In this opinion, the Regional Chief Counsel (RCC) examines the Third Amendment to the Pooled Accounts Trust of the Hope Network Foundation to determine if it complies with SSA’s pooled trust policy. Although the Third Restatement cures previously noted defects, new concerns over an early termination provision and how the trust defines grantor were identified. The RCC concludes that the Trust does not meet the pooled trust exception for self-settled trusts under 42 U.S.C. § 1396p(d)(4)(C).

 

QUESTION

 

You asked whether the Third Amendment to the Pooled Accounts Trust of the Hope Network Foundation, adopted in November 2020, and its Joinder Agreement are in compliance with the procedures governing the agency’s trust policy.

 

SHORT ANSWER

 

Although we conclude that the Hope Network Foundation addressed all of the concerns we previously identified, we have identified two additional concerns with the Trust that would render a self-settled sub-account in the Trust noncompliant with the Agency’s pooled trust requirements. First, one of the Trust’s early termination provisions does not include the specific limiting language required by POMS SI 01120.199(E)(2), which precludes the early termination from resulting in disbursements other than to the secondary § 1396p(d)(4)(C) trust or to pay for allowable administrative expenses. Second, the Trust also does not comply with the fourth requirement of the pooled trust exception in that the Declaration of Trust contains two definitions of “Grantor,” one of which may allow for someone other than the individual beneficiary, parent, grandparent, legal guardian, or court to establish a Trust sub-account. However, with respect to third-party contributions, neither a third-party sub-account in the Trust nor third-party assets in a commingled sub-account would be considered a resource under the Agency’s regular resource rules. In the case of a commingled sub-account, the portion of the sub-account attributable to the assets of the beneficiary would be considered a resource.

 

BACKGROUND

 

The Hope Network Foundation (“Hope Network”), a Michigan non-profit organization, established and manages the Pooled Accounts Trust of the Hope Network Foundation (the “Trust”), serving as the Trustee. See Declaration of Trust, Preamble, Art. II(6); Hope Network Foundation, Pooled Trust, https://hopenetwork.org/hope-network-foundation/pooled-trust/ (last visited Mar. 10, 2021). Hope Network first established the Trust on August 9, 1999. Decl. of Trust, Preamble. The Declaration of Trust was first amended in July 2012 (the “First Amendment”), again in July 2019 (the “Second Amendment”), and most recently in November 2020 (the “Third Amendment”).^[1]

 

In two previous opinions, we concluded that the Trust did not comply with SSA’s trust policy because it did not satisfy all of the requirements of the pooled trust exception for self-settled trusts under 42 U.S.C. § 1396p(d)(4)(C). See Program Operations Manual System (POMS) PS 01825.025 (CPM-20-004) (Jan. 20, 2020) (reviewing Second Amendment); Memorandum from Reg’l Chief Counsel, Chicago, to Assistant Reg’l Comm’r-MOS, Chicago, Review of Pooled Accounts Trust of the Hope Network Foundation (Feb. 27, 2019) (reviewing First Amendment).

 

Subsequently, Hope Network amended its Declaration of Trust a third time on November 2, 2020. Your office has submitted the Third Amendment, along with a slightly revised version of the Joinder Agreement, for our review. The Third Amendment makes one discrete change—it deletes Article VI, paragraph 8, as it appeared in the Second Amendment and replaces it with the following language regarding litigation costs and expenses:

 

•  

  Costs and expenses of defending the Trust or any sub-account, including attorneys’ fees and costs incurred prior to, during or after trial, and on appeal, against any claim, demand, legal or equitable action, suit, or proceeding may only be charged against the Trust sub-account of the specific Beneficiary affected and in a manner in compliance with the requirements of 42 U.S.C. § 1396p and its implementing regulations and POMS.

 

Decl. of Trust, Third Amendment. The slight changes to the Joinder Agreement do not affect the substance of any of the relevant provisions.

 

DISCUSSION

 

Initially, we note that the Declaration of Trust has two definitions for the term “Grantor.” The first meaning appears to pertain to the action of establishing a Trust sub-account: “a parent, grandparent, agent acting under a power of attorney, guardian of a Beneficiary, a Beneficiary himself or herself, or any court.” Decl. of Trust, Art. II(3). The second meaning pertains to the funding of a Trust sub-account: “any person or entity that contributes his, her, or its own assets or property to the Trust for the benefit of a Beneficiary.” Id. Thus, because anyone can contribute assets to a Trust sub-account, three possible types of sub-accounts exist: (1) a sub-account that is funded solely by assets belonging to the Beneficiary (i.e., a self-settled sub-account); (2) a sub-account that is funded solely by third-party assets; and (3) a commingled sub-account containing both third-party and Beneficiary assets. The following discussion addresses each type separately.

 

I. Self-Settled Sub-Accounts

 

A. Statutory Resource Rules

 

Under the Social Security Act (“Act”), a trust created on or after January 1, 2000,^[2] from the assets of an individual generally will be considered a resource to the extent that the trust is revocable or, in the case of an irrevocable trust, to the extent that any payments could be made from the trust to or for the benefit of the individual. See 42 U.S.C. § 1382b(e); POMS SI 01120.201(D). However, an exception to this rule exists for certain trusts that meet the criteria set forth under § 1396p(d)(4)(C), commonly known as the “pooled trust exception.” See POMS SI 01120.203(D).

 

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

 

1. 1. 

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

2. 2. 

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

3. 3. 

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

4. 4. 

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

5. 5. 

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

 

See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203(D)(1).

 

Here, the Declaration of Trust states that the Trust is irrevocable. Decl. of Trust, Art. V(1), X. Nevertheless, a self-settled sub-account created on or after January 1, 2000, would be a resource under the statute, because the Trustee can use the income and principal in the individual sub-accounts for the benefit of the beneficiary. Decl. of Trust, Art. III(1)-(3), VI(6); see also Joinder Agreement, ⁋⁋ L, O . Accordingly, we consider whether the Trust qualifies for the pooled trust exception. We previously advised that the Trust did not meet the third requirement of this exception because the Second Amendment to the Declaration of Trust had not cured an outstanding defect with respect to Trust sub-accounts being administered for the sole benefit of each beneficiary. See POMS PS 01825.025 (CPM-20-004). As discussed below, the Third Amendment to the Declaration of Trust corrects that defect. However, upon further review we have identified other provisions that appear to be inconsistent with the third and fourth requirements of the pooled trust exception. Consequently, a sub-account in the Trust would not be excepted from resource counting.

 

1. The Trust is Managed by a Non-Profit Organization.

 

To satisfy the first requirement of the pooled trust exception, the trust must be established and managed by a non-profit association. 42 U.S.C. § 1396p(d)(4)(C)(i); POMS SI 01120.203(D)(3). A non-profit association may employ the services of a for-profit entity, but the non-profit association must maintain ultimate managerial control over the trust. POMS SI 01120.225(D). For example, the non-profit association must be responsible for making day-to-day decisions regarding the health and well-being of the beneficiaries. Id. Also, a for-profit entity must not be allowed to determine whether to make discretionary disbursements from the trust. POMS SI 01120.225(E).

 

The Trust meets this requirement. The Trust was established by the Hope Network Foundation, which is a non-profit organization. Decl. of Trust, Art. I. Hope Network also serves as the main Trustee, or manager, of the Trust. Decl. of Trust, Art. II(6); see also Art. III(1)-(4), Art. VI, and Art. VIII. The Trustee has authority to appoint a Co-Trustee(s), which must also be a non-profit association. Decl. of Trust, Art. II(6), VII; Second Amendment, ⁋⁋ A, C. Similarly, upon the Trustee’s resignation, a court may appoint a successor Trustee, which must also be a non-profit association. Decl. of Trust, Art. II(6), XII; Second Amendment, ⁋ G. In addition, while the Declaration of Trust allows the Trustee to employ various agents, managers, accountants, and investment management services, the non-profit Trustee (including Co-Trustee or Successor Trustee) retains “ultimate managerial control” and the use of any for-profit entity “must always be subordinate to the non-profit manager.” Decl. of Trust, Art. VI(9), VIII (5) & (17), XIV(1)(c); First Amendment ⁋ (a); Second Amendment, ⁋⁋ D, E, I; Joinder Agreement, ⁋ V.

 

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

 

To satisfy the second requirement of the pooled trust exception, the trust must maintain a separate account for each trust beneficiary, although it is acceptable for individual accounts to be pooled for investment and management purposes. 42 U.S.C. § 1396p(d)(4)(C)(ii); POMS SI 01120.203(D)(4). In addition, the trust must be able to provide an individual accounting for each individual. POMS SI 01120.203(D)(4).

 

The Trust meets this requirement. The Trust maintains separate sub-accounts for each individual beneficiary but pools the accounts for purposes of investment and management. Decl. of Trust, Art. VI(1). Also, the Trustee, or its authorized agents, maintains records for each Trust sub-account and must provide at least annually to each beneficiary or his or her guardian a statement of the Trust sub-account resources. Decl. of Trust, Art. VI(1)-(2).

 

3. Trust Sub-Accounts Are Not Established Solely for the Individual Beneficiary’s Benefit.

 

To satisfy the third requirement of the pooled trust exception, the trust account must be established for the sole benefit of the disabled individual. 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203(D)(5). A trust is considered to be established for the sole benefit of an individual if the trust benefits no one but that individual, either at the time the trust is established or at any time for the remainder of the individual’s life. POMS SI 01120.201(F)(1). Conversely, this requirement is not met if the trust account: (1) provides a benefit to any other individual or entity during the disabled individual’s lifetime; or (2) allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity. POMS SI 01120.203(D)(5).

 

Here, the Third Amendment has cured the outstanding problem with the Trust regarding litigation costs and expenses. The original Declaration of Trust included a provision that impermissibly allowed the Trustee, in its sole discretion, to apportion litigation and similar costs on a pro-rata basis to all trust sub-accounts, rather than just to the affected beneficiary. Decl. of Trust, Art. VI(8). The Second Amendment to the Declaration of Trust deleted the original Article VI(8) and substituted the following provision: “Costs and expenses of defending the Trust from any claim, demand, legal or equitable action, suit, or proceeding may, in the sole discretion of the Trustee, be charged against the Trust sub-account of the affected Beneficiary.” Second Amendment, ⁋ B. We explained that this provision was problematic because the Trustee had discretion not to charge the costs and expenses of litigation to the sub-account of the affected beneficiary, and could instead charge all sub-accounts. See POMS PS 01805.025(C) (CPM 20-004). The Third Amendment deleted Article VI(8) as stated in the Second Amendment and substituted new language that now specifies that the costs and expenses of litigation “may only be charged against the Trust sub-account of the specific Beneficiary affected and in a manner in compliance with the requirements of 42 U.S.C. § 1396p and its implementing regulations and POMS.” Third Amendment. Since this provision does not appear to contemplate the use of a beneficiary’s assets for the benefit of another beneficiary, we believe it satisfies the sole benefit requirement.

 

However, upon further review, we conclude that one of the Trust’s early termination provisions does not comply with agency policy. The POMS states that an early termination clause is acceptable only if all of the following criteria are met: (1) the state(s), as primary assignee, would receive all amounts remaining in the trust up to an amount equal to the amount of medical assistance paid on behalf of the individual under the state Medicaid plan(s); (2) after payment of the allowable administrative expenses listed in POMS SI 01120.199(E)(3) and SI 01120.201(F)(4), all remaining funds are disbursed so as solely to benefit the trust beneficiary; and (3) the power to terminate is given to someone other than the trust beneficiary. See POMS SI 01120.199(E)(1). However, an early termination clause that solely allows for a transfer of the beneficiary’s assets from one 42 U.S.C. § 1396p(d)(4)(C) pooled trust to another 42 U.S.C. § 1396p(d)(4)(C) pooled trust complies with SSA’s rules governing pooled trusts. See POMS SI 01120.199(E)(2). In that case, the early termination clause must contain specific limiting language that precludes the early termination from resulting in disbursements other than to the secondary 42 U.S.C. § 1396p(d)(4)(C) trust or to pay for allowable administrative expenses listed in POMS SI 01120.199(E)(3) and SI 01120.201(F)(4). See id.

 

Here, the amended Declaration of Trust provides that, upon early termination, the funds may be transferred to another § 1396p(d)(4)(C) trust. Decl. of Trust, Art. XI(1)(d); First Amendment, ⁋ (c). However, this provision does not include the specific limiting language required by POMS SI 01120.199(E)(2), i.e., it does not preclude the early termination from resulting in disbursements other than to the secondary § 1396p(d)(4)(C) trust or to pay for allowable administrative expenses. As such, this does not appear to be an acceptable early termination provision.

 

The second early termination provision appears to be acceptable. The amended Declaration of Trust provides that, upon early termination, the State(s) will receive all amounts remaining in the Trust up to an amount equal to the total amount of medical assistance paid on behalf of the individual under the State Medicaid plan(s). Decl. of Trust, Art. XI(1)(a); First Amendment, ⁋ (c). After the State(s) is reimbursed, the Trust may pay the expenses allowed under POMS SI 01120.199(F)(3)^[3] or similar rules, and then all remaining funds are disbursed to the beneficiary. Decl. of Trust, Art. XI(1)(b); First Amendment, ⁋ (c). Moreover, the power to terminate belongs to the Trustee and not the beneficiary. Decl. of Trust, Art. XI(1)(c); First Amendment, ⁋ (c). Thus, the requirements of POMS SI 01120.199(E)(1) are met.

 

4. Trust Sub-Accounts Are Not Established by the Individual, Parent, Grandparent, Legal Guardian, or Court.

 

The fourth requirement of the pooled trust exception is that the trust account must be established through the actions of the account beneficiary, his or her parent, grandparent, legal guardian, or a court. 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203(D)(6). Upon further review, we conclude that the Trust does not meet this requirement.

 

As explained above, the Declaration of Trust contains two definitions of “Grantor.” The Declaration of Trust provides that a Grantor means a Beneficiary, his or her parent, grandparent, guardian, agent acting under a power of attorney, or a court. Decl. of Trust, Art. II(3). However, the Declaration of Trust also allows a Grantor to be “any person or entity that contributes his, her, or its own assets or property to the Trust for the benefit of a Beneficiary.” Id. In turn, it provides that the Trust will become effective as to any Beneficiary “upon execution of a Joinder Agreement by a Grantor, or by court order,” subject to the Trustee’s approval. Decl. of Trust, Art. V(1) (emphasis added). The Declaration of Trust does not specify to which definition of Grantor it is referring. This is problematic because under the second definition, the Trust would allow any individual or entity, not just those permitted under the statute, to establish a Trust sub-account. Thus, in order to meet this requirement of the pooled trust exception, Hope Network would need to limit the meaning of “Grantor” in the first sentence of Article V(1) of the Declaration of Trust to the first definition.

 

5. The Trust’s Termination Provision Meets the Requirements Regarding State Medicaid Reimbursements.

 

To satisfy the fifth requirement of the pooled trust exception, the trust must contain “specific language” that provides that upon a beneficiary’s death, to the extent amounts remaining in the beneficiary’s account are not retained by the trust, the trust will pay to the state(s) an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the state Medicaid plan(s). 42 U.S.C. § 1396p(d)(4)(C)(iv); POMS SI 01120.203(D)(8). This is known as the Medicaid payback requirement of the pooled trust exception.

 

Here, the termination provision states that all remaining funds at the time of the beneficiary’s death will be considered “surplus Trust property” and must be retained by the Trust. Decl. of Trust, Art. XI(2); see also Joinder Agreement, ⁋ K. To the extent that the Trust does not retain the surplus, the Trustee must pay to any State an amount equal to the total amount of medical assistance paid on behalf of the Beneficiary. Id. Therefore, the Trust meets the criteria for the final requirement of the pooled trust exception.

 

In sum, we believe that a self-settled sub-account in the Trust established on or after January 1, 2000, would be considered a resource for SSI purposes because the Trust does not meet the third and fourth requirements of the pooled trust exception.^[4]

 

B. The Regular Resource Rules

 

If Hope Network is able to cure the above defects and qualify for the pooled trust exception, a self-settled sub-account in the Trust established on or after January 1, 2000, must still be evaluated under the regular resource counting rules.^[5] See POMS SI 01120.200(A)(1), SI 01120.203(D)(1). Pursuant to POMS SI 01120.200(D)(1)(a), trust principal is a resource if the beneficiary has legal authority to revoke or terminate the trust and then use the funds to meet his or her food or shelter needs, or if the beneficiary can direct use of the trust principal for his or her support and maintenance under the terms of the trust. In addition, if the beneficiary can sell his or her beneficial interest in the trust, that interest is a resource. Id.

 

Whether a trust can be revoked depends on the terms of the trust and applicable state law—here, Michigan. Decl. of Trust, Art. XIII(4); Joinder Agreement, ⁋ U; see POMS SI 01120.200(D)(2). As noted above, the express terms of the Declaration of Trust state that the Trust is irrevocable. Decl. of Trust, Art. V(1), X. Notwithstanding these provisions, a Trust sub-account would still be considered revocable if the grantor is also the sole beneficiary. See POMS SI CHI01120.200(C). However, if the trust names a residual beneficiary or beneficiaries to receive the benefit of the trust interest after a specific event—usually the death of the primary beneficiary—then the trust is irrevocable, because the primary beneficiary could not unilaterally revoke the trust; rather, he or she would need the consent of the residual beneficiary or beneficiaries. See id. Here, the grantor would not be the sole beneficiary. Rather, it appears that the Trust itself is a residual beneficiary of each sub-account, since any amounts remaining in a sub-account upon the death of the beneficiary must be retained by the Trust. Decl. of Trust, Art. XI(2); Joinder Agreement, ⁋ K . Moreover, the Declaration of Trust and Joinder Agreement state that the Trustee is the remainder beneficiary of the sub-accounts in the Trust. Decl. of Trust, Art. XIV(1)(c); Joinder Agreement, ⁋ V . Thus, there is at least one residual beneficiary and, consequently, a self-settled sub-account in the Trust is not revocable. See POMS SI CHI01120.200(C).

 

Nor can a beneficiary direct the use of the Trust principal for his or her support or maintenance. Here, Hope Network, acting in its power as Trustee, has sole discretion to make distributions from the Trust for the supplemental needs of each beneficiary. Decl. of Trust, Art. III(2), VI(6). The Trustee does not owe any obligation of support to any beneficiary, and no beneficiary has any right of entitlement to the Trust property or income, except as the Trustee elects to disburse in its sole discretion. Decl. of Trust, Art. III(1). Moreover, a beneficiary may not compel a distribution from a Trust sub-account. Decl. of Trust, Art. III(5).

 

With respect to a beneficiary’s ability to sell his or her beneficial interest in the Trust, the Declaration of Trust contains a spendthrift clause which provides that no part of the Trust may be subject to anticipation or assignment by the beneficiaries, subject to attachment or control by any public or private creditor of the beneficiaries, or taken by any legal or equitable process by any voluntary or involuntary creditor. Decl. of Trust, Art. III(5). Michigan generally recognizes the validity of spendthrift provisions in trusts. Mich. Comp. Laws Ann. § 700.7502(1). However, under Michigan law, even if the Trust has a spendthrift provision, a “creditor or assignee” of a self-settled trust may reach “[t]he maximum amount that can be distributed to or for the settlor’s benefit” (exclusive of sums needed to pay the settlor’s taxes). Mich. Comp. Laws Ann. § 700.7506(1)(c)(ii). Nevertheless, we believe this provision is best read to apply only to assignees who are creditors or holders of secured interests in the property, rather than a purchaser to whom property has been transferred for fair market value.^[6] We believe that Michigan would likely follow the Restatement (Third) of Trusts, which provides that in the case of a self-settled discretionary trust, this rule generally applies only to the settlor-beneficiary’s creditors and not to transferees (i.e., purchasers). See Restatement (Third) of Trusts § 60, cmt. f (2003). Thus, the spendthrift provision would be valid to prevent the beneficiary from selling his or her beneficial interest in the Trust.

 

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

 

II. Sub-Accounts Funded by Third Parties.

 

As noted above, it appears that the Trust permits third parties to fund or contribute their assets to a Trust sub-account. See Decl. of Trust, Art. II(3). In the case of a sub-account established solely with the assets of a third party, the regular resource rules set forth in POMS SI 01120.200 apply to determine whether the assets in the sub-account are a resource.

 

Here, as with a self-settled sub-account, a third-party sub-account would not be a resource under the regular resource rules. First, the Trust does not give the beneficiary the right to terminate his or her sub-account. See POMS SI 01120.200(D)(1)(b)(2) (beneficiary generally does not have power to terminate a trust). Instead, the Declaration of Trust explicitly and exclusively grants the power to terminate to the Trustee. See Decl. of Trust, Art. XI(1)(c); First Amendment, ⁋ (c). Second, as discussed above, the Trust contains no provision allowing the beneficiary to direct the use of the Trust principal for his or her support or maintenance. Finally, with respect to a beneficiary’s power to otherwise sell his or her beneficial interest in the Trust, the Trust contains a spendthrift provision. See Decl. of Trust, Art. III(5). Michigan recognizes spendthrift provisions in third-party trusts. See Mich. Comp. Laws Ann. § 700.7502(1). Thus, neither the principal nor the beneficial interest in a third-party sub-account would be considered a resource to the beneficiary.

 

III. Commingled Sub-Accounts, Funded by Third Parties and Beneficiaries.

 

It is possible for a sub-account in the Trust to contain assets attributable to both the beneficiary and one or more third parties under the definitions of “Grantor” provided in Declaration of Trust. See Decl. of Trust, Art. II(3). Agency policy provides that, in the case of a comingled trust established on or after January 1, 2000, with the assets of both an SSI claimant (or spouse) and third parties, the regular resource rules apply to the portion of the comingled trust attributable to the assets of third parties, and the statutory resource rules apply to the portion attributable to the assets of the SSI claimant (or spouse). See POMS SI 01120.200(A)(1)(b), SI 01120.201(C)(2)(c).

 

Here, in the event that a sub-account in the Trust established on or after January 1, 2000, receives any contributions from a third party, the portion of the sub-account attributable to the assets of the third party would not be a resource under the regular resource rules, as discussed in Section II above. However, with respect to the portion of the sub-account attributable to the assets of the beneficiary, that portion would be considered a resource under the Act based on the defects discussed in Section I.A above.^[7]

 

CONCLUSION

 

For the reasons discussed above, we conclude that the self-settled sub-accounts in the Pooled Accounts Trust of the Hope Network Foundation do not meet all of the requirements to be excepted from resource counting under 42 U.S.C. § 1396p(d)(4)(C). However, if the defects identified above can be cured, then a self-settled sub-account would not constitute a resource under the regular resource rules. In addition, a third-party sub-account would not be a resource under the regular resource rules, nor would third-party assets in a commingled sub-account. However, the portion of a commingled sub-account attributable to the assets of the beneficiary would be considered a resource.

 

In this opinion, the Regional Chief Counsel (RCC) examines the Guardian Finance and Advocacy Services First Party Master Pooled Trust and its standard Joinder Agreement to determine if it complies with SSA’s trust policy. The RCC concludes that the Trust does not meet the pooled trust exception for self-settled trusts under 42 U.S.C. § 1396p(d)(4)(C) due to several problematic provisions.

 

QUESTION

You asked whether the Trust Instrument for the Guardian Finance and Advocacy Services First Party Master Pooled Trust and its standard Joinder Agreement comply with SSA’s trust policy.

SHORT ANSWER

We conclude that the Trust does not meet the pooled trust exception for self-settled trusts under 42 U.S.C. § 1396p(d)(4)(C). Specifically, the trust documents include language that could violate agency policy regarding the management of pooled trusts. In addition, sub-accounts are not established for the sole benefit of each Beneficiary because the Trust allows for the payment of certain costs on a pro-rata basis from all sub-accounts, and the Trust includes an early termination provision that does not comply with SSA policy. The sub-accounts in the Trust would, therefore, be resources. If the Trust were amended to qualify for the pooled trust exception, the sub-accounts would not be considered resources under the regular resource rules.

BACKGROUND

Calhoun County Guardian is a Michigan non-profit corporation doing business as Guardian, Inc., or Guardian Finance and Advocacy Services (Guardian). Trust Instrument (TI), preamble, Art. 2.15; see also Guardian Finance and Advocacy Services, About, https://www.yourguardian.org/about/ (last visited Mar. 1, 2021). On January 31, 2007, Guardian established the First Party Master Pooled Trust (Guardian Pooled Trust or Trust). The Trust was restated on August 27, 2014 and, most recently, on January 15, 2016. TI, preamble. The intent of Guardian was to establish a pooled supplemental needs trust, as set forth in 42 U.S.C. § 1396p(d)(4)(C), in order to supplement, but not displace, assistance which may otherwise be available to beneficiaries. TI, Art.3.1, 4.3, 9.1. The assets held in the Trust and sub-accounts are not for the primary support of the beneficiaries but rather their supplemental needs. TI, Art.3.1, 4.2-4.4, 9.1.

“Beneficiary” is defined as a person with disabilities who is named as the sole recipient of services and benefits under one of the Trust sub-accounts. TI, Art. 2.2. The Trust adds that a “person with disabilities” is not necessarily limited to have been determined to be disabled by SSA pursuant to 42 U.S.C. § 1382c(a)(3), or another governmental entity. TI, Art. 2.3, 8.5. “Grantor” is defined as a Beneficiary; the parent, grandparent, or legal guardian of a Beneficiary; or another person or entity acting pursuant to a court order who establishes a sub-account through a Joinder Agreement and contributes a Beneficiary’s money or property to the Trust. TI, Art. 2.5.

The Trust Instrument states that a “sub-account” means an account held for the sole benefit of a Beneficiary that includes assets provided by the Beneficiary or the Beneficiary’s spouse^[8] ; a person, court, or administrative body who has legal authority to act on behalf of the Beneficiary; or a person, court, or administrative body who acts at the direction or upon the request of the Beneficiary. TI, Art. 2.14. A sub-account may not be used for the benefit of anyone other than the Beneficiary during the Beneficiary’s lifetime. Id. In addition to the beneficiary sub-accounts, the Guardian Pooled Trust includes a separate administrative sub-account to which the Trustee must credit any amount remaining in a Beneficiary’s sub-account at the time of the Beneficiary’s death. TI, Art.5.2.

The Trust defines “Trustee” as Guardian or “its successor or successors, which has been recognized by the internal Revenue Service as being a public charity” under the Internal Revenue Code. TI, Art. 2.15. If the Trustee resigns, it must designate a successor Trustee. TI Art. 8.8. The Trustee is given broad powers, which are discussed in various sections of the Trust Instrument. TI, Art. IV, VII, VIII. The Trustee has complete control over all distributions of Trust property. TI, Art. 4.2. The Trustee may seek the advice and assistance of any person or entity it deems to be appropriate. TI, Art. 8.1.

