneficiary’s IBA to pay back to a state’s Medicaid agency or agencies an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under a state Medicaid plan. See MTA § 7.2B, D. If the payback amount is equal or greater than the amount remaining in the IBA, the MTAs for Alabama, Georgia, and North Carolina indicate that the trust will retain ten percent of the remaining amount and use the remaining ninety percent to pay back the Medicaid agency or agencies. Alabama, Georgia, North Carolina MTA, § 7.2D.1. The MTAs for the rest of the states in the Atlanta region indicate that under the same circumstances, the Trust will retain fifty percent of the remaining amount and use the remaining fifty percent to pay back the Medicaid agency or agencies. See Kentucky, Mississippi, South Carolina, Tennessee MTA, § 7.2D.1. If the payback amount is less than the amount remaining in the IBA, the MTAs for every state in the Atlanta region indicate that the Trust will retain five percent of the amount remaining in the IBA and pay back the full amount to the Medicaid agency or agencies. See MTA, § 7.2D.2. The Trustee will distribute any remaining amount left after the Trust retains five percent and pays back the Medicaid agency or agencies to any remainder beneficiaries of the deceased beneficiary identified in the IBA joinder agreement. See MTA, § 7.2C, D.2.

A beneficiary cannot terminate the Trust or any part of the beneficiary’s IBA at any time, under any circumstances. See MTA, § 8.1. If the Trust terminates during the lifetime of a beneficiary, the Trustee will use any funds remaining in an IBA to pay back a state’s Medicaid agency or agencies an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under a state Medicaid plan, with the remaining amounts distributed to the beneficiary. See MTA, § 8.1.

DISCUSSION

A. To qualify as a pooled trust, a trust must meet six requirements.

To be eligible for Supplemental Security Income (SSI), the dollar value of a claimant’s countable resources cannot exceed certain statutory limits. See 42 U.S.C. § 1382(a)(1)(B), (3)(B); 20 C.F.R. §§ 416.202(d), 416.1201, 416.1205; POMS SI 01110.003(A). Under 42 U.S.C. § 1382b(e), a trust is a resource unless it meets certain requirements, including those articulated in § 1396p(d)(4)(C). Trusts that meet the requirements of 42 U.S.C. § 1396p(d)(4)(C) are considered to be qualifying pooled trusts.

B. The MTAs for every state in the Atlanta Region qualifies as a pooled trust.

The MTAs for every state in this region qualify as pooled trusts. As further explained below, the MTAs meet each of the six criteria articulated in 42 U.S.C. § 1396p(d)(4)(C) as follows:

1. Disabled Individual

To qualify as a pooled trust, the trust must contain “the assets of an individual who is disabled.” 42 U.S.C. § 1396p(d)(4)(C); see POMS SI 01120.203.D.2 (stating that “the individual whose assets were used to establish the trust account must be disabled for SSI purposes . . . .”). That requirement is satisfied here.

The MTAs require that a trust beneficiary be a person with a disability. See MTA, § 13.12; Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.4; Florida, Kentucky, Tennessee MTA, § 2.6. Although a grantor besides the trust beneficiary may contribute assets to the trust, the grantor makes those contributions for the sole benefit of the trust beneficiary. See MTA, § 3.1; Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.3; Florida, Kentucky, Tennessee MTA, § 2.5. Additionally, the individuals who established IBAs under the MTAs for Florida, Kentucky, and Tennessee are disabled and used their own assets to fund their IBAs.

2. Established and Managed by a Nonprofit Association

Second, the trust must be “established and managed by a non-profit association.” 42 U.S.C. § 1396p(d)(4)(C)(i); see POMS SI 01120.203.D.3 (trust is “established and maintained by the actions of a nonprofit association”). This requirement is satisfied as well.

According to the MTAs, CPT is the settlor and trustee of the MTAs and is a non-profit corporation under section 501(c)(3) of the Internal Revenue Code. MTA, § 2.2. CPT is a fictitious name for the Institute for Health Care Advocacy, Inc. See sunbiz.org – Florida Department of State, http://dos.sunbiz.org/scripts/ficidet.exe?action=DETREG&docnum=G09000149562&rdocnum=G09000149562 (last accessed Feb. 24, 2020). The Institute for Health Care Advocacy, Inc. is an active not-for-profit Florida corporation. See sunbiz.org – Florida Department of State, http://search.sunbiz.org/Inquiry/CorporationSearch/SearchResultDetail?inquirytype=EntityName&directionType=Initial&searchNameOrder=INSTITUTEFORHEALTHCAREADVOCACY%20N930000037871&aggregateId=domnp-n93000003787-3d08880b-9b2a-400f-bc4b-4f26864703fb&searchTerm=Institute%20for%20Health%20Care%20Advocacy&listNameOrder=INSTITUTEFORHEALTHCAREADVOCACY%20N930000037871 (last accessed Feb. 24, 2020). The fictitious name registration for CPT expired on December 31, 2019. See sunbiz.org – Florida Department of State, http://dos.sunbiz.org/scripts/ficidet.exe?action=DETREG&docnum=G09000149562&rdocnum=G09000149562 (last accessed Feb. 24, 2020). However, under Florida law, the failure of a business to register a fictitious name “does not impair the validity of any contract, deed, mortgage, security interest, lien, or act of such business . . . .” Fla. Stat. Ann. § 865.09(9)(b). Accordingly, this requirement is still satisfied in spite of the failure of the Institute for Health Care Advocacy, Inc., to maintain its registration of CPT as a fictitious name.

3. Separate Accounts, Pooled for Investing

Third, to be a pooled trust, the trust must maintain a separate account for each beneficiary. 42 U.S.C. § 1396p(d)(4)(C)(ii); see POMS SI 01120.203.D.4. However, “for purposes of investment and management of funds, the trust pools these accounts.” 42 U.S.C. § 1396p(d)(4)(C)(ii); seePOMS SI 01120.203.D.4 (the “trust may pool the funds in the individual accounts . . . for purposes of investment and management of funds”). This requirement is reflected in POMS, which notes that “[t]he trust must be able to provide an individual accounting for each individual.” POMS SI 01120.203.D.4. The MTAs for every state in this region meet these requirements.

The MTAs indicate that each trust shall establish a separate account for each beneficiary, but trust may pool the amounts in the separate accounts for investment and management purposes. MTA, §§ 4.1, 9.1. The MTAs also indicate that the trustee, or its agent, must “maintain records for each Trust IBA in the name of each Trust Beneficiary and showing the Contributed Amount plus any income earned from the Contributed Amount.” MTA, § 4.1. The trust must provide periodic reports, at least annually, about receipts and disbursements to and from the individual’s account. See MTA, § 9.4.

4. Established for the Sole Benefit of the Disabled Individual

The fourth requirement for a pooled trust is that the trust account is “established solely for the benefit of individuals who are disabled.” 42 U.S.C. § 1396p(d)(4)(C)(iii); accord POMS SI 01120.203.D.5 (trust “must be established for the sole benefit of the disabled individual”). The statute does not provide guidance on “sole benefit,” but the POMS explains that a trust is “established for the sole benefit of an individual” when it “benefits no one but that individual, whether at the time the trust is established or at any time for the remainder of the individual’s life.” POMS SI 01120.201.F.1.

The trust may pay third parties for goods or services for the beneficiary and still be for the “sole benefit” of the beneficiary. POMS SI 01120.201.F.3. The trust also may “provide for reasonable compensation for (a) trustee(s) to manage the trust and reasonable costs associated with investment, legal, or other services rendered on behalf of the individual with regard to the trust.” POMS SI 01120.201.F.4.

The MTAs for every state in this region meet this requirement. The MTAs indicate that the trustee must “hold, administer, and distribute all property, and all income therefrom from an Individual Trust Beneficiary’s IBA, for the sole benefit of the Trust Beneficiary during the Trust Beneficiary’s lifetime and after Trust termination.” MTA, § 6.2 (emphasis in original); MTA, § 6.3 (“Trust Beneficiary’s IBA is for the sole benefit of the Trust Beneficiary.”) (emphasis in original).

The MTAs also allow for fees in accordance with a written fee schedule and expenses for administering the trust. MTA, §§ 9.2, 10.5. The MTAs further state that the trust will compensate a trustee for “services rendered and reimbursed reasonable expenses incurred on behalf of the Trust or a Trust Beneficiary.” MTA, § 10.5. Additionally, the MTAs allow for charges of pro rata legal fees to all individual trust accounts, or to accounts of affected beneficiaries, and the trustee will determine “if defense costs affect a substantial number of Trust beneficiaries” and warrant allocation. MTA, § 10.6. These provisions pass muster under the statute because they constitute “reasonable costs associated with investment, legal, or other services rendered on behalf of the individual with regard to the trust.” POMS SI 01120.201.F.4.

The MTAs contain an early termination provision that accounts for a scenario where the trust terminates prior to the death of the beneficiary. MTA, Art. 8. An early termination provision is allowable under the pooled-trust exception so long as three criteria are met: (1) “[u]pon early termination (i.e., termination prior to the death of the beneficiary), the State(s), as primary assignee, would receive all amounts remaining in the trust at the time of termination up to an amount equal to the total amount of medical assistance paid on behalf of the individual under the State Medicaid plan(s);” (2) “[o]ther than payment for those expenses [for taxes, reasonable fees, and administrative expenses], no entity other than the trust beneficiary may benefit from the early termination (i.e., after reimbursement to the State(s), all remaining funds are disbursed to the trust beneficiary);” and (3) “[t]he early termination clause gives the power to terminate to someone other than the trust beneficiary.” POMS SI 01120.199.F.1 (bold in original). The trust may pay taxes, reasonable fees, and administrative expenses before reimbursing any state(s) for medical assistance. See POMS SI 01120.199.F.3.

The MTAs for this region satisfy these criteria. Specifically, the MTAs indicate that, if the trust terminates during the beneficiary’s life, all remaining funds in that account will be paid to reimburse each state for medical assistance paid on behalf of the beneficiary. MTA, § 8.1. The MTAs also indicate that, after paying the states, “if there are any assets remaining, the Trustee shall distribute all of the remaining assets to the Trust Beneficiary.” MTA, § 8.1. Additionally, the beneficiary does not have the power to terminate his or her trust account. See MTA, § 8.1.[2]

5. Established Through the Actions of the Individual, Parent, Grandparent, Legal Guardian, or Court

To qualify as a pooled trust, the trust account also must be “established... by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court.” 42 U.S.C. § 1396p(d)(4)(C)(iii); see POMS SI 01120.203.D.6. The MTAs here meet this requirement, as they require that a beneficiary or a grantor, who must be a parent, grandparent, legal guardian, or other person acting pursuant to a court order, execute the joinder agreement to establish an IBA under the MTA. MTA, §§ 3.1, 13.2; Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.3; Florida, Kentucky, Tennessee MTA, § 2.5. The joinder agreements submitted for NH1, NH2, and NH3 for the Florida, Kentucky, and Tennessee MTAs, respectively, also show that each of these individuals have established their IBAs either through their own actions or through the actions of their parents.

6. Remaining Amounts Paid to the State

Sixth, “[t]o the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust pays to the State 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 plan.” 42 U.S.C. § 1396p(d)(4)(C)(iv); accord POMS SI 01120.203.D.8. The trustee may pay taxes and reasonable fees and costs before paying the state for medical assistance. SeePOMS SI 01120.203.E.1.

The MTAs meet this requirement, as well. Specifically, the MTAs allocate remaining assets between the trust, the state(s), and the remainder beneficiaries. MTA, § 7.2. If the state medical assistance amount is equal to or greater than the total amount left in the beneficiary’s IBA, the MTAs for Alabama, Georgia, and North Carolina state that the trust will retain ten percent of the remaining amount and use the remaining ninety percent to pay back the Medicaid agency or agencies. See Alabama, Georgia, North Carolina MTA, § 7.2D.1. The MTAs for the rest of the states in the Atlanta region state that under the same circumstances, the trust will retain fifty percent of the remaining amount and use the remaining fifty percent to pay back the Medicaid agency or agencies. See Kentucky, Mississippi, South Carolina, Tennessee MTA § 7.2D.1. If the state medical assistance amount is less than the amount left in the beneficiary’s IBA, the trust in every state in the Atlanta region will retain the first five percent of the amount; the trustee will pay the full amount owed to the state; and the trustee will pay any remaining amount to the beneficiary’s heirs. See MTA, § 7.2D.2. This distribution scheme comports with the statute.

In addition, the MTAs allow the trustee to pay certain administrative expenses, such as taxes and reasonable fees and costs, before paying the state for medical assistance. MTA, § 7.4A. The MTAs incorporate by reference the allowable and prohibited expenses in SSA’s POMS, by stating the Trustee will not pay any administrative expenses not allowed by the SSA’s POMS. MTA, § 7.4B.

CONCLUSION

The Trust complies with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions.

B. PS 19-095 Validity of a Purported Pooled Trust – Bluegrass Senior Assist Pooled Special Needs Trust

Date: July 31, 2019

1. Syllabus

This Regional Chief Counsel opinion examines whether the Bluegrass Senior Assist Pooled Special Needs Trust (the Trust) is a valid pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant Program Operations Manual System (POMS) provisions. The RCC concludes that the Trust does not comply with all the requirements because it does not require that the sub-account be established with the assets of the disabled individual and it contains an invalid early termination clause. The Trust’s joinder agreement also contains ambiguous language that must be revised before a determination can be made as to its policy compliance.

2. Opinion

QUESTION

Whether Bluegrass Senior Assist Pooled Special Needs Trust (the Trust) is a valid pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant Program Operations Manual System (POMS) provisions.

SHORT ANSWER

The Trust is not a valid pooled trust under section 1917(d)(4)(C) of the Act and the relevant POMS provisions.

BACKGROUND

Bluegrass Senior Assist, Inc. (Trustee) created the Trust. See Decl. of Trust Bluegrass Senior Assist Pooled Special Needs Trust (Trust Decl.), Art. 1. Trustee identifies itself as a non-profit corporation. Trust Decl, pmbl. The information provided includes a February 7, 2019 letter from the Internal Revenue Service (IRS) stating that Trustee is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code, effective December 6, 2018. IRS Non-Profit Determination Letter. The IRS’ website also lists Trustee as a tax-exempt organization.[3]

Beneficiaries of the Trust are persons with a disability as defined in § 1614(a)(3) of the Act and/or as determined by the state, and as qualified under § 1917(d)(4)(C) of the Act. Trust Decl., Art 4 (4). Beneficiaries are the sole recipients of the services provided by the Trustee under the Trust’s sub-accounts. Id.

A “Grantor shall mean the individual as defined in 42 U.S.C. § 1382(a)(3):[4] the individual’s parent, grandparent, legal guardian or court who establishes the trust Sub-Account solely for the benefit of the individual with assets who is an individual qualified Beneficiary.” Trust Decl., Art. 4 (3). A Beneficiary and Grantor are the same person. Trust Decl., Art. 4 (3), (4).

Neither the Trust nor the Joinder Agreement specify that the Trust will contain assets of disabled individuals. See Trust Decl.; Joinder Agreement. The Joinder Agreement explains what assets can be used to fund a sub-account, but does not state that such assets must be from a disabled individual. See Joinder Agreement, Exh. C.

The Trust contains separate sub-accounts for each Beneficiary, which are pooled together and considered one entity for purposes of custody, management, and investment. Trust Decl., Art. 2. Each sub-account is administered for the sole benefit of the specific Beneficiary enrolled under the sub-account and all contributions, deductions, disbursements, investment earnings, losses, and incidental expenses specific to a Beneficiary are recorded and accounted for separately. Id. The Trust maintains records for each sub-account and provides an individual accounting for each Beneficiary. Trust Decl., Art. 11 (11.2).

It is the intent of the Trust to use the trust property and each individual sub-account to supplement, not supplant, means-tested government assistance programs. Trust Decl., Art. 6. The Trustee is prohibited from making any distribution from the Trust that would result in reduction or loss of any means-tested benefit for which the Beneficiary would otherwise be eligible, except to the extent the reduction in benefits would be less than the monetary value of the disbursement. Id. The Trustee is also prohibited from making any disbursement that would represent payment for a good or service being provided to the Beneficiary by any state or federal agency or department. Id. It is not the purpose or intent of the Trust to provide for any basic care, maintenance, or support. Id.; see alsoJoinder Agreement, Exh. B.

The Trust specifies that all disbursements made by the Trustee must be for the sole benefit of the Beneficiary, as provided for by section 1917(d)(4)(C) of the Act and in accordance with the letter and the spirit of the laws of Kentucky. Trust Decl., Art. 14 (14.3); see alsoJoinder Agreement, Exh. B. The Trust provides that costs and legal expenses incurred by the Trustee for extraordinary administrative expenses for legal defense of the Trust pool shall be apportioned pro rata for all sub-accounts. Trust Decl., Art. 11 (11.4). Further, the Trust states that in the event of extraordinary administrative expense or legal challenge to a specific sub-account, such costs and expenses shall be borne by the specific sub-account, unless such issue requiring extraordinary administrative expenses or such claim, litigation, or challenge potentially may affect the integrity or administration of other sub-accounts, in which case the costs and expenses are apportioned pro-rata among all sub-accounts that may be materially affected by such issue. Id.

The Trust provides that, upon a Beneficiary’s death, termination of the Trust is governed by section 1917(d)(4)(C)(iv) of the Act, POMS SI 01120.203.B.2.g, and POMS SI 01120.203.B.3. Trust Decl., Art 15 (15.1). Specifically, the Trust provides that on the death of a Beneficiary or earlier termination of a Beneficiary’s sub-account, the Trustee shall first distribute to the Kentucky Department of Medicaid Services, then to any other state agency entitled to reimbursement from the remaining principal and income, up to the amount remaining in the trust, an amount equal to the total medical assistance paid on behalf of the Beneficiary by the Medicaid program. Id.

The Trust has a Joinder Agreement that contains ambiguous language regarding Medicaid repayment upon the death of a Beneficiary. See Joinder Agreement, Sched. C. The Joinder Agreement provides a “State Payback Option” that references “section 6.04” of the Master Trust. Id. However, the Master Trust has no section 6.04. Notably, the Joinder Agreement indicates that section 6.04 includes the following terms:

. . . upon the trust beneficiary’s death, if there are sufficient funds to fully pay back any and all State Medicaid liens then the Trustee agrees to fully pay back all Medicaid liens, retain the lesser of $10,000 or 10% of the remaining funds after lien payback and release the remaining funds to the estate.

Id. However, nothing in the Master Trust mentions the Trustee retaining $10,000 or 10% of remaining funds. Similarly, the Joinder Agreement’s “State Payback Option” also includes ambiguous language as to whether the Trust will retain funds or distribute them to recipients named by the Beneficiary. See id. Specifically, it states:

If the funds are insufficient to repay Medicaid, the funds will be retained by the pooled trust. If money is left in the sub-account when the Beneficiary passes away and the amount meets the requirements referenced above and provided for in Section 6.04 of the Bluegrass Senior Assist Pooled Trust, then I want the money to be distributed as follows: . . .

Id.

Upon the death of a Beneficiary, the Trustee is prohibited from paying debts owed to third parties or funeral expenses prior to reimbursement of the state(s) for medical assistance for the stated purpose of preserving the Beneficiary’s eligibility for Supplemental Security Income (SSI). Trust Decl., Art. 15 (15.1). However, the Trust provides that such expenses may be paid if the relevant SSI rules change. Id. The Trust also provides that such expenses may be paid during the life of the Beneficiary. Id.

The Trust also contains what is effectively an early termination clause[5] allowing the Trustee to pay the amount remaining in a sub-account to another qualified not-for-profit pooled special needs trust. See Trust Decl., Art. 17 (17.1).

DISCUSSION

SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain eligibility requirements, such as income and resource restrictions. See Act §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2019).[6] “Resources” include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to be used for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a); POMS SI 01110.100.B.1; POMS SI 01120.010.B. “If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual . . . .” 20 C.F.R. § 416.1201(a)(1); see POMS SI 01110.100.B.1, B.3; POMS SI 01110.115.A; POMS SI 01120.010.B.

Generally, the agency must consider the principal or corpus of a trust established with the assets of an individual to be a resource of the individual. See Act § 1613(e)(1)-(3); POMS SI 01120.201.A.1. However, the rules in section 1613(e) of the Act do not apply to trusts described in section 1917(d)(4) of the Act. See Act § 1613(e)(5); POMS SI 01120.201.A.1; POMS SI 01120.203.A. Trusts created in accordance with paragraphs (A) and (C) of section 1917(d)(4) are commonly known as Medicaid trust exceptions and consist of two types: Special Needs Trusts (paragraph (A)) and Pooled Trusts (paragraph (C)). See POMS SI 01120.203.A. To satisfy the exception for pooled trusts under section 1917(d)(4)(C), a trust must contain the assets of an individual who is disabled (as defined in section 1614(a)(3)) and meet the following conditions:

  1. i.  

    The trust is established and managed by a nonprofit association.

  2. ii.  

    A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts.

  3. iii.  

    Accounts in the trust are established solely for the benefit of individuals who are disabled (as defined in section 1614(a)(3)) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court.

  4. iv.  

    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 pays to the State 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 plan under this subchapter.

Act § 1917(d)(4)(C); POMS SI 01120.203.D.1.

As written, the Trust does not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions because the Trust does not require that sub-accounts be established with the assets of disabled individuals and it allows for termination of a sub-account before the respective beneficiary’s death and payment of the sub-account’s corpus to another entity. Further, n o determination can be made on whether the Joinder Agreement is policy compliant due to ambiguous language in the agreement.

A pooled trust under section 1917(d)(4)(C) of the Act must contain the assets of a disabled individual. SeeAct § 1917(d)(4)(C); POMS SI 01120.203.D.1. The Trust and Joinder Agreement fail to specify that the Trust will contain assets of disabled individuals. See generally Trust Decl.; Joinder Agreement. The Trust may have intended to include that limitation in its definition of Grantor, which states:

A “Grantor shall mean the individual as defined in 42 U.S.C. § 1382(a)(3): the individual’s parent, grandparent, legal guardian or court who establishes the trust Sub-Account solely for the benefit of the individual with assets who is an individual qualified Beneficiary.”

Trust Decl., Art. 4 (3) (emphasis added). However, the language emphasized above is unclear and fails to set forth any such limitation. Therefore, the Trust does not comply with section 1917(d)(4)(C) of the Act and POMS SI 01120.203.D.1.

The Trust is also not a valid Trust under section 1917(d)(4)(C) of the Act because it contains an early termination clause that allows for termination of a sub-account before the respective Beneficiary’s death and allows for payment of the sub-account’s corpus to another entity. See Trust Decl., Art. 17 (17.1). A provision that allows a trust to terminate before the beneficiary’s death is an “early termination provision.” POMS SI 01120.199.D. A pooled trust with an early termination provision must require that any funds from an early termination either be paid to another “Section 1917(d)(4)(C) trust,” POMS SI 01120.199.F.2, or be paid first to the state for medical assistance provided to the individual under the state Medicaid Plan(s), with any remaining funds used only for allowable administrative expenses, reasonable compensation to the trustee, or distributions to the trust Beneficiary, see POMS SI 01120.199.F.1.

The Trust’s early termination clause provides the Trustee may transfer the assets in a Beneficiary’s sub-account to a “qualified not-for-profit pooled special needs trust.” Trust Decl., Art. 17 (17.1). However, that provision does not qualify under the exception in POMS SI 01120.199.F.2 because it does not specify that assets may be transferred only to another trust that meets the requirements of section 1917(d)(4)(C).

The Trust contains a severability clause for severing invalid or unenforceable provisions without invalidating the entire Trust. Trust Decl., Art. 16 (16.4). However, for SSI purposes, a null and void clause or savings clause does not cure an otherwise defective trust instrument. POMS SI 01120.227.D. To qualify for the pooled trust exception, the Trust must meet the criteria in 1917(d)(4)(C) without regard to its severability clause. POMS SI 01120.227.D.1. Thus, the Trust’s severability clause does not nullify or sever the Trust provisions discussed above.

No determination can be made on whether the Joinder Agreement is policy compliant due to ambiguous language in the agreement. First, the Joinder Agreement contains a “State Payback Option” that references “section 6.04” of the Trust. SeeJoinder Agreement, Sched. C. However, the Master Trust contains no section 6.04. Further, the Joinder Agreement indicates that “section 6.04” includes specific language about what happens when a Beneficiary dies and such language is not in the Trust. Specifically, it states that the Trustee agrees to fully pay back all Medicaid liens, retain the lesser of $10,000 or 10% of the remaining funds after lien payback, and release the remaining funds to the estate. Id. That language is not in the Trust. See Trust Decl.

Second, the “State Payback Option” contains vague and contradictory language about whether the Trust will retain funds or distribute them to named recipients if the Beneficiary dies and the funds in his or her sub-account are insufficient to repay Medicaid. See id. Therefore, the Joinder Agreement must be revised before a determination can be made as to whether it complies with section 1917(d)(4)(C) and the implementing POMS provisions.

The Trust complies with the remaining requirements of section 1917(d)(4)(C) and the implementing POMS provisions. The Trust was established by and is managed by a nonprofit association, as required by section 1917(d)(4)(C)(i) of the Act and POMS SI 01120.203.D.3. Bluegrass Senior Assist Pooled Special Needs Trust is a non-profit association that both established the Trust and manages it. See Trust Decl., pmbl., Arts. 1, 12, & 13; IRS Non-Profit Determination Letter.

The Trust consists of separate sub-accounts for each Beneficiary that are pooled together for investment and management purposes, consistent with section 1917(d)(4)(C)(ii) of the Act and POMS SI 01120.203.D.1. The Trust also maintains records for each sub-account and provides an individual accounting for each Beneficiary, in compliance with POMS SI 01120.203.D.4. Trust Decl., Art. 11 (11.2).

The sub-accounts are established solely for each Beneficiary’s benefit, in compliance with section 1917(d)(4)(C)(iii) of the Act and POMS SI 01120.203.D.5. The Trust states that a separate sub-account shall be established and administered for the sole benefit of the specific Beneficiary enrolled under each sub-account. Trust Decl., Arts. 2, 4 (8), 14 (14.3). It also states that all contributions, deductions, disbursements, investment earnings, losses, and incidental expenses specific to a Beneficiary are recorded and accounted for separately. Trust Decl., Art. 2.

The Trust provides that costs and legal expenses incurred by the Trustee for extraordinary administrative expenses for legal defense of the Trust pool shall be apportioned pro rata for all sub-accounts. Trust Decl., Art. 11 (11.4). That provision complies with the exception to the sole-benefit rule for “reasonable costs associated with investment, legal, or other services rendered on behalf of the individual with regard to the trust.” See POMS SI 01120.201.F.4. The Trust does allow the apportionment of costs and expenses associated with a specific sub-account to be paid on a pro rata basis among other sub-accounts, but only if such costs and expenses arise from an issue, claim, litigation, or challenge that may affect the integrity or administration of the other sub-accounts. See Trust Decl., Art. 11 (11.4). Therefore, there is a connection between the expenses and costs and the sub-accounts that bear them.

The Trust’s provisions regarding termination of the Trust upon the death of a Beneficiary comply with section 1917(d)(4)(C)(iv) of the Act and POMS SI 01120.203.D.8. The Trust states that upon the death of a Beneficiary, termination of the Trust shall be governed by section 1917(d)(4)(C)(iv). Further, the Trust specifies that, upon the death of a Beneficiary or earlier termination of a Beneficiary’s sub-account, the Trustee will distribute the property to the Kentucky Department of Medicaid Services, and then to any other State agency entitled to reimbursement up to the total medical assistance paid on behalf of the Beneficiary by the Medicaid program. Trust Decl., Art. 15 (15.1). The Trust further provides that, if the Beneficiary has received Medicaid from more than one state and the remaining property is insufficient to satisfy payment in full, then payment shall be made to each state pro rata based on the percentage that each state’s Medicaid payments were made on behalf of the Beneficiary. Id. The pro rata distribution is permitted by POMS SI 01120.203.D.8. Although the Medicaid reimbursement provision gives Kentucky first priority in the event of insufficient funds to reimburse all affected states, it does not violate the requirements of POMS SI 01120.203.D.8, which states, “[i]f the trust does not have sufficient funds upon the beneficiary’s death to reimburse in full each State that provided medical assistance, the trust may reimburse the States on a pro-rata or proportional basis.” (emphasis added).

CONCLUSION

The Trust does not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions because it does not require that the sub-account be established with the assets of the disabled individual and it contains an early termination clause that allows for termination of a sub-account before the respective beneficiary’s death and payment of the sub-account’s corpus to another entity that may not meet the requirements of section 1917(d)(4)(C). Further, the Trust’s Joinder Agreement contains ambiguous language that must be revised before a determination can be made as to its policy compliance. The Trust complies with the Act’s and the POMS’ other requirements for a pooled trust.

C. PS 18-026 Resource Status of a Trust under Kentucky Law to Determine Eligibility for Supplemental Security Income

Date: December 11, 2017

1. Syllabus

This Regional Chief Counsel (RCC) opinion examines whether the Kentucky Guardianship Association, Inc., Special Needs Pooled Trust Fund (Trust), as amended, complies with the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant provisions of the Program Operations Manual System (POMS). The RCC concludes that the amendments correct all issues that previously prevented the Trust from being compliant. Therefore, the Trust, as amended, now complies with all requirements for a pooled trust under the Act.

2. Opinion

QUESTION

You asked whether the Kentucky Guardianship Association, Inc., Special Needs Pooled Trust Fund on behalf of the Kentucky Cabinet for Health and Family Services (Trust), as amended, complies with the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant provisions of the Program Operations Manual System (POMS).

OPINION

The Trust, as amended, complies with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS.