The Trust states that “[c]osts and expenses of defending the Trust, or any Trust Sub-Account, including attorney’s fees incurred before, during, or after trial, and on appeal, against any claim, demand, legal action, equable action, suit, or proceeding may, in the sole discretion of the Trustee, be apportioned on a pro-rata basis to all Trust Sub-Accounts or charged only against the Trust Fund Sub-Account(s) of the affected Beneficiary(s).” TI, Art. 7.5. The Trustee may similarly apportion the cost of seeking advice and assistance. TI, Art. 8.1.

A Beneficiary has no right to compel a distribution of any Trust property, or receive Trust property or income, except that which the Trustee elects to disburse in its “unfettered discretion.” TI, Art. 9.1-9.2. The Trust Instrument contains a spendthrift provision that also prohibits a Beneficiary from assigning any part of his or her interest in the Trust principal or income, and also bars any creditor of a Beneficiary from attaching any part of the Trust or a Trust sub-account. TI, Art. 9.2.

The Trust Instrument states that when a Beneficiary dies, the Trustee must retain any assets remaining in the Beneficiary’s sub-account in an administrative sub-account. TI, Art. 5.2. It also states that any assets that the Trustee does not retain shall be paid to any state(s) from which the Beneficiary received medical assistance under the state Medicaid plan(s), up to the total amount of medical assistance received by the Beneficiary. TI, Art. 5.3. Once the Trustee has disbursed the entire balance of the sub-account, the account terminates. Trust Art. 5.4.

If, during a Beneficiary’s lifetime, the Trustee determines that a sub-account will be required to be used for the Beneficiary’s care that has been or would otherwise be provided by local, state, or federal government, the Trustee has the authority to make a separate agreement with the Beneficiary or his or her legal representative, and administer the sub-account under the new agreement. TI, Art. 6.1(A). The Trustee may also determine that the sub-account has become impossible to implement, in which case all of the sub-account’s assets, less allowable administrative expenses, may be (a) transferred to another 42 U.S.C. § 1396p(d)(4)(c) trust; or (b) distributed to any state(s) from which the Beneficiary received medical assistance under the state Medicaid plan(s), with any remaining assets paid to the Beneficiary. TI, Art. 6.1(B), 6.2.^[9]

The Trust Instrument states that both the Trust and all Joinder Agreements shall be irrevocable. TI, Art. 1.4, 3.2. However, the Trust may be amended to effectuate its purposes and intent, as long as the amendment follows the requirements of 42 U.S.C. § 1396p(d)(4)(c). TI, Art. 10.5. The Trustee is also required to modify any provision of the Trust that is determined to be invalid, unenforceable, or jeopardize its status as a 42 U.S.C. § 1396p(d)(4)(c) trust. TI, Art. 10.6.

The Trust is governed by the laws of Michigan and the United States. TI, Art. 10.4. A severability clause states that any unenforceable or invalid provision shall be deemed inoperative without invalidating any other part of the Trust. TI, Art. 10.6. The Joinder Agreement (JA) contains a similar severability clause. JA ¶ 10.

The Joinder Agreement incorporates the terms of the Trust by reference. JA ¶2. It explains that a sub-account will be administered solely for the benefit of the Beneficiary. JA ¶2.B. The Joinder Agreement adds that the Trustee may retain others to assist with the Trustee’s duties; they may be attorneys, accountant, or financial agents. JA ¶ 2.E. The Joinder Agreement states that it should be construed broadly and that any ambiguities shall be resolved in favor of compliance with the requirements of 42 U.S.C. § 1396p(d)(4)(c). JA ¶ 6.

DISCUSSION

Initially, we note that, despite the name of the Trust, there is some language in the Trust Instrument that is ambiguous regarding who may contribute funds to a sub-account and that could be interpreted as allowing sub-accounts to be funded by third parties. See TI, Art. 2.14 (sub-account may include “assets provided by . . . any person, including a court or administrative body, acting at the direction or upon the request of a Beneficiary”). However, we believe that other language in the Trust Instrument as well as information provided on Guardian’s website make it sufficiently clear that sub-accounts in the Trust are only funded with the assets of the Beneficiaries^[10] . See TI, Art. 2.5 (sub-account is established when a grantor “contributes a Beneficiary’s money or property to the Trust”); Guardian Finance and Advocacy Services, Pooled Special Needs Trusts, https://www.yourguardian.org /services/trust-management-services/special-needs-trusts/pooled-snt/ (last visited Mar. 2, 2021) (“a first party pooled account trust . . . is funded with the beneficiary’s assets”).

A. Statutory Resource Rules

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

In order to qualify for the pooled trust exception, the trust must satisfy the following conditions:

1. 1. 

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

2. 2. 

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

3. 3. 

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

4. 4. 

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

5. 5. 

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

See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203.D.1.

Here, the Trust Instrument states that the Trust and Joinder Agreement are irrevocable. TI, Art. 1.4, 3.2. Nevertheless, a Trust sub-account would be a resource under the statute, because funds held in the sub-account are to be used for the individual Beneficiary’s benefit. TI, Art. 1.1, 2.14, 4.3. Accordingly, we consider whether the Trust qualifies for the pooled trust exception. As discussed below, we do not believe the Trust satisfies the first or third requirement of this exception. Consequently, a sub-account in the Trust would not be excepted from resource counting.

1. Established and Managed by a Non-Profit Association

To satisfy the first requirement of the pooled trust exception, the trust must be established and managed by a non-profit association. 42 U.S.C. § 1396p(d)(4)(C)(i); POMS SI 01120.203.D.3. A non-profit association may employ the services of a for-profit entity, but the non-profit association must maintain ultimate managerial control over the trust. POMS SI 01120.225.D. For example, the non-profit association must be responsible for making day-to-day decisions regarding the health and well-being of the beneficiaries. Id. Also, a for-profit entity must not be allowed to determine whether to make discretionary disbursements from the trust. POMS SI 01120.225.E.

Here, Guardian, a non-profit association, established and manages the Trust as sole Trustee, with sole power to make disbursements from the Trust. See TI, Art. IV, VII, VIII. The Trustee has broad discretion to name a successor Trustee, and the Trust’s provision on Trustee resignation and successor trustees does not explicitly state that a successor Trustee must also be a non-profit entity. TI, Art. 8.8. If the Trustee could designate a for-profit successor, the Trust would not satisfy the agency’s policy that a non-profit association must maintain managerial control over the pooled trust. See POMS SI 01120.203.D.3. Nonetheless, the definition of “Trustee” in Article 2.15, which governs all subsequent references to the Trustee, can be read to define successor trustees as entities, like Guardian, that the Internal Revenue Service has recognized as a public charity. Under such a reading, the Trust would comply with agency policy. Nonetheless, and particularly since we have concluded that the Trust does not qualify for the pooled trust exception for other reasons, we recommend that the Trust be amended to state explicitly that any successor trustee must be a non-profit association or entity.

The Trust Instrument provides that the Trustee may seek the advice and assistance of any person or entity it deems to be appropriate. TI, Art. 8.1. The Joinder Agreement adds that the Trustee may retain others to assist with the Trustee’s duties; they may be attorneys, accountant, or financial agents. JA ¶ 2.E. In the event that the Trustee employs a for-profit entity to assist with its duties, we believe that these provisions could allow the Trustee to cede too much control over the management of the Trust to the for-profit entity, and thus violate agency policy that the non-profit association must maintain ultimate managerial control over the pooled trust. See POMS SI 01120.225.D. For that reason, we recommend that the language in the Trust Instrument and Joinder Agreement be changed to comply with agency policy.

2. Maintenance of Separate Accounts for Each Trust Beneficiary

To satisfy the second requirement of the pooled trust exception, the trust must maintain a separate account for each trust beneficiary, although it is acceptable for individual accounts to be pooled for investment and management purposes. 42 U.S.C. § 1396p(d)(4)(C)(ii); POMS SI 01120.203.D.4. In addition, the trust must be able to provide an individual accounting for each individual. POMS SI 01120.203.D.4. The Guardian Pooled Trust satisfies this requirement, as it maintains a separate sub-account for each beneficiary, but for purposes of investments and management of funds, the Trustee pools the Trust sub-accounts. TI, Art. 7.1. Also, the Trustee, or its authorized agent, maintains records for each Trust sub-account and must account at least annually to each Beneficiary or his or her legal representative. TI, Art. 7.1, 7.3.

3. Established for the Sole Benefit of the Individual

To satisfy the third requirement of the pooled trust exception, the trust account must be established for the sole benefit of the disabled individual. 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203.D.5. A trust is considered to be established for the sole benefit of an individual if the trust benefits no one but that individual, either at the time the trust is established or at any time for the remainder of the individual’s life. POMS SI 01120.201.F.1. Conversely, this requirement is not met if the trust account: (1) provides a benefit to any other individual or entity during the disabled individual’s lifetime; or (2) allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity. POMS SI 01120.203.D.5.

Both the Trust Instrument and Joinder Agreement state that the Trust and its sub-accounts will be for the sole benefit of the Beneficiary, and may not be used for the benefit of any individual or entity other than the Beneficiary during the Beneficiary’s lifetime. TI, Art. 2.6, 2.14, 7.1; JA ¶ 2(B). However, the Trust Instrument also states that the “costs and expenses of defending the Trust, or any Trust Sub-Account, . . . may, in the sole discretion of the Trustee, be apportioned on a pro rata basis to all Trust Sub-Accounts or charged only against the Trust Sub-Account(s) of the affected Beneficiary(s).” TI, Art. 7.5. A similar clause states that costs associated with advice and assistance the Trustee may seek from “any person or entity it deems appropriate” may be apportioned on a pro-rata basis to all Trust Sub-Accounts. TI, Art. 8.1. This allows the Trustee to use funds from a Beneficiary’s sub-account to pay for the cost of defending the Trust or any sub-account or the cost of obtaining advice or assistance even where that Beneficiary is not affected. For that reason, the Trust Instrument appears to contemplate the potential use of a Beneficiary’s assets for the benefit of other Beneficiaries, This is inconsistent with agency policy that accounts must be held for the sole benefit of the disabled individual.

In addition, the Trust includes two early termination provisions with, in effect, three options that the Trustee may follow. The POMS states that an early termination clause is acceptable only if all of the following criteria are met: (1) the state(s), as primary assignee, would receive all amounts remaining in the trust up to an amount equal to the amount of medical assistance paid on behalf of the individual under the state Medicaid plan(s); (2) after payment of the allowable administrative expenses listed in POMS SI 01120.199.E.3 and SI 01120.201.F.4, all remaining funds are disbursed so as solely to benefit the trust beneficiary; and (3) the power to terminate is given to someone other than the trust beneficiary. See POMS SI 01120.199.E.1. However, an early termination clause that solely allows for a transfer of the beneficiary’s assets from one 42 U.S.C. § 1396p(d)(4)(C) pooled trust to another 42 U.S.C. § 1396p(d)(4)(C) pooled trust complies with SSA’s rules governing pooled trusts. See POMS SI 01120.199.E.2. In that case, the early termination clause must contain specific limiting language that precludes the early termination from resulting in disbursements other than to the secondary 42 U.S.C. § 1396p(d)(4)(C) trust or to pay for allowable administrative expenses listed in POMS SI 01120.199.E.3 and SI 01120.201.F.4. See id.

Here, one of the Trust’s early termination provisions does not appear to comply with agency policy. Specifically, the Trust Instrument provides that, if the Trustee reasonably believes that a Beneficiary’s sub-account will have to be used for the Beneficiary’s care that has been or would otherwise be provided by local, state, or federal government, the Trustee may continue to administer the sub-account under separate agreement with the Beneficiary or his or her legal representative. TI, Art. 6(A). This does not appear to be an acceptable early termination provision, because the Trustee may exercise discretion to act under the alternative in Article 6.1(A), and the terms of such arrangement are unknown.

The rest of the Trust’s early termination provisions appear to be acceptable. Under Article 6.2 of the Trust Instrument, if a sub-account becomes impossible or impractical to administer, the Trustee may distribute any remaining assets, less allowable administrative expenses, to the Beneficiary, after reimbursing the state(s) for Medicaid. TI, Art. 6.1(B), 6.2(B). This appears to be permissible under POMS SI 01120.199.E.1, as the Trust Instrument does not give the Beneficiary the power to revoke. Alternatively, the Trustee may transfer all remaining assets to another qualifying pooled trust, subject to the limitation that the transfer may not result in disbursements other than to the secondary 42 U.S.C. § 1396p(d)(4)(C) trust or to pay allowable administrative expenses. TI, Art. 6.1(B), 6.2(A). Such a transfer is permissible under POMS SI 01120.199.E.2.

4. Established Through the Actions of the Beneficiary, a Parent, Grandparent, Legal Guardian, or a Court

The fourth requirement of the pooled trust exception is that the trust account must be established through the actions of the account beneficiary, his or her parent, grandparent, legal guardian, or a court. 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203.D.6. The Guardian Pooled Trust appears to meet this requirement. The Trust Instrument states that a Trust sub-account becomes effective upon the execution of a Joinder Agreement by a Grantor and Trustee and the contribution of property to the Trust. TI, Art. 3.2. It further defines a Grantor as a Beneficiary; the parent, grandparent, or legal guardian of a Beneficiary; or a person or entity acting pursuant to a court order. TI, Art. 2.5.

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

To satisfy the fifth requirement of the pooled trust exception, the trust must contain “specific language” that provides that upon a beneficiary’s death, to the extent amounts remaining in the beneficiary’s account are not retained by the trust, the trust will pay to the state(s) an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the state Medicaid plan(s). 42 U.S.C. § 1396p(d)(4)(C)(iv); POMS SI 01120.203.D.8. This is known as the Medicaid payback requirement of the pooled trust exception.

Here, the Trust Instrument includes provisions concerning termination upon death. It states that, upon the death of a Beneficiary, any funds remaining in his or her sub-account shall be retained by the Trustee in an administrative sub-account. TI, Art. 5.2. However, somewhat inconsistently, the Trust Instrument goes on to state that the Trustee shall pay to the state(s) “[f]rom any assets remaining in the Beneficiary’s Trust Sub-Account at the time of Beneficiary’s death that are not retained by the Trustee in an administrative Sub-Account . . . an amount equal to the total amount of medical assistance paid on behalf of the Beneficiary under the state(s) Medicaid Plan.” TI, Art. 5.3. If the remaining assets are insufficient to cover the entire amount of medical assistance paid by more than one state Medicaid plan, the remaining assets will be distributed in proportion to the amount of medical assistance paid by each state. Id. We believe that Articles 5.2 and 5.3 satisfy the fifth requirement of the pooled trust exception, but we recommend that Guardian clarify or resolve the apparent inconsistency between the two provisions as to whether the Trustee is required to retain all assets remaining in a Beneficiary’s sub-account upon his or her death.

B. Regular Resource Rules

If Guardian is able to cure the above defects and qualify for the pooled trust exception, the regular resource counting rules in POMS SI 01120.200 would apply to determine whether a self-settled sub-account in the Trust would be counted as a resource. See 42 U.S.C. § 1382b(e)(1); POMS SI 01120.203.D.1. Pursuant to POMS SI 01120.200.D.1.a, trust principal will count as a resource if the beneficiary either: (a) has the legal authority to revoke or terminate the trust and then use the funds to meet his or her food or shelter needs; or (b) can direct use of the trust principal for his or her support and maintenance under the terms of the trust. Additionally, if the beneficiary can sell his or her beneficial interest in the trust, that interest is a resource. Id.

Whether a trust can be revoked depends on the terms of the trust and applicable state law—here, Michigan. See POMS SI 01120.200.D.2. As noted above, the Trust Instrument states that the Trust and Joinder Agreement are irrevocable. TI, Art. 1.4, 3.2. The Joinder Agreement reiterates that it is irrevocable. JA ¶ 2. Notwithstanding these provisions, a Trust sub-account would still be considered revocable if the grantor is also the sole beneficiary. See POMS SI CHI01120.200.C. However, if the trust names a residual beneficiary or beneficiaries to receive the benefit of the trust interest after a specific event – usually the death of the primary beneficiary—then the trust is irrevocable, because the primary beneficiary could not unilaterally revoke the trust; rather, he or she would need the consent of the residual beneficiary or beneficiaries. See id. Here, although the language in Article V of the Trust Instrument is somewhat confusing, it appears that the Trust itself is a residual beneficiary of each sub-account, since it states that the Trustee must retain any funds remaining in a sub-account upon the Beneficiary’s death in an administrative sub-account. TI, Art. 5.2. Thus, it appears that the grantor would not be the sole beneficiary and, consequently, a self-settled sub-account in the Trust is not revocable. See POMS SI CHI01120.200.C.

Nor can the Beneficiary direct the use of the Trust principal for his or her support or maintenance. Here, the Trustee, in its sole discretion, may make any payments under the Trust for the supplemental needs of each Beneficiary. TI, Art. 4.2; JA ¶ 8(G). The Trustee does not owe any obligation of support to any Beneficiary, and no Beneficiary has any right of entitlement to the Trust property or income, except as the Trustee elects to disburse in its sole discretion. TI, Art. 9.1. Moreover, a Beneficiary may not compel a distribution from the Trust. TI, Art. 9.2.

Finally, the Beneficiary cannot sell his or her beneficial interest in the Trust. The Trust Instrument contains a spendthrift provision that bars a Beneficiary from assigning any part of his or her interest in the Trust principal or income, and also prohibits attachment of any part of the Trust or a Trust sub-account by any creditor of the Beneficiary. TI, Art. 9.2. Michigan generally recognizes the validity of spendthrift provisions in trusts. Mich. Comp. Laws Ann. § 700.7502(1). However, under Michigan law, even if the Trust has a spendthrift provision, a “creditor or assignee” of a self-settled trust may reach “[t]he maximum amount that can be distributed to or for the settlor’s benefit” (exclusive of sums needed to pay the settlor’s taxes). Mich. Comp. Laws Ann. § 700.7506(1)(c)(ii). Nevertheless, we believe this provision is best read to apply only to assignees who are creditors or holders of secured interests in the property, rather than a purchaser to whom property has been transferred for fair market value^[11] . We believe that Michigan would likely follow the Restatement (Third) of Trusts, which provides that in the case of a self-settled discretionary trust, this rule generally applies only to the settlor-beneficiary’s creditors and not to transferees (i.e., purchasers). See Restatement (Third) of Trusts § 60, cmt. f (2003). Thus, the spendthrift provision would be valid to prevent the beneficiary from selling his or her beneficial interest in the Trust.

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

CONCLUSION

For the reasons discussed above, we conclude that the Guardian Pooled Trust does not meet all of the requirements to qualify for an exception to resource counting under 42 U.S.C. § 1396p(d)(4)(C). However, if the defects identified above with respect to the statutory exception were cured, then a Trust sub-account generally would not constitute a resource under the regular resource counting rules.

In this opinion, the Regional Chief Counsel (RCC) examines the Fourth Amendment and Restatement to the Pooled Accounts Trust of the Arc of Midland to determine whether it complies with the procedures governing the Agency’s pooled trust policy. The RCC concludes that the Trust now meets the pooled trust exception for self-settled trusts under 42 U.S.C. § 1396p(d)(4)(C). In addition, a self-settled sub-account in the Trust would not be considered a resource under the Agency’s regular resource rules. Accordingly, it would not constitute a resource for SSI purposes. Likewise, neither a third-party sub-account in the Trust nor third-party assets in a commingled sub-account would be considered a resource under the regular resource rules.

QUESTION

 

We previously advised that a provision in the Pooled Accounts Trust of the Arc of Midland (Trust) was inconsistent with the Agency’s requirements for a pooled trust, such that self-settled accounts in the Trust would be considered resources for Supplemental Security Income (SSI) purposes. On December 14, 2020, the Trust was amended and restated to address the concern we raised, and you asked whether the Trust now complies with the procedures governing the Agency’s pooled trust policy.

 

SHORT ANSWER

 

We conclude that the concern we previously identified regarding the management of the Trust has been addressed. As such, the Trust now meets the pooled trust exception for self-settled trusts under 42 U.S.C. § 1396p(d)(4)(C). In addition, a self-settled sub-account in the Trust would not be considered a resource under the Agency’s regular resource rules. Accordingly, it would not constitute a resource for SSI purposes. Likewise, neither a third-party sub-account in the Trust nor third-party assets in a commingled sub-account would be considered a resource under the regular resource rules.

 

BACKGROUND

 

The Arc of Midland (Arc) is a Michigan non-profit organization. See The Arc of Midland, Home, https://www.thearcofmidland.org/ (last visited Feb. 5, 2021). On June 24, 1999, Arc executed a Declaration of Trust establishing the Pooled Accounts Trust of the Arc of Midland. Arc amended and restated the Trust Declaration on June 3, 2013, December 3, 2019, and June 30, 2020. In three previous opinions, we concluded that the Trust did not comply with SSA’s trust policy because it did not satisfy all of the requirements of the pooled trust exception for self-settled trusts under 42 U.S.C. § 1396p(d)(4)(C). See Program Operations Manual System (POMS) PS 01825.025 (CPM-19-036) (Jan. 25, 2019) (reviewing First Amendment), PS 01825.025 (PS 20-035) (Apr. 2, 2020) (reviewing Second Amendment and Restatement), PS 01825.025 (PS 20-097) (Nov. 12, 2020) (reviewing Third Amendment and Restatement).

 

Subsequently, Arc amended and restated the Trust Declaration a fourth time on December 14, 2020. Your office has submitted the Fourth Amendment and Restatement to the Declaration of Trust for our review. The Joinder Agreement is unchanged. The Fourth Restatement is identical to the Third Restatement previously considered by our office, except for the deletion of one of the enumerated powers of the Trustee. Specifically, that was the power to “transfer the situs of any Trust property to any other jurisdiction as often as Trustee deems it advantageous to the Trust, appointing a substitute Trustee to act with respect to that property” and “delegate to the substitute Trustee any or all of the powers given to Trustee.” See POMS PS 01825.025 (PS 20-097) (quoting former Trust Declaration (TD) Art. VII.21).

 

DISCUSSION

 

We previously concluded that three possible types of sub-accounts in the Trust exist: (1) a sub-account that is funded solely by assets belonging to the Beneficiary (i.e., a self-settled sub-account); (2) a sub-account that is funded solely by third-party assets; and (3) a commingled sub-account containing both third-party and Beneficiary assets. See POMS PS 01825.025 (PS 20-097). The changes in the Fourth Restatement do not alter that conclusion. Accordingly, we discuss each type below.

 

I. Self-Settled Sub-Accounts

 

A. Statutory Resource Rules

 

Under the Social Security Act (Act), a trust created on or after January 1, 2000,^[12] from the assets of an individual generally will be considered a resource for SSI purposes to that individual to the extent that the trust is revocable or, in the case of an irrevocable trust, to the extent that any payments could be made from the trust to or for the benefit of the individual. See 42 U.S.C. § 1382b(e); POMS SI 01120.201(D). As relevant here, an exception to this rule exists for trusts that meet the criteria of 42 U.S.C. § 1396p(d)(4)(C) (commonly known as the pooled trust exception).

 

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

1. 1. 

   The trust is established and managed by a nonprofit association;

2. 2. 

   The trust maintains a separate account for each beneficiary, but pools the assets for purposes of investment and management;

3. 3. 

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

4. 4. 

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

5. 5. 

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

 

See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203(D)(1).

 

Here, a Trust sub-account is intended to be irrevocable. TD Art. V, IX. However, a self-settled sub-account in the Trust would be considered a resource under the statutory provisions, because funds held in a sub-account are to be used for the individual Beneficiary’s benefit. TD Art. III.1-2. Accordingly, we consider whether the Trust qualifies for the pooled trust exception. We previously advised that the Trust did not meet the first requirement of the pooled trust exception because it allowed a for-profit entity serving as a substitute Trustee to execute core managerial duties. See POMS PS 01825.025 (PS 20-097). As discussed below, the Trust has now been amended to resolve the concern we previously raised about the Trust.

 

1. Established and Managed by a Non-Profit Association

 

To satisfy the first requirement of the pooled trust exception, the trust must be established and maintained by the actions of a non-profit association. 42 U.S.C. § 1396p(d)(4)(C)(i); POMS SI 01120.203(D)(3). A non-profit association may employ the services of a for-profit entity, but the non-profit association must maintain ultimate managerial control over the trust. POMS SI 01120.225(D). For example, the non-profit association must be responsible for making day-to-day decisions regarding the health and well-being of the beneficiaries. Id. Also, a for-profit entity must not be allowed to determine whether to make discretionary disbursements from the trust. POMS SI 01120.225(E).

 

Here, Arc, a non-profit association, established and manages the Trust. See TD Art. III.1; see also Joinder Agreement at DD.3 (Trust is “administered by” Arc). The Trust Declaration designates Arc as the Trustee. TD Art. II.6. The Trust Declaration also states 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.” TD Art. VI.8.

 

As Trustee, Arc is empowered to “employ any investment management service, financial institution, or similar organization to advise it, handle all Trust investments, and render all accounting of funds held on its behalf under custodial, agency, or other Agreements.” TD Art. VII.17. While this could result in a for-profit entity managing the Trust investments, that would not be inconsistent with the statement in Art. VI.8 that Arc must maintain “ultimate managerial control” over the Trust. Therefore, such use of a for-profit entity would not violate the first requirement of the pooled trust exception.

 

In our third opinion, we concluded that the Trust did not meet this requirement because the Trust allowed for the possibility that a for-profit entity acting as a substitute Trustee could manage the Trust or execute core managerial duties with respect to any Trust property. See POMS PS 01825.025 (PS 20-097). Specifically, under the terms of the Third Restatement, the Trustee was empowered to “transfer the situs of any Trust property to any other jurisdiction as often as Trustee deems it advantageous to the Trust, appointing a substitute Trustee to act with respect to that property.” Id. (quoting former TD Art. VII.21). In addition, the Trustee could “delegate to the substitute Trustee any or all of the powers given to Trustee.” Id. However, that express power has been deleted and the Fourth Restatement no longer empowers the Trustee either to transfer the situs of any Trust property to another jurisdiction or to appoint a substitute Trustee. See TD Art. VII. Thus, the possibility of a for-profit substitute Trustee no longer exists.^[13] Consequently, the Trust now appears to meet this requirement.