BACKGROUND

On June X, 2015, McClelland & Associates, PLLC (Trustee) submitted the original trust documents to the agency for review. On July X, 2015, our office issued a legal opinion stating the trust documents did not comply with the provisions of section 1917(d)(4)(C) of the Act and the POMS requiring reimbursement to states for medical assistance provided to A~, the number holder (NH), through their Medicaid plans (copy attached). On July XX, 2016, Trustee submitted the amended trust documents to the agency for review. On September XX, 2016, our office issued a legal opinion stating the amended trust documents did not comply with section 1917(d)(4)(C) of the Act and the POMS because the trust documents did not definitively demonstrate that it was managed by a non-profit association or provide that the Personal Accounts were established for the sole benefit of each beneficiary (copy attached).[7] On October XX, 2017, Trustee submitted the current amended Trust and the Kentucky Cabinet for Health and Family Services Joinder Agreement (Joinder Agreement) to the agency for review.[8]

DISCUSSION

As discussed in our September 2016 legal opinion, to qualify as a pooled trust under section 1917(d)(4)(C) of the Act, a trust must be established and maintained by an organization that has been established and certified under a state non-profit statute. See Act § 1917(d)(4)(C)(i); POMS SI 01120.203.B.2.c. We previously determined that the original and first amended trust documents indicated the Kentucky Guardianship Association, Inc. (Settlor), was a non-profit corporation.[9] We also determined that the Trustee established the Trust for the sole benefit of the Trust beneficiaries, who were under the court-appointed guardianship and care of the Kentucky Cabinet for Health and Family Services (CHFS), and that remains the case under the current amended Trust documents. See Trust, pmbl; Art. III, ¶ A; Joinder Agreement, § VIII; see also Trust, Art. II, ¶ C.

Upon further review, we determined that a precedent did not exist for the Kentucky Guardianship Association in the agency’s Atlanta Precedent and Contacts list. See POMS SI 01130.689E.1. Specifically, the agency did not receive a copy of Settlor’s state non-profit certification or its determination letter from the IRS. See POMS SI 01130.689E.2. Trustee supplemented the amended Trust with a copy of the IRS determination letter that demonstrated the Trust’s tax-exempt status. See POMS SI 01130.689E. Accordingly, we concluded that the Trust meets the requirement that it was established by a non-profit association.[10]

We also determined that the Trust was not managed by Settlor. The prior trust documents indicated that Trustee (presumably a for-profit entity) managed the Trust. See Trust, pmbl; Joinder Agreement, § XV (2016 first amended trust). Notably, the POMS require that, if a non-profit association employs the services of a for-profit entity, the non-profit “must maintain ultimate managerial control over the trust.” POMS SI 001120.225.D.

As amended, the Trust now states that it is “ultimately managed by [Settlor], a Kentucky not for profit association . . . .” Trust, Art. I. Also, the Trust states that Trustee “shall be the appointee of the Settlor who shall act as Trustee of this Special Needs Pooled Trust, under the ultimate authority and management of the Settlor.” Trust, Art. II ¶ N. Other provisions of the Trust and Joinder Agreement also indicate that Settlor retains ultimate authority over the management of the Trust. See Trust, Art. III, ¶ A, ¶ C, ¶ F; Art. VI, ¶ A; Art. VII; Art. XII; Joinder Agreement, §§ VIII; XV. Thus, the Trust, as amended, meets the requirement that it is managed by a non-profit association that maintains ultimate managerial control over the Trust.

The Trust, as amended, also addresses our previous concern that the Personal Accounts[11] were not established for the sole benefit of each beneficiary. As noted in our September 2016 legal opinion, accounts in purported pooled trusts must be established for the sole benefit of individuals, who are disabled within the meaning of the Act. See Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.B.2.b, .B.2.e. Upon further review, we determined that certain provisions of the Trust could benefit third parties during a beneficiary’s lifetime. The prior trust documents permitted Trustee to charge a personal account on a pro rata basis for legal costs and other expenses associated with defending “all relevant” personal accounts. See Trust, Art. VIII, ¶ H(a) (2016 first amended trust). The relevant POMS provision, however, provides that only payments of legal costs or services rendered “on behalf of the individual with regard to the trust” do not violate the sole benefit rule. See POMS SI 01120.201F.2.c. As written, the first amended Trust provision contemplated the potential use of assets in a beneficiary’s personal account for the benefit of others besides the beneficiary, and thus the personal accounts were not established for the “sole benefit” of any personal account holder.

As now amended, the Trust provides:

Costs and expenses of defending the Special Needs Pooled Trust from any claim, demand, legal or equitable action, suit or proceeding may, either:

(a) be charged only against the Special Needs Pooled Trust Personal Account of the relevant Beneficiary, or

(b) be charged to the Personal Accounts of a group of affected Beneficiaries whose interests may be reasonably expected to be affected by the outcome of the action. . . .

Trust, Art. VIII, § H. In light of this recent amendment, we now conclude that accounts established within the Trust would be for the sole benefit of each beneficiary.[12]

The prior trust documents also contained an early termination provision that permitted the termination of a Personal Account as to that beneficiary as though he or she was deceased. See Trust, Art. XIII, ¶ A(1) (2016 first amended trust). As we explained in our September 2016 opinion, a pooled trust with an early termination provision must require that any funds from an early termination either be paid to another pooled trust, see POMS SI 01120.199.F.2, or be paid first to the state for medical assistance provided to the individual under the state Medicaid plan, with any remaining funds used only for allowable administrative expenses, reasonable compensation to the trustee, or distributions to the trust beneficiary, see POMS SI 01120.199.F.1. The prior early termination provision neither paid the funds in NH’s Personal Account into another pooled trust, nor paid the state(s) for any medical assistance provided under the state(s) Medicaid plan(s). SeeTrust, Art. XIII, ¶ A(1) (2016 first amended trust). Therefore, we concluded the Trust did not comply with POMS SI 01120.199.F.1-2.

As now amended, the Trust provides that:

[T]he Settlor may, in its sole and absolute discretion, declare a Terminating Event, and:

(1) terminate the respective Personal Account as to that Beneficiary after first reimbursing any state Medicaid agency that has paid on behalf of the Beneficiary under respective Medicaid programs; or

(2) determine that the Special Needs Pooled Trust purpose has become impossible to implement for the affected Beneficiary, in which case the Trustee may then transfer the respective Personal Account to another qualifying Special Needs Pooled Trust . . . Subject to reasonable closing administrative expenses, no portion of the Personal Account shall stay in the Special Needs Pooled Trust reserve if the Terminating Event is an early Terminating Event, meaning before the death of the Beneficiary.

Trust, Art. XIII, ¶ A.

The Trust, as now amended, further provides that:

Upon a Terminating Event, unless otherwise permitted by law, to the extent that it is determined that the amount remaining is deemed not to be “retained by the Trust”, under the Joinder Agreement, and reimbursement of Medicaid pursuant to 42 U.S.C. §1396p(d)(4)(C) or (A)], such sums shall be paid to any state(s) that may have provided medical assistance under the State Medicaid Plan(s) [and not limited to any particular states(s)] up to an amount equal to the total of medical expenses paid by that state’s agency on behalf of the Beneficiary for Medicaid assistance or be paid to another qualified pooled trust.

Trust, Art. XIII, ¶ C. Because the Trust now requires that any funds from an early termination either be paid to another pooled trust or be paid first to the state for medical assistance provided to the individual under the state Medicaid Plan, the Trust now complies with the requirements of POMS SI 01120.199.F.1-2.

Finally, in our September 2016 legal opinion, we noted that the prior trust documents allowed Trustee to terminate a beneficiary’s participation in the Trust and transfer a beneficiary’s funds “into an individual special needs trust with similar intent and purpose as this Special Needs Pooled Trust Fund.” See Trust, Art. XIII, ¶ D (2016 first amended trust). We explained that the POMS does not allow the transfer of assets from a pooled trust to a special needs trust. Instead, the POMS only permits transfer of assets from a pooled trust to another pooled trust with specific language limiting certain other disbursements. See POMS SI 01120.199.F.2.

As now amended, the Trust provides that “such sums shall be paid to any state(s) that may have provided medical assistance under the State Medicaid Plan(s) [and not limited to any particular states(s)] up to an amount equal to the total of medical expenses paid by that state's agency on behalf of the Beneficiary for Medicaid assistance or be paid to another qualified pooled trust.” Trust, Art. XIII, ¶ C. As such, the Trust now complies with the requirement that sub-accounts be established solely for the benefit of individuals who are disabled. SeePOMS SI 01120.203.B.2.e. Furthermore, the Trust, as amended, also complies with the remaining requirements in 1917(d)(4)(C) of the Act and the POMS provisions implementing those requirements, as discussed in our September 2016 legal opinion.

CONCLUSION

The Trust, as amended, complies with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions.

D. PS 17-121 Validity of Purported Pooled Trusts (FL, KY, MS)

Date: July 19, 2017

1. Syllabus

The Regional Chief Counsel (RCC) Opinion examined whether the trusts established by the National Foundation for Special Needs Integrity, Inc. (NFSNI), in Florida, Kentucky, and Mississippi comply with the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant provisions of the Program Operations Manual System (POMS). The RCC concluded that the Master Trusts do not comply with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS. 

2. Opinion

QUESTION

You asked whether the trusts established by the National Foundation for Special Needs Integrity, Inc. (NFSNI), in Florida, Kentucky, and Mississippi comply with the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant provisions of the Program Operations Manual System (POMS).

OPINION

The Master Trusts do not comply with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS.

BACKGROUND

According to the information provided, the Social Security Administration (SSA) determined M~ (FL Recipient), W~ (KY Recipient), and M~ (MS Recipient) (collectively, Recipients) were entitled to Supplemental Security Income (SSI) based on disability. SSA has since determined MS Recipient’s disability ceased.[13]

Each of the Recipients has established a sub-account in master trusts that NFSNI created. NFSNI provided a July XX, 2007, letter from the Internal Revenue Service (IRS) stating that NFSNI is an exempt organization under section 501(c)(3) of the Internal Revenue Code. NFSNI established a master trust in Florida on May 15, 2008 (Florida Master Trust); in Kentucky on October 17, 2008 (Kentucky Master Trust); and in Mississippi on February 24, 2009 (MS Master Trust) (collectively, Master Trusts). See Master Trusts, Recitals and Signatures. Each of the Master Trusts purports to be a “pooled trust” for purposes of the Act. Master Trusts, Art. 2.

FL Recipient created a sub-account in the FL Master Trust by execution of a joinder agreement dated March XX, 2009 (FL Joinder). Assets of the “M~ Trust” funded FL Recipient’s sub-account. FL Joinder, § II.A. Based on the information provided, this was a testamentary trust that failed as a special needs trust and was subsequently used to create FL Recipient’s sub-account in the FL Master Trust. KY Recipient created a sub-account in the KY Master Trust by execution of a joinder agreement dated August XX, 2013 (KY Joinder). Assets from the “V~ Trust UAD” funded KY Recipient’s sub-account. KY Joinder, § II.A. MS Recipient created a sub-account in the MS Master Trust by execution of a joinder agreement dated January XX, 2014 (MS Joinder) (collectively, Joinder Agreements). MS Recipient’s own assets funded his sub-account. MS Joinder, § II.A.

The Master Trusts are intended to be administered for the sole benefit of qualified individual “Beneficiaries.” MS Trust, Art. 1, 2, 13.4; KY and FL Trusts, Art. 1, 2, 13.3. A Beneficiary is defined as a person with a disability as determined by the respective state law of the Master Trusts “and/or as qualified under § 1614(a)(3) of the Social Security Act and/or as determined by 42 U.S.C. § 1382c(a)(3). . . .” FL and MS Master Trusts, Art. 5.D.; KY Master Trust, Art. 5.D., and KY Joinder, § I.D. A “Grantor” of the FL and MS Master Trusts may be the Beneficiary or his or her guardian, parent, or grandparent, or a court order funding a sub-account. FL and MS Master Trusts, Art. 5.C. The KY Master Trust uses similar language, see KY Master Trust Art. 5.C., but the Kentucky joinder agreement states that a “Donor” funds a sub-account using funds that “shall not be assets to which Beneficiary had legal ownership, an interest in ownership, or any other legally colorable claim in law or equity,” KY Joinder, § I.C.

The property of each Master Trust is considered “one entity” for investment purposes, but each sub-account is administered for the sole benefit of individual Beneficiaries. See Master Trusts, Art. 2. A Beneficiary of one of the Master Trusts is entitled to an annual accounting. See Master Trusts, Art. 10.2.

The Trustee for each trust is NFSNI and may include its successors in interest and appointed co-Trustees. See Master Trusts, Art. 5.B. A Trustee may exercise powers provided under applicable state law trust codes, including designating a co-Trustee and making distributions for a Beneficiary’s supplemental needs during his or her lifetime. See Master Trusts, Art. 11, 13.2. The Master Trusts define “supplemental” to include payments made to a Beneficiary and payments to third parties during a Beneficiary’s lifetime for goods or services he or she receives. See FL Master Trust, Art. 5.J., 13.5; KY Master Trust, Art. 5.J., 13.5 and KY Joinder, § I.K.; MS Master Trust, Art. 5.J., 13.6. The MS Master Trust may purchase real property for a Beneficiary so long as the owner is the MS Master Trust. See MS Master Trust, Art. 13.3.5. The MS Master Trust may also purchase a vehicle for a Beneficiary so long as the vehicle owner is not the MS Master Trust. See MS Master Trust, Art. 13.3.7.

The Master Trusts allow the Trustee to charge pro-rata to all sub-accounts “extraordinary administrative expenses or for the legal defense of the Trust Pool.” Master Trusts, Art. 10.4. Extraordinary administrative expenses or legal challenges incurred by specific sub-accounts will only be charged to the affected sub-accounts, unless the issue “may materially affect the integrity or administration of other sub-accounts.” Id. The Master Trusts also allow for reasonable compensation for Trustees. See Master Trusts, Art. 15.8. The Master Trusts also charge Beneficiaries an annual fee of 1.5% of the sub-account balance to pay for “day-to-day administration” of the sub-account. Joinder Agreements, § III. In addition, the Master Trusts provide that the trust will indemnify Trustees and their agents for “any and all claims, actions, suits, liabilities, fines or penalties. . . .” Master Trusts, Art. 15.10.

A Trustee may terminate a Beneficiary’s sub-account. See Master Trusts, Art. 16.1. In doing so, the Trustee may “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.

The Trusts define “Remainder” as the amount of money remaining in a Beneficiary’s sub-account after death and after payment of reasonable and allowable administrative expenses of the estate. FL and MS Master Trusts, Art. 5.K; KY Master Trust, Art. 5.L. To the extent that the Trusts do not retain this Remainder, the respective state Medicaid agencies “shall be first payee and have priority of payment over any other debts and administrative expenses” except those permitted by SSA policy. FL and KY Master Trusts, Art. 14.1; MS Master Trust, Art. 14. If a Beneficiary has received Medicaid benefits in more than one state, each state that has provided benefits will be repaid a proportionate share of the amount remaining in the Beneficiary’s sub-account. See FL and KY Master Trusts, Art. 14.2; MS Master Trust, Art. 14.

The Master Trusts state that, if any provision of the trust is deemed invalid, that provision is invalidated. See Master Trusts, Art. 15.4, Joinder Agreements, § IX.C. According to the Master Trusts, the invalidated provision will not invalidate the remaining provisions of the Master Trusts. See id.

DISCUSSION

SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Act §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2017).[14] “Resources” include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to be used for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a). “If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual. . . .” 20 C.F.R. § 416.1201(a)(1); accord POMS SI 01120.010.B.

Generally, SSA must consider the principal or corpus of a trust established with the assets of an individual to be a resource of the individual. See Act § 1613(e)(1)-(3); POMS SI 01120.201.A.1. However, certain exceptions are provided for trusts established in accordance with section 1917(d)(4) of the Act. See Act § 1613(e)(5); POMS SI 01120.201.A.1; POMS SI 01120.203.A. Pooled trusts are one such exception. See Act § 1917(d)(4)(C); POMS SI 01120.203.B.2 (describing an exception in accordance with § 1917(d)(4)(C) as a “pooled trust”). To satisfy the pooled trust exception, a trust must contain the assets of an individual who is disabled (as defined in section 1614(a)(3)) and meet the following requirements:

The trust is established and managed by a nonprofit association.

A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts.

Accounts in the trust are established solely for the benefit of individuals who are disabled (as defined in section 1614(a)(3)) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a 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 pays to the State 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 plan under this title.

Act § 1917(d)(4)(C); accord POMS SI 01120.203.B.2.a.

Assets of the Disabled Individual

Initially, we note that the KY and MS Master Trusts do not satisfy the threshold requirement of containing the assets of a disabled individual. See Act § 1917(d)(4)(C); POMS SI 01120.203.B.2.a. Based on the information provided, SSA has found MS Recipient’s disability ceased, and MS Recipient has not filed an appeal. Thus, the MS Master Trust does not involve a “disabled” individual to the extent it applies to MS Recipient.

Although SSA has found KY Recipient disabled, the KY Master Trust does not contain “the assets of” KY Recipient. The joinder agreement states a “Donor” has been funding KY Recipient’s sub-account using assets that “shall not be assets to which Beneficiary had legal ownership, an interest in ownership, or any other legally colorable claim in law or equity.” KY Joinder, § I.C. Consistent with these definitions, assets from the “V~ Trust UAD” funded KY Recipient’s sub-account. KY Joinder, § II.A. Although neither the Act nor the POMS defines the term “assets of,” its plain meaning indicates the assets in a valid pooled trust should belong to the SSI beneficiary claiming the benefit of the pooled trust exception. The Act’s plain meaning is conclusive where, as here, it would not lead to lead to an unintended result. See United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 242 (1989). Both the source of the funds and the definitions of the KY Master Trust indicate KY Recipient’s sub-account was not funded with assets belonging to KY Recipient, so the KY Master Trust does not involve “assets of” a disabled individual.

Although we conclude the KY and MS Master Trusts do not involve valid pool trusts based on the limited circumstances presented, we nonetheless address their provisions below as many of them overlap with the FL Master Trust provisions.

Established and Managed by a Non-Profit

To meet the first numbered requirement, the trust must be established and maintained by an organization that has been established and certified under a state nonprofit statute. See Act § 1917(d)(4)(C)(i); POMS SI 01120.203.B.2.c. NFSNI established each of the Master Trusts and manages them as Trustee. See Master Trusts, Recitals and Signature, Art. 5.B. The documents provided include a July XX, 2007, letter from the Internal Revenue Service (IRS) stating that NFSNI is an exempt organization under section 501(c)(3) of the Internal Revenue Code, and the IRS lists NFSNI as a tax-exempt organization on its website.[15] Thus, it appears the Master Trusts are established and maintained by a nonprofit entity. See POMS SI 01120.203.F (referring to the procedures in POMS SI 01130.689.E for determining if an organization is a nonprofit or tax-exempt organization); POMS SI 01130.689.E.2 (indicating SSA considers an organization to be a non-profit organization if it can verify it is a tax-exempt organization with the IRS).

However, the Master Trusts create a possibility of management by a for-profit entity. The Trustee for each trust is NFSNI and may include its successors in interest and any appointed co-Trustees. See Master Trusts, Art. 5.B. The Master Trusts contain no restriction that successors in interest or co-Trustees must only be nonprofit entities. For pooled trusts, a nonprofit management entity like NFSNI may employ the services of a for-profit entity so long as the nonprofit retains ultimate managerial control. See POMS SI 01120.225.B, D. However, such a for-profit entity employed by a nonprofit pooled trust management entity cannot make discretionary disbursements. See POMS SI 01120.225.E. Here, the potential exists that for-profit successors in interest or co-Trustees could exercise all the powers of the Trustee, including making discretionary disbursements for a Beneficiary’s supplemental needs. See Master Trusts, Art. 5.B., 11, 13.2. We have not received any material indicating NFSNI has actually appointed a for-profit successor in interest or co-Trustee for any of the Master Trusts involved in this opinion. Thus, we conclude the Master Trusts meet the first numbered requirement of the pooled trust exception. However, because other revisions to the Master Trusts are required as discussed below, NFSNI should consider redefining “Trustee” or the powers to be exercised by a co-Trustee to ensure a nonprofit entity retains ultimate managerial control of the Master Trusts at all times.

Separate Accounts and Pooled Investment

To satisfy the second numbered requirement, the trust must maintain a separate account for each trust beneficiary, although the funds may be pooled for investment and management purposes. See Act § 1917(d)(4)(C)(ii); POMS SI 01120.203.B.2.d. The trust must also be able to provide an accounting for each beneficiary’s individual account. See POMS SI 01120.203.B.2.d. The property of each Master Trust is considered “one entity” for investment purposes, but each sub-account is administered for the sole benefit of individual Beneficiaries. See Master Trusts, Art. 2. A Beneficiary of one of the Master Trusts is entitled to an annual accounting. See Master Trusts, Art. 10.2. Our review confirms that the Master Trusts meet the second numbered requirement of the pooled trust exception.

Established for the Sole Benefit of Disabled Individuals

The third numbered requirement mandates that the accounts in the trust are established for the sole benefit of individuals who are disabled within the meaning of the Act. See Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.B.2.e. SSA considers a trust to be for the sole benefit of an individual “if the trust benefits no one but that individual, whether at the time the trust is established or at any time for the remainder of the individual’s life.” POMS SI 001120.201.F.2.a. More specifically, aside from payments for goods or services for the trust beneficiary and reasonable administrative expenses, the trust must not:

(1) provide a benefit to any other individual or entity during the disabled individual’s lifetime; or

(2) allow for termination of a trust account prior to the individual’s death and payment of the assets to another individual or entity. See POMS SI 001120.201.F.2; POMS SI 01120.203.B.2.e.

Our review of the Master Trusts confirms that they limit lifetime distributions to a Beneficiary or to a third-party for the benefit of the Beneficiary. See FL Master Trust, Art. 5.J., 13.5; KY Master Trust, Art. 5.J., 13.5 and KY Joinder, § I.K.; MS Master Trust, Art. 5.J., 13.6. The Master Trusts allow for reasonable compensation for Trustees. See Master Trusts, Art. 15.8. The Master Trusts also charge Beneficiaries an annual fee of 1.5% of the sub-account balance to pay for “day-to-day administration” of the sub-account. Joinder Agreements, § III. These provisions generally comply with the “sole benefit” requirement. See POMS SI 01120.201.F.1, F.2.b.-c.

However, certain provisions of the Master Trusts could be read to allow a benefit to third parties during a Beneficiary’s lifetime. The Master Trusts allow the Trustee to charge “extraordinary administrative expenses or for the legal defense of the Trust Pool” pro-rata to all sub-accounts. Master Trusts, Art. 10.4. Extraordinary administrative expenses or legal challenges incurred by specific sub-accounts will only be charged to the affected sub-accounts, unless the issue “may materially affect the integrity or administration of other sub-accounts.” Id. In addition, the Master Trusts provide that the trust will indemnify Trustees and their agents for “any and all claims, actions, suits, liabilities, fines or penalties.” Master Trusts, Art. 15.10.[16] The relevant POMS provision provides that only payments of legal costs or services rendered “on behalf of the individual with regard to the trust” do not violate the sole benefit rule. POMS SI 01120.201.F.2.c. Here, the Master Trusts’ provisions contemplate potentially using sub-account assets to pay for administrative or legal expenses without requiring that a Beneficiary had actually incurred those expenses. The provisions therefore contemplate the potential use of assets in a Beneficiary’s sub-account for the benefit of others besides the Beneficiary, and thus the sub-accounts are not established for the “sole benefit” of any sub-account holder.

The Master Trusts also contain early termination provisions that allow for the termination of a trust sub-account before the death of the Beneficiary. See Master Trusts, Art. 16.1. Early termination provisions generally violate the third statutory element required for valid pooled trusts. See POMS SI 01120.203.B.2.e. Such provisions may be acceptable if they otherwise comply with all the requirements for pooled trusts and provide for Medicaid payback, disallow third parties to benefit except for payment of certain approved expenses, and give termination power to someone other than the trust beneficiary. See POMS SI 01120.199.F. However, the Master Trusts’ early termination provisions here do not satisfy any of these requirements. See Master Trusts, Art. 16.1. Where an early termination provision does not satisfy the above requirements, it may still be acceptable if it “contain[s] specific language” that limits distribution only to another valid pooled trust and it disallows other expenses. POMS SI 01120.199.F.2. Here, NFSNI may terminate a Beneficiary’s sub-account and “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.” Master Trusts, Art. 16.1. The term “pooled special needs trust” is not sufficiently specific to limit transfer of a sub-account’s funds to another valid pooled trust. See POMS SI 01120.199.F.2. Therefore, the early termination provision violates the “sole benefit” requirement for pooled trusts.

We also note that the MS Master Trust may purchase a vehicle for a Beneficiary provided the owner of the vehicle is not the MS Master Trust. See MS Master Trust, Art. 13.3.7. If funds from a trust that is a resource are used to purchase a vehicle, the individual (or the trust) must be shown as its owner. See POMS SI 01120.201.F.1. The documents provided do not indicate that a vehicle was purchased for MS Recipient or that the owner was listed as someone other than MS Recipient. Thus, this provision does not violate the “sole benefit” requirement based on the information presented. However, because other revisions to the MS Master Trust are required, NFSNI should consider modifying the vehicle-purchase provision to clarify who will be listed as the owner of a vehicle purchased for a Beneficiary of the MS Master Trust.

Medicaid Reimbursement

To meet the fourth numbered requirement, the trust instrument must contain specific language providing that, to the extent that amounts remaining in an individual’s account upon his or her death are not retained by the trust, the trust will pay the remaining amount to the state(s) up to the total amount of medical assistance state Medicaid plan(s) paid on behalf of the individual. See Act § 1917(d)(4)(C)(iv); POMS SI 01120.203.B.2.g. The trust must contain language “substantially similar” to the language in the Act and POMS. POMS SI 01120.203.B.2.g. Further, 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 Master Trusts provide that, to the extent any amounts remain in a sub-account after payment of reasonable and allowable administrative expenses and amounts retained by the Master Trusts, the respective state Medicaid agencies “shall be first payee and have priority of payment over any other debts and administrative expenses” except those permitted by SSA policy. FL and KY Master Trusts, Art. 14.1; MS Master Trust, Art. 14. If a Beneficiary has received Medicaid benefits in more than one state, each state that has provided benefits will be repaid a proportionate share of the amount remaining in the Beneficiary’s sub-account. See FL and KY Master Trusts, Art. 14.2; MS Master Trust, Art. 14.

This language is insufficient to meet the fourth numbered requirement because the language is not substantially similar to that required by the POMS. The Medicaid payback provisions at issue limit the payback to either the state in which the respective trust is established or to multiple states. For example, a Beneficiary participating in the MS Master Trust could receive Medicaid assistance only from Alabama and, upon death, his or her sub-account would not be required to repay Alabama for any Medicaid assistance. This language is therefore insufficient to satisfy the fourth numbered requirement for pooled trusts.[17]

Severability Clauses

The Master Trusts state that, if any provision of the trust is deemed invalid, that provision is invalidated. See Master Trusts, Art. 15.4, Joinder Agreements, § IX.C. According to the Master Trusts, the invalidated provision will not invalidate the remaining provisions of the trust. See id. However, for SSI purposes, a null and void clause or savings clause does not cure an otherwise defective trust instrument. See POMS SI 01120.227.D. To qualify for the pooled trust exception, a trust must meet the criteria in section 1917(d)(4)(C) without regard to its severability clause. See POMS SI 01120.227.D.1. Thus, the Master Trusts’ severability clause does not nullify or sever the provisions discussed above that do not satisfy the pooled trust requirements. See POMS SI 01120.227.D.

CONCLUSION

For the reasons discussed above, the Master Trusts do not meet all the requirements of the pooled trust exception under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS.

Sincerely,

Mary Ann Sloan

Regional Chief Counsel

By: Jeffrey S. Wilson

Assistant Regional Counsel

E. PS 16-186 Validity of Purported Special Needs Trust Governed by Kentucky Law

Date: September 2, 2016

1. Syllabus

The Regional Chief Counsel (RCC) opinion examines whether an amendment to an originally defective trust agreement created a valid special needs trust, and if so, the effective date of the amendment for the purposes of determining a number holder’s resources and eligibility for Supplemental Security Income (SSI). The RCC concluded that the trust amendment could not correct the defect in the original trust agreement, because the trust amendment was not a valid modification under Kentucky law. Although a subsequent court order appears to cure the defect in the original trust agreement, the court order cannot create a valid special needs trust because the number holder was age 65 on the date of the court order.

2. Opinion

QUESTION

For determining a number holder’s resources and eligibility for Supplemental Security Income (SSI), you asked whether an amendment to an originally defective trust agreement created a valid special needs trust, and if so, the effective date of the amendment.[18]

OPINION

The trust amendment could not correct the defect in the original trust agreement because the trust amendment was not a valid modification under Kentucky law. Although a subsequent court order appears to cure the defect in the original trust agreement, the court order cannot create a valid special needs trust because the number holder was age 65 on the date of the court order.

BACKGROUND

According to the information provided, M~, as conservator for L~, the number holder (NH), established the L~ Special Needs Trust (Trust) in January 2016. NH is disabled and is age 65 as of August XX, 2016. The Social Security Administration (SSA) found that the Trust was a countable resource for purposes of SSI. M~, as conservator for NH, filed an amendment to the Trust (Trust Amendment) on March 15, 2016, and SSA requested review to determine if the trust instrument was revocable. Subsequently, SSA received an Order for Special Needs Trust (Order) from the Meade District Court of Kentucky, dated August XX, 2016, approving the Trust and Trust Amendment.