 

2. Remaining Requirements

 

We previously opined that the Trust satisfied the remaining requirements of 42 U.S.C. § 1396p(d)(4)(C) and POMS SI 01120.203(D). See POMS PS 01825.025 (PS 20-035), PS 01825.025 (PS 20-097). None of the changes made in the Fourth Restatement are relevant to the remaining requirements, and so our previous conclusions as to those requirements apply to the Fourth Restatement as well.

 

In sum, we believe that a self-settled sub-account in the Trust established on or after January 1, 2000, would not be considered a resource under the Act because it meets all the requirements of the pooled trust exception.

 

B. Regular Resource Rules

 

Because the Trust qualifies for the pooled trust exception, the regular resource counting rules in POMS SI 01120.200 would apply to determine whether a self-settled sub-account in the Trust established on or after January 1, 2000, would be counted as a resource.^[14] See 42 U.S.C. § 1382b(e)(1); POMS SI 01120.203(D)(1). Pursuant to POMS SI 01120.200(D)(1)(a), trust principal will count as a resource if the beneficiary either: (a) has the legal authority to revoke or terminate the trust and then use the funds to meet his or her food or shelter needs; or (b) can direct use of the trust principal for his or her support and maintenance under the terms of the trust. Additionally, if the beneficiary can sell his or her beneficial interest in the trust, that interest is a resource. Id.

 

We previously concluded that a self-settled sub-account in the Trust would not be a resource under the regular resource rules. See POMS PS 01825.025 (PS 20-035). The changes in the Fourth Restatement do not alter that conclusion. Therefore, we now conclude that a self-settled sub-account would not constitute a resource for SSI purposes.

 

II. Third-Party Sub-Accounts

 

The Trust permits not only Beneficiaries but also their parents, grandparents, and legal guardians to contribute assets to a Trust sub-account. TD Art. II.3, IV, V. In the case of a trust established solely with the assets of a third party, the regular resource rules set forth in POMS SI 01120.200 apply to determine whether the assets in the trust are a resource.

 

We previously concluded that a third-party sub-account in the Trust would not constitute a resource under the regular resource rules. See POMS PS 01825.025 (PS 20-035). The changes in the Fourth Restatement do not alter that conclusion.

 

III.Commingled Sub-Accounts

 

It is possible for a sub-account in the Trust to contain assets attributable to both the beneficiary and one or more of the third parties noted above. Agency policy provides that, in the case of a commingled trust established on or after January 1, 2000 with the assets of both an SSI claimant (or spouse) and third parties, the regular resource rules apply to the portion of the commingled trust attributable to the assets of third parties, and the statutory resource rules apply to the portion attributable to the assets of the SSI claimant (or spouse). See POMS SI 01120.200(A)(1)(b), SI 01120.201(C)(2)(c).

 

Here, as discussed above, neither a self-settled sub-account nor a third-party sub-account would be a resource for SSI purposes. Accordingly, a commingled sub-account in the Trust established on or after January 1, 2000, also would not be considered a resource for SSI purposes.^[15]

 

CONCLUSION

 

For the reasons discussed above, we conclude that a self-settled sub-account in the Trust established on or after January 1, 2000, meets all of the requirements to be excepted from resource counting under 42 U.S.C. § 1396p(d)(4)(C). In addition, a self-settled sub-account would not be a resource under the regular resource rules. Therefore, it would not be considered a resource for SSI purposes. Additionally, neither a third-party sub-account nor third-party assets in a commingled sub-account would be considered a resource under the regular resource rules.

 

 

In this opinion, the Regional Chief Counsel (RCC) examines the Third Amendment and Restatement to the Pooled Accounts Trust of the Arc of Midland to determine whether it complies with the procedures governing the Agency’s pooled trust policy. The RCC concludes that while the amendment cures deficiencies found in prior versions, the Trust still does not meet all of the requirements of the pooled trust exception. Specifically, the Trust allows a for-profit entity serving as a substitute Trustee to execute core managerial duties. Third-party sub-accounts in the Trust and third-party assets in a commingled sub-account would not be considered a resource under the Agency’s regular resource rules.

QUESTION

We previously advised that several provisions in the Pooled Accounts Trust of the Arc of Midland (Trust) were inconsistent with the Agency’s requirements for a pooled trust, such that self-settled accounts in the Trust would be considered resources for Supplemental Security Income (SSI) purposes. On June 30, 2020, the Trust was amended and restated to address the concerns we raised, and you asked whether the Trust now complies with the procedures governing the Agency’s pooled trust policy.

 

SHORT ANSWER

 

Although we conclude that all of the concerns we previously identified have been addressed, we have identified an additional issue with the Trust that would render a self-settled sub-account in the Trust noncompliant with the Agency’s pooled trust requirements. Specifically, the Trust allows a for-profit entity serving as a substitute Trustee to execute core managerial duties. However, with respect to third-party contributions, neither a third-party sub-account in the Trust nor third-party assets in a commingled sub-account would be considered a resource under the Agency’s regular resource rules.

 

BACKGROUND

 

The Arc of Midland (Arc) is a Michigan non-profit organization. SeeAbout – The Arc of Midland, https://www.thearcofmidland.org/aboutus/ (last visited Oct. 14, 2020). On June 24, 1999, Arc executed a Declaration of Trust establishing the Pooled Accounts Trust of the Arc of Midland. Arc subsequently amended and restated the Trust Declaration on June 3, 2013. In an opinion dated January 25, 2019, we concluded that this version of the Trust did not comply with SSA’s pooled trust policy because it: (a) allowed a for-profit entity to serve as a Co-Trustee or successor Trustee and thereby execute core managerial duties; (b) gave the Trustee discretion to apportion the costs and expenses of defending the Trust to all sub-accounts instead of only to the affected sub-account; and (c) allowed anyone to be a grantor. See Program Operations Manual System (POMS) PS 01825.025 (CPM-19-036).

 

Arc amended and restated the Trust Declaration a second time on December 3, 2019. In an opinion dated April 2, 2020, we again concluded that the Trust did not comply with SSA’s pooled trust policy. See POMS PS 01825.025 (PS 20-035). Specifically, the Trust still allowed a for-profit entity to execute core managerial duties. Additionally, upon further review we identified two other problems with the Trust—it allowed a single sub-account to contain funds belonging to multiple beneficiaries, and it did not expressly prohibit funds belonging to a beneficiary from being used for the benefit of another beneficiary in the same sub-account. Id.

 

Subsequently, Arc amended and restated the Trust Declaration yet again on June 30, 2020. Your office has submitted the third amended and restated Declaration of Trust as well as an updated Joinder Agreement for our review. The third restated Trust very closely tracks the version previously considered by our office, except for differences in the definition of “Trustee” and the deletion of a provision in the Joinder Agreement.

 

In the Third Restatement, “Trustee” is defined as either Arc “or a non-profit successor.” Trust Declaration (TD) Art. II.6. The Trustee may resign only with court approval, and the court will select and appoint a successor Trustee. TD Art. XI. In contrast, the prior version of the Trust defined “Trustee” as Arc, its successor or successors, and any Co-Trustee or Co-Trustees. See POMS PS 01825.025 (PS 20-035).

 

The Trustee has numerous “continuing, absolute, and discretionary powers to deal with any property, real or personal, held in the Trust.” TD Art VII Introduction. Among those powers is the power to transfer the situs of any Trust property to any other jurisdiction as often as [the] Trustee deems it advantageous to the Trust, appointing a substitute Trustee to act with respect to that property.” TD Art. VII.21. The Trustee “may delegate to the substitute Trustee any or all of the powers given to [the] Trustee; may elect to act as advisor to the substitute Trustee and shall receive reasonable compensation for so acting; and may remove any acting substitute Trustee and appoint another, or reappoint itself, at will.” Id.

 

The Trust defines “Grantor” as the person who establishes a Trust sub-account for the benefit of a Beneficiary, and states that a Grantor can be the Beneficiary, a parent, grandparent, or legal guardian of the Beneficiary, or a court. TD Art. II.3. A Beneficiary’s sub-account is established upon the execution of a Joinder Agreement by a Grantor, subject to written acceptance by the Trustee. TD Art. V. In addition, the current version of the Joinder Agreement no longer contains a provision that was in the prior version that stated that if the Grantor of a sub-account intended to enroll more than one Beneficiary under one sub-account, an additional agreement between the Grantor and the Trustee was required. See POMS PS 01825.025 (PS 20-035).

 

DISCUSSION

 

We previously concluded that three possible types of sub-accounts in the Trust exist: (1) a sub-account that is funded solely by assets belonging to the Beneficiary (i.e., a self-settled sub-account); (2) a sub-account that is funded solely by third-party assets; and (3) a commingled sub-account containing both third-party and Beneficiary assets. See POMS PS 01825.025 (PS 20-035). The changes in the Third Restatement do not alter that conclusion. Accordingly, we discuss each type below.

 

I. Self-Settled Sub-Accounts

 

A. Statutory Resource Rules

 

Under the Social Security Act (Act), a trust created on or after January 1, 2000,^[16] from the assets of an individual generally will be considered a resource for SSI purposes to that individual to the extent that the trust is revocable or, in the case of an irrevocable trust, to the extent that any payments could be made from the trust to or for the benefit of the individual. See 42 U.S.C. § 1382b(e); POMS SI 01120.201(D). As relevant here, an exception to this rule exists for trusts that meet the criteria of 42 U.S.C. § 1396p(d)(4)(C) (commonly known as the pooled trust exception).

 

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

 

1. 1. 

   The trust is established and managed by a nonprofit association;

2. 2. 

   The trust maintains a separate account for each beneficiary, but pools the assets for purposes of investment and management;

3. 3. 

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

4. 4. 

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

5. 5. 

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

See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203(D)(1).

 

Here, a Trust sub-account is intended to be irrevocable. TD Art. V, IX. However, a self-settled sub-account in the Trust would be considered a resource under the statutory provisions, because funds held in a sub-account are to be used for the individual Beneficiary’s benefit. TD Art. III.1-2. Accordingly, we consider whether the Trust qualifies for the pooled trust exception. We previously advised that the Trust did not meet the first, second, and third requirements of the pooled trust exception. See POMS PS 01825.025 (PS 20-035). As discussed below, the Trust has now been amended to resolve the concerns we previously raised about the Trust. However, upon further review we have identified one other provision that appears to be inconsistent with the first requirement above.

 

1. Established and Managed by a Non-Profit Association

 

To satisfy the first requirement of the pooled trust exception, the trust must be established and managed by a non-profit association. 42 U.S.C. § 1396p(d)(4)(C)(i); POMS SI 01120.203(D)(3). A non-profit association may employ the services of a for-profit entity, but the non-profit association must maintain ultimate managerial control over the trust. POMS SI 01120.225(D). For example, the non-profit association must be responsible for making day-to-day decisions regarding the health and well-being of the beneficiaries. Id. Also, a for-profit entity must not be allowed to determine whether to make discretionary disbursements from the trust. POMS SI 01120.225(E).

 

Here, Arc, a non-profit association, established and manages the Trust. See TD Art. III.1; see also Joinder Agreement at DD.3 (Trust is “administered by” Arc). The Trust Declaration designates Arc as the Trustee. TD Art. II.6. The Trust Declaration also states 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.” TD Art. VI.8.

 

As Trustee, Arc is empowered to “employ any investment management service, financial institution, or similar organization to advise it, handle all Trust investments, and render all accounting of funds held on its behalf under custodial, agency, or other Agreements.” TD Art. VII.17. While this could result in a for-profit entity managing the Trust investments, that would not be inconsistent with the statement in Art. VI.8 that Arc must maintain “ultimate managerial control” over the Trust. Therefore, such use of a for-profit entity would not violate the first requirement of the pooled trust exception.

 

In our prior opinion, we concluded that the Trust did not meet this requirement because the Trust allowed for the possibility that a for-profit entity acting as a Co-Trustee could manage the Trust or execute core managerial duties. See POMS PS 01825.025 (PS 20-035). However, the Third Restatement no longer provides for the establishment or appointment of a Co-Trustee, and the definition of “Trustee” no longer includes “Co-Trustee or Co-Trustees.” See TD Art. II.6. Thus, the possibility of a for-profit Co-Trustee no longer exists. ^[17]

 

We also concluded in our prior opinion that the Trust did not meet this requirement because the Trust Declaration did not require that a successor Trustee be a non-profit entity. See POMS PS 01825.025 (PS 20-035). However, the definition of “Trustee” in the Third Restatement specifies that “‘Trustee’ shall mean [Arc], a non-profit organization, or a non-profit successor.” TD Art. II.6 (emphasis added). Consequently, the Trust no longer allows for the possibility of a for-profit successor Trustee.

 

However, upon further review we note that the Trust Declaration as currently written appears to allow for the possibility that a for-profit entity acting as a substitute Trustee could manage the Trust or execute core managerial duties with respect to any Trust property. The Trust Declaration empowers the Trustee to “transfer the situs of any Trust property to any other jurisdiction as often as [the] Trustee deems it advantageous to the Trust, appointing a substitute Trustee to act with respect to that property.” TD Art. VII.21. Nothing prohibits the Trustee from selecting a for-profit entity as a substitute Trustee. Significantly, the Trust Declaration provides that the Trustee “may delegate to the substitute Trustee any or all of the powers given to Trustee[.]” TD Art. VII.21. As such, a substitute Trustee, which could be a for-profit entity, would hold the same powers as the Trustee and could potentially execute core managerial duties as to the portion of the Trust property over which that substitute Trustee has authority. See, e.g., TD Art. III.2 (Trustee has sole discretion to make payments from sub-account for beneficiary’s supplemental care needs), VI.6 (Trustee has sole discretion to make any payment to beneficiary or any suitable person), VII Introduction (Trustee holds numerous “continuing, absolute, and discretionary powers to deal with any property, real or personal, held in the Trust”). This would violate Agency policy that a pooled trust must be managed by a non-profit association. See POMS SI 01120.203(D)(3), SI 01120.225(B). Accordingly, the Trust does not appear to satisfy the first requirement of 42 U.S.C. § 1396p(d)(4)(C) and POMS SI 01120.203(D).

 

2. Maintenance of Separate Accounts for Each Trust Beneficiary

 

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

 

In our prior opinion, we concluded that because the Joinder Agreement contained a provision indicating that a Grantor may enroll more than one Beneficiary under one sub-account, which would create an account for multiple beneficiaries, the Trust did not meet the second requirement. See POMS PS 01825.025 (PS 20-035). However, the revised Joinder Agreement no longer contains that provision. Consequently, the Trust now appears to meet this requirement.

 

3. Established for the Sole Benefit of the Individual

 

To satisfy the third requirement of the pooled trust exception, the trust account must be established for the sole benefit of the disabled individual. 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203(D)(5). A trust is considered to be established for the sole benefit of an individual if the trust benefits no one but that individual, either at the time the trust is established or at any time for the remainder of the individual’s life. POMS SI 01120.201(F)(1). The POMS states that an individual trust account does not meet the pooled trust exception if the trust account “provides a benefit to any other individual or entity during the disabled individual’s lifetime.” POMS SI 01120.203(D)(5).

 

In our prior opinion, we expressed concern that the Joinder Agreement allowed for the possibility of a sub-account containing funds belonging to multiple beneficiaires. See POMS PS 01825.025 (PS 20-035). We also noted that the Joinder Agreement did not stipulate that the funds in such a sub-account would be reserved pro rata exclusively for each beneficiary’s benefit, or otherwise kept track of to ensure that none of the funds belonging to one beneficiary would be used for the benefit of another of that sub-account’s beneficiaries. Seeid. Accordingly, we concluded that the Trust did not meet the third requirement. However, as noted above, the revised Joinder Agreement no longer contains the provision indicating that a Grantor may enroll more than one Beneficiary under one sub-account. Consequently, the Trust no longer allows for the possibility of funds in a sub-account belonging to one beneficiary being used for the benefit of another beneficiary. Therefore, the Trust now meets this requirement of the pooled trust exception. And as discussed in our prior opinion, the Trust otherwise satisfies the requirement that the trust be established for the sole benefit of an individual. See id.

 

4. Remaining Requirements

 

We previously opined that the Trust satisfied the remaining requirements of 42 U.S.C. § 1396p(d)(4)(C) and POMS SI 01120.203(D). See POMS PS 01825.025 (PS 20-035). None of the changes made in the Third Restatement are relevant to the remaining requirements, and so our previous conclusions in POMS PS 01825.025 (PS 20-035) as to those requirements apply to the Third Restatement as well.

 

In sum, we believe that a self-settled sub-account in the Trust established on or after January 1, 2000, would be considered a resource under the Act because it does not meet the first requirement of the pooled trust exception. Consequently, the defect discussed above would have to be cured to except this Trust from resource counting.^[18]

 

B. Regular Resource Rules

 

If Arc were to cure the above defect and qualify for the pooled trust exception, the regular resource counting rules in POMS SI 01120.200 would apply to determine whether a self-settled sub-account in the Trust established on or after January 1, 2000, would be counted as a resource.^[19] See 42 U.S.C. § 1382b(e)(1); POMS SI 01120.203(D)(1). Pursuant to POMS SI 01120.200(D)(1)(a), trust principal will count as a resource if the beneficiary either: (a) has the legal authority to revoke or terminate the trust and then use the funds to meet his or her food or shelter needs; or (b) can direct use of the trust principal for his or her support and maintenance under the terms of the trust. Additionally, if the beneficiary can sell his or her beneficial interest in the trust, that interest is a resource. Id.

 

In our prior opinion, we concluded that if the Trust were amended such that it met the pooled trust exception, a self-funded sub-account in the Trust would not be a resource under the regular resource rules. See POMS PS 01825.025 (PS 20-035). The changed provisions in the Third Restatement do not alter that conclusion.

 

II. Third-Party Sub-Accounts

 

The Trust permits not only Beneficiaries but also their parents, grandparents, and legal guardians to contribute assets to a Trust sub-account. TD Art. II.3, IV, V. In the case of a trust established solely with the assets of a third party, the regular resource rules set forth in POMS SI 01120.200 apply to determine whether the assets in the trust are a resource.

 

In our prior opinion, we concluded that a third-party sub-account in the Trust would not constitute a resource under the regular resource rules. See POMS PS 01825.025 (PS 20-035). The changed provisions in the Third Restatement do not alter that conclusion.

 

III.Commingled Sub-Accounts

 

It is possible for a sub-account in the Trust to contain assets attributable to both the beneficiary and one or more of the third parties noted above. Agency policy provides that, in the case of a commingled trust established on or after January 1, 2000 with the assets of both an SSI claimant (or spouse) and third parties, the regular resource rules apply to the portion of the commingled trust attributable to the assets of third parties, and the statutory resource rules apply to the portion attributable to the assets of the SSI claimant (or spouse). See POMS SI 01120.200(A)(1)(b), SI 01120.201(C)(2)(c).

 

In our prior opinion, we concluded that the portion of a commingled sub-account established on or after January 1, 2000 attributable to the assets of a third party would not be a resource under the regular resource rules, while the portion of the sub-account attributable to the assets of the grantor-beneficiary would be considered a resource under the Act.^[20] See POMS PS 01825.025 (PS 20-035). While the defects we identified in our prior opinion concerning the first three requirements of the pooled trust exception have been addressed, the Third Restatement still fails to meet the first requirement of the pooled trust exception due to another problematic provision, as discussed above. Accordingly, the changed provisions in the Third Restatement do not alter our conclusion about commingled sub-accounts.

 

CONCLUSION

 

Although the Trust has been amended to rectify issues previously identified, there is still one provision that is inconsistent with the Agency’s pooled trust requirements—the provision allowing a for-profit entity to serve as a substitute Trustee. If this deficiency were rectified, then a self-settled sub-account would not be considered a resource for SSI purposes. Additionally, as the Trust is currently written, neither a third-party sub-account nor the portion of a commingled sub-account attributable to the assets of a third party would be considered a resource under the regular resource rules.

 

In this opinion the Regional Chief Counsel (RCC) examines the second amended and restated Declaration of Trust for the Pooled Accounts Trust of the Arc of Midland to determine whether it complies with the procedures governing the Agency’s pooled trust policy. The RCC concludes that the Trust does not meet all of the requirements of the pooled trust exception. Specifically, the Trust allows for execution of core managerial duties by a for-profit entity, sub-accounts containing funds for multiple beneficiaries, and the use of a beneficiary’s funds for the benefit of another beneficiary.

QUESTION

You asked whether the second amended and restated Declaration of Trust for the Pooled Accounts Trust of the Arc of Midland, dated December 3, 2019, complies with the procedures governing the Agency’s pooled trust policy.

 

SHORT ANSWER

For the reasons discussed below, we conclude that a self-settled sub-account in the Trust would be considered a resource under the Social Security Act because the Trust does not meet all of the requirements of the pooled trust exception. Specifically, the Trust allows for (a) execution of core managerial duties by a for-profit entity, (b) sub-accounts containing funds for multiple beneficiaries, and (c) the use of a beneficiary’s funds for the benefit of another beneficiary. However, a third-party sub-account in the Trust would not constitute a resource under the agency’s regular resource rules. In the case of a comingled sub-account, the portion of the sub-account attributable to the assets of a third party would not be considered a resource, whereas the portion attributable to the assets of the grantor-beneficiary would be considered a resource.

 

BACKGROUND

The Arc of Midland (Arc), a Michigan non-profit organization, has established the Pooled Accounts Trust of the Arc of Midland (Arc Pooled Trust). See About – The Arc of Midland, https://www.thearcofmidland.org/about/ (last visited Mar. 11, 2020). The Arc Pooled Trust is intended as a pooled supplemental needs trust to supplement, but not displace, assistance which may otherwise be available to beneficiaries. Trust Declaration (TD) Art. I, II.5, III.1. The assets held in the Trust and sub-accounts are not for the primary support of the beneficiaries but rather are “to supplement their care needs only.” TD Art. III.1. A “Beneficiary” is defined as a disabled person who meets the requirements of 42 U.S.C. § 1382c(a)(3) and is a recipient of services and benefits under the Trust. TD Art. II.1.

In 2018, your office submitted the Declaration of Trust initially entered into on June 24, 1999, and amended and restated on June 3, 2013, as well as a Joinder Agreement, to our office. In an opinion dated January 25, 2019, we concluded that this version of the Trust did not comply with SSA’s pooled trust policy. See Program Operations Manual System (POMS) PS 01825.025 (CPM-19-036). Apparently in response to our opinion, Arc amended and restated the Trust again on December 3, 2019. Your office has submitted the second amended and restated Declaration of Trust and updated Joinder Agreement for our review.

The Trust defines “Grantor” as the person who establishes a Trust sub-account for the benefit of a Beneficiary, and states that a Grantor can be the Beneficiary, a parent, grandparent, or legal guardian of the Beneficiary, or a court. TD Art. II.3. A Beneficiary’s sub-account is established upon the execution of a Joinder Agreement by a Grantor, subject to written acceptance of the Trustee. TD Art. V. Once a Grantor delivers property to the Trustee and the Trustee accepts it, the Trust becomes irrevocable and the contributed property non-refundable. Id.

“Trustee” is defined as Arc, its successor or successors, and any Co-Trustee or Co-Trustees. TD Art. II.6. In turn, the Trust defines “Co-Trustee” as a person or entity, or both, selected by the Trustee to assist with the management, administration, allocation, and disbursement of Trust assets and property. Id. The Trustee may resign only with court approval, and the court will select and appoint a successor Trustee. TD Art. XI.

Beneficiaries “have no entitlement to the income or corpus of [the] Trust, except as the Trustee, in its complete and unfettered discretion, elects to disburse,” and the “Trust corpus and income are not available to any Beneficiary except to the extent of distributions made by the Trustee to a Beneficiary.” TD Art. III.1, 3. Further, Beneficiaries are prohibited from compelling a distribution from their sub-accounts. TD Art. III.5.

The Trust Declaration states that it shall be irrevocable, but that it may be amended to effectuate the terms and purposes of the Trust as set forth in Article III. TD Art. V, IX. Additionally, the Trustee, with court approval, may amend the Trust Declaration to conform with any rules or regulations relating to 42 U.S.C. § 1396p or related statutes, whether State or federal. TD Art. IX.

The Trust Declaration contains a paragraph pertaining to early termination of the Trust. TD Art. X.1. Additionally, the Trust Declaration and the Joinder Agreement each contain a paragraph regarding the distribution of trust assets upon the death of a beneficiary. TD Art. X.2; JA at W. Those paragraphs contain Medicaid payback provisions, under which any amounts remaining in a sub-account after the beneficiary’s death that are not retained by the Trust must be paid to “any state” up to the “amount equal to the total amount of medical assistance paid on behalf of the Beneficiary” by the state. TD Art. X.2; JA at W.

The Trust Declaration contains a spendthrift provision that prohibits (1) anticipation or assignment by any Beneficiary of any part of the Trust principal or income; and (2) attachment or control of any part of the Trust principal or income by any creditor of a Beneficiary, whether private or public. TD Art. III.5. The spendthrift clause also provides that no part of the Trust, principal or income, “may be taken by any legal or equitable process by any voluntary or involuntary creditor, including those that have provided for the Beneficiary’s support and maintenance.” Id.

The Trust Declaration and Joinder Agreement each provide that Arc, as Trustee, is the remainder Beneficiary of each Trust sub-account. TD Art. XIII.1.b; JA at DD.5.a.2.

The Joinder Agreement provides that if the Grantor of a sub-account intends to enroll more than one Beneficiary under one sub-account, an additional agreement between the Grantor and the Trustee is required. JA at DD.3.

 

DISCUSSION

As stated above, the Trust allows a Grantor to be a Beneficiary, a Beneficiary’s parent, grandparent, or legal guardian, or a court, and a Trust sub-account becomes effective upon execution of a Joinder Agreement by a Grantor. TD Art. II.3, V. In addition, the Trust Declaration provides that the Trust Estate may include contributions in cash or property “at any time by any grantor” in accordance with Art. V. TD Art. IV (emphasis added). The Trust Declaration and Joinder Agreement are otherwise silent as to who may contribute assets to a sub-account. Thus, as currently written, it appears that the Trust permits not only Beneficiaries but also their parents, grandparents, and legal guardians to contribute assets to a Trust sub-account.^[21] Consequently, three possible types of sub-accounts exist: (1) a sub-account that is funded solely by assets belonging to the Beneficiary (i.e., a self-settled sub-account); (2) a sub-account that is funded solely by third-party assets; and (3) a comingled sub-account containing both third-party and Beneficiary assets. The following discussion addresses each type separately.

I. Self-Settled Sub-Accounts

A. Statutory Resource Rules

Under the Social Security Act (Act), a trust created on or after January 1, 2000^[22] , from the assets of an individual generally will be considered a resource for SSI purposes to that individual to the extent that the trust is revocable or, in the case of an irrevocable trust, to the extent that any payments could be made from the trust to or for the benefit of the individual. See 42 U.S.C. § 1382b(e); POMS SI 01120.201(D). As relevant here, an exception to this rule exists for trusts that meet the criteria of 42 U.S.C. § 1396p(d)(4)(C) (commonly known as the pooled trust exception).

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

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

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

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

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

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

See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203(D)(1).

 

Here, although the Trust is irrevocable, a self-settled sub-account in the Trust would be a resource, because funds held in the sub-account are to be used for the individual Beneficiary’s benefit. TD Art. III.1-2. Accordingly, we consider whether the Trust qualifies for the pooled trust exception. As discussed below, we do not believe the second restated Trust Declaration satisfies all of the requirements of this exception. As such, a self-settled sub-account in the Trust established on or after January 1, 2000, would not be excepted from resource counting.

1. Established and Managed by a Non-Profit Association

To satisfy the first requirement of the pooled trust exception, the trust must be established and managed by a non-profit association. 42 U.S.C. § 1396p(d)(4)(C)(i); POMS SI 01120.203(D)(3). A non-profit association may employ the services of a for-profit entity, but the non-profit association must maintain ultimate managerial control over the trust. POMS SI 01120.225(D). For example, the non-profit association must be responsible for making day-to-day decisions regarding the health and well-being of the beneficiaries. Id. Also, a for-profit entity must not be allowed to determine whether to make discretionary disbursements from the trust. POMS SI 01120.225(E).

Here, Arc, a non-profit association, established and manages the Arc Pooled Trust. See TD Art. III.1. The Trust Declaration designates Arc as the Trustee. TD Art. II.6. The Trust Declaration also states 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.” TD Art. VI.8.

As Trustee, Arc is empowered to “employ any investment management service, financial institution, or similar organization to advise it, handle all Trust investments, and render all accounting of funds held on its behalf under custodial, agency, or other Agreements.” TD Art. VII.17. While this could result in a for-profit entity managing the Trust investments, that would not be inconsistent with the statement in Art. VI.8 that Arc must maintain “ultimate managerial control” over the Trust. Therefore, such use of a for-profit entity would not violate this first requirement of the pooled trust exception.

However, the Trust Declaration as currently written still appears to allow for the possibility that a for-profit entity acting as a Co-Trustee could manage the Trust or execute core managerial duties. “Co-Trustee” is defined as “a person or entity, or both, selected by the Trustee to assist with the management, administration, allocation, and disbursement of Trust assets and property.” TD Art. II.6. Nothing prohibits the Trustee from selecting a for-profit entity as a Co-Trustee.^[23]

Significantly, the Trust Declaration provides that “Trustee” shall include any Co-Trustee or Co-Trustees. TD Art. II.6. As such, a Co-Trustee, which could be a for-profit entity, would hold the same powers as the Trustee and could potentially execute core managerial duties. See, e.g., TD Art. III.2 (Trustee has sole discretion to make payments from sub-account for beneficiary’s supplemental care needs), VI.6 (Trustee has sole discretion to make any payment to beneficiary or any suitable person), VII Introduction (Trustee holds numerous “continuing, absolute, and discretionary powers to deal with any property, real or personal, held in the Trust”).

Moreover, the Trust Declaration does not require that a successor Trustee to Arc be a non-profit association. It specifies that the Trustee may only resign with the approval of a court of competent jurisdiction, and that the court will select and appoint a successor Trustee. TD Art. XI. However, the Trust Declaration does not expressly require the court to select a non-profit association. If a for-profit entity were named as successor Trustee, that would also violate the agency policy that a pooled trust must be managed by a non-profit association. See POMS SI 01120.203(D)(3), SI 01120.225(B).

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

2. Maintenance of Separate Accounts for Each Trust Beneficiary

 

To satisfy the second requirement of the pooled trust exception, a trust must maintain a separate account for each trust beneficiary, although it is acceptable for individual accounts to be pooled for investment and management purposes. 42 U.S.C. § 1396p(d)(4)(C)(ii); POMS SI 01120.203(D)(4). The Trust Declaration states that the Trust maintains a separate sub-account for each beneficiary, but for purposes of investments and management of funds, the Trustee pools the Trust sub-accounts. TD Art. VI.1. Also, the Trustee, or its authorized agent, maintains records for each Trust sub-account. Id . However, the Joinder Agreement (JA) contains a provision indicating that a Grantor may enroll more than one Beneficiary under one sub-account.^[24] JA at DD.3. Doing so would create an account for multiple beneficiaries, in contravention of the requirement that the trust maintain a separate account for each beneficiary. Consequently, the Trust does not appear to meet this requirement.

3. Established for the Sole Benefit of the Individual

To satisfy the third requirement of the pooled trust exception, the trust account must be established for the sole benefit of the disabled individual. 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203(D)(5). A trust is considered to be established for the sole benefit of an individual if the trust benefits no one but that individual, either at the time the trust is established or at any time for the remainder of the individual’s life. POMS SI 01120.201(F)(1). The POMS states that an individual trust account does not meet the pooled trust exception if the trust account “provides a benefit to any other individual or entity during the disabled individual’s lifetime.” POMS SI 01120.203(D)(5).

Here, the Trust Declaration provides that the “Trustee shall pay or apply for the supplemental needs of each Beneficiary, such amounts from the principal or income, or both, of the Trust sub-account maintained for such Beneficiary . . . as the Trustee . . . may from time to time deem necessary or advisable for the satisfaction of that Beneficiary’s supplemental care needs, if any.” TD. Art. III.2 (emphasis added). Similarly, the Trust refers to a Grantor establishing a sub-account “for the benefit of the Beneficiary.” TD Art. II.3 (emphasis added). Likewise, any sub-account established by execution of a Joinder Agreement “will be administered for the benefit of the Beneficiary.” JA at Z.

However, the Joinder Agreement as currently written contemplates a single sub-account containing funds belonging to multiple beneficiaries. JA at DD.3 (Grantor may “enroll more than one Beneficiary under one Trust sub-account” by executing an additional agreement). Nothing in the Joinder Agreement stipulates that the funds in such a sub-account would be reserved pro rata exclusively for each beneficiary’s benefit, or otherwise kept track of to ensure that none of the funds belonging to one beneficiary would be used for the benefit of another of that sub-account’s beneficiaries. Accordingly, the Trust does not meet the requirements of 42 U.S.C. § 1396p(d)(4)(C)(iii) and POMS SI 01120.203(D)(5).

The POMS also states that an individual trust account does not meet the pooled trust exception if the trust account “allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity.” POMS SI 01120.203(D)(5). An early termination clause is acceptable only if all of the following criteria are met: (1) the State(s) receives all amounts remaining in the trust up to an amount equal to the amount of medical assistance paid on behalf of the individual under the State Medicaid plan(s); (2) after payment of allowable administrative expenses,^[25] all remaining funds are distributed to the trust beneficiary; and (3) the power to terminate is given to someone other than the trust beneficiary. See POMS SI 01120.199(F)(1). An early termination clause, however, need not meet the foregoing criteria if it solely allows for a transfer of the beneficiary’s assets from one section 1917(d)(4)(C) qualifying pooled trust to another section 1917(d)(4)(C) qualifying pooled trust. See POMS SI 01120.199(F)(2).

The Trust Declaration contains an early termination clause, which appears to comply with SSA’s policy regarding early termination. Article X.1.a provides that upon early termination, the State(s) as primary assignee will 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).^[26] In turn, Article X.1.b provides that after the above reimbursement to the State(s), all remaining funds must be distributed to the beneficiary. Additionally, the power to terminate belongs exclusively to the Trustee and not the beneficiary. TD Art. X.1.c. These provisions comport with the requirements for an acceptable early termination clause in POMS SI 01120.199(F)(1). The Trust Declaration further provides that a beneficiary’s assets may be transferred from one qualifying section 1917(d)(4)(C) pooled trust to another qualifying section 1917(d)(4)(C) pooled trust. TD Art. X.1.d. That also meets the requirement in POMS SI 01120.199(F)(2).

 

4. Established Through the Actions of the Beneficiary, a Parent, Grandparent, Legal Guardian, or a Court

The fourth requirement of the pooled trust exception is that the trust account must be established through the actions of the account beneficiary, his or her parent, grandparent, or legal guardian, or a court. 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203(D)(6). The Arc Pooled Trust satisfies this requirement, because it limits the meaing of “Grantor” to only those persons or entities permitted under the statute to take action to establish a Trust sub-account, and specifies that only a Grantor may establish a sub-account. TD Art. II.3, V. The trust defines “Grantor” as the person who establishes a Trust sub-account for the benefit of a Beneficiary, and states that a Grantor can be the Beneficiary, a parent, grandparent, or legal guardian of the Beneficiary, or a court. TD Art. II.3. And a Beneficiary’s sub-account is established upon the execution of a Joinder Agreement by a Grantor, subject to written acceptance of the Trustee. TD Art. V. Therefore, the Trust satisfies this requirement.

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

To satisfy the fifth requirement of the pooled trust exception, the trust must contain “specific language” that provides that upon a beneficiary’s death, to the extent amounts remaining in the beneficiary’s account are not retained by the trust, the State(s) are reimbursed an amount equal to the total amount of medical assistance paid on behalf of the deceased beneficiary under the State Medicaid plan(s) during his or her lifetime. 42 U.S.C. § 1396p(d)(4)(C)(iv); POMS SI 01120.203(D)(8). This is known as the Medicaid payback requirement of the pooled trust exception.

Here, the Trust includes a provision concerning termination upon death. The Trust Declaration states that, upon the death of a Beneficiary, any funds remaining in the sub-account shall be deemed to be surplus Trust property and shall be retained by the Trust and, in the Trustee’s sole discretion, used (a) for the benefit of other Beneficiaries, (b) to “aide persons who are indigent and disabled,” or (c) to provide persons who are indigent and disabled with housing or supplemental support services. TD Art. X.2. The Trust Declaration goes on to state that “to the extent that any amounts remaining in the Beneficiary’s account” upon the Beneficiary’s death are not so retained by the Trust, the Trustee “shall pay from such remaining amounts in the account to any state an amount equal to the total amount of medical assistance paid on behalf of the Beneficiary under the State’s plan under 42 U.S.C. § 1396(a) et seq.” Id. Accordingly, the Trust contains the necessary language to satisfy the Medicaid payback requirement. The Joinder Agreement includes the same provision. JA at W.

Thus, we believe that a self-settled sub-account in the Trust established on or after January 1, 2000, would be considered a resource under the Social Security Act because it does not meet all of the requirements of the pooled trust exception. Consequently, the defects discussed above would have to be cured to except this Trust from resource counting.^[27]

 

B. Regular Resource Rules

If Arc were to cure the above defects and qualify for the pooled trust exception, the regular resource counting rules in POMS SI 01120.200 would apply to determine whether a self-settled sub-account in the Trust established on or after January 1, 2000, would be counted as a resource.^[28] See 42 U.S.C. § 1382b(e)(1); POMS SI 01120.203(D)(1). Pursuant to POMS SI 01120.200(D)(1)(a), trust principal will count as a resource if the beneficiary either: (a) has the legal authority to revoke or terminate the trust and then use the funds to meet his or her food or shelter needs; or (b) can direct use of the trust principal for his or her support and maintenance under the terms of the trust. Additionally, if the beneficiary can sell his or her beneficial interest in the trust, that interest is a resource. Id.

With respect to revocability, whether a trust can be revoked depends on the terms of the trust and applicable state law – here, Michigan. See POMS SI 01120.200(D)(2). The Trust Declaration states that it shall be irrevocable, but that it may be amended under certain conditions. TD Art. IX. Additionally, upon the delivery to and acceptance of property by the Trustee, the Trust shall be irrevocable and the property nonrefundable. TD Art. V. Thus, because a Grantor can include the Beneficiary, where the Beneficiary contributes or causes to be contributed his or her own assets to the Trust sub-account, the Trust is irrevocable as to the Beneficiary.

Notwithstanding these provisions, under Michigan law, when a grantor is the sole beneficiary of a trust, the trust is deemed to be revocable even if the trust document states it is irrevocable. See POMS SI CHI01120.200(C). However, if the trust names a residual beneficiary or beneficiaries to receive the benefit of the trust interest after a specific event – usually the death of the primary beneficiary – then the trust is irrevocable, because the primary beneficiary could not unilaterally revoke the trust; rather, he or she would need the consent of the residual beneficiary or beneficiaries. See id. Here, the Joinder Agreement provides that, upon the death of the Beneficiary, if the Trust does not retain the funds in the Beneficiary’s account, “and after all State(s) have been reimbursed the total amount of Medical assistance provided, then the residual beneficiary of any Trust funds shall be” the person named by the Grantor at the time the Joinder Agreement is executed. JA at W. Moreover, the Trustee maintains a contingent residual interest in each sub-account. See TD Art. XIII.1.b; JA at DD.5.a.2. Thus, there is at least one residual beneficiary and, consequently, a self-settled sub-account in the Trust is not revocable. See POMS SI CHI01120.200(C), (D).

Regarding the Beneficiary’s ability to direct the use of trust principal, here the Trustee, in its sole discretion, may make any payments under the Trust for the supplemental needs of each Beneficiary. TD Art. III.2, VI.6; JA at BB. Neither the Trust Declaration nor the Joinder Agreement provides for mandatory disbursements to the Beneficiary; indeed, the Trust Declaration states that Beneficiaries are not entitled to the Trust corpus or income and may not compel distributions from their sub-accounts. TD Art. III.1, 3, 5. Thus, the Beneficiary cannot direct the use of the sub-account principal for support and maintenance.

With respect to the Beneficiary’s ability to sell his or her beneficial interest in the Trust, the Trust Declaration contains a spendthrift provision which provides that no part of the Trust, principal or income, shall be subject to anticipation or assignment by the Beneficiaries nor shall it be subject to attachment or control by any public or private creditor of the Beneficiaries; nor may it be taken by any legal or equitable process by any voluntary or involuntary creditor. TD Art. III.5. Under Michigan law, however, even if the trust has a valid spendthrift provision, a “creditor or assignee” of a self-settled trust may reach “[t]he maximum amount that can be distributed to or for the settlor’s benefit” (exclusive of sums needed to pay the settlor’s taxes). Mich. Comp. Laws Ann. § 700.7506(1)(c)(ii). Nevertheless, we believe this provision is best read to apply only to assignees who are creditors of secured interests in the property, rather than a purchaser to whom property has been transferred for fair market value.^[29] We believe that Michigan would likely follow the Restatement (Third) of Trusts, which states that a purchaser for value (as opposed to a creditor) generally would not be able to reach the trust funds of a self-settled discretionary trust. See Restatement (Third) of Trusts § 60 & comment f (2019). Therefore, beneficiaries effectively cannot sell their beneficial interests in the trust and obtain the cash value of the trust.

Thus, if Arc can cure the defects discussed in Section I.A above and satisfy the requirements of the pooled trust exception, a self-settled sub-account in the Trust would not constitute a resource under the regular resource rules.

 

II. Third-Party Sub-Accounts

As noted above, it appears that the Trust permits not only Beneficiaries but also their parents, grandparents, and legal guardians to contribute assets to a Trust sub-account. TD Art. II.3, IV, V. In the case of a trust established solely with the assets of a third party, the regular resource rules set forth in POMS SI 01120.200 apply to determine whether the assets in the trust are a resource. Here, as with a self-settled sub-account, a third-party sub-account would not be a resource under the regular resource rules. First, the Trust does not give the Beneficiary the right to terminate his or her sub-account. See POMS SI 01120.200(D)(1)(b)(2) (beneficiary generally does not have power to terminate a trust). Indeed, the Trust Declaration expressly provides that the power to terminate belongs exclusively to the Trustee and not to the Beneficiary. TD Art. X.1.c. Second, as discussed above, the Trust contains no provision allowing the Beneficiary to direct the use of trust principal for his or her support or maintenance. Finally, with respect to a beneficiary’s power to otherwise sell his or her beneficial interest in the Trust, the Trust contains a spendthrift provision, as noted above, TD Art. III.5, which Michigan allows in third party trusts. See Mich. Comp. Laws Ann. § 700.7502(1). Accordingly, a beneficiary’s beneficial interest in a third-party sub-account also would not be considered a resource.

 

III. Comingled Sub-Accounts

It is possible for a sub-account in the Arc Pooled Trust to contain assets attributable to both the beneficiary and one or more of the third parties noted above. Agency policy provides that, in the case of a comingled trust established on or after January 1, 2000, with the assets of both an SSI claimant (or spouse) and third parties, the regular resource rules apply to the portion of the comingled trust attributable to the assets of third parties, and the statutory resource rules apply to the portion attributable to the assets of the SSI claimant (or spouse). See POMS SI 01120.200(A)(1)(b), SI 01120.201(C)(2)(c).

Here, in the event that a sub-account in the Trust established on or after January 1, 2000, receives any contributions from a third party (parent, grandparent, or legal guardian), the portion of the sub-account attributable to the assets of the third party would not be a resource under the regular resource rules, as discussed in Section II above. However, with respect to the portion of the sub-account attributable to the assets of the grantor-beneficiary, that portion would be considered a resource under the Act based on the defects discussed in Section I.A above.^[30]

CONCLUSION

For the reasons discussed above, we conclude that a self-settled sub-account in the Arc Pooled Trust established on or after January 1, 2000, does not meet all of the requirements for an exception to resource counting under 42 U.S.C. § 1396p(d)(4)(C). However, if the defects identified above with respect to the statutory exception were cured, then a self-settled Trust sub-account would not constitute a resource under the regular resource counting rules. Similarly, a third-party sub-account in the Arc Pooled Trust would not constitute a resource. Finally, in the case of a comingled sub-account, the portion of the sub-account attributable to the assets of a third party would not be considered a resource, whereas the portion attributable to the assets of the grantor-beneficiary would be considered a resource.

 

This Regional Chief Counsel (RCC) opinion examines whether the amended version of a pooled trust brings the trust into compliance with the pooled trust exception under 42 U.S.C. § 1396p(e). The RCC concludes that the amended version does not cure one of the defects related to accounts being administered for the sole benefit of each trust beneficiary. Thus, the trust still does not meet the criteria for exception to resource counting under the agency's pooled trust policy.

QUESTION PRESENTED AND SHORT ANSWER

You asked whether the Second Amendment to the Pooled Accounts Trust of the Hope Network Foundation, adopted in July 2019, is in compliance with the procedures governing the agency’s pooled trust policy. In a prior opinion, which analyzed the Declaration of Trust and the First Amendment to that declaration, which was adopted in July 2012, we identified two areas of noncompliance where the Trust did not meet the statutory requirements: (1) the management of pooled trusts by non-profit entities, and (2) that the trust accounts be administered for the sole benefit of each trust beneficiary. The Second Amendment to the Declaration of Trust cured the defect with respect to the management of the trust, but did not cure the defect with respect to accounts being administered for the sole benefit of each trust beneficiary. Thus, the Trust still does not meet the criteria for the pooled trust exception to counting trust funds as a resource under 42 U.S.C. § 1396p(e). However, the Trust accounts would not be considered resources under the regular resource rules.

BACKGROUND

The Hope Network Foundation (“Hope Network”), a Michigan non-profit organization, established and manages the Pooled Accounts Trust of the Hope Network Foundation (the “Trust”), serving as the Trustee. See Declaration of Trust, Art. II(6). Hope Network first established the Trust on August 9, 1999. Decl. of Trust, Preamble, p.1. The Declaration of Trust was first amended in July 2012 (the “First Amendment”) and was amended again in July 2019 (the “Second Amendment”).^[31] While Hope Network is named as the Trustee, the definition of “Trustee” in the Declaration of Trust also includes its successors and “any Co-Trustee or Co-Trustees,” meaning “a person or entity, or both, selected by the Trustee to assist with the management, administration, allocation, and disbursement of Trust assets and property.” Decl. of Trust, Art. II(6). In other words, the Trustee (or its successor(s)) and any Co-Trustee(s)) share equal management authority over the Trust. The Declaration of Trust empowers the Trustee to designate a Co-Trustee or Co-Trustees “to serve at its pleasure.” Decl. of Trust, Art. VII. Unlike in the original Declaration of Trust and the First Amendment, adopted in July 2012, the Second Amendment specifies that any Successor Trustees or Co-Trustees must be a non-profit association. Decl. of Trust, Second Amendment, Paragraphs A, C, D, E, G, H.

In addition, amongst the Trustee’s (or Co-Trustee’s or Successor Trustee’s) enumerated powers, the Trustee may “employ and compensate attorneys, accountants, managers, agents, assistants and advisors” and “employ any investment management service, financial institution, or similar organization to advise it, handle all Trust investments, and render all accounting of funds.” Decl. of Trust, Art. VIII(5) & (17). However, this power to employ and enlist the services of other potentially for-profit organizations in the management of the Trust is limited by a provision added by the First Amendment. Decl. of Trust, First Amendment, ⁋ (a). Both the First Amendment and Second Amendment underscore that any use of a for-profit entity must always be subordinate to the non-profit manager or Trustee and that the non-profit will maintain ultimate managerial control. Decl. of Trust, First Amendment, Paragraph (a); Decl. of Trust, Second Amendment, Paragraphs D, E, H, I.

The Trust consists of separate, individual sub-accounts that are established and managed for the benefit of the specified beneficiary, but the Trust assets are pooled for purposes of management and investment. Decl. of Trust, Art. VI(1). The individual beneficiaries of the Trust are disabled persons, as defined in 42 U.S.C. § 1382c(a)(3). Decl. of Trust, Art. II(1). The individual beneficiaries are the sole recipients of services and benefits of their Trust sub-accounts, which are created by a grantor. Decl. of Trust, Art. II(3) & Art. III(2). The Second Amendment also changed the language regarding the costs and expenses of defending the Trust from any claim, demand, or legal action. Decl. of Trust, Second Amendment, Paragraph B. Under the First Amendment, the costs and expenses for such actions were either apportioned on a pro rata basis to all Trust sub-accounts or charged against only the sub-account of the affected Beneficiary. Decl. of Trust, Art. VI(8). Under the Second Amendment, the costs and expenses of defending such actions “may, in the sole discretion of the Trustee, be charged against the Trust sub-account of the affected Beneficiary.” Decl. of Trust, Second Amendment, Paragraph B.

A “grantor” is defined as “a parent, grandparent, agent acting under a power of attorney, guardian of a Beneficiary, a Beneficiary himself or herself, or any court.” Decl. of Trust, Art. II(3). A “grantor” also includes “any person or entity that contributes his, her, or its own assets or property to the Trust for the benefit of a Beneficiary, by gift, will, contract, or agreement.” Id. The individual sub-accounts are established by executing a separate “Irrevocable Joinder Agreement” (the “Joinder Agreement”). Decl. of Trust, Art. V(1); see also Joinder Agreement.

The Declaration of Trust states that the primary purpose of the trust is to supplement available federal and state government benefits, not displace them. Decl. of Trust, Art. II(5) & Art. III(1)-(4); see also Joinder Agreement, p. 2. According to the Declaration of Trust, the Beneficiaries have no entitlement to the income or corpus of this Trust, except as the Trustee, in its complete and unfettered discretion, elects to disburse the funds. Decl. of Trust, Art. III(1)-(5), Art. VIII; see also Joinder Agreement, p. 2 (“The Grantor recognizes that all distributions are at the Trustee’s sole discretion.”).

The Declaration of Trust also states that the Trust is irrevocable. Decl. of Trust, Art. V(1). The First Amendment adopted a revised early termination provision—in the event that a trust account is terminated prior to the death of the Beneficiary. Decl. of Trust, First Amendment, Paragraph (d). The amended early termination provision states that the first payments out of any remaining funds in an individual sub-account will be paid to reimburse the State Medicaid plan up to an amount equal to the total amount of medical assistance paid on behalf of the individual beneficiary. Id. After the State reimbursements, and payment of the allowable expenses listed in POMS SI 01120.199(F)(3), all remaining funds will be “disbursed to the trust beneficiary.” Id. “Notwithstanding the provisions above, it shall be permissible to transfer a beneficiary’s assets from one Section 1917(d)(4)(C) trust to another Section 1917(d)(4)(C) trust that meets the requirements for being a non-countable resource.” Id.

The First Amendment to the Declaration of Trust, however, did not modify the original termination provisions that apply when a beneficiary dies. Decl. of Trust, First Amendment, Paragraph (d); Decl. of Trust, Art. XI(2). Under those provisions, upon the death of a beneficiary,

any amounts remaining in the Beneficiary’s Trust sub-account shall be deemed to be surplus Trust property and shall be retained by the Trust . . . . To the extent that any amounts remaining in the Beneficiary’s account upon the death of the Beneficiary are not so retained by the Trust . . . the Trustee shall pay from such remaining amounts in the account to any state an amount equal to the total amount of medical assistance paid on behalf of the Beneficiary under the State’s plan.

Decl. of Trust, Art. XI(2). The Joinder Agreement reiterates the same language regarding the distribution of assets upon the death of the beneficiary. Joinder Agreement, p. 2.

Finally, the Declaration of Trust also includes a spendthrift provision that states that “[n]o part of this Trust, principal or income, shall be subject to anticipation or assignment by the Beneficiaries nor shall it be subject to attachment or control by any public or private creditor of the Beneficiaries; nor may it be taken by any legal or equitable process by any voluntary or involuntary creditor, including those that have provided for the Beneficiary’s support and maintenance.” Decl. of Trust, Art. III(5).

DISCUSSION

A. Statutory Resource Rules

Under the Social Security Act (“Act”), a trust created on or after January 1, 2000, from the assets of an individual generally will be considered a resource to the extent that the trust is revocable or, in the case of an irrevocable trust, to the extent that any payments could be made from the trust to or for the benefit of the individual.^[32] See 42 U.S.C. § 1382b(e); POMS SI 01120.201(D). However, if a trust meets the criteria of either an individual special needs trust under 42 U.S.C. § 1396p(d)(4)(A) or a pooled trust under § 1396p(d)(4)(C), the trust is excluded from this rule. See POMS SI 01120.203.

Here, even assuming the trust accounts are irrevocable, as they purport to be, the statutory resource rules would apply because the Trustee has discretion to use the income and the principal in the individual sub-accounts for the benefit of the beneficiary for whom the sub-account was established. Decl. of Trust, Art. III(1)-(3), Art. VI(6), and Art. VIII; see also Joinder Agreement, p. 2. Thus, to the extent that accounts are self-funded by the disabled individual, and where the disabled individual’s assets were first added to the trust on or after January 1, 2000, the assets would be resources under the statutory provisions, unless the pooled trust exception applies.