The Trust was established for NH with real property, personal property, household appliances, a checking account, and a life insurance policy (Trust Agreement, Schedule A; Art. III).[19] The Trust Agreement identifies NH as the settlor (Trust, Art. 1). A March 15, 2016 amendment to the Trust (Trust Amendment) also identifies NH as the settlor (Trust Amendment).

The Trust Agreement states that the Trust is an irrevocable special needs trust for the benefit of NH (Trust Agreement, Art. I), and its purpose is to “supplement and not supplant or diminish” any government entitlements (Trust Agreement, Art. II.A; Art. IV.A). The trustee’s actions must be directed to carrying out this intent (Trust Agreement, Art. II.A).

The Trust Agreement states that it should be construed as a special needs trust in accordance with SSA policy (Trust Agreement, Art. II.A). “Any provision of this Trust which may prevent this Trust from being interpreted as a Special Needs Trust that achieve these objectives shall be null and void.” (Trust Agreement, Art. II.A). The trustee may receive property from others as trust assets (Trust Agreement, Art. II.A). NH “shall not be considered to have access to income and/or principal of the trust and he has no power to direct the Trustee to make distributions of income and/or principal to him.” (Trust Agreement, Art. II.A).

The Trust Agreement identifies NH as the primary beneficiary and contains a spendthrift clause that states neither the principal nor income of the Trust “shall be anticipated, assigned or encumbered” (Trust Agreement, Art. IV.B.1). Additionally, the Trust Agreement states that no part of the corpus should be subject to the claims of voluntary or involuntary creditors for the provision of care and services (Trust Agreement, Art. IV.B.1). For the purpose of determining NH’s eligibility for public benefits, “no part of the principal or income of the trust estate shall be considered available to said beneficiary” (Trust Agreement, Art. IV.B.4).

The Trust Agreement states the Trust will terminate upon the depletion of the assets or upon NH’s death (Trust Agreement, Art. IV.B.5). The Trust Agreement provides that, on NH’s death, the trustee shall distribute any remaining principal and income to NH’s then living heirs-at-law (Trust Agreement, Art. IV.B.5). At the trustee’s sole discretion, the trustee, prior to distributing remaining trust funds to NH’s heirs upon his death, may pay NH’s funeral expenses and expenses related to administration and distribution of the trust estate (Trust, Art. IV.B.7). The Trust Amendment states that, prior to distributing any remaining principle and income to NH’s then living heirs-at-law, the Trust will pay any state that has provided medical assistance to NH under the state Medicaid plans all amounts remaining in the Trust, up to an amount equal to the assistance paid (Trust Amendment, Art. IV.B.5, 7). The states have priority over other debts and administrative expenses (Trust Amendment, Art. IV.B.5, 7). The Trust Agreement indicates that it should be construed in accordance with the laws of Kentucky (Trust Agreement, Art. VII.D).

DISCUSSION

SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Social Security Act (Act) §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2016).[20] “Resources” include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to be used for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a). “If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual . . . .” 20 C.F.R. § 416.1201(a)(1); accord Program Operations Manual System (POMS) SI 01120.010.B.

Pursuant to section 1613(e) of the Act, SSA generally must consider the principal or corpus of a trust established with the assets of an individual to be a resource of the individual. See Act § 1613(e)(1)-(3); POMS SI 01120.201.A.1. However, certain exceptions are provided for trusts established in accordance with section 1917(d)(4) of the Act. See Act § 1613(e)(5); POMS SI 01120.201.A.1; POMS SI 01120.203.A. Special needs trusts are one such exception. See Act § 1917(d)(4)(A); POMS SI 01120.203.B.1 (describing an exception in accordance with § 1917(d)(4)(A) as a “special needs trust”).

To qualify as a special needs trust, the trust must: (1) contain the assets of an individual under age sixty-five who is disabled; (2) be established for the benefit of the individual by a parent, grandparent, legal guardian, or court; and (3) provide that “the State 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 under [Title XVIII of the Act].” Act § 1917(d)(4)(A); see POMS SI 01120.203B.1.a. The trust also must list the state(s) as the first payee with priority over payment of other non-exempted debts and administrative expenses. See POMS SI 01120.203B.1.h.

SSA already determined that the January 2016 Trust did not contain a valid Medicaid payback provision and, therefore, the original Trust was not a valid special needs trust (Trust Agreement, Art. IV.B.7). However, the March 2016 Trust Amendment provides that when NH dies, any remaining assets would be used to pay any state that provided medical assistance or benefits to NH during his lifetime until fully repaid (Trust Amendment, Art. IV.B.5). See Act § 1917(d)(4)(A); POMS SI 01120.203.B.1.h. Thus, the Trust Amendment contains a valid Medicaid payback provision. Because whether the Trust is a valid special needs trust is dependent on the Trust Amendment, we looked at whether the Trust Amendment was sufficient for modifying the Trust under state law.

NH is a resident of Kentucky. The Trust Agreement indicates that it should be construed in accordance with the laws of Kentucky (Trust Agreement, Art. VII.D). Pursuant to the Kentucky Trust Code, this designation of applicable law is controlling. See Ky. Rev. Stat. Ann. § 386B.1-050(1) (West 2016).[21] The Trust Amendment also indicates that the Trust is amended pursuant to section 638B.4[22] of the Kentucky Revised Statutes (Trust Amendment). Therefore, we look to Kentucky law to determine whether the Trust Amendment is a valid modification of the Trust.

NH and the trustee executed the Trust Amendment on March XX, 2016, which the Meade District Court of Kentucky approved on August XX, 2016 (Trust Amendment, Order). The Amendment indicates that it is not a revocation or amendment in the entirety, but should be construed to supplant the Trust Agreement (Trust Amendment). The Trust Agreement does not provide NH or the trustee with the authority to amend the Trust. Under Kentucky law, a purportedly irrevocable trust generally can be modified if the settlor and all beneficiaries consent to the modification. See Ky. Rev. Stat. Ann. § 386B.4-110(1) (permitting modification or termination of a trust even if inconsistent with the material purpose of the trust if all beneficiaries consent).[23] The Trust Amendment is based on the consent of NH and the trustee, but it does not appear that the Trust Amendment was based on the consent of all of NH’s heirs-at law, who are also remainder beneficiaries of the trust (Trust, Art. IV.B.5; Trust Amendment). See Ky. Rev. Stat. Ann. § 386B.1-010(3) (a trust beneficiary includes a person who “[h]as a present or future beneficial interest in a trust, vested or contingent”). Therefore, the March XX, 2016, amendment based on consent was ineffective at the time of execution and could not correct the defect in the original Trust Agreement.

However, under Kentucky law, a court may reform the terms of a trust to conform the terms to the settlor’s intention if the terms of the trust were affected by a mistake of fact or law, whether in expression or inducement. See Ky. Rev. Stat. Ann. § 386B.4-150. A court may modify a special needs trust upon a showing that “there is just cause to modify the trust to preserve the trust purposes of protecting the trust assets for the benefit of the special needs person.” Ky. Rev. Stat. Ann. § 387.890. The court cannot modify a special needs trust to defeat the trustee’s duty to reimburse the state for benefits paid on behalf of the special needs person or to permit the termination of the trust during the lifetime of the special needs person. See id. Additionally, a conservator may petition the court to create, establish, or approve a special needs trust under section 1917(d)(4)(A) of the Act. See Ky. Rev. Stat. Ann. § 387.865.

Here, the court approved the Trust and the Trust Amendment on August XX, 2016 (Order). As the Order is titled “Order for Special Needs Trust,” it appears the court approved the Trust and the Trust Amendment under its authority to modify a special needs trust or under its authority to create, establish, and approve a special needs trust based on a petition from a conservator. See Ky. Rev. Stat. Ann. §§ 387.865, 387.890. The Order did not specify that it was retroactive. Therefore, the Order renders the Trust Amendment effective as of August XX, 2016, and the Trust, as amended by the Trust Amendment, satisfies the requirements of the Medicaid payback provision as of that date. Although the Order appears to cure the defect in the original Trust Agreement and any problems associated with the attempt to modify the Trust Agreement by consent, because NH was no longer under age 65 as of the date of Order, the Order cannot create a valid special needs trust for the benefit of NH. See Act § 1917(d)(4)(A) (specifying that the special needs trust provisions apply to a disabled individual under the age of 65); POMS SI 01120.203B.1.a (same). Therefore, the Trust does not meet the requirements of a special needs trust under section 1917(d)(4)(A).

CONCLUSION

For the reasons discussed above, the Trust Amendment could not correct the defect in the original Trust Agreement because it was not a valid modification under Kentucky law. Although the subsequent Order appears to cure the defect in the original Trust Agreement, the Trust, as amended, does not create a valid special needs trust because NH was age 65 on the date of the Order.

Sincerely,

Mary Ann Sloan

Regional Chief Counsel

By: Rebecca Ringham

Assistant Regional Counsel

F. PS 16-184 State Law for Empty and Dry Trusts in Atlanta Region

Date: April 25, 2016

1. Syllabus

This Regional Chief Counsel opinion provides the State law related to trusts established with no funds (i.e., dry or empty trusts), for the States in Region IV to assist field offices in addressing questions regarding how such purported trusts should be considered under the Social Security Administration’s (agency) Supplemental Security Income (SSI) resource rules.

2. Opinion

QUESTION

You asked us to provide the State law related to trusts established with no funds (i.e., dry or empty trusts), for the States in Region IV to assist field offices in addressing questions regarding how such purported trusts should be considered under the Social Security Administration’s (agency) Supplemental Security Income (SSI) resource rules.

BACKGROUND

SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Social Security Act (Act) §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2015).*[24] “Resources” include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to use for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a). “If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual . . . .” 20 C.F.R. § 416.1201(a)(1); see Program Operations Manual System (POMS) SI 01120.010.B. Even if property has no current market value, it may still be considered a resource if it is property that an individual owns and has the right to convert to cash, and the individual is not legally restricted from using the property for his or her support and maintenance. See POMS SI 01110.100.B.2, B.3.

Property held in a trust may or may not be considered a resource for SSI purposes. See POMS SI 01120.200.A.1. Generally, the agency must consider the principal or corpus of a trust established with the assets of an individual to be a resource of the individual. See Act § 1613(e)(1)-(3); POMS SI 01120.201.A.1. Trust principal is a countable resource if the individual (claimant, recipient, deemer) has legal authority to revoke or terminate the trust and use the funds to meet his or her food or shelter needs, or if the individual can direct the use of the trust principal for his or her support and maintenance under the terms of the trust. See POMS SI 01120.200.D.1.a. Also, if an individual can sell his or her beneficial interest in the trust, that interest is a resource. See POMS SI 01120.200.D.1.a. Conversely, if an individual does not have legal authority to revoke or terminate the trust or to direct the use of the trust assets for his own her own support and maintenance, the trust principal is not a resource for SSI purposes. See POMS SI 01120.200.D.2. The revocability of a trust and the ability to direct the use of trust principal depends on the terms in the trust agreement and on State law. See POMS SI 01120.200.D.2.

DISCUSSION

Alabama:

Alabama statutory law indicates a trust may be established through the conveyance of property but does not otherwise explain the property requirements to establish a trust. See Ala. Code § 19-3B-401, comment (2016). Alabama case law, however, has clarified that the existence of property held by a trustee for the benefit of a trust as an essential element of a trust. See Corretti v. First Nat’l Bank of Birmingham, 276 So. 2d 141, 147 (Ala. 1973); Gordon v. Central Park Little Boys League, 119 So. 2d 23, 27 (Ala. 1960). Thus, Alabama law does not appear to recognize a trust that is established with no funds.

Florida:

Florida statutory law indicates a trust may be created when property or a property interest is transferred to a trustee, but does not further explain the property requirements to establish a trust. See Fla. Stat. Ann. § 736.0401 (West 2016). Florida case law, however, indicates an express trust is not created until property is conveyed for the purpose of the trust. See McLemore v. McLemore, 675 So. 2d 202, 205 (Fla. Dist. Ct. App. 1996); In re Herskowitz’s Estate, 338 So. 2d 210, 212 (Fla. Dist. Ct. App. 1976). Thus, Florida law does not appear to recognize a trust that is established with no funds.

Georgia:

Georgia statutory law requires express trusts to include trust property. See Ga. Code Ann. § 53-12-20 (West 2016). Georgia case law also holds that an essential element of an express trust is the existence of trust property. See Hayes v. Clark, 530 S.E.2d 38, 39 (Ga. Ct. App. 2000); Lummus Supply Co. v. Fidelity Fed. Sav. & Loan Ass’n, 234 S.E.2d 671, 672 (Ga. Ct. App. 1977). Thus, Georgia law does not appear to recognize a trust that is established with no funds.

Kentucky:

Kentucky statutory law indicates a trust may be created through the transfer of property to a trustee or by a declaration that an owner of property has made that the owner holds identifiable property as trustee, but does not further explain the property requirements to establish a trust. See Ky. Rev. Stat. Ann. § 386B.4-010 (West 2016). Kentucky case law clarifies that a fundamental element of a trust is the devotion of trust property to the benefit of the trust beneficiaries. See Siter v. Hall, 294 S.W. 767, 770 (Ky. Ct. App. 1927). Such property must be in existence and identified to establish the trust. See DeLeuil’s Ex’rs v. DeLeuil, 74 S.W.2d 474, 477 (Ky. Ct. App. 1934). Thus, Kentucky law does not appear to recognize a trust that is established with no funds.

Mississippi:

Under the Family Trust Preservation Act of 1998, Mississippi statutory law defines trusts to mean an express trust, private or charitable, or a trust created or determined by a judgment or decree under which the trust is to be administered in the manner of an express trust. See Miss. Code Ann. § 91-9-501(a) (West 2016). Mississippi excludes from this definition of a trust the following: constructive trusts, other than those created by a judgment or decree under which the trust is to be administered in the manner of an express trust, and resulting trusts; guardianships and conservatorships; executors and administrators of decedent's estates; totten trust accounts; custodial arrangements pursuant to the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act of any state; business trusts that are taxed as partnerships or corporations; investment trusts subject to regulation under the laws of this state or any other jurisdiction; common trust funds; voting trusts; security arrangements; transfers in trust for purpose of suit or enforcement of a claim of right; liquidation trusts; or any arrangement under which a person is nominee or escrowee for another. See Miss. Code Ann. § 91-9-501(b). Missisippi statutory law does not appear to contain any additional definition of a trust or further explanation regarding any property requirements to establish a trust.

Mississippi case law also does not appear to address whether there are property requirements to establish a trust. Cases that describe the essentials of an express trust do not address this question. See, e.g., Smiley v. Yllander, 105 So. 3d 1171, 1175 (Miss. Ct. App. 2012) (identifying two types of trusts, express and implied, and noting express trusts or any trust holding real property must be written, while implied may either be constructive or resulting, without addressing whether property is a prerequisite to establishing any type of trust); Sligh v. First Nat’l Bank of Holmes Cty., 735 So. 2d 963, 974 (Miss. 1999) (describing a trustee’s duties and noting guarantorships and conservatorships are not trusts); Ogle v. Durley, 77 So. 2d 688, 691-92 (Miss. 1955) (explaining that real property that was devised to a survivor in a will with condition of splitting the income of said property with another survivor did not create trust, but instead created an equitable charge). Thus, we found no Mississippi statute or case law authorizing the establishment of a trust with no funds.