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

1. 1. 

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

2. 2. 

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

3. 3. 

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

4. 4. 

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

5. 5. 

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

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

Here, under the Second Amendment, the Trust meets all but the third condition for the pooled trust exception.

1. The Trust, as Revised by the Second Amendment, Now Satisfies the Requirements Regarding Management by a Non-Profit Organization.

The Trust was established by the Hope Network Foundation, which is a non-profit organization. Decl. of Trust, Art. I. Hope Network also serves as the main Trustee, or manager, of the Trust. Decl. of Trust, Art. II(6); see also Art. III(1)-(4), Art. VI, and Art. VIII. The Trustee has authority to appoint Co-Trustees or Successor Trustees. Decl. of Trust, Art. VII; Second Amendment, ⁋⁋ A, C, D, E, G, H. Under the original provisions of the Declaration of Trust, it was possible that a Co-Trustee or Successor Trustee could be a for-profit organization—a possibility that ran afoul of the first requirement of the pooled trust exception. Decl. of Trust, Art. VII. The Second Amendment clarifies in multiple provisions that any Co-Trustee or Successor Trustee must be a non-profit association. Decl. of Trust, Second Amendment, Paragraphs A, C, D, E, G, H. The Second Amendment also deleted paragraph 21 from Article VIII, which had allowed for the Trust appointing a “substitute Trustee” to act with respect to the transfer of any Trust property to any other jurisdiction if it was deemed advantageous to the Trust. Decl. of Trust, Art. VIII(21); Second Amendment, Paragraph F. This eliminated the possibility of a substitute Trustee being appointed in another jurisdiction who was not a non-profit entity.

In addition, the Second Amendment adds language to the two provisions in Article VIII of the Declaration of Trust allowing for use of various agents, managers, accountants, and investment management services, which we had previously flagged as unclear and potentially problematic. Decl. of Trust, Art. VIII (5) & (17); Decl. of Trust, Second Amendment, Paragraphs D, E. The Second Amendment clarifies that the non-profit Trustee, Co-Trustee, or Successor Trustee will retain “ultimate managerial control” over the use of any for-profit agents, managers, accountants, or investment services and that the use of any for-profit entity “must always be subordinate to the non-profit manager.” Decl. of Trust, Second Amendment, Paragraphs D, E.

In short, the Second Amendment clearly and effectively remedies the previous issue with the management provisions of the Trust. Thus, the Trust now complies with the first requirement of the pooled trust exception.

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

The Trust maintains separate sub-accounts for each individual beneficiary but pools the accounts for purposes of investment and management. Decl. of Trust, Art. VI(1).

3. Trust Sub-Accounts Are Not Established Solely for the Individual Beneficiary’s Benefit Because Account Funds Could Be Used for Litigation and Similar Costs for Other Trust Beneficiaries.

The Declaration of Trust specifies that the individual Trust sub-accounts are maintained for the sole benefit of the individual beneficiaries. Decl. of Trust, Art. III(2). Although the Trust contains early termination provisions, the provisions comply with the requirements of POMS SI 001120.199(F)(1), as amended by the First Amendment, and are consistent with the sole benefit requirements of the statute. Decl. of Trust, First Amendment, Paragraph (d) (removing paragraphs (1) and (3) from Article XI). Under the First Amendment, the Declaration of Trust provides that, upon early termination, the State receives all amounts remaining in the Trust up to an amount equal to the total amount of medical assistance paid on behalf of the individual under the State Medicaid plans. Id. After the State is reimbursed, the Declaration of Trust provides that the Trust may pay the expenses allowed under POMS SI 01120.199(F)(3), and then all remaining funds are disbursed to the beneficiary. Id. In the alternative, the amended Declaration provides that upon early termination the funds may instead be transferred to another § 1396p(d)(4)(C) trust. Id. Thus, the funds will be returned to the beneficiary or transferred to another pooled trust for his or her benefit.

However, another provision of the trust remains problematic. The original Declaration of Trust included a provision that allowed the Trustee, in its sole discretion, to apportion litigation and similar costs on a pro-rata basis to all trust sub-accounts, rather than just to the affected beneficiary. Decl. of Trust, Art. VI(8). There was no requirement that the Trustee determine that it was in the best interest of the other Trust beneficiaries to share in the cost of defending the Trust. Id. Therefore, we determined that this provision needed to be modified or clarified for the Trust to meet the “sole-benefit” criteria for the pooled trust exception. Cf. POMS PS 01825.017(A)(2)(a)(3) (May 14, 2018) (PS 18-085 Review of the Southwestern Indiana Regional Council on Aging, Inc. Pooled Trust); POMS PS 01825.011(E)(2), (G)(2) (PS 16-172 and PS 17-026 opinions regarding the Florida Public Guardianship Pooled Special Needs Trust) (Aug. 5, 2016 and Dec. 16, 2016).

The Second Amendment to the Trust deleted the original Article VI, paragraph 8, and substituted the following provision: “Costs and expenses of defending the Trust from any claim, demand, legal or equitable action, suit, or proceeding may, in the sole discretion of the Trustee, be charged against the Trust sub-account of the affected Beneficiary.” Id. (emphasis added). This provision still allows for the Trustee to charge these costs and expenses to the entire trust in general, so that all account beneficiaries share in the payment of the costs and expenses, if the Trustee decides not to exercise its discretion to charge the costs and expenses against the sub-account of the affected Beneficiary.

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

The Declaration of Trust provides that each Trust sub-account is established by the individual, parent, grandparent, legal guardian, or a court. Decl. of Trust, Art. II(3).

5. The Trust’s Termination Provisions, as Amended by the First Amendment, Meet the Requirements Regarding State Medicaid Reimbursements.

According to the agency’s policies, to qualify for the pooled trust exception, the Trust must contain “specific language that provides that, to the extent that amounts remaining in the individual’s account upon the death of the individual are not retained by the trust, the trust will pay to the State(s) from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the individual under the State Medicaid plan(s).” POMS SI 01120.203(D)(8). To the extent that the Trust does not retain the funds in the account, the State must be listed as the first payee and have priority over payment of other debts and administrative expenses. Id. Here, the termination provision states that all remaining funds at the time of the beneficiary’s death will be considered “surplus Trust property” and retained by the Trust. Decl. of Trust, Art. XI(2). To the extent that the Trust does not retain the surplus, the Declaration provides that the State will be the first payee. Id. Therefore, the Trust meets the criteria for the final requirement of the pooled trust exception.

B. The Regular Resource Rules

As explained above, the statutory trust rules apply only to trust accounts where assets of the disabled individual were first added to the account on or after January 1, 2000. See POMS SI 01120.201(C)(1). For trust accounts where the assets of the disabled individual were first added prior to that date, or for accounts that contain only third-party assets, the regular resources would apply to determine whether the trust accounts would be a resource. See POMS SI 01120.200(A)(1). In addition, if the trust were amended such that the pooled trust exception were met, the regular resource rules would also apply to determine whether a Trust sub-account established with the funds of a disabled individual on or after January 1, 2000, would be considered a resource.^[33] See POMS SI 01120.200(A)(1)(c); POMS SI 01120.203(A), (I)(3)(Step 7). Under the regular resource rules, the trust principal will be a resource if the individual can (1) revoke or terminate the trust and then use the assets to meet his needs for food or shelter, or (2) direct the use of the trust principal for his support and maintenance under the terms of the trust. POMS SI 01120.200(D)(1)(a). In addition, the individual’s beneficial interest in the trust is a resource if it can be sold. Id.

Here, the express terms of the Declaration of Trust states that the individual sub-accounts are irrevocable. Decl. of Trust, Art. V(1). Notwithstanding these provisions, the individual accounts would be still be considered revocable if the grantor is also the sole beneficiary. See POMS SI CHI01120.200(C). In this case, however, the grantor would not be the sole beneficiary. Rather, the Trust creates a contingent remainder interest in the Trust. Decl. of Trust, Art. XI(2); First Amendment, Paragraph (d); Joinder Agreement, p. 2. Because the Trust is a residual beneficiary, the grantor could not revoke his trust share unilaterally. See POMS SI CHI01120.200(C).

Furthermore, a beneficiary can neither demand payments nor direct the use of the trust funds for his support and maintenance, as Hope Network, acting in its powers as Trustee, has sole discretion in making all distributions from the Trust. Decl. of Trust, Art. III(1)-(3) & Art. XIII.

Finally, the Declaration of Trust contains a spendthrift clause prohibiting the sale or assignment of a beneficiary’s interest and providing that no beneficiary’s interest in principal or income shall be subject to voluntary or involuntary alienation. Decl. of Trust, Art. III(4). Under Michigan law, however, even if the trust has a valid spendthrift provision, a “creditor or assignee” of a self-settled trust may reach “[t]he maximum amount that can be distributed to or for the settlor’s benefit” (exclusive of sums needed to pay the settlor’s taxes). Mich. Comp. Laws Ann. § 700.7506(1)(c)(ii). Nevertheless, we believe this provision is best read to apply only to assignees who are creditors of secured interests in the property, rather than a purchaser to whom property has been transferred for fair market value.^[34] We believe that Michigan would likely follow the Restatement (Third) of Trusts, which states that a purchaser for value (as opposed to a creditor) generally would not be able to reach the trust funds of a self-settled discretionary trust. See Restatement (Third) of Trusts § 60 & comment f (2019). Therefore, beneficiaries effectively cannot sell their beneficial interests in the trust and obtain the cash value of the trust.

CONCLUSION

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

This Regional Chief Counsel (RCC) opinion examines whether the subject individual's pooled trust sub-account is a resource for SSI purposes. The RCC's office concludes that the trust contains problematic provisions that do not comply with SSA’s pooled trust policy. However, if the trust is amended to address the defects identified, self-settled sub-accounts in the trust, including the subject individual's, would not be resources.

You asked us whether A~'s sub-account in the Elder Law of Michigan (ELM), Inc. Pooled Trust is a resource for SSI purposes. We conclude that the trust contains problematic provisions that do not comply with SSA’s pooled trust policy. Specifically, the trust includes a provision that allows funds in an account to be used to pay another beneficiary’s legal fees, and the trust includes an early termination provision that does not comply with SSA policy. However, if the agency has, in the past, excepted accounts in the trust, ELM should be given a 90 day grace period to amend the trust before SSA counts any ELM sub-account, including A~’s, as a resource for SSI purposes. If the trust is amended to address the defects identified, self-settled sub-accounts in the trust, including A’s, would not be resources.

BACKGROUND

The Elder Law of Michigan, Inc. (ELM) Pooled Trust was established on March 7, 2006, and amended on February 19, 2013, by Elder Law of Michigan, Inc., a not for profit organization. See Declaration of Trust of Elder Law of Michigan, Inc. (ELM Second Restated Trust Agreement), preamble and Art. II(7). The purpose of the trust is to function as a pooled trust under 42 U.S.C. § 1396p. ELM Second Restated Trust Agreement, Art. III(1). The trust is governed by Michigan law. ELM Second Restated Trust Agreement, Art. XII(4).

Under the terms of the pooled trust agreement, separate trust sub-accounts shall be maintained for each beneficiary, but the trust shall pool the trust sub-accounts for purposes of investment and management of funds. ELM Second Restated Trust Agreement, Art. VI(1). The distributions from the trust are solely at the discretion of the trustee and should be for the supplemental care of the beneficiary. ELM Second Restated Trust Agreement, Art. III. Examples of appropriate expenditures from the trust include travel and cultural experiences solely for the benefit of the Beneficiary. See ELM Second Restated Trust Agreement, Art. II(6). However, the beneficiary cannot compel the distribution of the trust for any purpose. ELM Second Restated Trust Agreement Art. III(5). The trust contains a spendthrift provision which indicates that the Trust and its sub-accounts shall not be subject to claims of creditors and that no interest in the principal or income of the trust may be anticipated, assigned, or encumbered. ELM Second Restated Trust Agreement, Art. III(5).

Upon the death of the beneficiary, final administrative expenses for the trust are paid first. ELM Second Restated Trust Agreement, Art. X(2). Any remaining amount is deemed surplus trust property to be retained by the trust. ELM Second Restated Trust Agreement, Art. X(2). However, the trust allows the trustee to consent to joinder agreements created by a court order or an appropriate Settlor to specify that, following the payment of final administrative expenses, any surplus in the sub-account will be used to repay any states which have provided medical assistance to the beneficiary, and any remaining amounts will be distributed pursuant to the terms of the beneficiary’s will or, if the beneficiary has no will, to the beneficiary’s heirs at law. ELM Second Restated Trust Agreement, Art. X(2). The joinder agreement in this case adopted this second approach. Joinder Agreement, para. D.

The trust purports to be irrevocable, except that the trustee may amend the trust with the approval of a court of competent jurisdiction so that it conforms with any rules or regulations relating to section 1396p. ELM Second Restated Trust Agreement, Art. IX. However, the trustee may terminate the trust if the trustee has reasonable cause to believe that the income or principal in a trust sub-account is or will become liable for basic maintenance, support, or care for the beneficiary. ELM Second Restated Trust Agreement, Art. X(1). In such circumstances, the trustee may: terminate the sub-account as to the affected beneficiary as though she had died; determine that the trust has become impossible to implement and refund the property to the grantor; or continue to administer the sub-account under a separate arrangement with the affected beneficiary. ELM Second Restated Trust Agreement, Art. X(1)(a)-(c).

Joinder Agreement

On September XX, 2008, A~'s conservator established a trust sub-account on her behalf in the ELM Pooled Account Trust for the benefit of A~ with the structured settlement money A~ received from a malpractice lawsuit. See Joinder Agreement; Petition to Transfer Conservator Funds, para. 2-4.^[35] The conservator asked that funds being held for her from those payments be transferred to the trust, and that the structured settlement company be ordered to pay any future payments due A~ directly into the trust. Petition to Transfer Conservator Funds, p. 4, Para. C. A~’s legal representative established the account in the pooled trust by executing a Joinder Agreement that adopts the main Pooled Trust provisions. See Joinder Agreement; see also ELM Second Restated Trust Agreement. The Joinder Agreement provides that, upon the beneficiary’s death, following payment to the trust of any final administrative expenses, the surplus shall be used to repay any states that have provided medical assistance to the beneficiary. After such repayment, any residue from the account is to be distributed to the beneficiary’s heirs. See Joinder Agreement, para. D. The Joinder Agreement specifies that administrative expenses shall be the sub-account’s actual expenses, but no less than $4000.00. Joinder Agreement, para. D.

The Joinder Agreement states that, while the beneficiary is living, her trust sub-account will be administered solely for her benefit. See Joinder Agreement, para. D-E. All distributions from the beneficiary’s sub-account are ultimately at the sole discretion of the trustee. Joinder Agreement, para. E.

DISCUSSION

A. Statutory Resource Rules

Under the Social Security Act (“Act”), a trust created on or after January 1, 2000, from the assets of an individual generally will be considered a resource to the extent that the trust is revocable or, in the case of an irrevocable trust, to the extent that any payments could be made from the trust to or for the benefit of the individual. See 42 U.S.C. § 1382b(e); POMS SI 01120.201(D). In the present trust, the trustee has the discretion to use the income and the principal in the trust sub-account for the benefit of the beneficiary for whom the sub-account was established. See Pooled Trust Agreement, Art. II(6), Art. III(2)-(4); Joinder Agreement para. E. Therefore, the entire sub-account would be a resource to the beneficiary under these provisions. See 42 U.S.C. § 1382b(e)(3)(B).

However, if a pooled trust meets the criteria of 42 U.S.C. § 1396p(d)(4)(C), the trust is excluded from this rule. See also POMS SI 01120.203(B)(2). In order to qualify for the pooled trust exception, a trust containing assets belonging to a disabled individual must satisfy the following conditions:

1. 1. 

   The trust must be established and managed by a nonprofit association.

2. 2. 

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

3. 3. 

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

4. 4. 

   Accounts in the trust are established through the actions of the individual, parent, grandparent, legal guardian, or court.

5. 5. 

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

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

We previously advised that the original version of this trust would meet the pooled trust exception, but only because of a null-and-void clause that we advised would negate offending provisions in the trust. See Review of the Elder Law of Michigan Inc. Pooled Trust for Rolanda Woods, 377-38-3229 (Oct. 14, 2009) (hereinafter Woods Opinion); Review of Sub-Account of M~, XXX-XX-XXXX, in the Elder Law of Michigan, Inc., Pooled Account Trust (Jan. 31, 2007). We recommended in those prior opinions that you inform the Trust of the provisions of the trust that would violate agency policy absent a null and void clause. Since the time those opinions were issued, the agency has clarified that it will not consider a null and void clause to cure an otherwise defective instrument. POMS SI 01120.227(D). A null and void clause cannot nullify provisions that would otherwise make the trust a countable resource and cannot overcome missing or conflicting provisions. Id. However, it appears that the trust has been amended since our prior opinions to address the provisions we had advised were not consistent with agency policy.

We previously advised that the trust inappropriately allowed for distributions or expenditures for a beneficiary’s family members or others to visit the beneficiary, which was inconsistent with the statutory requirement that the trust be held for sole benefit of the disabled individual. See Woods Opinion, supra, at p.4. However, the trust has been amended to exclude this language. See ELM Second Restated Trust Agreement, Art. II(6). We had also identified a problem with an early termination provision, which allowed for payment to someone other than the trust beneficiary in the event the trustee terminated the trust before the beneficiary died. See Wood Opinion, supra, at p.4. That aspect of the early termination provision of the trust also appears to have been remedied. See ELM Second Restated Trust Agreement, Art. X(1). However, there are still some issues, discussed below, with the early termination provisions, and with another provision of the trust regarding payment of legal fees. Without application of the null and void clause, the trust fails to meet the pooled trust criteria above.

1. Established and Managed by a Non-Profit Association

To satisfy the first requirement of the pooled trust exception, the trust must be established and managed by a non-profit association. 42 U.S.C. § 1396p(d)(4)(C)(i); POMS SI01120.203(D)(3). Here, the trust meets this criterion because it is managed by Elder Law of Michigan, which is identified as a non-profit organization under Internal Revenue Code 501(C)(3). Pooled Trust Agreement, Art. II(7). We have no reason to question that status. The trust declaration also specifies that any successor Trustee must also be a 501(c)(3) non-profit organization. ELM Second Restated Trust Agreement, Art. II(7).

2. Maintenance of Separate Accounts for Each Trust Beneficiary

To satisfy the second requirement of the pooled trust exception, the trust must maintain a separate account for each trust beneficiary, although it is acceptable for individual accounts to be pooled for investment and management purposes. 42 U.S.C. § 1396p(d)(4)(C)(ii); POMS SI 01120.203(D)(4). The trust meets the second criterion because A~'s account is separate from the other pooled trust beneficiaries’ accounts, but has been pooled with those accounts for investment and management of funds.

3. Established for the Sole Benefit of the Individual

To satisfy the third requirement of the pooled trust exception, the trust account must be established for the sole benefit of the disabled individual. 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203(D)(5). A trust is considered to be established for the sole benefit of an individual if the trust benefits no one but that individual, either at the time the trust is established or at any time for the remainder of the individual’s life. POMS SI 01120.201(F)(1). The trust’s provision that allows for distribution from the trust for travel and cultural experiences, Art. II(6), is considered to be for the benefit of the disabled individual. POMS SI 01120.203(F)(3)(c). However, two other provisions of the trust are problematic.

a. Pro rata defense provision

The trust declaration provides that the “costs and expenses of defending the Trust from any claim, demand, legal or equitable action, suit, or proceeding may, in the sole discretion of the Trustee, either be apportioned on a pro rata basis to all Trust sub-accounts” or “be charged only against the Trust sub-account as to the affected Beneficiary.” ELM Second Restated Trust Agreement, Art. VI(7). Thus, the trust declaration appears to contemplate using money from one sub-account to defend a lawsuit that does not affect that sub-account’s beneficiary—for example, using some money from A~’s sub-account to defend a different beneficiary’s sub-account in which A~ has no interest. If a legal issue affected the trust as a whole, as opposed an individual sub-account, it could be in each beneficiary’s interest for the Trustee to defend the Trust and share the cost of defense on a pro rata basis, such that each individual beneficiary would, in theory, receive a benefit in proportion to her costs. However, there is no requirement for the Trustee determine that it is in the best interest of the other trust beneficiaries to share in the cost of defending the trust. This is inconsistent with agency policy that accounts be held for the sole benefit of that individual. See POMS PS 01825.017.A (PS 18-085) (trust should be clarified where it appeared that the trust allowed the use of a beneficiary’s assets for the cost of defending another sub-account); POMS PS 01825.011.E, .G (PS 17-026, PS 16-172) (trust does not meet the sole benefit criteria if an account can be charged for legal fees even where the account is not affected by the legal action). Therefore, this provision must be modified or clarified in order for the trust to meet the sole-benefit criteria for the pooled trust exception. See POMS PS 01825.017(A)(2)(a)(3) (May 14, 2018) (PS 18-085 Review of the Southwester Indiana Regional Council of Aging, Inc. Pooled Trust); POMS PS 01825.011(e)(2), (G)(2) (PS 16-172 and PS 17-026 opinions regarding the Florida Public Guardianship Pooled Special Needs Trust) (Aug. 5, 2016 and Dec. 16, 2016).^[36]

b. Early termination clause

The POMS also states that an individual trust account does not meet the pooled trust exception if the trust account “allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity.” POMS SI 01120.203(D)(5). An early termination clause is acceptable only if it meets all of the following criteria: (1) the State(s) receives all amounts remaining in the trust up to an amount equal to the amount of medical assistance paid on behalf of the individual under the State Medicaid plan(s); (2) after payment of allowable administrative expenses, all remaining funds are distributed to the trust beneficiary; and (3) the power to terminate is given to someone other than the trust beneficiary. See POMS SI 01120.199(F)(1). An early termination clause, however, need not meet the foregoing criteria if it allows for a transfer of the beneficiary’s assets from one section 1917(d)(4)(C) qualifying pooled trust to another section 1917(d)(4)(C) qualifying pooled trust. See POMS SI 01120.199(F)(2).

The ELM Second Restated Trust Agreement contains an early termination provision that does not fully comply with SSA’s policy regarding early termination. ELM Second Restated Trust Agreement, Art. X(1), (3). The Trust gives the trustee three options for terminating an existing sub-account. ELM Second Restated Trust Agreement, Art. X(1)(a)-(c). Under the first option, the trustee transfers the beneficiary’s assets to another sub-account established under section 1917(d)(4)(C). ELM Second Restated Trust Agreement, Art. X(1)(a). This now complies with SSA’s early termination criteria. POMS SI 01120.199(F)(2). The second option also complies with SSA’s early termination criteria because it provides that the state(s) first receive payment for medical assistance provided to the beneficiary, followed by allowable administrative expenses, and lastly to the sub-account beneficiary. ELM Second Restated Trust Agreement, Art. X(1)(b), X(3). However the trust declaration also includes a third option that does not comply with agency policy. Under the third option, the trustee may administer the sub-account under a new agreement with the affected beneficiary that “consider[s] the tax and Medicaid and other public benefit consequences to the beneficiary of any particular distribution.” ELM Second Restated Trust Agreement, Art. X(1)(c). Under this option, the terms of the new trust are unknown, and there is no requirement that the new trust be a qualifying pooled trust, that the trust will benefit only the disabled individual during his or her own lifetime, or that the States must be reimbursed for medical assistance on the death of the individual. Cf. POMS PS 09125.016 (CPM 19-081 Review of the Second Restatement of the Illinois Disability Pooled Trust) (May 24, 2019); POMS PS 01825.017 (PS 18-085 Review of the Southwestern Indiana Regional Council on Aging, Inc.) (May 14, 2018). Consequently, this non-compliant early termination provision means that the ELM Trust does not meet the Act’s pooled trust exception.

Although this trust does not comply with SSA’s policy for early termination provisions in trusts, the agency provides a 90-day grace period to amend a trust to conform with this policy if the trust was previously determined to be excepted from resource counting under the pooled trust provisions. POMS SI 01120.199(A). Therefore, if SSA has previously determined that an account in this trust was not a resource (which seems likely, given our prior opinions that relied on the null and void clause in the trust before agency policy was clarified on that issue), the trust should be provided 90 days to amend the trust.

4. Established Through the Actions of the Beneficiary, Parent, Grandparent, Legal Guardian, or a Court

The trust meets the fourth criterion because A~’s account was established on her behalf by M~, her court-appointed conservator. Joinder Agreement, para. C; see also Petition to Transfer Conservator Funds. M~ is not A~’s legal guardian, parent, or grandparent, see Petition to Transfer Conservator Funds, para. 11, which appears to be inconsistent with the requirements in the POMS. See POMS SI 01120.203(D)(6). A conservator, however, clearly meets the requirements of the Act itself, since a conservator is a “person . . . with legal authority to act in place of or on behalf of the individual.” 42 U.S.C. § 1396(d)(2)(A)(iii). A~’s sub-account thus meets the fourth statutory requirement.

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

To satisfy the fifth, or “Medicaid payback” requirement of the pooled trust exception, the trust must contain “specific language” that provides that upon a beneficiary’s death, to the extent amounts remaining in the beneficiary’s account are not retained by the trust, the State(s) are reimbursed an amount equal to the total amount of medical assistance paid on behalf of the deceased beneficiary under the State Medicaid plan(s) during his or her lifetime. 42 U.S.C. § 1396p(d)(4)(C)(iv); POMS SI 01120.203(D)(8).

ELM’s trust declaration states that in general, upon the death of a beneficiary, any funds remaining in the sub-account shall be deemed to be surplus Trust property and shall be retained by the Trust, and there is no specific language regarding repayment of Medicaid expenses. ELM Second Restated Trust Agreement, Art. X(2). Although the trust does not include a Medicaid payback provision in those circumstances, the Act allows excess funds to be “retained by the Trust.” 42 U.S.C. § 1396p(d)(4)(C)(iv); POMS SI 01120.203(D)(8). Office of General Counsel (OGC) conferred with the Office of Income Security Programs (OISP), who advised that, while SSA would prefer that a trust include Medicaid payback language even in situations where the pooled trust intends to retain all remaining funds, the agency is not inclined to find the trust language here to be non-complaint, since the statute does not require Medicaid to be reimbursed if the trust retains the entire amount remaining in the account, and the language of the trust requires the trust to retain all remaining funds in such an account.