North Carolina:

North Carolina statutory law indicates a trust may be established when property is transferred to or held by a trustee, but does not further describe the property requirements to establish a trust. See N.C. Gen Stat. Ann. § 36C-4-401 (West 2016). North Carolina case law, however, requires the conveyance of property in order for a trust to be created. See Bissette v. Harrod, 738 S.E.2d 792, 799 (N.C. Ct. App. 2013). Thus, North Carolina law does not appear to recognize a trust that is established with no funds.

South Carolina:

South Carolina statutory law indicates a trust may be established when property is transferred to a trustee or through a written, signed declaration from an owner of property that the owner is holding the property as a trustee, but does not further explain the property requirements to establish a trust. See S.C. Code Ann. § 62-7-401 (2016). South Carolina case law, however, indicates that a trust generally can exist only if it is funded. See Foster v. Foster, 682 S.E.2d 312, 314 (S.C. Ct. App. 2009) (listing trust res as a necessary element to establish a trust); Mayer v. M.S. Bailey & Son, 555 S.E.2d 406, 410 (S.C. Ct. App. 2001) (noting a trust generally can exist only if it is funded). Thus, South Carolina law does not appear to recognize a trust that is established with no funds.

Tennessee:

Tennessee’s Uniform Trust Code includes a provision identifying the requirements for creating a trust particularly with respect to identifying a settlor with the requisite capacity and intention, a trustee with duties to perform, and a definite beneficiary. See Tenn. Code Ann. § 35-15-402 (West 2016). However, neither this provision nor other provisions of Tennessee statutory law appear to discuss whether the trust must contain property. Under Tennessee case law, however, for an express trust to exist, the trust must contain a corpus, or property. See Myers v. Myers, 891 S.W.2d 216, 218 (Tenn. Ct. App. 1994). Thus, Tennessee law does not appear to recognize a trust that is established with no funds.

CONCLUSION

If you have any questions regarding this memorandum, please contact the undersigned at (404) 562-1094.

Sincerely,

Mary Ann Sloan

Regional Chief Counsel

By: Natalie Liem

Assistant Regional Counsel

G. PS 16-123 Life Plan of Kentucky Special Needs Pooled Trust Legal Opinion.

DATE: April 22, 2016

1. Syllabus

This Regional Chief Counsel opinion finds that the Life Plan of Kentucky Pooled Special Needs Trust (Master Trust) established on December X, 2011 meets all the requirements for a pooled trust exception under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant provisions of the Program Operations Manual System (POMS).

2. Opinion

QUESTION

You asked whether the Life Plan of Kentucky Pooled Special Needs Trust (Master Trust) complies with the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant provisions of the Program Operations Manual System (POMS).

OPINION

The Master Trust complies with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS.

BACKGROUND

On December X, 2011, the Board of Directors of Life Plan of Kentucky, Inc., a non-profit corporation (Trustee), established the Master Trust. See Declaration of Trust (Trust Decl.), pmbl. The Trust Declaration indicates that the Master Trust was established pursuant to 42 U.S.C. § 1396p(d)(4)(C) and POMS SI 01120.203B.2. See Trust Decl., Art. 1.

The Trust Declaration also states that the Master Trust is to be administered for the sole benefit of the Beneficiaries. See Trust Decl., Art. 1, Art. 14, § 14.3. Beneficiaries are defined as individuals who are disabled within the meaning of section 1614(a)(3) of the Act. See Trust Decl., Art. 4, § 4. Each Beneficiary has a Sub-Account that a Grantor creates under the terms of the Master Trust. See Trust Decl., Art. 2, Art. 4, §§ 3, 4, 8. The Trust Declaration limits those individuals or entities, who can be a Grantor, to Beneficiaries, courts, and the parents, grandparents, and legal guardians of Beneficiaries. See Trust Decl., Art. 4, § 3. However, the Trust Declaration also defines Grantor and Beneficiary as the same person. Trust Decl., Art. 4, §§ 3, 4. The property within the Sub-Accounts is “pooled together for the purpose of custody, investment, and management.” Trust Decl., Art. 4, § 9. However, each Beneficiary receives an accounting of the transactions that are specific to his or her Sub-Account at least once per year. See Trust Decl., Art. 11, § 11.2.

The Master Trust states that it is not intended “to provide for any basic care, maintenance or support, and [a] Beneficiary shall have no right to command payment of such basic care and support, nor shall the Beneficiary have recourse to any court to compel the Trustee to make payments for basic care and support or medical care.” Trust Decl., Art. 6; see Trust Decl., Art. 17, § 17.1. The Master Trust is also “absolutely irrevocable” except that “Trust Property may be transferred to another pooled trust, as appropriate.” Trust Decl., Art. 7; see Trust Decl., Art. 17, §§ 17.1, 17.2. Further, a Beneficiary can neither sell any portion of his Sub-Account, nor compel the Trustee to make any disbursement. See Trust Decl., Art. 9.

The Trustee can incur expenses for legal services, fund management, and administration of the Master Trust, and the Trustee can pay such expenses from a Beneficiary’s Sub-Account. See Trust Decl., Art. 11, § 11.4, Art. 12, §§ 3-5, Art. 14, § 14.5. The Trust Declaration expressly states that the Trustee has a “duty to act for the Beneficiary’s best interest, keeping such best interest first in mind as it conducts its business” and has “no duty to consider the needs or desires of potential remainder beneficiaries in making decisions to disburse or not to disburse funds to or for the benefit of the Beneficiary.” Trust Decl., Art. 13.

Upon a Beneficiary’s death,

. . . the Trustee shall first distribute to the Kentucky Department of Medicaid Services, then to any other appropriate State agency entitled to reimbursement from the remaining principal and income of this trust, up to the amount remaining in this trust, an amount equal to the total medical assistance paid on behalf of the Beneficiary by the Medicaid program. . . . If the Beneficiary has received Medicaid from more than one state, and if on termination of this trust the remaining income and principal is insufficient to satisfy the foregoing payment requirement in full, then payment shall be made to each such state pro rata based on the percentage that each state’s Medicaid payments were made to, or on behalf of, the Beneficiary.”

Trust Decl., Art. 15, § 15.1. The Trust Declaration allows the Trustee to pay

. . . [t]axes due from the Trust to the State or Federal government because of the death of the Beneficiary” and “[r]easonable fees for administration of the Trust estate, such as accounting of the Trust to the court, completion and filing of documents, or other related actions associated with termination and wrapping up of the trust,” prior to making the above-referenced disbursement to the State Medicaid plans.

Trust Decl., Art. 15, § 15.1.

The Trust Declaration indicates that it is governed by the laws of Kentucky. See Trust Decl., Art. 16, § 16.3. The Joinder Agreement reiterates the contents of the Trust Declaration. See Joinder Agreement.

DISCUSSION

SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Act §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2015).[25] “Resources” include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to be used for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a). “If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual . . . .” 20 C.F.R. § 416.1201(a)(1); accord POMS SI 01120.010.B.

Generally, the Social Security Administration (SSA) must consider the principal or corpus of a trust established with the assets of an individual to be a resource of the individual. See Act § 1613(e)(1)-(3); POMS SI 01120.201.A.1. However, certain exceptions are provided for trusts established in accordance with section 1917(d)(4) of the Act. See Act § 1613(e)(5); POMS SI 01120.201.A.1; POMS SI 01120.203.A. Pooled trusts are one such exception. See Act § 1917(d)(4)(C); POMS SI 01120.203.B.2 (describing an exception in accordance with § 1917(d)(4)(C) as a “pooled trust”). To satisfy the pooled trust exception, a trust must contain the assets of an individual who is disabled (as defined in section 1614(a)(3)) and meet the following requirements:

  1. (i)  

    The trust is established and managed by a nonprofit association.

  2. (ii)  

    A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts.

  3. (iii)  

    Accounts in the trust are established solely for the benefit of individuals who are disabled (as defined in section 1614(a)(3)) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court.

  4. (iv)  

    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 pays to the State 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 plan under this title.

Act § 1917(d)(4)(C); accord POMS SI 01120.203.B.2.a.

To meet the first requirement, the trust must be established and maintained by an organization that has been established and certified under a State nonprofit statute. See Act § 1917(d)(4)(C)(i); POMS SI 01120.203.B.2.c. Life Plan of Kentucky, Inc. purports to be a Kentucky non-profit corporation, and the Internal Revenue Service (IRS) identifies Life Plan of Kentucky, Inc. as a tax-exempt organization.[26] See Trust Decl., pmbl.; see also POMS SI 01120.203.F (referring to the procedures in POMS SI 01130.689.E for determining if an organization is a nonprofit or tax-exempt organization); POMS SI 01130.689.E.2 (indicating SSA considers an organization to be a non-profit organization if it can verify it is a tax-exempt organization with the IRS). Thus, the Master Trust meets the first requirement of the pooled trust exception.

To satisfy the second requirement, the trust must maintain a separate account for each trust beneficiary, although the funds may be pooled for investment and management purposes. See Act § 1917(d)(4)(C)(ii); POMS SI 01120.203.B.2.d. The trust must also be able to provide an accounting for each beneficiary’s individual account. See POMS SI 01120.203.B.2.d. The Master Trust’s funds are pooled for investment and management, but each Beneficiary has a separate Sub-Account. See Trust Decl., Art. 2, Art. 4, §§ 4, 8, 9. Further, the Trustee must provide each Beneficiary with an accounting of the transactions that are specific to his or her Sub-Account at least once per year. See Trust Decl., Art. 11, § 11.2. Accordingly, the Master Trust meets the second requirement of the pooled trust exception.

The third requirement mandates that the accounts in the trust are established for the sole benefit of individuals who are disabled within the meaning of the Act. See Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.B.2.b, e. SSA considers a trust to be for the sole benefit of an individual “if the trust benefits no one but that individual, whether at the time the trust is established or at any time for the remainder of the individual’s life.” POMS SI 001120.201.F.2.a. Therefore, aside from payments for goods or services for the trust beneficiary and reasonable administrative expenses, the trust must not: (1) provide a benefit to any other individual or entity during the disabled individual’s lifetime; or (2) allow for termination of a trust account prior to the individual’s death and payment of the assets to another individual or entity. See POMS SI 001120.201.F.2; POMS SI 01120.203.B.2.e. The third requirement also limits those who can establish an account within the trust to disabled individuals, courts, and the parents, grandparents, and legal guardians of disabled individuals. See Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.B.2.f.

The Trust Declaration defines Beneficiary as an individual who is disabled under the Act. See Trust Decl., Art. 4, § 4. The Trust Declaration also states that the Master Trust is to be administered for the sole benefit of the Beneficiaries. See Trust Decl., Art. 1, Art. 14, § 14.3. Other than expenses for legal services, fund management, and administration of the Master Trust, the Trust Declaration does not permit any disbursements that do not benefit the Beneficiary. See Trust Decl., Art. 11, § 11.4, Art. 12, §§ 3-5, Art. 14, § 14.5. Indeed, the Trust Declaration expressly states that the Trustee has a “duty to act for the Beneficiary’s best interest, keeping such best interest first in mind as it conducts its business” and that the Trustee has “no duty to consider the needs or desires of potential remainder beneficiaries in making decisions to disburse or not to disburse funds to or for the benefit of the Beneficiary.” Trust Decl., Art. 13. The Master Trust is also “absolutely irrevocable,” and therefore cannot be terminated prior to the Beneficiary’s death.[27] Trust Decl., Art. 7. Additionally, the Trust Declaration limits those who can be a Grantor to Beneficiaries, courts, and the parents, grandparents, and legal guardians of Beneficiaries. See Trust Decl,, Art. 4, § 3. Because the Trust Declaration includes these provisions, the Master Trust satisfies the third requirement of the pooled trust exception.

To meet the fourth requirement, the trust instrument must contain specific language providing that, to the extent that amounts remaining in an individual’s account upon his or her death are not retained by the trust, the trust will pay the remaining amount to the State(s) up to the total amount of medical assistance State Medicaid plan(s) paid on behalf of the individual. See Act § 1917(d)(4)(C)(iv); POMS SI 01120.203.B.2.g. The Trust Declaration includes this required language regarding reimbursement to the State(s) and the priority of such reimbursement following permitted tax and administrative payments and amounts retained by the Master Trust. See Trust Decl., Art. 15, § 15.1. Thus, the Master Trust meets the fourth requirement of the pooled trust exception.

The foregoing analysis demonstrates that the Master Trust meets the requirements to be a pooled trust under section 1917(d)(4)(C) of the Act.

The Trust Declaration and Joinder Agreement contain typographical errors in their references to pertinent statutes. The Trust Declaration references 42 U.S.C. § 1917(d)(4)(C) on several occasions. See Trust Decl., Art. 1, Art. 2, Art. 4, §§ 3-4. No such section exists in the United States Code. See 42 U.S.C. § 1917. However, it is reasonable to assume that references to 42 U.S.C. § 1917(d)(4)(C) were intended to refer to section 1917(d)(4)(C) of the Social Security Act, which is codified at 42 U.S.C. § 1396p(d)(4)(C). The Trust Declaration also references 42 U.S.C. § 1382(a)(3) when discussing the definition of disabled. See Trust Decl., Art. 4, §§ 3-4. That section of the United States Code is not relevant to defining disability. See 42 U.S.C. § 1382(a)(3). However, it is reasonable to assume that references to 42 U.S.C. § 1382(a)(3) were intended to refer to 42 U.S.C. § 1382c(a)(3), which defines disabled under the Act. Further, the Joinder Agreement references 42 U.S.C. § 1306p(d)(4)(C)(iv). See Joinder Agreement, Art. 3. No such section exists in the United States Code. However, it is reasonable to assume that references to 42 U.S.C. § 1306p(d)(4)(C)(iv) were intended to refer to 42 U.S.C. § 1396p(d)(4)(C)(iv).

The foregoing errors do not affect our analysis because they do not obscure the intent of the Master Trust’s settlor. Both the Trust Declaration and the Joinder Agreement state that they should be construed in accordance with Kentucky law. See Trust Decl., Art. 16, § 16.3; Joinder Agreement, Art. 5, § 5.05. Pursuant to the Kentucky Uniform Trust Code, this designation of applicable law is controlling. See Ky. Rev. Stat. Ann. § 386B.1-050(1) (West 2016). Under Kentucky law, the terms of a trust instrument should be interpreted in a manner that is consistent with the settlor’s intent. See Commonwealth Bank & Trust Co. v. Young, 361 S.W.3d 344, 353 (Ky. Ct. App. 2012) (citing De Charette v. St. Matthews Bank & Trust Co., 283 S.W. 410, 414 (1926)); see also Ky. Rev. Stat. Ann. § 386B.1-100 (West 2016) (stating the rules of construction that apply to interpreting provisions of a will also apply to interpreting terms of a trust). From the text surrounding the typographical errors in the Trust Declaration and Joinder Agreement, it is apparent which statutes the settlor intended to reference. See Trust Decl., Art. 1, Art. 2, Art. 4, §§ 3-4; Joinder Agreement, Art. 3. Thus, we believe a Kentucky court would interpret the Trust Declaration and Joinder Agreement as referencing the statutes that we identified above as the statutes the settlor intended to reference. Accordingly, the identified typographical errors do not invalidate the Master Trust.