In addition, the trust agreement also allows for Joinder Agreements that provide for reimbursement of Medicaid expenses, with any amounts remaining to be disbursed pursuant to the Beneficiary’s will or, if none, to the beneficiary’s heirs at law. ELM Second Restated Trust Agreement, Art. X(2). In fact, A~’s Joinder Agreement states that if any funds remain in her sub-account after payment of administrative expenses, “that surplus shall first be used to repay any states which have provided Medical Assistance of a beneficiary, up to the amount of such Medical Assistance services so provided.” Joinder Agreement, para. D. In these situations, the trust and joinder agreement contain specific Medicaid payback provisions.

In situations where Medicaid is reimbursed, the trust agreement provides for payment of final administrative expenses before Medicaid is reimbursed. ELM Second Restated Trust Agreement, Art. X(2). The trust agreement specifies that these expenses will be the greater of a flat fee, a percentage fee of the balance, or actual expenses, as provided in the beneficiary’s joinder agreement. ELM Second Restated Trust Agreement, Art. X(2). A~’s Joinder Agreement provides that “final administrative expenses shall be its actual expenses, but no less than $4,000.00, as the work required to determine the amount and validity of the Medical Assistance lien is so extensive, and the fiduciary responsibility so significant, that it is not cost effective to make such a determination and to then obtain court approval to make final distributions to heirs or devises of lesser amounts.” Joinder Agreement para. D. We had previously raised concerns about the propriety of setting $4,000 as the minimum administrative fee, regardless of the actual cost of winding up the trust account. See Wood Opinion, supra, at 5. However, OGC conferred with OISP about this language, and OISP advised that, absent clear unreasonableness or clear violation of law or policy (which does not appear to be present here), the agency is inclined to presume good faith and accept a reasonable business and administrative scheme.

B. Regular Resource Rules

If the trust were amended to qualify for the pooled trust exception, accounts would still need to be evaluated under the regular resource rules. See POMS SI 01120.203(D)(1). Accounts in the trust would not be resources under these rules.

According to the regular resource rules, a trust will be considered a resource only if: (1) the beneficiary can terminate or revoke the trust or her interest in the trust and obtain the assets; (2) the beneficiary can compel the trustee to pay for her support and maintenance; or (3) the beneficiary can sell her beneficial interest in the trust. See POMS SI 01120.200(A)(1)(a), (D)(1).

Here, A~ is the settlor of the trust to the extent the trust contains assets and/or income that belonged to her. See POMS SI 01120.200(B)(2). Generally, a settlor of a trust can revoke her contributions to the trust if she is also the sole beneficiary of the trust, even if the trust purports to be irrevocable. See POMS SI 01120.200(D)(3). In this case, however, A~ is not the sole beneficiary of the trust, since the trust allows for A~’s heirs to inherit any surplus from the trust once administrative expenses have been paid and the states have been reimbursed. Michigan law recognizes that a conveyance to a beneficiary’s “heirs” creates a future interest in the heirs, not a reversionary interest for the settlor. See Mich. Comp. Laws Ann. § 700.2719. Therefore, she could not unilaterally revoke her contributions to the trust and recover those assets to use for her support and maintenance. As noted above, the pooled trust document provides, that in most cases, the trust will retain the remaining assets on the death of the beneficiary. ELM Second Restated Trust Agreement, Art. X(2). In those cases, the trust itself is a beneficiary that would prevent the grantor from revoking the trust.

Nor would A~ have the power or authority to direct the use of the trust property for her support and maintenance. Under the terms of the trust, the trustee has sole discretion to determine when payments will be made for her benefit.

Finally, she cannot sell her beneficial interest in the trust. We note that, under Michigan law, even with a valid spendthrift provision a “creditor or assignee” of a self-settled trust may reach “[t]he maximum amount that can be distributed to or for the settlor’s benefit” (exclusive of sums needed to pay the settlor’s taxes). Mich. Comp. Laws Ann. § 700.7506(1)(c)(ii). However, we believe this provision is best read to apply only to assignees who are creditors of secured interests in the property, rather than a purchaser to whom property has been transferred for fair market value.^[37] We believe that Michigan would likely follow the Restatement (Third) of Trusts, which states that a purchaser for value (as opposed to a creditor) generally would not be able to reach the trust funds of a self-settled discretionary trust. SeeRestatement (Third) of Trusts § 60 & comment f (2019).

CONCLUSION

For the reasons discussed above, we conclude that the ELM trust does not meet the pooled trust exception. However, if the trust were modified to address the concerns identified above, accounts in the trust would not be resources. If SSA previously excepted an account in the trust under the pooled trust rules, the trust should be provided 90 days to amend the trust consistent with agency policy.

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

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

BACKGROUND

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

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

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

The issue of trust decanting may arise in the Social Security context when certain trusts for disabled beneficiaries (e.g., special needs trusts and pooled trusts pursuant to 42 U.S.C. § 1396p(d)(4)(A) and (d)(4)(C), respectively) contain a provision that contemplates the transfer of assets to another trust.^[38] In that instance, the agency must determine whether the decanting provision, read in light of applicable state law, complies with SSA trust policy, including its rules regarding early termination of trusts.^[39]

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

REGION V STATE SURVEY

ILLINOIS

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

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

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

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

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

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

INDIANA

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

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

MICHIGAN

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

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

MINNESOTA

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

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

OHIO

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

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

WISCONSIN

Wisconsin’s trust decanting statute, Wis. Stat. Ann. § 701.0418, went into effect on July 1, 2014. Unless the terms of a trust expressly provide otherwise, the statute permits a trustee who has the power to invade the principal of a first trust to exercise the power to appoint part or all of the assets of the first trust in favor of a trustee of a second trust, if certain conditions apply. Id.§ 701.0418(2). The statute does not limit a trustee who has a power to invade principal to appoint property in further trust to the extent the power arises under the terms of the first trust or under any other section, another law, or common law. Id. § 701.0418(8)(c). The statute also includes several provisions regarding trusts for beneficiaries with disabilities. Specifically, if the second trust is a trust for an individual with a disability, the second trustee’s power to invade the income or principal of the second trust need not be limited to the first trustee’s power to invade the income or principal of the first trust. Id. § 701.0418(2)(a)(2). Moreover, a trustee may appoint assets to the second trust even if the trustee has a beneficial interest in the first trust.^[40] Id. § 701.0418(3)(c). Furthermore, a trustee may not appoint assets to a second trust if it would impair the essential purpose of a trust for an individual with a disability. Id. § 701.0418(3)(f).

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

CONCLUSION

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

This Regional Chief Counsel (RCC) opinion examines whether the master trust declaration for the Arc Michigan Pooled Amenities Trust and the Joinder Agreement for NH D~ are in compliance with SSA’s pooled trust policy. The RCC concludes that the trust does not comply with SSA’s pooled trust policy. Specifically, the trust allows for a successor trustee that is not a non-profit organization; it allows the trustee to use funds in sub-accounts to cover the costs of actions affecting only other sub-accounts; and the trust appears to allow for someone other than the individual, a court or the individual’s parent, grandparents, or legal guardian to establish a sub-account in the trust with the assets of the disabled individual.

QUESTION

You asked whether the master trust declaration for the Arc Michigan Pooled Amenities Trust and the Joinder Agreement for NH D~ are in compliance with SSA’s pooled trust policy. For the reasons discussed below, we conclude that the trust does not comply with SSA’s pooled trust policy. Specifically, the trust allows for a successor trustee that is not a non-profit organization; it allows the trustee to use funds in sub-accounts to cover the costs of actions affecting only other sub-accounts; and the trust appears to allow for someone other than the individual, a court or the individual’s parent, grandparents, or legal guardian to establish a sub-account in the trust with the assets of the disabled individual. Therefore, self-settled accounts in the trust would, therefore, be resources. If the trust were amended to qualify for the pooled trust exception, self-settled accounts would not be considered resources under the regular resource rules. In addition, third party funds in such accounts in the fund would not be considered resources regardless of whether the trust meets the pooled trust exception. However, we were unable to determine (based on the information provided) whether Mr. D~’s sub-account would be considered self-settled or a third-party account. If his sub-account is self-settled, however, his account would continue to be a resource even if the trust were amended to comply with pooled trust policy, since the trust was not established by an appropriate party under the statute.

BACKGROUND

The Arc Michigan (Arc) is a Michigan non-profit corporation. On February 6, 2015, Arc executed a “Declaration of Trust” (TD) establishing The Arc Michigan Pooled Amenities Trust (Arc Pooled Trust). The intent of Arc was to establish a pooled supplemental needs trust, as set forth in 42 U.S.C. § 1396p(d)(4)(C), in order to supplement, but not displace, assistance which may otherwise be available to beneficiaries. TD Preamble, Art. 1.2(A)-(B), Art. 2.1, Art. 2.6. The assets held in the Trust and sub-accounts are not for the primary support of the beneficiaries but rather are supplemental needs (“amenities only”). TD Art. 2.1, 2.6. “Beneficiary” is defined as a person with intellectual or developmental disabilities, or other serious mental illness, “as determined by the Trustee” in accordance with each separate joinder agreement (JA). TD Art. 1.2(F). However, the Trust Declaration also states that the Trust is open only to individuals who meet the criteria for disability under 42 U.S.C. § 1382(a)(3) of the Social Security Act. TD 2.1, 2.3. “Grantor” is defined as the not-for-profit association establishing a special needs trust, while a “Donor” is defined as the person who donates property to the Arc Pooled Trust or a sub-account of the Trust. TD Art. 1.2(C), (D).

The Trust Declaration states that a Beneficiary’s sub-account is established upon the receipt of assets from a Donor pursuant to a signed Joinder Agreement. TD Art. 2.5(A). In addition to the beneficiary sub-accounts, the Arc Pooled Trust includes a separate “Remainder Sub-Trust Account” to which the Trustee may credit any amount remaining in a beneficiary’s sub-account at the time of the beneficiary’s death. TD 1.2(L), 2.1, 2.8.

The Trust Declaration defines “Trustee” generally as any person, persons, or entity that holds the office of Trustee, including any successor Trustee or Trustees. TD Art. 1.2(E). However, the Trust Declaration later specifies that ARC Michigan “shall be the sole acting Trustee of the trust.” . TD Art. 1.3. The Trustee is given broad powers, which are discussed in various sections of the Trust Declaration. See, e.g., TD Art. 2.5-2.6, 4. The Trustee has complete control over all distributions of Trust property. TD Art. 2.6. The Trust states that “[c]osts and expenses of defending the Declaration of Trust (Trust Agreement) from any claim, demand, legal or equable action, suit or proceeding may in the sole discretion of the Trustee either (i) be apportioned on a pro-rata basis to all then-funded Trust Fund Sub-Accounts, or (ii) be charged only against the Trust Fund Sub-Accounts of the affected Beneficiary, or (iii) be paid out of the other sources.” TD Art. 3.3. The Joinder Agreement includes similar language. See JA(J). A Beneficiary has no right to compel any distribution, or demand that the Trustee make any distribution. TD Art. 2.6. The Trust Declaration contains a spendthrift provision that prohibits (1) assignment by any Beneficiary of any part of his or her interest in the Trust principal or income; and (2) attachment of any part of the Trust principal or income by any creditor of a Beneficiary. TD Art. 5.2.

The Trust Declaration contains a paragraph regarding the distribution of trust assets upon the death of a Beneficiary. TD Art. 2.8. That paragraph contains Medicaid payback provisions, under which any amounts remaining in a sub-account after the Beneficiary’s death that are not retained by the Arc Pooled Trust must be paid to any state from which the Beneficiary received assistance, up to the total amount of medical assistance received by the Beneficiary. TD Art. 2.8. However, after a Beneficiary dies, the Trustee has the discretion to transfer anything remaining in the Beneficiary’s sub-account to the trust’s Remainder Sub-Account. TD Art. 2.8; see TD 1.5(L), 2.5(C); JA(G).

The Trust Declaration states that it shall be irrevocable, but that it may be amended to effectuate the terms and purposes of the Trust. TD Preamble. The Joinder Agreement also states that it is irrevocable. JA Witness Statement.

The Trustee is encouraged to seek modification of any trust provision that is not in compliance with 42 U.S.C. § 1396p. TD Art. 5.1. In addition, the Board of Directors of Arc Michigan can amend the Declaration of Trust or Joinder Agreement. TD Art. 2.4.

The Trust is governed by Michigan law, but in conformity with the pooled trust provisions of the Social Security Act. TD Art. 5.1; JA(K)(3). To the extent there is a conflict between the provisions of the Trust and the governing law or regulations, the Trust and Joinder Agreement state that the law and regulations control. TD Art. 5.1; JA(K)(3).

On June 7, 2018, A~, the trustee for the A. D. W~ Living Trust, executed a Joinder Agreement (JA) establishing a sub-account in the Arc Pooled Trust on behalf of her step-brother NH D~, using money from the A. D. W~^[41] Living Trust. JA(C). We were not provided any information about the A. D. W~ Living Trust.

DISCUSSION

As stated above, the Trust Declaration allows any person to fund a Trust sub-account. TD Art. 1.2(D). Because anyone can contribute assets to a Trust sub-account, three possible types of sub-accounts exist: (1) a sub-account that is funded solely by assets belonging to the Beneficiary (i.e., a self-settled sub-account); (2) a sub-account that is funded solely by third-party assets; and (3) a comingled sub-account containing both third-party and Beneficiary assets. The following discussion addresses each type separately, then discusses Mr. D~’s sub-account.

I. Self-Settled Sub-Accounts

A. Statutory Resource Rules

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

In order to qualify for the pooled trust exception, the trust must satisfy the following conditions:

1. 1. 

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

2. 2. 

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

3. 3. 

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

4. 4. 

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

5. 5. 

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

See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203.D.1.

Here, even if the Trust and sub-accounts are irrevocable, a self-settled Trust sub-account would be a resource under the statute, because funds held in the sub-account are to be used for the individual Beneficiary’s benefit. TD Art. 2.5(B), 2.6; JA(H). Accordingly, we consider whether the Trust qualifies for the pooled trust exception. As discussed below, we do not believe the Trust satisfies the first, third, or fourth requirements of this exception. Consequently, a self-settled sub-account in the Trust would not be excepted from resource counting.

1. Established and Managed by a Non-Profit Association

To satisfy the first requirement of the pooled trust exception, the trust must be established and managed by a non-profit association. 42 U.S.C. § 1396p(d)(4)(C)(i); POMS SI 01120.203.D.3. A non-profit association may employ the services of a for-profit entity, but the non-profit association must maintain ultimate managerial control over the trust. POMS SI 01120.225.D. For example, the non-profit association must be responsible for making day-to-day decisions regarding the health and well-being of the beneficiaries. Id. Also, a for-profit entity must not be allowed to determine whether to make discretionary disbursements from the trust. POMS SI 01120.225.E.

Here, Arc, a non-profit association, established and manages the Arc Pooled Trust. See TD Preamble, Art. 1.3; see also JA(K)(3). The Trust Declaration designates Arc as the “sole Trustee.” TD Preamble, Art. 1.2(D), 1.3. However, the Trust Declaration also defines “Trustee” to include “any successor Trustee or Trustees.” TD Art. 1.2(D). This suggests that, although Arc Michigan is currently the sole trustee, a successor trustee could be named, and the Trust Declaration does not require that a successor Trustee to Arc be a non-profit association or entity. Since the Trust appears to allow for designation of a for-profit successor trustee, the trust does not satisfy the agency’s policy that a non-profit association must maintain managerial control over the pooled trust. See POMS SI 01120.203.D.3.

2. Maintenance of Separate Accounts for Each Trust Beneficiary

To satisfy the second requirement of the pooled trust exception, the trust must maintain a separate account for each trust beneficiary, although it is acceptable for individual accounts to be pooled for investment and management purposes. 42 U.S.C. § 1396p(d)(4)(C)(ii); POMS SI 01120.203.D.4. The Arc Pooled Trust satisfies this requirement, as it maintains a separate sub-account for each beneficiary, but for purposes of investments and management of funds, the Trustee pools the Trust sub-accounts. TD Art. III; see also TD Art. 2.5-2.6, 3.2. Also, the Trustee, or its authorized agent, maintains records for each Trust sub-account. TD Art. 3.1 Id.

3. Established for the Sole Benefit of the Individual

To satisfy the third requirement of the pooled trust exception, the trust account must be established for the sole benefit of the disabled individual. 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203.D.5. A trust is considered to be established for the sole benefit of an individual if the trust benefits no one but that individual, either at the time the trust is established or at any time for the remainder of the individual’s life. POMS SI 01120.201.F.1.

The trust states that sub-accounts will be held for the sole benefit of the individual. See TD 2.5(B), 2.6. However, the trust also states that the “costs and expenses of defending the Declaration of Trust from an claim, demand, legal or equitable action, suit, or proceeding may in the sole discretion of the Trustee” either “be apportioned on a pro rata basis to all then-funded Trust Fund sub-accounts” or “be charged only against the Trust Fund Sub-Account of the affected Beneficiary.” TD Art. 3.3. This allows the Trustee to use funds from beneficiary accounts even where that beneficiary is not affected by the claim, demand, action, suit, or proceeding. This is inconsistent with agency policy that accounts be held for the sole benefit of that individual. See POMS PS 01825.017.A (PS 18-085) (trust should be clarified where it appeared that the trust allowed the use of a beneficiary’s assets for the cost of defending another sub-account); POMS PS 01825.011.E, .G (PS 17-026, PS 16-172) (trust does not meet the sole benefit criteria if an account can be charged for legal fees even where the account is not affected by the legal action).

The POMS also states that an individual trust account does not meet the pooled trust exception if the trust account “allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity.” POMS SI 01120.203.D.5. However, an early termination clause that solely allows for a transfer of the beneficiary’s assets from one section 1917(d)(4)(C) qualifying pooled trust to another section 1917(d)(4)(C) qualifying pooled trust complies with SSA’s rules governing pooled trusts. See POMS SI 01120.199.F.2. Here, the Trust Declaration states that if a Beneficiary moves out of Michigan, the Trustee will attempt to find a similar pooled trust operating in the Beneficiary’s new state of residence, and transfer the Beneficiary’s sub-account to that pooled trust. TD Art. 3.5. Thus, if a sub-account under the current trust is terminated because the beneficiary moved out of the state, the funds can only be transferred to another pooled trust.

4. Established Through the Actions of the Beneficiary, a Parent, Grandparent, Legal Guardian, or a Court

The fourth requirement of the pooled trust exception is that the trust account must be established through the actions of the account beneficiary, his or her parent, grandparent, legal guardian, or a court. 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203.D.6. The Arc Pooled Trust does not appear to meet this requirement. The Preamble to the Trust Declaration states that a Donor is an “individual with disability, parents, grandparents, legal guardian, or a court acting on behalf of the individual with a disability.” TD Preamble. That would seem to meet the statutory and regulatory requirements. However, the Trust Declaration also defines a Donor simply as “the person who is donating property.” TD Art. 1.2(D). This is problematic because under the broad definition in Article 1.2(D), the Trust could be read to allow any individual or entity, not just those permitted under the statute, to establish a Trust sub-account. The trust indicates that upon receipt of assets transferred “on behalf of a person with a disability” the sub-account is established, and after the account is established any person may add funds to the trust account. TD Art. 2.5(A), (D). This could be read to suggest that the trust sub-account will initially be established by a Donor as defined in the Preamble (consistent with the statute), and that other categories of Donors may thereafter add funds. However, the trust also states that the trustee may accept “additional assets from any source, to be held under the terms of this agreement.” TD Art. 2.5(E). Therefore, it would seem that the trustee could accept the funds of the disabled individual from any source under this provision. Indeed, the particular sub-account Joinder Agreement you sent us was established by the step-sister of the disabled individual—who is not a proper person to establish a pooled trust account under the statute and POMS. The Joinder Agreement states that the disabled individual does not have a legal guardian, so the step-sister was apparently not acting in that capacity when she established the sub-account. This, suggests that the trustee is apparenlty not reading or applying the trust to mean that the assets of the disabled individual will be used initially to establish the trust sub-account, and only individuals listed in the statute and POMS can establish that trust on behalf of the individual using that individual’s assets.^[42] Thus, the Trust Declaration should be clarified to ensure that, when the account is established with the assets of the disabled individual, only those listed in the statute and POMS can act on behalf of the individual in establishing the trust account..

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

To satisfy the fifth requirement of the pooled trust exception, the trust must contain “specific language” that provides that upon a beneficiary’s death, to the extent amounts remaining in the beneficiary’s account are not retained by the trust, the State(s) are reimbursed an amount equal to the total amount of medical assistance paid on behalf of the deceased beneficiary under the State Medicaid plan(s) during his or her lifetime. 42 U.S.C. § 1396p(d)(4)(C)(iv); POMS SI 01120.203.D.8. This is known as the Medicaid payback requirement of the pooled trust exception.

Here, the Trust includes a provision concerning termination upon death. The Trust Declaration states that, upon the death of a Beneficiary, any funds remaining in the sub-account shall be shall be retained by the Trust in the Remainder Sub-Account. TD Art. 2.1, 2.8. The Trust Declaration goes on to state that “to the extent that any amounts remaining in the Beneficiary’s account” upon the Beneficiary’s death are not retained by the Trust, the Trust “shall pay to the States from such deceased Beneficiary’s account any remaining amounts equal to the total amount of medical assistance paid on behalf of the Beneficiary by the State of Michigan or any other state,” made in proportion to the amount of medical assistance the Beneficiary received. TD Art. 2.8. Thus, the Trust contains the necessary language to satisfy the Medicaid payback requirement. The Joinder Agreement includes the same provision. JA(G).

B. Regular Resource Rules

If Arc is able to cure the above defects and qualify for the pooled trust exception, the regular resource counting rules in POMS SI 01120.200 would apply to determine whether a self-settled sub-account in the Trust would be counted as a resource. See 42 U.S.C. § 1382b(e)(1); POMS SI 01120.203.D.1. Pursuant to POMS SI 01120.200.D.1.a, trust principal will count as a resource if the beneficiary either: (a) has the legal authority to revoke or terminate the trust and then use the funds to meet his or her food or shelter needs; or (b) can direct use of the trust principal for his or her support and maintenance under the terms of the trust. Additionally, if the beneficiary can sell his or her beneficial interest in the trust, that interest is a resource. Id.

Whether a trust can be revoked depends on the terms of the trust and applicable state law—here, Michigan. See POMS SI 01120.200.D.2. The Joinder Agreement states that it is irrevocable as to the Donor. Notwithstanding these provisions, under Michigan law, when a grantor is the sole beneficiary of a trust, the trust is deemed to be revocable even if the trust document states it is irrevocable. See POMS SI CHI01120.200.C. However, if the trust names a residual beneficiary or beneficiaries to receive the benefit of the trust interest after a specific event – usually the death of the primary beneficiary—then the trust is irrevocable, because the primary beneficiary could not unilaterally revoke the trust; rather, he or she would need the consent of the residual beneficiary or beneficiaries. See id. Here, the trust is a remainder beneficiary for each sub-account, since the trust may retain all funds on the death of the beneficiary. JA(K)(4). Thus, there is at least one residual beneficiary and, consequently, a self-settled sub-account in the Trust is not revocable. See POMS SI CHI01120.200.C, D.

Nor can the Beneficiary direct the use of trust assets. Here the Trustee, in its sole discretion, may make any payments under the Trust for the supplemental needs of each Beneficiary. TD Art. 2.6; JA(H).

Finally, the Beneficiary cannot sell his or her beneficial interest in the Trust. The Trust Declaration contains a spendthrift provision that bars a Beneficiary from assigning his or her interest in the Trust principal or income; prohibits attachment of any part of the Trust principal or income by any creditor of a Beneficiary; and ensures that a Beneficiary’s interest in the Trust shall not be subject to bankruptcy proceedings or other legal obligations or liabilities the Beneficiary may incur. TD Art. 5.2. Generally, states that allow spendthrift trusts do not allow a grantor to establish a spendthrift trust for his or her own benefit. See POMS SI 01120.200.B.13; Restatement (Third) of Trusts § 58(2) & cmt. e (2003). Under Michigan law, even if the trust has spendthrift provision, a “creditor or assignee” may reach “[t]he maximum amount that can be distributed to or for the settlor’s benefit” (exclusive of sums needed to pay the settlor’s taxes). Mich. Comp. Laws Ann. §§ 700.7502(1), (3), 700.7506(1)(c)(ii). However, we believe this provision is best read to apply only to assignees who are creditors or holders of secured interests in the property, rather than a purchaser to whom property has been transferred for fair market value.^[43] Thus, the spendthrift provision would be valid to prevent the beneficiary from selling his or her beneficial interest in the trust. Cf. Restatement (Third) of Trusts § 60, commt. 4 (transferee cannot reach the assets of a discretionary trust, even where the discretionary beneficiary is also the settlor of the trust).

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

II. Third-Party Sub-Accounts

In the case of a trust established solely with the assets of a third party, the regular resource rules set forth in POMS SI 01120.200 apply to determine whether the assets in the trust are a resource. As with a self-settled sub-account, a third-party sub-account would not be a resource under the regular resource rules. First, the Trust does not give the beneficiary the right to terminate his or her sub-account. See POMS SI 01120.200.D.1.b.2 (beneficiary generally does not have power to terminate a trust). Second, as discussed above, the Trust contains no provision allowing the beneficiary to direct the use of trust principal for his or her support or maintenance. Finally, with respect to a beneficiary’s power to otherwise sell his or her beneficial interest in the Trust, the Trust contains a spendthrift provision, TD Art. 5.2, which Michigan fully recognizes in third party trusts. See Mich. Comp. Laws. Ann. § 700.7502(1). That spendthrift provision prohibits any beneficiary from selling or otherwise alienating his or her interest. TD Art. 5.2 Accordingly, a beneficiary’s beneficial interest in a third-party sub-account also would not be considered a resource.

III. Comingled Sub-Accounts

The Arc Pooled Trust allows contributions to a sub-account from any person. See TD Art. 1.2(D). Consequently, a sub-account could contain assets attributable to both the beneficiary and one or more third parties. Agency policy provides that, in the case of a comingled trust established on or after January 1, 2000, with the assets of both an SSI claimant (or spouse) and third parties, the regular resource rules apply to the portion of the comingled trust attributable to the assets of third parties, and the statutory resource rules apply to the portion attributable to the assets of the SSI claimant (or spouse) . See POMS SI 01120.200A.2.b, SI 01120.201C.2.c.

Here, in the event that a sub-account in the Trust receives any contributions from a third party, the portion of the sub-account attributable to the assets of the third party would not be a resource under the regular resource rules, as discussed in Section II above. However, with respect to the portion of the sub-account attributable to the assets of the grantor-beneficiary, that portion would be considered a resource under the Act based on the defects discussed in Section I.A above.

IV. D~ Sub-Account.

It is not clear whether the sub-account established for the benefit of NH D~ should be considered a third party sub-account or a self-settled subaccount. The Joinder Agreement states that the funds are from Mr. D~’s late stepfather pursuant to the A. D. W~ Living Trust. Because we do not have a copy of the A. W~ Living Trust, we cannot determine whether the funds deposited in the sub-account represent a specific inheritance from D~’s late step-father, in which case the money would likely be D~’s property, or whether the funds were left to D~’t step-sister to hold in trust for D~’s benefit, in which case the money would be likely considered third party funds. As indicated above, if the sub-account is considered a third party trust, it would not be a resource under SSA’s regular resource rules. However, if it is a self-settled sub-account, the account would continue to be a resource even if the main Trust were to be amended to meet the pooled trust exception. The Donor for D~’s sub-account is his step-sister, acting as trustee for the living trust of D~’s late step-father, A. W~. A sibling is does not meet the Act’s requirement the trust account be established through the actions of the account beneficiary, his or her parent, grandparent, legal guardian, or a court. 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203.D.6. Therefore, if it is a self-settled sub-account, it would not qualify for the pooled trust exception even if the trust would otherwise qualify for the pooled trust exception.

CONCLUSION

For the reasons discussed above, we conclude that a self-settled sub-account in the Arc Pooled Trust does not meet all of the requirements for an exception to resource counting under 42 U.S.C. § 1396p(d)(4)(C). However, if the defects identified above with respect to the statutory exception were cured, then a self-settled Trust sub-account generally would not constitute a resource under the regular resource counting rules. Similarly, a third-party sub-account in the Arc Pooled Trust would not constitute a resource. Finally, in the case of a comingled sub-account, the portion of the sub-account attributable to the assets of a third party would not be considered a resource, whereas the portion attributable to the assets of the grantor-beneficiary would be considered a resource. It is unclear to us, based on the information provided, whether Mr. D~’s account should be considered a self-settled or a third-party sub-account. If it is self-settled, his account would continue to be a resource even if the trust were amended to qualify for the pooled trust agreement, since his step-sister established his account.

This Regional Chief Counsel (RCC) opinion examines whether a child’s interest in the Grand Traverse Band (GTB) Trust (an Indian Gaming Regulatory Act, or IGRA, trust) is a countable resource for Supplemental Security Income (SSI) purposes. The RCC explains that for IGRA trusts, the Indian tribe must be the grantor of the trust in order for assets to be excepted from SSI resource counting, and that POMS SI 01120.195F outlines the requirements that must be met for us to consider the Indian tribe as trust grantor. In this case, the RCC concludes that the trust agreement does not meet three of the nine requirements. Therefore, we must consider the child to be the grantor of the IGRA trust, and any trust assets are a countable resource for SSI purposes.

QUESTION

S~ applied for SSI benefits on August XX, 2016. Pursuant to POMS SI 01120.195I, you asked whether S~’s interest in the Grand Traverse Band of Ottawa and Chippewa Indians Trust is a countable resource for SSI purposes. For the reasons discussed below, we believe that S~’s assets in her trust are a countable resource.

BACKGROUND

S~ was born on November XX, 2003, and is currently 14 years old. She is a member of the Grand Traverse Band of Ottawa and Chippewa Indians (GTB). The GTB distributes a portion of the profits from its gaming enterprises to all qualified tribal members in the form of per capita payments. Payments to minor children and incompetent adults are placed in separate trusts first established by the GTB in December 1994. Accordingly, a trust was established for S~.

The allocation of available net revenues from the GTB’s gaming enterprises is governed by its Revenue Allocation Ordinance (RAO), codified at 18 GTB Code § 1601 et seq. (available at: http://www.narf.org/nill/codes/grand_traverse/Title_18.pdf). In particular, § 1605(e) pertains to the per capita payments deposited into trusts for minors. In addition, the trusts are administered pursuant to the terms of the Complete Amendment to Trust Agreement of Grand Traverse Band of Ottawa and Chippewa Indians Creating Separate Trusts, dated February 18, 1998 (amended March 16, 2005).^[44] Section 1.05 of the trust agreement states that the separate trusts are irrevocable.

DISCUSSION

Under the Indian Gaming Regulatory Act (IGRA), 25 U.S.C. § 2701 et seq., an Indian tribe can issue a portion of its gaming revenues to individual tribal members in the form of per capita payments. See 25 U.S.C. § 2710(b)(3). The IGRA also requires a tribe to protect and preserve the interests of minor children and incompetent adults who are entitled to receive any of the per capita payments by disbursing the payments to the parents or legal guardians of such individuals. See id. § 2710(b)(3)(C); 25 C.F.R. § 290.12(b)(3). As a result of the IGRA, some tribes have established trusts for their tribal members who are minor children and incompetent adults.

When a tribal member who has an IGRA trust files for SSI, the agency must determine how to count assets held in the IGRA trust under our resource counting rules. POMS SI 01120.195 provides instructions for evaluating IGRA trusts. Part of those instructions require us to determine whether the tribe or the member is the grantor of the trust. The procedures for determining who is the grantor of an IGRA trust are based, in significant part, on Internal Revenue Service guidelines for analyzing IGRA trusts for income tax purposes. See POMS SI 01120.195B.

The agency will treat the Indian tribe as the grantor of an IGRA trust, for resource counting purposes, if all of the requirements in POMS SI 01120.195F are met:

1. 1. 

   The Indian tribe establishes the trust for the benefit of tribe members who are minors and legally incompetent adults and it funds the trust using only per capita payments from gaming revenues.

2. 2. 

   The trust beneficiary is a minor or legally incompetent adult at the time the trust (or trust account) is established.

3. 3. 

   The trust only allows contributions while the beneficiary is still a minor or legally incompetent.

4. 4. 

   The trust instrument states that it is a grantor trust and the Indian tribe is the grantor of the trust, and grants to the Indian tribe a power or interest in the trust assets, such as the ability to vote any shares held in trust.

5. 5. 

   The Indian tribe is the owner of the trust for tax purposes and all the trust assets and the trust principal and income are subject to claims of general creditors of the Indian tribe under applicable federal, state, local, and tribal law.

6. 6. 

   At all times while the trust is in effect, the principal and income of the trust must be subject to claims of general creditors under applicable law. In addition, the trust documents must require the trustee to cease payments to or for the benefit of the beneficiary, and must require that the trustee hold trust assets for the benefit of the Indian tribe’s general creditors throughout any period during which the trustee believes or has reason to believe that the Indian tribe is unable to pay its debts as they become due, or is subject to a pending insolvency or bankruptcy proceeding.

7. 7. 

   The trust beneficiary does not have any preferred claim or beneficial ownership interest in any assets of the trust, and any rights created under the trust documents must be unsecured rights. In addition, amounts payable to, or for his or her benefit, cannot be anticipated, assigned (either at law or at equity), alienated, pledged, encumbered or subjected to garnishment, levy, or other legal or equitable process.

8. 8. 

   Trust assets are not available to or for the benefit of the beneficiary until the beneficiary ceases to be a minor or legal incompetent, except for the distributions for the beneficiary’s health, education, or welfare made at the discretion of the trustee and pursuant to the trust instrument.

9. 9. 

   Upon the beneficiary’s death, the beneficiary’s share must be paid to the Indian tribe, unless the trust document provides for payment either:

   • •

     to persons who may inherit from the beneficiary under applicable state or tribal inheritance laws; or

   • •

     based on the terms of a valid will or trust of the beneficiary.

Here, it does not appear that S~’s trust meets all of the requirements of POMS SI 01120.195F. In particular, the trust agreement does not state that all the trust assets and the trust principal and income are subject to claims of general creditors of the Indian tribe under applicable federal, state, local, and tribal law, as required by SI 01120.195F.5. Rather, Section 3.01 of the trust agreement states that “[n]either trust income nor principal nor any beneficiary’s interest therein shall be subject to . . . any other claims of any creditor.” See Agreement § 3.01.

In addition, the trust agreement fails to comply with SI 01120.195F.6 because it does not contain statements that the principal and income of the trust are subject to claims of general creditors under applicable law, and that the trustee must cease payments to or for the benefit of the beneficiary and hold trust assets for the benefit of the Indian tribe’s general creditors throughout any period during which the trustee believes or has reason to believe that the Indian tribe either is unable to pay its debts as they become due or is subject to a pending insolvency or bankruptcy proceeding. Finally, the trust agreement fails to comply with SI 01120.195F.7 because it does not state that the trust beneficiary does not have any preferred claim or beneficial ownership interest in any assets of the trust, and any rights created under the trust documents must be unsecured rights.

In sum, the trust agreement does not meet all of the requirements of POMS SI 01120.195F, and S~ is considered the grantor of the trust. Therefore, the agency must evaluate the trust agreement under the statutory resource rules. Section 1613(e) of the Social Security Act (the Act) provides generally that, with respect to trusts established on or after January 1, 2000, an individual’s assets will be considered resources for SSI purposes even if the trusts are irrevocable. See 42 U.S.C. § 1382b(e); POMS SI 01120.201. Accordingly, the trust is considered a resource unless an exception applies. See POMS SI 01120.201D.2.a.

One exception is for special needs trusts established under section 1917(d)(4)(A) of the Act. See 42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203B.1. Another exception is for pooled trusts that are established under section 1917(d)(4)(C) of the Act. See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203B.2. Both exceptions require that, upon the death of the individual, all amounts remaining in a special needs trust or any amounts remaining in the beneficiary’s account that are not retained by a pooled trust be paid to the State up to an amount equal to the total medical assistance paid on behalf of the individual under a State Medicaid plan. Here, the GTB Trust does not have a Medicaid payback provision and thus does not meet either exception. Therefore, we believe that S~’s trust is a countable resource for SSI purposes.

To the extent the agency determines that S~’s trust is a resource, disbursements from the trust to or for the benefit of S~ would not be income, but conversion of a resource. See POMS SI 01120.201I.2.a.^[45] In addition, once S~ reaches age 18, assuming she is not adjudicated as legally incompetent, the GTB’s per capita payments will no longer be placed into her trust but will instead be issued directly to her. See 18 GTB Code § 1605(e)(7). These payments would be considered unearned income in the month of receipt and a countable resource in subsequent months if they are retained. See 20 C.F.R. §§ 416.1102, 416.1120-1123, 416.1201; POMS SI 00810.030, 01110.600.

CONCLUSION

For the reasons discussed above, we believe that the assets held in S~’s trust account could be considered a countable resource to her for purposes of SSI eligibility. As such, any distributions from the trust would not be income but conversion of a resource. Per capita payments made directly to S~ after attaining age 18 would constitute unearned income.

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

QUESTION

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

BACKGROUND

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

DISCUSSION

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

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

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

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

Illinois and Indiana have not updated their relevant trust statutes, which do not recognize dry trusts. Indiana’s statute requires that a trust have property. See Ind. Code § 30-4-1-1. Although Illinois’s statute[^[46] 1] does not set forth the elements of a trust, 760 Ill. Comp. Stat. 5/2, case law suggests that property is an essential element of a trust. See Eychaner v. Gross, 779 N.E.2d 1115, 1131 (Ill. 2002).   

CONCLUSION

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

The Regional Chief Counsel (RCC) Opinion asked whether a sub-account in the Michigan Charities Pooled Trust constitutes a resource for purposes of determining a beneficiary’s eligibility for Supplemental Security Income (SSI). The RCC concluded that a sub-account in the Michigan Charities Pooled Trust is excepted from resource counting under Social Security Act § 1917(d)(4)(C), 42 U.S.C. §1396p(d)(4)(C), and the agency should not count it as a resource for purposes of determining a beneficiary’s eligibility for SSI.

QUESTION

You asked whether a sub-account in the Michigan Charities Pooled Trust constitutes a resource for purposes of determining a beneficiary’s eligibility for Supplemental Security Income (SSI).

ANSWER

We conclude that a sub-account in the Michigan Charities Pooled Trust is excepted from resource counting under Social Security Act § 1917(d)(4)(C), 42 U.S.C. § 1396p(d)(4)(C), and the agency should not count it as a resource for purposes of determining a beneficiary’s eligibility for SSI.

BACKGROUND

CPT, a Florida non-profit corporation, proposes to establish the Michigan Charities Pooled Trust (“Pooled Trust”) through the Declaration of Trust for the Michigan Charities Pooled Trust (“Master Trust Agreement” or “MTA”). See MTA, §§ 1.2, 2.1 The purpose of the Pooled Trust is to establish and manage trust accounts for the benefit of persons with disabilities in compliance with Social Security Act § 1917(d)(4)(C), 42 U.S.C. § 1396p(d)(4)(C). See MTA, §§ 1.2, 1.5. The Pooled Trust’s intent is to supplement, not displace, government assistance otherwise available to trust beneficiaries. See MTA, § 3.2.

The Master Trust Agreement provides that a trust beneficiary, or his or her parent, grandparent, legal guardian, or a court, may establish a trust account on the beneficiary’s behalf. See MTA, § 2.3 Once established, an individual beneficiary’s trust account is irrevocable. See MTA, § 1.3. The Trustee shall establish a separate account for each trust beneficiary, but may pool account funds for purposes of investment and management. See MTA, §§ 4.1, 9.1.

During the beneficiary’s lifetime, the Trustee has sole and absolute discretion to make discretionary payments from the trust account to enhance the beneficiary’s safety, comfort, enjoyment, or otherwise enhance the beneficiary’s quality of life. See MTA, § 6.1. Pursuant to the Master Trust Agreement, the Trustee has power to transfer a beneficiary’s account to another qualifying pooled trust. See MTA, § 6.5. In the event of such transfer, the Master Trust Agreement prohibits any disbursements other than to the recipient pooled trust. See id.

Upon the beneficiary’s death, his or her trust account terminates. See MTA, § 7.1. Following such termination, the Trustee must first determine the Pooled Trust’s remainder share (“Trust Remainder Share”). See MTA, § 7.2. If the amount owed to the State(s) in reimbursement for medical assistance paid on the beneficiary’s behalf under a State Medicaid plan(s) is greater than the amount of funds remaining in the beneficiary’s account, the Trustee shall retain 50% of the remaining funds as the Trust Remainder Share. See id. If the amount owed to the State(s) for Medicaid reimbursement is less than the amount of funds remaining in the beneficiary’s account, then the Trustee shall retain 5% as the Trust Remainder Share. See id. Thereafter, the Trustee shall first use remaining assets in the trust account to reimburse the State(s) for medical assistance paid on the beneficiary’s behalf under a State Medicaid plan(s), and then distribute the remaining account assets pursuant to section 7.5. See id.

Prior to reimbursing the State(s) for medical assistance provided under State Medicaid plan(s), the Trustee may pay certain administrative expenses, including State and Federal taxes arising due to the beneficiary’s death, and reasonable fees and costs for administering the beneficiary’s estate. See MTA, § 7.4. The Master Trust Agreement prohibits the payment of administrative expenses not allowed under the Social Security Administration’s Program Operations Manual System (POMS) prior to State Medicaid reimbursement. See id. Specifically, the Trustee may not pay inheritance taxes, debts owed to third parties, funeral expenses, or payments to residual beneficiaries. See id.

After State Medicaid reimbursement, the Trustee may make distributions for funeral expenses and third party debts. See MTA, § 7.5. After such distributions, the Trustee shall distribute the remaining trust account assets to the remainder beneficiaries according to the Joinder Agreement. See id. The Joinder Agreement permits a trust account beneficiary to designate residual beneficiaries to receive the remaining trust assets upon his or her death. See Joinder Agreement. If the beneficiary does not make such a designation, the Trustee will distribute the remaining trust assets to the beneficiary’s “heirs at law,” as designated by State law. See id.

The Master Trust Agreement provides that in the event of early termination, i.e., termination during the beneficiary’s lifetime, the State(s) would receive reimbursement equal to the amount of medical assistance paid on behalf of the beneficiary under the State Medicaid plan(s). See MTA, § 8.1. Following reimbursement to the State(s), the Trustee would distribute all remaining trust account assets to the trust beneficiary. See id.

The Mater Trust Agreement contains a spendthrift provision, providing that no part of a beneficiary’s trust account shall be subject to voluntary or involuntary assignment, attachment, or compelled distribution. See MTA, § 9.9.

The Master Trust Agreement provides that Michigan law governs the Pooled Trust. See MTA, § 13.1.

DISCUSSION

Generally, a trust established after January 1, 2000, with the assets of an individual will be a resource countable to that individual for purposes of determining SSI eligibility. See Social Security Act §§ 1613(e), 1917(d); 42 U.S.C. §§ 1382b(e), 1396p(d); Program Operations Manual System SI 01120.201.A. However, a trust established with the assets of a disabled individual that is part of a pooled trust may be excepted under certain circumstances. Social Security Act §§ 1613(e)(5), 1917(d)(4)(C); 42 U.S.C. §§ 1382b(e)(5), 1396p(d)(4)(C); POMS SI 01120.203.B.2.

To meet this pooled trust exception:

(1) the trust must be managed by a non-profit association;

(2) a separate account must be maintained for each beneficiary of the trust; (3) the beneficiary’s account must be established for his or her sole benefit by a parent, grandparent, legal guardian, by the beneficiary, or by a court; and (4) upon the beneficiary’s death, to the extent that amounts remaining in the beneficiary’s account are not retained by the trust, the trust must pay the State(s) the amount remaining in the account up to the total amount of medical assistance paid on behalf of the beneficiary under State Medicaid plan(s). Social Security Act § 1917(d)(4)(C), 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203.B.2.a.

Here, as discussed in greater detail below, the Pooled Trust satisfies the requirements of Social Security Act § 1917(d)(4)(C), 42 U.S.C. § 1396p(d)(4)(C). Accordingly, an account in the Pooled Trust is excepted from resource counting.

1. Managed by a Non-Profit Association

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

CPT, a non-profit corporation, is responsible for establishing and managing the Pooled Trust. See MTA, §§ 1.2, 2.1. The Master Trust Agreement permits CPT to retain an investment advisor to be responsible for the custody of assets, risk assessment for each trust beneficiary, investment, and asset allocation selection and management. See MTA, § 2.5. However, this provision does appear to cede CPT’s ultimate power and control over the Pooled Trust. See MTA, § 2.5 (CPT reserves the right to remove any investment advisor). Accordingly, the Master Trust Agreement satisfies the requirement that a non-profit association establish and manage the Pooled Trust.

2. Maintenance of Separate Accounts for Each Trust Beneficiary

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

The Master Trust Agreement provides that although the Trustee may pool funds from various accounts for purposes of investment and management, the Trustee will maintain separate accounts for each beneficiary, and maintain records of each account. See MTA, §§ 4.1, 9.1. Accordingly, the Master Trust Agreement satisfies the requirement that the Pooled Trust maintain a separate account for each trust beneficiary.

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

To satisfy the third requirement of the pooled trust exception, the trust sub-account must be established by the sub-account beneficiary, his or her parent, grandparent, legal guardian, or a court. Social Security Act § 1917(d)(4)(C)(iii), 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203.B.2.f. The Master Trust Agreement provides that a beneficiary’s parent, grandparent, or legal guardian, or the beneficiary himself or herself, or a court, may establish an account for the beneficiary in the Pooled Trust. See MTA, § 2.3.

Additionally, section 1917(d)(4)(C)(iii) of the Social Security Act requires that the trust account be for the sole benefit of the disabled individual. Social Security Act § 1917(d)(4)(C)(iii), 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203.B.2.e. A trust subaccount will not meet the “sole benefit” requirement if the trustee has power to terminate the trust prior to the beneficiary’s death, unless the early termination clause provides that, upon termination of the trust: (1) the State receives all amounts remaining in the trust up to an amount equal to the amount of medical assistance paid on behalf of the individual, and (2) after payment of allowable administrative expenses and reimbursement to the State, all remaining funds are distributed to the beneficiary, and (3) the beneficiary does not have power to terminate the trust. POMS SI 01120.199.F.1; see also POMS SI 01120.203.B.2.e (the pooled trust exception does not apply if the trust account “allows for termination of the trust account prior to the individual's death and payment of the corpus to another individual or entity”).

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

Here, the Master Trust Agreement does not provide for early termination of a trust account. See MTA, § 8.1. Nevertheless, the Master Trust Agreement provides that, in the event of early termination, the Trustee shall first reimburse the State(s) for medical assistance paid on the beneficiary’s behalf under a State Medicaid plan(s), and then the Trustee shall distribute all remaining account assets the trust account beneficiary. See MTA, § 8.1. Because the early termination ensures Medicaid reimbursement to the State(s) and distribution of any remainder to the Trust beneficiary, the early termination provision satisfies the “sole benefit” requirement of section 1917(d)(4)(C) of the Act. See POMS SI 01120.199.F.1.

The Master Trust Agreement also permits transfer of a beneficiary’s trust account to another qualifying pooled trust during the beneficiary’s lifetime. See MTA, § 6.5. The provision is permissible because it contains specific language that precludes the early termination from resulting in disbursements other than to the secondary qualifying pooled trust. See id.

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

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

The Master Trust Agreement provides that the Trust’s Remainder Share shall be 5% or 50% of the assets remaining in the beneficiary’s trust account upon his or her death. See MTA, § 7.2. After the Pooled Trust retains this share, the Trustee may pay certain administrative expenses permissible under POMS SI 01120.B.3, including State and Federal taxes due because of the beneficiary’s death, as well as reasonable fees for administration of the beneficiary’s estate. See MTA, § 7.4. Other than retention of the Trust’s Remainder Share and the payment of allowable administrative expenses, the Master Trust Agreement provides that the State(s) shall receive priority reimbursement for medical assistance paid on the beneficiary’s behalf under a State Medicaid plan(s). See id. The Master Trust Agreement does not limit such reimbursement to any particular state. See id. Because the Master Trust Agreement prioritizes Medicaid reimbursement to the State(s), the Pooled Trust meets the final criterion for an exception to resource counting under section 1917(d)(4)(C) of the Act.

APPLICATION OF REGULAR RESOURCE RULES

The Pooled Trust meets the requirements for an exception to resource counting under section 1917(d)(4)(C) of the Act. Nevertheless, even if a tust meets an exception to resource counting, it is still subject to the regular resource counting rules. See POMS SI 01120.203.B.1.a.

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

Here, the Master Trust Agreement provides that a beneficiary’s trust account is not subject to voluntary or involuntary assignment, attachment, or compelled distribution. See MTA, § 9.9. Additionally, the beneficiary does not have power to direct use of trust funds for his or her support and maintenance; rather, the Trustee has sole and absolute discretion to distribute funds during the beneficiary’s lifetime. See MTA, § 6.1.

Finally, the Master Trust Agreement provides that deposits into a trust account are non-refundable and irrevocable, and the trust account is irrevocable once established. See MTA, §§ 1.3, 3.3. However, under Michigan law, when a grantor is the sole beneficiary of a trust, the trust is deemed to be revocable even if the trust document states it is irrevocable. See POMS SI CHI01120.200.C; Rest. (2d) of Trusts § 339; Hein v. Hein, 543 N.W.2d 19, 358-59 (Mich. Ct. App. 1995): (holding that, consistent with the law in most jurisdictions and Restatement (2d) of Trusts § 338, a settlor and all beneficiaries consent they can modify or terminate an irrevocable trust).^[47]

The Joinder Agreement gives the settlor of each trust account the opportunity to identify residual beneficiaries in the event there remain funds for distribution upon the beneficiary’s death. See Joinder Agreement. Where the settlor fails to make such a designation, the Trustee will distribute the remaining trust assets to the beneficiary’s “heirs at law,” as designated by State law. See Joinder Agreement.^[48]

Furthermore, the Pooled Trust maintains a contingent residual interest in each account. See MTA, § 7.2. Accordingly, an otherwise irrevocable self-settled account in the Pooled Trust is not revocable by operation of Michigan law due to a lack of residual beneficiaries.

In sum, an account in the Pooled Trust does not constitute a resource under regular resource counting rules.

CONCLUSION

The Pooled Trust meets the requirements for an exception to resource counting under section 1917(d)(4)(C) of the Social Security Act. Furthermore, because a beneficiary of the Pooled Trust does not have power to revoke or terminate his or her trust account, or direct use of the account principal for his or her support or maintenance, the trust account would not constitute a resource under regular resource counting rules.

The Regional Chief Counsel (RCC) Opinion examines whether the Springhill First-Party Pooled Trust (the “Trust”) is in compliance with the procedures governing the Agency’s pooled trust policy. The RCC concluded that the sub-accounts in the Springhill First-Party Pooled Trust would not be considered resources and that the Trust meets the criteria for the pooled trust exception.

QUESTION

You asked whether the Springhill First-Party Pooled Trust (the “Trust”) is in compliance with the procedures governing the Agency’s pooled trust policy. For the reasons discussed below, we conclude that the sub-accounts in the Springhill First-Party Pooled Trust would not be considered resources and that the Trust meets the criteria for the pooled trust exception. BACKGROUND

Springhill Housing Corporation, Inc. (“Springhill”), a non-profit corporation, established and manages the Springhill First-Party Pooled Trust (the “Trust”), serving as both the Settlor and Trustee. See Fourth Restatement & Decl. of Trust for Springhill First-Party Pooled Trust (“Fourth Restatement”), Art. One, Sect. 1.01. Springhill first established the Trust on May XX, 1997. Id.; see also Fourth Rest., p.1. The Fourth Restatement was executed on August XX, 2016, after Springhill, acting as Trustee, nominated M~ to act as Trust Protector. See Fourth Rest., p. 1.

The Trust consists of pooled individual sub-accounts that are established and managed for the sole benefit of the specified beneficiary. Fourth Rest., Art. Three, Sect. 3.01; Art. Thirteen, Sect. 13.17. Under the Trust, a “beneficiary” is a disabled person, as defined in 42 U.S.C. § 1382c(a)(3), who is the sole recipient of services and benefits of his Trust sub-account created by a “Grantor.” Fourth Rest., Art. Thirteen, Sect. 13.02. The Grantor, in turn, is defined by the Fourth Restatement as a parent, grandparent, agent acting for the beneficiary under a power of attorney, guardian, the beneficiary himself, or any person or entity acting pursuant to a court order, who establishes a sub-account through the execution of an Irrevocable Joinder Agreement for the beneficiary and funds the sub-account with the beneficiary’s assets. Fourth Rest., Art. Thirteen, Sect. 13.05.