CONCLUSION

For the reasons discussed above, the Master Trust meets the requirements of the pooled trust exception.

Sincerely,

Mary Ann Sloan

Regional Chief Counsel

By: Peter S. Massaro, III

Assistant Regional Counsel

H. PS 08-108 In Re: Nathan , SSN: ~ -- Supplemental Security Income (SSI) Trust Policy on Residual Beneficiaries in Kentucky

DATE: May 6, 2008

1. SYLLABUS

This opinion evaluates a trust created for an SSI beneficiary in the state of Kentucky. Whether the subject trust is ultimately determined to be a countable resource for SSI purposes will depend largely on whether the trust was funded with the beneficiary's assets or those of a third party. The opinion does not speak directly to the funding of the trust. The trust was created on January XX, 2002 by the beneficiary's mother and legal guardian. Terms of the trust provide for reimbursement to Medicaid upon the beneficiary's death and leave all distribution discretion to the Trustee. At issue is whether the trust language establishing a remainder interest to the beneficiary's heirs at law establishes an irrevocable trust. Many states have adopted the general rule put forth in the Restatement (Third) of Trusts that creates an renders a trust irrevocable by creation of a remainder interest to indefinite parties such as "heirs at law". The opinion goes on to say that Kentucky has not adopted the position put forth in the Restatement (Third) of Trusts and, as such, would not recognize a trust as irrevocable solely on the basis of a remainder interest to "heirs at law".

2. OPINION

Question Presented

You asked whether the Nathan Trust instrument established a valid irrevocable trust under Kentucky law when it states, at the death of Nathan (Claimant), remaining trust funds are to be first distributed to any state in which he lived and received medical assistance, and then to Claimant's heirs at law living at the time of his death.

Opinion

Whether this trust is countable as a resource available to Claimant depends on whose assets were used to establish the trust corpus. If the trust was created with assets not belonging to Claimant, it would not be countable as a resource available to him. However, if it was created with Claimant's assets, it would be countable as a resource available to him because it would not be irrevocable under Kentucky law.

Facts

On January XX, 2002, Kimberly, Claimant's legally-appointed guardian and mother, established a trust for Claimant's benefit. Claimant's mother transferred to the trustee certain property listed in a separate schedule as the initial corpus of the trust, and indicated that she may transfer additional assets. See Trust Instrument, Art. II. The trust states it is irrevocable and cannot be altered, amended, revoked, or terminated by Claimant's mother. See id. , Art. III. The Trustee may use the trust funds for Claimant's benefit, except for his basic support, maintenance, and health needs, see id. , Art. IV.A.1, and shall avoid making actual distributions to Claimant, to the extent feasible, see id. , Art. IV.A.3. At Claimant's death, the trustee shall first reimburse any state for medical assistance under a State plan, see id. , Art. IV.B.1, and "shall distribute any remaining trust funds to [Claimant's] heirs at law living at [Claimant's] death under the laws of the Commonwealth of Kentucky then in existence," see id., Art. IV.B.2.

Legal Authority

Under the Social Security Act (Act), aged, blind, or disabled individuals who meet certain income and resource limitations are eligible for SSI. See Act § 1611(a), 42 U.S.C. § 1382(a). "Income" is defined as funds that are earned as wages or other employment-type compensation or as unearned income from a variety of sources, which can be used to meet a claimant's food and shelter needs. Act at § 1612(a)(1)-(2); 42 U.S.C. § 1382a(a)(1)-(2); accord 20 C.F.R. § 416.1102 (2007). Resources are cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to be used for his or her support and maintenance. 20 C.F.R. § 416.1201(a) (2007).

Trusts may be countable as resources for SSI purposes in certain circumstances. See Act at § 1613(e); 42 U.S.C. § 1382b(e). However, this general rule does not apply to trusts validly established under section 1917(d)(4) of the Act, 42 U.S.C. § 1396p(d)(4), generally termed "Medicaid-Qualifying" or "Special Needs" trusts. See Act at § 1613(e)(5). For such trusts, the general resource-counting rules apply. See Act at §§ 1611(a)(1)(B), (2)(B), (3).

For trusts established after January 1, 2000, the Agency must determine the identities of both the settlor and the beneficiary. See POMS SI 01120.200-01120.204. The Agency must then determine whose property comprised the corpus of the trust. See POMS SI 01120.202.A.1.b. If the trust corpus was established solely with the assets of a third party, the trust is generally not a resource provided the claimant has no right to direct the use of or revoke the trust. See POMS SI 01120.200.D.2. However, if a trust (or any portion of a trust) contains any assets of the claimant, then the trust (or the portion made up of the claimant's assets, on a pro rata basis) may be considered a resource if the trust is revocable, if the trust is irrevocable and the claimant can receive funds from or direct the distribution of funds, or if the trust is a Special Needs or Medicaid Trusts that is revocable. See Act at § 1613(e)(3); POMS SI 01120.200.D, SI 01120.201.A, SI 01120.203.B.1.

DISCUSSION

Although you asked whether Claimant's trust is irrevocable trust Kentucky law, that question does not alone control whether trusts established after January X, 2000, are considered resources. The Agency must also determine the identities of the settler and the beneficiary. Here, Claimant's mother is the settlor of the trust and Claimant is its beneficiary.

Next, the Agency must determine whether Claimant's trust was created with funds that belonged in any part to Claimant. If we determine the funds or assets that make up the corpus of the trust were entirely those of Claimant's mother, then this trust is not subject to section 1613(e) of the Act. See POMS SI 01120.200.A.2.b. For such trusts, the Agency must determine the extent to which, if at all, Claimant has any authority to direct the use of the trust or its assets to meet his own food or shelter needs. See POMS SI 01120.200.D. Here, Claimant can neither revoke nor use trust assets as he wishes or for his own support and maintenance. Only the Trustee has the responsibility to use the trust assets or funds as appropriate. See Trust Instrument, Art. IV. Moreover, the trustee may not use trust funds to pay for Claimant's basic support and maintenance. See id., at Art. IV.A.1. Thus, if the trust contains no funds belonging to Claimant, the trust is not countable as a resource to him. See POMS SI 01120.200.D.2.

If Claimant's trust was created with assets or funds that belonged, in any part, to Claimant, other rules apply. See POMS SI 01120.202.A.1.b (referring to POMS SI 01120.201-204 for such trusts). If the entire corpus of the trust is comprised of Claimant's assets or funds, then the entire trust is reviewable under these sections; but, if only a portion of the corpus is based on Claimant's assets or funds, his pro rata amount is reviewed under these sections. See POMS SI 01120.201.C.2.c. The instructions refer to the following questions to answer to determine whether such a trust is countable as a resource:

1. Was the trust established with the assets of an individual under age 65?

If yes, go to Step 2.

If no, go to Step 8.

2. Was the trust established with the assets of a disabled individual?

If yes, go to Step 3.

If no, go to Step 8.

3. Is the disabled individual beneficiary of the trust?

If yes, go to Step 4.

If no, go to Step 8.

4. Did a parent, grandparent, legal guardian or a court establish the trust?

If yes, go to Step 5.

If no, go to Step 8.

5. Does the trust provide specific language to reimburse the State for medical assistance paid upon the individual's death as required in SI 01120.203B.1.f.?

If yes, go to Step 6.

If no, go to Step 8.

6. The trust meets the special needs trust exception to the extent that the assets of the individual were put in trust prior to the individual attaining age 65. Any assets placed in the trust after the individual attained age 65 are not subject to this exception.

Go to Step 7 for treatment of assets placed in trust prior to age 65.

Go to Step 8 for treatment of assets placed in trust after attaining age 65.

7. Is the trust irrevocable?

If yes, assets placed in the trust prior to age 65 are not a countable resource. STOP.

If no, evaluate the trust under SI 01120.200 to determine if it is a countable resource.

8. The trust (or portion thereof) does not meet the requirements for the special-needs trust exception. Determine whether the pooled trust exception in SI 01120.203B.2. applies.

POMS SI 01120.203.D.1 (internal citations omitted). If some or part of Claimant's assets funded the trust and that Claimant is disabled, the trust would meet steps one through six.

Therefore, the remaining question would be whether the trust is irrevocable. Generally, a trust is revocable, regardless of the terms of the agreement, if the settlor is the sole beneficiary of the trust. See POMS SI 01120.200. The settler, or true grantor, is the sole beneficiary if there is no other person or entity holding a beneficial or remainder interest in the trust property. The "Doctrine of Worthier Title," in its common law form, provided that a conveyance of land by a grantor with a limitation over to his own heirs resulted in a reversion in the grantor rather than creating a remainder interest in his heirs. Hatch v. Riggs Nat'l Bank, 361 F.2d 559, 561 (D.C. Cir. 1966). That is, a conveyance to a person for life with the remainder to his heirs created an unrestricted ownership for that person. This common law rule no longer exists, but "the question of construction" persists and, in the absence of evidence of contrary intent, there is no intent by an owner to create a remainder interest in his heirs. Restatement (Second) of Trusts § 127, comment b (1959); see also H~, 361 F.2d at 562. The general rule is:

He is . . . the sole beneficiary where he transfers property in trust to pay the income to himself for life and on his death to pay the principal to his estate, or to his personal representatives. . . . On the other hand, if the beneficial interest is limited to the settlor for life and on his death the property is to be conveyed to his children, or issue, or descendants, he is not the sole beneficiary of the trust, but an interest in remainder is created in his children, issue, or descendants. . . . [A] question of construction arises where the owner of property transfers it in trust to pay the income to himself for life and upon his death to pay the principal to his heirs or next of kin. In the absence of a manifestation of a contrary intention, the inference is that he is the sole beneficiary of the trust and that he does not intend to create any interest in the persons who may become his heirs or next of kin. The same thing is true where the principal is to be paid to the persons who would be entitled to his property on his death intestate, or to the persons who would succeed to his property under the statute of descent and distribution [intestacy statute].

Restatement (Second) of Trusts § 127 cmt. b (1959). The Kentucky Supreme Court has held that a person who is both settlor (grantor) and sole beneficiary of an inter vivos trust may revoke the trust, even when the instrument specifically provides that the trust is irrevocable. Phillips v. Lowe, 639 S.W.2d 782, 783 (Ky. 1982). Citing the Restatement (Second) of Trusts, § 339 (1959), the P~ court concluded, "In essence, the corpus of the trust belongs to the settlor who is also the sole beneficiary. Assuming that she is not under an incapacity at the time she requests a change, the settler-sole beneficiary's actions affect that which is hers alone." Id., at 784. Kentucky courts have also adopted the common law doctrine of reversions with respect to inter vivos conveyances. See Alexander v. DeKermel, 81 Ky. 345, 1883 WL 7842 (Ky. App. 1883). Later, in a case involving construction of a will, a Kentucky appeals court noted the question of reversions was first presented in Kentucky in Alexander, which adopted the common law doctrine of "reversion," and found that thereafter the "doctrine of reversions has become firmly ingrained in the law of our state." Mitchell v. Dauphin Deposit Trust Co., 142 S.W.2d 181, 183-84 (Ky. App. 1940). This is the longstanding Kentucky position.

Historically, the general terms of "heirs," "heirs at law," "next of kin," "survivors," or similar non-specific language were insufficient to establish a residual interest in a trust that could render a "grantor trust" irrevocable. See Restatement (Second) of Trusts, § 339, case citations. However, some states have amended their law to allow such terms to create a binding interest. For example, Florida amended its law to recognize such language as rendering a trust irrevocable. See Fla. Stat. Ann. (abolishing the Doctrine of Worthier Title) (effective July 1, 2007). Other states have indicated that they follow the rules found within the Restatement (3d) of Trusts, which has recommended a change in the historical rule to recognize indefinite terms like those listed above are sufficient to create an inalienable remainder interest. Unlike Florida or the other states adopting the Restatement (3d) of Trusts, Kentucky has not amended its law by either abolishing the common law Doctrine of Worthier Title or adopting the Restatement (3d) of Trusts. Indeed, caselaw in Kentucky cites the Doctrine of Worthier Title as recently as 1997, see, e.g., Dennis v. Bird, 941 S.W. 2d 486, 489 (Ky. App. 1997), and caselaw as recently as September 2007 has cited the Restatement (2d) of Trusts, see, e.g., Elliott v. J.C. Bradford & Co., LLC, 2007 WL 2687413 *5 (Ky. App. 2007). Thus, the longstanding position of Kentucky law remains in effect and any portion of Claimant's trust created with his assets would be considered a trust created by a person who is both the settler and beneficiary. See POMS SI 01120.200.B.2, SI 01120.201.B.7. Therefore, Claimant could revoke the trust created with his assets despite its language stating that it is irrevocable.

Finally, this trust provides that, at Claimant's death, the trustee shall first reimburse any state for medical assistance under a State plan, see id. , Art. IV.B.1, before distributing any remaining trust amounts Claimant's heirs at law living at Claimant's death under the laws of the Commonwealth of Kentucky then in existence," see id., Art. IV.B.2. Despite this provision, the trust does not create any remainder interest for the state. Instead, this provision creates a "creditor" interest in the state. See Carden v. Astrue, 2008 WL 867942, *4 (S.D. W.Va. 2008) (finding that West Virginia had not indicated that the state was a beneficiary). The state's interest is only payable if there are funds left in the trust when Claimant dies, after administrative costs are paid. If nothing is left, nothing is owed the state(s). As in C~, no Kentucky statute or caselaw indicates that the state should be a residual beneficiary rather than a creditor.

CONCLUSION

For the reasons stated above, this trust, to the extent it was created with Claimant's assets, is countable as a resource available to him because it is not irrevocable under Kentucky law. However, to the extent that this trust was created with assets not belonging to Claimant, it would not be countable as a resource to him provided that no disbursements from the trust could be payable for his food, clothing, or shelter needs.

Mary Ann Sloan
Regional Chief Counsel

By Jerome M. Albanese
Assistant Regional Counsel

I. CMP 19-023 Validity of Purported Pooled Trust – Kentucky – Supplemental Opinion

1. Syllabus

This Regional Chief Counsel (RCC) opinion examines whether the Kentucky Life Enrichment Pooled Fund Trust qualifies as a pooled trust under 1917(d)(4)(C) of the Social Security Act and POMS SI 01120.203.B.2. The RCC concludes that the amended Trust complies with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant POMS provisions.

2. Opinion

Question

Whether the Kentucky Life Enrichment Trust (LET) Pooled Fund Trust (Trust) meets the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant provisions of the Program Operations Manual System (POMS).

Opinion

The amended Trust complies with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant POMS provisions. [28]

Background

According to the information provided, M~., the number holder (NH), receives Supplemental Security Income (SSI) and is a beneficiary of the Trust. In a legal opinion dated August 14, 2018, we advised that the Trust did not meet the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant POMS provisions (copy attached).[29] Specifically, we explained that the Trust was not clearly managed by a non-profit organization and contained an unacceptable early termination provision. See Act § 1917(d)(4)(C)(i), (iii); POMS SI 01120.199.F; POMS SI 01120.225.D. On October 8, 2018, General Counsel for LET submitted an amended Trust to the agency for review.[30] See LET Attorney Letter.

The amended Trust now provides that although funds in the various accounts are pooled for investment and management purposes, separate accounts are maintained for each beneficiary. See Trust, Who Can Set Up an Account. The Trust also now states that if LET employs a for-profit entity to handle certain Trust functions, LET will “maintain ultimate managerial control.” Trust, Potential Conflict of Interest. The non-profit entity “will always be subordinate” to LET managers. Id.

The amended Trust’s early termination provision provides that if the Trust becomes impossible or impractical to carry out the purpose of the Trust, then the LET Board may terminate the Trust or resign as Trustee. See Trust, Amendment or Termination of the Trust. In such case, LET will “first try” to transfer the sub-account assets to another trust that meets the requirements of § 1917(d)(4)(C) of the Act. Id. If transfer to another pooled trust is not possible, the Trust will reimburse the state(s) in an amount equal to the total amount of medical assistance paid under the state(s)’ Medicaid plan(s). See id. After reimbursement to the state(s) and payment of allowed expenses, all remaining funds must be given to the beneficiary. See id.

LET also revised the Trust’s provisions regarding what happens to a beneficiary’s sub-account upon the beneficiary’s death. See Trust, Residual Amounts at the Beneficiary’s Death. Upon a beneficiary’s death, “to the extent that assets are not retained by the [T]rust,” the Kentucky Cabinet for Health and Family Services and any other state that provided Medicaid benefits in its proportionate share shall have priority over all other debts and administrative expenses, except those allowable under the POMS. If there is an insufficient amount remaining in the beneficiary’s sub-account to pay each state in full, then each state will be paid its proportionate share of the amount remaining based on the monetary value of the support provided by each state. Any assets retained by the Trust will be used for direct or indirect benefit of other beneficiaries with disabilities. If assets remain in the sub-account after reimbursement to the state(s), the balance will be paid to the remainder beneficiaries designated in the Joinder Agreement.

Discussion

As discussed in our August 2018 legal opinion, to satisfy the exception for pooled trusts under section 1917(d)(4)(C), a trust must contain the assets of an individual who is disabled (as defined in section 1614(a)(3)) and meet the following conditions:

(i) The trust is established and managed by a non-profit association;

(ii) A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts;

(iii) Accounts in the trust are established solely for the benefit of individuals who are disabled (as defined in section 1614(a)(3)) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court; and,

(iv) 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 pays to the State 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 plan under this title.

Act § 1917(d)(4)(C); POMS SI 01120.203.D.1.

The amended Trust complies with the requirement that the Trust be managed by a non-profit association. See Act § 1917(d)(4)(C)(i). Although a non-profit organization may employ the services of a for-profit entity, the non-profit organization must maintain “ultimate managerial control” over the trust. POMS SI 01120.225.D. The use of a for-profit entity must always be subordinate to the non-profit managers of the pooled trust. See id. The Trust provides that LET, a non-profit organization, established and manages the Trust. See Trust, About The Pooled Trust. Further as amended, the Trust now provides that should LET employ the services of a for-profit entity, LET will maintain “ultimate managerial control” and the for-profit entity “will always be subordinate” to LET’s managers. Trust, Potential Conflict of Interest.

The amended Trust’s early termination provision also complies with the requirement that the trust sub-accounts be established solely for the benefit of each beneficiary. See Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.D.5. An early termination is acceptable if it “solely” allows for transfer of the sub-account assets to another pooled trust. POMS SI 01120.199.F.2. Alternatively, the early termination provision must require the assets to be paid first to the state(s) for medical assistance provided to the individual under the state Medicaid plan(s), with any remaining funds used only for allowable administrative expenses, reasonable compensation to the trustee, reasonable costs for services rendered on behalf of the beneficiary, or distributions to the trust beneficiary. See POMS SI 01120.199.F.1. As written, the Trust’s early termination provides that it will first try to transfer the sub-account assets to another pooled trust. See Trust, Amendment or Termination of the Trust. See POMS SI 01120.199.F.2. However, if that is not possible, the amended Trust provides, consistent with an acceptable early termination provision, that it shall reimburse the state(s) in an amount equal to the total amount of medical assistance paid under each state’s Medicaid plan and, after reimbursement to the states and payment of allowed expenses[31] , all remaining funds will be distributed to the trust beneficiary. See POMS SI 01120.199.F.1.

The Trust’s amended section regarding termination upon a beneficiary’s death also continues to comply with the Medicaid reimbursement provision of the Act. See Act § 1917(d)(4)(C)(iv). To qualify, any funds of a deceased beneficiary not retained by a trust must be paid to any states that have provided medical assistance under a Medicaid plan. See POMS SI 01120.203.D.8. The states must be listed as first payee, except for allowable administrative expenses. See id. If the trust does not have sufficient funds to reimburse each state that had provided medical assistance, the trust must reimburse each state on a pro-rata basis. See id. As written, the amended Trust provides that for assets not retained by the Trust[32] , the Kentucky Cabinet of Health and Family Services and all other states that have provided Medicaid benefits will have priority over any other debts or administrative expenses except allowable administrative expenses listed in the agency’s POMS[33] . See Trust, Residual Amounts at the Beneficiary’s Death. If there is an insufficient amount in the beneficiary’s sub-account to fully reimburse each state, then each state will be paid the proportionate share of the amount remaining, based on the monetary value of the support provided by each state. See id. Thus, this revised section is still consistent with the instructions in the POMS.

Conclusion

The amended Trust complies with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions.


Footnotes:

[1]

Unless otherwise stated, citation to “MTA” refers to every MTA executed for all eight states in this region.

[2]

The MTAs permit transfer of the Beneficiary’s assets to another section 1396p(d)(4)(C) trust, noting that such a transfer does not constitute early termination and does not require the State Medicaid agency to be reimbursed. MTA, § 6.6. The POMS permits such transfers, in that it states that “an early termination clause does not need to meet the . . . criteria [for early termination] if the clause solely allows for a transfer of the beneficiary’s assets from one Section 1917(d)(4)(C) trust to another Section 1917(d)(4)(C) trust.” POMS SI 01120.199.F.2.

[4]

The Trust’s reference to 42 U.S.C. § 1382(a)(3) appears to be a typographical error because that section does not define any particular individual. The Trust likely intended to reference 42 U.S.C. § 1382c(a)(3), which defines a disabled person for purposes of the Act.

[5]

While allowing the Trustee to transfer the assets of a sub-account, the Trust states “[i]n no circumstance shall this provision render this Trust . . . terminated . . . .” Trust Decl., Art. 17 (17.1).

[6]

All references to the Code of Federal Regulations are to the 2019 edition.

[7]

We incorporate the previous opinions by reference except for the updates specifically set forth in this Supplemental Opinion.

[8]

For clarity and brevity, we refer to the current amended trust documents as the Trust and the Joinder Agreement.

[9]

The Internal Revenue Service (IRS) identifies Settlor as a tax-exempt organization. Exempt Organizations Select Check, https://apps.irs.gov/app/eos/pub78Search.do?ein1=26-1519500&names=Kentucky+Guardianship+Association&city=&state=KY&country=US&deductibility=all&dispatchMethod=searchCharities&submitName=Search (last visited Dec. 11, 2017).

[10]

Our office suggests that the agency verify the organization’s non-profit status pursuant to POMS SI 01130.689E, in future cases.

[11]

“Personal Account” means an account within the Trust, segregated by Trustee for the specific use and benefit of a beneficiary. See Trust, Art. II, ¶ I, Art. VIII, ¶ A.

[12]

The Trust defines beneficiary as an individual who is disabled under the Act. See Trust, Art. II, ¶ B; Joinder Agreement, §§ III, IV.

[13]

MS Recipient does not currently receive SSI, but we nonetheless use the identifying term “Recipient” for purposes of consistency in this opinion.

[14]

. All references to the Code of Federal Regulations are to the 2017 edition.

[15]

Specifically, the IRS’s website indicates NSFNI is a public charity to which certain contributions could be tax deductible. See Exempt Organizations Selection Check, https://apps.irs.gov/app/eos/pub78Search.do?ein1=20-8405771&names=&city=&state=All...&country=US&deductibility=all&dispatchMethod=searchCharities&submitName=Search (last visited July 10, 2017).

[16]

Indemnity is a legal obligation to be held responsible for another’s wrongdoing despite a lack of any personal negligence or fault. See, e.g., Zeiger Crane Rentals, Inc. v. Double A Indus., Inc., 16 So. 3d 907, 911 (Fla. Dist. Ct. App. 2009); Frear v. P.T.A. Indus., Inc., 103 S.W.3d 99, 107 (Ky. 2003); Gully v. First Nat. Bank, 184 So. 615, 617 (Miss. 1938).

[17]

We also note that the Master Trusts indicate they “shall not be used to reimburse any state . . . government for any benefits or maintenance representing basic medical care. . . .” Master Trusts, Art. 6. This prohibition is not limited to the lifetime of a Beneficiary and could conflict with the pooled trust requirement that a sub-account pay back Medicaid upon the death of a Beneficiary. NFSNI should consider clarifying this language.

[18]

. Although you originally asked whether the trust was revocable under Kentucky law, we have not addressed revocability because we concluded the trust was not a valid special needs trust.

[19]

. According to the information provided, some of the assets listed in Schedule A have not been transferred to the Trust. Accordingly, they would not be considered part of the Trust corpus in determining NH’s countable resources.

[20]

. All references to the Code of Federal Regulations are to the 2016 edition.

[21]

. All references to the Ky. Rev. Stat. Ann. are to the 2016 version.

[22]

. The Trust Amendment contains a typographical error when referring to section “386.4.” We note that the Kentucky code contains no section 386.4 (Trust Amendment). The Trust Amendment most likely was referring to sections 386B.4-100 to 386B.4-160, which govern modifications of trusts.

[23]

. Although Kentucky law states that modification by consent is inapplicable to special needs trust created under section 1917(d)(4)(A) of the Act, see Ky. Rev. Stat. Ann. § 386B.4-110(6)(b), the Trust was not a valid special needs trust at the time the Trust Amendment was executed because it lacked a Medicaid payback provision.

[24]

. * All references to Code of Federal Regulations are to the 2015 edition.

[25]

. All reference to the Code of Federal Regulations is to the 2015 edition.

[26]

. . . Exempt Organizations Select Check, https://apps.irs.gov/app/eos/pub78Search.do?ein1=&names=%22Life+Plan%22&city=&state=KY&country=US&deductibility=all&dispatchMethod=searchCharities&submitName=Search (last visited Apr. 22, 2016).

[27]

. The Trust Declaration allows the Trustee to transfer property within the Master Trust to other pooled trusts. See Trust Decl., Art. 7, Art. 17, §§ 17.1, 17.2. However, this type of early termination clause does not prevent a trust from meeting the requirements of a pooled trust. See POMS SI 01120.199.F.2.

[28]

The amended Trust states that it has been “established to comply with 42 U.S.C. § 1396p(d)(4)(c) and 42 U.S.C. § 1917(d)(4)(A).” See Trust, Pooled Trust. To the extent the Trust is intended to comply with section 1917(d)(4)(A) of the Act (the individual “special needs” trust provision), this opinion does not address whether the Trust meets the requirements for a Special Needs Trust.

[29]

We incorporate the previous opinion by reference, except for the updates specifically set forth in this Supplemental Opinion.

[30]

LET’s General Counsel also provided a blank Kentucky Joinder Agreement that has not yet been signed by NH or his mother. See Kentucky Joinder Agreement. The Joinder agreement allows the settlor to check certain types of distributions he/she wants the Trustee to consider making for the beneficiary’s sole benefit. See id. The new Joinder Agreement provides more details of what types of third party transportation and travel expenses are permitted. See id. In particular, the Joinder Agreement limits these transportation and travel expenses to payments that result in goods or services by the beneficiary, expenses that are necessary for the beneficiary to receive medical treatment, and payment to visit a beneficiary in an institution in order to provide or oversee the beneficiary’s living arrangement. See id. The travel must also be for the purpose of ensuring the safety and/or medical wellbeing of the beneficiary. See id. These expenses appear to be consistent with the policies stated in POMS SI 01120.201.F.3 (permitting payments to third parties that result in goods and services by the trust beneficiary, payments for travel expenses to accompany and provide services that are necessary due to the beneficiary’s medical condition, disability, or age, and payments for travel expenses to visit the trust beneficiary to ensure the beneficiary’s safety and well-being). LET’s General Counsel stated that it is proactively contacting settlors and beneficiaries to execute updated Joinder Agreements, which would include NH and his mother. See LET Attorney Letter.

[31]

The amended Trust does not specifically identify what are “allowed expenses.” Trust, Amendment or Termination of the Trust. However, the POMS section regarding early termination provisions allows for payment of administrative expenses, such as taxes due from the Trust due to termination of the trust and reasonable fees and administrative expenses associated with termination of the trust; reasonable compensation to the trustee for managing the trust; and reasonable costs associated with investment, legal, or other services rendered on behalf of the beneficiary with regard to the Trust. See POMS SI 01120.199.F.1, F.3; POMS SI 01120.201.F.4.

[32]

While less explicit than before, the Trust remains a residual beneficiary under the amended Trust, and thus, the Trust remains irrevocable to NH. See Trust, Residual Amounts at the Beneficiary’s Death (providing payment to states “to the extent that assets are not retained by the trust”); POMS SI 01120.200.D.3 (recognizing that grantor trusts cannot be unilaterally revoked if the trust document names a residual beneficiary); Cruse v. Leary, 727 S.W.2d 408, 410-11 (Ky. Ct. App. 1987) (indicating that an irrevocable trust can be revoked only with the consent of the settlor and all beneficiaries).

[33]

The amended Trust states the allowable expenses are listed at POMS SI 01120.203.B.3.a. See Trust, Residual Amounts at the Beneficiary’s Death. The POMS provision addressing exceptions to counting trusts established after January 1, 2000, POMS SI 01120.203, was most recently revised in July 2018 and does not list any allowable expenses at subsection B.3. See POMS SI 01120.203.B.3. However, allowable expenses that can be paid prior to reimbursement to the states are listed at section E and include taxes due from the trust because of the death of the beneficiary or reasonable fees for administration of the trust. See POMS SI 01120.203.E.


To Link to this section - Use this URL:
http://policy.ssa.gov/poms.nsf/lnx/1601825020
PS 01825.020 - Kentucky - 03/23/2020
Batch run: 03/23/2020
Rev:03/23/2020