The primary purpose of Trust II is to supplement available government benefits to ensure the beneficiary’s comfort and happiness during his or her lifetime. MTA, Art. VII(B). Payments from Trust II are made on behalf of the beneficiary from Trust II assets at the sole discretion of the Trust II Trustee. MTA, Art. VII(A). The MTA specifies that Trust II is established for the sole benefit of each individual beneficiary and that it is an irrevocable trust. Id.; MTA, Art. X; Instrument of Adoption, Art. I.

Each sub-account is funded with assets from the sub-account beneficiary and solely benefits the individual beneficiary. Fourth Rest., Art. One, Sects. 1.01 & 1.05.

The Trust is intended to be a pooled trust established pursuant to 42 U.S.C. § 1396p(d)(4)(C) and the sub-accounts of the Trust are intended to serve as supplemental and emergency funds for the beneficiaries. Fourth Rest., Art. One, Sect. 1.04; Art. Two, Sect. 2.01. Because of their supplemental nature, distributions from the Trust should not be made to, or for the benefit of, a beneficiary if the effect of such a distribution would be to supplant, replace, or disqualify a beneficiary from receiving government assistance. Fourth Rest., Art. Four, Sect. 4.02. Thus, generally distributions are not made by the Trustee on behalf of a beneficiary in excess of any applicable resource or income limitations of any public benefit program to which the beneficiary is entitled. Id. Distributions from any of the individual Trust sub-accounts are made subject to “the Trustee’s sole and absolute discretion.” Fourth Rest., Art. Four, p.4 & Sect. 4.01 & 4.04. The Fourth Restatement specifies that “[u]nder no circumstance can the Beneficiary compel a distribution from the trust for any purpose” nor can the beneficiary transfer any interest in the irrevocable trust. Fourth Rest., Art. Four, Sect. 4.04.

Regarding the management of the Trust, while Springhill serves as the Trustee, Springhill may appoint a Trust Administrator to perform the ministerial administration functions associated with the Trust operations on behalf of the Trustee. Fourth Rest., Art. Thirteen, Sect. 13.16. The Fourth Restatement gives Springhill the power to designate Co-Trustees to assist with the management, administration, allocation, and disbursement of Trust assets and property, as well. Fourth Rest., Art. Nine, Sect. 9.02; Art. Thirteen, Sect. 13.03. The Trustee may also employ or seek the advice or assistance of other persons or entities such as attorneys, accountants, managers, and financial institutions. Fourth Rest., Art. Nine, Sect. 9.01. Still, the Fourth Restatement notes at several points that the Trustee maintains sole and absolute discretion over decisions made regarding the distributions from sub-accounts. Fourth Rest., Art. Four, p. 2 & Sects. 4.01 & 4.04. The Trustee is obligated under the Fourth Restatement to provide regular accountings—at least annually—to the beneficiary or his legal representative. Fourth Rest., Art. Three, Sect. 3.02.

Springhill has asked the Agency to review their Fourth Restatement for the Trust, executed on August 22, 2016, to determine if it complies with the Agency’s policies regarding pooled trusts.

DISCUSSION

I. Self-Funded Individual Sub-Accounts in Springhill First-Party Pooled Trust

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

We must first determine the revocability of the self-funded trust shares in the Springhill Trust. Here, the express terms of the Fourth Restatement confirm that the individual sub-accounts are irrevocable. Fourth Rest., Art. One, Sect. 1.03; Art. Two, Sect. 2.02. Notwithstanding these provisions, the sub-accounts would be still be considered revocable if the grantor is also the sole beneficiary. See POMS SI CHI01120.200(C). In this case, however, the grantor would not be the sole beneficiary. Rather, the Trust creates a contingent remainder interest in the Trustee, Springhill Housing Corporation. Fourth Rest., Art. Eight, Sects. 8.03, 8.04, 8.05, 8.08 & 8.09. Further, the self-funded sub-accounts in the Trust create contingent remainder interests in the remaindermen designated by the beneficiary or the Grantor pursuant to the instructions in the Irrevocable Joinder Agreement. Fourth Rest., Art. Eight, Sect. 8.06. Because there are residual beneficiaries, the beneficiary (or grantor) could not revoke his trust share unilaterally, but would need the consent of the remaindermen. See POMS SI CHI01120.200(C) (“[I]f the trust names a residual beneficiary to receive the benefit of the trust interest after a specific event, usually the death of the primary beneficiary, the trust is irrevocable. The primary beneficiary cannot unilaterally revoke the trust; he needs the consent of the residual beneficiary.”). Michigan law, which governs the Fourth Restatement according to Article One, Section 1.02, also prohibits a primary beneficiary from unilaterally revoking a trust. See Mich. Stat. § 700.7411. Specifically, Michigan law provides that a noncharitable irrevocable trust can only be modified in one of three ways:

(1) by a court upon the consent of a trustee and the qualified trust beneficiaries, if the court concludes that the modification or termination of the trust is consistent with the material purposes of the trust or that continuance is not necessary to achieve any material purpose;

(2) upon the consent of the qualified trust beneficiaries and a trust protector who is given power under the terms of the trust to grant, veto, or withhold approval of termination or modification; or

(3) by a trustee or trust protector to whom a power to direct the termination or modification of the trust has been given by the terms of a trust. Id. Because a beneficiary (or grantor) cannot unilaterally revoke his trust under the law or pursuant to the terms in the Fourth Restatement of the Trust, we consider self-funded sub-accounts in the Trust to be irrevocable.

As stated above, an irrevocable trust generally will be considered a resource to the extent that any payments could be made from the trust to or for the benefit of the individual. Here, the Trustee of the Springhill Trust has the sole discretion to use the income and the principal in the individual sub-accounts for the sole benefit of the beneficiary for whom the trust sub-account was established. Fourth Rest., Art. Four, p. 2 & Sects. 4.01 & 4.04. Thus, self-funded sub-accounts in the Trust would be resources under these provisions, unless an exception applies.

II. Springhill First-Party Pooled Trust: Pooled Trust Exception

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

1. The trust is established and managed by a nonprofit association.

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

3. Accounts in the trust are established solely for the benefit of the disabled individual by the individual, parent, grandparent, legal guardian, or court.

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

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

Here, the Springhill Trust appears to meet all the conditions of the pooled trust exception.

First, the Springhill Trust was established and is managed by the Springhill Housing Corporation, Inc., a non-profit association. Fourth Rest., p.1. Pursuant to the Fourth Restatement, Springhill acts as both Trustee and Settlor of the Trust. Id. While the Fourth Restatement grants Springhill the power to designate Co-Trustees, a Trust Administrator, and a Trust Protector, and to employ the services of agents, attorneys, advisors, and others to assist or advise in the administration of the Trust, Springhill retains ultimate managerial authority over the Trust. Fourth Rest., Art. Four, p. 2 & Sects. 4.01 & 4.04; Art. Nine, Sects. 9.01-9.03; see also POMS SI 01120.225(D) & (E).

While Agency policy allows a non-profit pooled trust manager to employ the services of a for-profit entity, the policy dictates that the non-profit association must maintain ultimate managerial control over the trust. See POMS SI 01120.225(D). This means that, among other things, Springhill must maintain ultimate control over determining the amount of the trust corpus to invest and making the day-to-day decisions regarding the health and well-being of the pooled trust beneficiaries. Id. The use of a for-profit entity must always be subordinate to the non-profit manager. Id.

Here, we note that there is some language in the Fourth Restatement that could be drafted more clearly and seems, in some sections, to grant coextensive authority to the Trustee and to any Co-Trustees and/or the Trust Administrator. For example, under Article Four, Section 4.01, it states that “[t]he Trustee and/or Trust Administrator may in their sole and absolute discretion distribute any or all of the corpus of the Trust sub-account for the purposes stated herein” and that “[t]he Trustee and/or Trust Administrator shall possess and exercise the authority to allocate all distributions between principal and income as they determine in their sole and absolute discretion.” However, this provision comes under the umbrella qualification for all of Article Four that “[s]ubject to the Trustee’s sole and absolute discretion, distributions from any of the individual Trust sub-accounts may be made as follows . . .” Fourth Rest., p.4. Because of this umbrella statement, and when read in combination with other provisions in the Fourth Restatement echoing this point, we believe that this is sufficient to show that the non-profit Springhill Housing Corporation retains ultimate managerial authority over the Trust to meet the first condition of the exception. In addition, although not identified in the Fourth Restatement, it appears that the Trust Administrator for the Springhill Trust is the Community Housing Network, Inc. (“CHN”). See https://springhillpooledtrust.org/. According to CHN’s website, it is also a non-profit organization that provides homes for people in need and assists people with disabilities. See https://communityhousingnetwork.org/about-us/. Thus, we believe that even to the extent that the Trust Administrator is involved in decisions regarding distributions from the Trust and day-to-day management activities, this would not run afoul of first criteria for meeting the pooled trust exception.

Second, the Trust maintains separate sub-accounts for each beneficiary, but pools the trust sub-accounts for purposes of investment and management. Fourth Rest., Art. Three, Sect. 3.01.

As for the third condition of the exception, the Fourth Restatement specifies that individual Trust sub-accounts are established and maintained for the sole benefit of the individual beneficiaries. Fourth Rest., Art. Three, Sect. 3.01; see also Art. Two, Sect. 2.01; Art. Thirteen, Sect. 13.02. Each sub-account is established by the individual beneficiary or his parent, grandparent, agent acting for the beneficiary under a power of attorney, legal guardian, or any person or entity acting pursuant to a court order on behalf of the beneficiary (the “Grantor”). Fourth Rest., Art. Thirteen, Sect. 13.05; see also Art. 1, Sect. 1.05; Art. Two, Sect. 2.01. Although the Trust contains early termination provisions, the provisions comply with the requirements of POMS SI 01120.199(F)(2) because they solely allow for a transfer of the beneficiary’s assets from one § 1396p(d)(4)(C) trust to another such trust. Fourth Rest., Art. Eight, p.9 & Sect. 8.03.

Finally, the Springhill Trust meets the last condition of the pooled trust exception because it provides for the repayment of medical assistance under any State(s) Medicaid plans upon the death of the beneficiary. Fourth Rest., Art. Eight, Sect. 8.04. Specifically, the Fourth Restatement provides that, upon the death of a beneficiary, the Trustee shall retain 20% or $10,000.00 (whichever is greater) and, after this initial retention of funds, the Trust “has an automatic duty to repay to the State(s) in an amount equal to the total amount of medical assistance paid on behalf of the individual under the State(s) Medicaid plan(s) in accordance with 42 U.S.C. 1396(a).” Id. As acknowledged by the Fourth Restatement in Article Eight, Section 8.04, to the extent the Trust does not retain the funds in the account, the State(s) in which the beneficiary received Medicaid Assistance shall be the first payee(s) and have priority over payment of other debts and administrative expenses, except as those listed in POMS SI 01120.203(B)(3). Under Section 8.05, prior to repaying the medical assistance to the State(s), the Trust may pay taxes due from the Trust because of the death of the beneficiary and reasonable fees for administration of the trust estate associated with the termination of the trust. Fourth Rest., Art. Eight, Sect. 8.05.

III. The Springhill First-Party Pooled Trust Would Not Be Considered A Countable Resource

Having determined that the Springhill Trust self-funded sub-accounts would satisfy the pooled trust exception, the regular resource rules in POMS SI 01120.200 apply to determine whether a sub-account would be considered a resource. See POMS SI 01120.203(B)(2)(a). Under Agency rules, the trust principal will be a resource if the individual can (1) revoke or terminate the trust and use the assets to meet his needs for food or shelter, or (2) direct the use of the trust principal for his support and maintenance under the terms of the trust. POMS SI 01120.200(D)(1)(a). In addition, the individual’s beneficial interest in the trust is a resource if it can be sold. Id.

As discussed above, the sub-account, a grantor trust, would be considered irrevocable because the beneficiary cannot revoke it without the consent of Springhill or any other residual beneficiaries identified in the Irrevocable Joinder Agreement used to establish the sub-account. Fourth Rest., Art. Eight, Sects. 8.03, 8.04, 8.05, 8.06, 8.08 & 8.09; see also POMS SI CHI01120.200(C), (D); Mich. Stat. § 700.7411. In addition, the beneficiary can neither demand payments nor expect to receive mandatory disbursements, as Springhill, acting as Trustee, has “sole and absolute discretion” in making all distributions. Fourth Rest., Art. Four, p.4 & Sects. 4.01-4.04. Therefore, the sub-account principal would not be considered a resource.

Further, the Fourth Restatement of the Trust contains a spendthrift clause prohibiting the sale of a beneficiary’s interest and providing that no beneficiary’s interest in principal or income shall be subject to voluntary or involuntary alienation. Fourth Rest., Art. Four, Sect. 4.03. Generally, states that allow spendthrift trusts do not allow a grantor to establish a spendthrift trust for his own benefit. See POMS SI 01120.200(B)(16). However, it appears that Michigan does allow spendthrift trust provisions. See Mich. Stat. § 700.7502(1) (“A spendthrift provision is valid and enforceable.”). Accordingly, the beneficiary’s interest in the Trust should not be considered a resource.

CONCLUSION

For the reasons discussed above, we conclude that the self-funded sub-accounts in the Springhill First-Party Pooled Trust would not be considered resources under the Act as it meets the pooled trust exception.

This Regional Chief Counsel (RCC) opinion provides a survey of state law in Region V concerning the revocability of grantor trusts. Specifically, examining whether a distribution to the grantor’s estate creates a residual beneficiary interest such that the grantor is not the sole beneficiary. The opinion reexamines each state’s law on a grantor’s ability to unilaterally modify or revoke a self-settled trust.

QUESTION

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

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

FACTS

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

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

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

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

Article Ten provides that Indiana law shall govern the Trust.

DISCUSSION

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

1. 1. 

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

2. 2. 

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

3. 3. 

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

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

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

Article Seven of the A~ Trust violates the sole benefit requirement of section 1917(d)(4)(A) of the Act. Specifically, Article Seven provides that, should the trustee determine that the Trust is not economical or if it is in A~’s best interest to receive services through the Arc Pooled Trust,^[49] then the trustee may distribute the entire trust principal and undistributed trust income to the Arc Pooled Trust for A~’s benefit, enrolling her in that pooled trust. Article Seven, therefore, allows termination of the Trust during A~’s lifetime and distribution of the Trust corpus without reimbursement to the State(s) for medical services paid on A~’s behalf. Such a provision is in direct violation of POMS SI 01120.199.F.1, which requires that any early termination and distribution to or for the beneficiary may occur only after the State(s) receive reimbursement.^[50]

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

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

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

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

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

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

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

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

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

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

CONCLUSION

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

This opinion addresses whether spendthrift clauses are recognized in the six states that compose the Chicago region and whether these states allow for a settler to establish a spendthrift trust for his or her own benefit. A spendthrift clause prohibits both involuntary and voluntary transfers of the beneficiary's interest in the trust income or principle. All states in the Chicago region recognize a spendthrift provision in a third-party trust. Likewise, all states in the Chicago region recognize that a beneficial interest in a self-settled discretionary trust would typically not be a countable resource as it would have little, if any, market value. In Illinois, Michigan, Minnesota, and Wisconsin, the beneficiary of a self-settled trust can sell the right to future mandatory disbursements, regardless of whether the trust has a spendthrift provision. Due to a lack of precedent, self-settled trusts with a spendthrift provision in Indiana or Ohio should be submitted to the Regional Chief Counsel's office for evaluation.

You have asked whether spendthrift clauses are recognized in the six states in the Chicago Region and, if so, whether these states allow for a settlor to establish a spendthrift trust for his or her own benefit. Each of the six states in Region V recognizes spendthrift clauses as valid when they are established by a settlor for a third party. Therefore, the beneficiary of a third party trust could not sell the beneficial interest in that trust if it has a spendthrift provision. The validity and effect of a spendthrift provision in a self-settled trust varies somewhat from state to state. However, in all six states, the settlor's interest in a discretionary trust would not be a countable resource, regardless of any spendthrift provision, because in the laws of those states, even if the settlor can sell the interest, it would have no significant market value, since the transferee could not demand any payments. In Illinois, Michigan, Minnesota and Wisconsin, the settlor could sell the right to receive future mandatory disbursements, even if the trust includes a spendthrift clause, and the current market value of those disbursements would be a resource. In Indiana and Ohio, it appears that a spendthrift clause may effectively prevent a settlor from selling future mandatory disbursements such that the right to those future disbursements would not be a resource. However, since the law has not yet been interpreted clearly, we recommend that you send any self-settled trusts with mandatory disbursements and spendthrift provisions to our office for evaluation if they are governed by Indiana or Ohio law.

DISCUSSION

A spendthrift clause prohibits both involuntary and voluntary transfers of the beneficiary's interest in the trust income or principal. POMS SI 01120.200(B)(16). If a state recognizes the validity of a spendthrift clause, the beneficial interest in the trust, or the right to payments as a beneficiary, is not a countable resource because the beneficiary may not sell his or her beneficial interest in the trust. 1 Id. In the Chicago Region, all of the states recognize the validity of a spendthrift clause where the trust is established by a settlor for a third party.

However, if a settlor creates a trust for the settlor's own benefit and inserts a spendthrift clause, the spendthrift clause may be considered invalid. All of the states in the Chicago Region view such self-settled spendthrift trusts to be invalid with respect to creditors. However, in determining whether an interest in a trust is a resource, the focus is on whether the individual can sell his or her beneficial interest in the trust. The states vary with respect to whether a spendthrift clause would prevent a settlor from selling his or her beneficial interest in the trust. The majority of states in the region, namely Illinois, Michigan, Minnesota and Wisconsin, are likely to follow the Restatement (Third) of Trusts, which indicates that a spendthrift clause in a self-settled trust is invalid with respect to any interest retained by the settlor. RESTATEMENT (THIRD) OF TRUSTS § 58, cmt. e. Under the Restatement, the spendthrift clause would not prevent the settlor's interest from being reached by the creditors or from being sold. Id. However, the most a transferee could receive are the rights the settlor has under the trust. See RESTATEMENT (THIRD) OF TRUSTS § 60, cmts. b, f. Therefore, we would typically not consider a discretionary interest in a self-settled spendthrift trust to be a countable resource, since such an interest would have little, if any, market value. However, the right to receive mandatory disbursements from such trusts would generally be considered a resource, since the spendthrift clause would not prevent the individual from selling the interest and that interest would generally have market value.

In contrast, Indiana and Ohio law could be read to view self-settled spendthrift clauses to be invalid only with respect to the rights of creditors. Therefore, a spendthrift clause governed by the laws of those states may effectively prevent a settlor from selling his or her interest in the trust. If that is the case, then the right to both mandatory and discretionary disbursements from such trusts may not be considered a resource for SSI purposes in those states. However, we have not encountered any cases actually interpreting these provisions to prevent a settlor from selling the right to mandatory disbursements from a trust. Therefore, we recommend that self-settled trusts with spendthrift provisions that are governed by the law of Indiana and Ohio be referred for an opinion at least where the settlor has a right to mandatory disbursements.

Illinois

In Illinois, a spendthrift clause in a trust established by a third party will effectively prevent the beneficiary from selling his or her beneficial interest. 2 See Danning v. Lederer, 232 F.2d 610, 612 (7th Cir. 1956); Hopkinson v. Swaim, 119 N.E. 985, 990 (Ill. 1918). However, a settlor may not establish a spendthrift trust for his or her own benefit. In re Marriage of C~, 297 Ill. App. 3d 611 (Ill. App. 1998). Therefore, in a self-settled trust, the settlor could sell the right to mandatory future disbursements for their current market value, despite any spendthrift provision. However, the settlor's beneficial interest in a discretionary trust would not be a countable resource, even though the spendthrift clause would not prevent the settlor from selling the interest because the right to receive discretionary disbursements would have no significant market value. Although we were unable to find any case law which directly addressed this issue, we found that the Illinois courts have relied upon the Restatement (Third) of Trusts as persuasive authority in interpreting trusts. See In Re Estate of F~, 891 N.E.2d 549 (Ill. App. 2008) (generally recognizing Restatement (Third) of Trusts as persuasive authority). Therefore, we believe that Illinois would adopt the Restatement (Third) approach --that a transferee would receive only the rights the settlor had under the trust, i.e., to receive mandatory or discretionary disbursements when the trust is self-settled and contains a spendthrift provision. See RESTATEMENT (THIRD) OF TRUSTS § 58(2), cmt. e. Therefore, the right to receive discretionary disbursements would not be considered a countable resource, as it is unlikely the right to discretionary disbursements would have any significant market value.

Indiana

Indiana law recognizes spendthrift trusts as generally valid against both voluntary and involuntary transfers. Ind. Code § 30-4-3-2(a). When the settlor is also the beneficiary of the trust, Indiana law recognizes an exception to this rule with respect to the rights of creditors. Ind. Code § 30-4-3-2; see also Matter of C~, 43 B.R. 996 (N.D. Ind. 1984) (recognizing that if a settlor is also the beneficiary of the spendthrift trust, creditors may reach the trust corpus). Because Indiana law expressly addresses only the validity of a spendthrift clause in a self-settled trust with regard to creditors' rights, it is possible that Indiana would recognize a spendthrift provision to be valid to the extent that it would prevent the settlor from selling his beneficial interest in a self-settled trust. See POMS PS 01825.01 (PS 09-015 SSI - Review of the Trust and Annuity for Savanna) (concluding that even if the settlor could sell the interest, it would have no value because the trust was discretionary). However, the comments to the section state that it follows the rule in the Restatement (Second) of Trusts section 156, which states that a self-settled spendthrift clause is ineffective against both creditors and transferees. See Ind. Code § 30-4-3-2(b); see also RESTATEMENT (SECOND) OF TRUSTS § 156(2). If you encounter a self-settled trust governed by Indiana law with a spendthrift provision and with the right to future mandatory disbursements, we recommend that you refer the case to our office for a legal opinion, since the law is not clear at this time.

Michigan

Michigan recognizes the validity of spendthrift trusts, in general, by statute and common law. Mich. Comp. Laws Ann. § 700.2902(2); Matter of Estate of E~, 389 N.W.2d 696 (Mich. 1986). However, under Michigan law, a person cannot create a true spendthrift trust for himself. See In re Hertsberg Intervivos Trust, 578 N.W.2d 289, 291 (Mich. 1998) (adopting RESTATEMENT (SECOND) OF TRUSTS § 156). In Hertsberg Intervivos Trust, the Michigan Supreme Court adopted Restatement (Second) of Trusts section 156, which states that a creditor or transferee could reach the entire amount of the trust that the trustee could, in his or her discretion, pay to or for the benefit of the settlor of the trust. See id. at 291. However, that case involved only the rights of a creditor, and we have previously advised that we think it likely that Michigan would adopt the Restatement (Third) approach--that a transferee, unlike a creditor, would receive only the rights the settlor had under the trust, i.e., mandatory or discretionary disbursements. See POMS PS 01825.025 (PS 09-062 Michigan - SSI-Review of the Annuity and Special Needs Trust for Jeri ) (citing RESTATEMENT (THIRD) OF TRUSTS § 60 and cmts. e, f (2003)). Therefore, the right to future mandatory disbursements from a self-settled trust would be considered a resource despite any spendthrift clause; however, the right to discretionary disbursements would not be considered a resource as it is unlikely the right to discretionary disbursements would have any market value.

Minnesota

Minnesota recognizes the validity of spendthrift trusts though common law; there is no Minnesota statute which expressly deals with spendthrift provisions. See Morrison v. Doyle, 582 N.W.2d 237, 240 (Minn. 1998); In re Mack, 269 B.R. 392 (D. Minn. 2001). Under Minnesota law, cases involving enforcement of spendthrift provisions have always involved protection of the interest of a beneficiary who is not the settlor of the trust; therefore, in Minnesota, it appears that a spendthrift clause in a self-settled trust would likely be considered void and unenforceable. In re M~, 269 B.R. at 399 (citing Simmonds v. Larison, (B.A.P. 8th Cir. 1999)). In reaching its holding in M~, the court looked to the Restatement (Second) of Trusts § 156. 3 While there is no Minnesota case specifically adopting the Restatement (Third) of Trusts on this issue, we believe it is likely that a Minnesota court would follow the Restatement (Third) approach in determining the extent to which the settlor's interest can be transferred. See Norwest Bank Minnesota North, N.A. v. Beckler, 663 N.W.2d 571 (Minn. Ct. App. 2003) (relying upon Restatement (Third) of Trusts in determining the role of a trustee); compare In re Syverson Trust, 2003 WL 22016795 (Minn. Ct. App. 2003) (unpublished) (declining to adopt the Restatement (Third) of Trusts where doing so would change existing law in Minnesota, noting such change was reserved for the Minnesota Supreme Court or the legislature). Therefore, the settlor's right to mandatory disbursements would be considered a resource; however, the right to discretionary disbursements would not be considered a resource as it is unlikely the discretionary disbursements would have any significant market value. See RESTATEMENT (THIRD) OF TRUSTS § 58(2), cmt. e.

Ohio

Ohio recognizes the validity of a spendthrift clause through statute and case law. See Ohio Rev. Code Ann. § 5805.01; see also Scott v. Bank One Trust, 577 N.E.2d 1077 (Ohio 1991). Ohio adopted the Uniform Trust Code in 2007, and the controlling provisions are applicable to spendthrift trusts created before and after 2007. See Ohio Rev. Code Ann. §§ 5805.01(A), 5805.06(A)(2), and 5811.03(A)(1). Ohio law recognizes the validity of spendthrift provisions in general, and states that "[a] beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision and, except as otherwise provided in this chapter and in section 5810.04 of the Revised Code, a creditor or assignee of the beneficiary may not reach the interest or a distribution by the trustee before its receipt by the beneficiary." Ohio Rev. Code Ann. § 5801.01(C). This suggests that, even in a self-settled trust, a spendthrift provision will prevent the settler from transferring his or her interest in the trust. The only exceptions to the effectiveness of a spendthrift provision relate to when a creditor or assignee of the beneficiary can reach an interest in or a distribution from the trust. Ohio law further states that whether or not a trust contains a spendthrift provision, the settlor's creditor or assignee may reach the maximum amount that can be distributed to or for the settlor's benefit. See Ohio Rev. Code Ann. §§ 5805.06(A)(2), 5811.03(A)(1). Indeed, the official comment notes, "[W]hether the trust contains a spendthrift provision or not, a creditor of the settlor may reach the maximum amount that the trustee could have paid to the settlor-beneficiary. If the trustee has discretion to distribute the entire income and principal to the settlor, the effect of this subsection is to place the settlor's creditors in the same position as if the trust had not been created." Id. Because Ohio law allows such liberal access to the trust assets by "assignees," section 5805.06 could be read to suggest that the beneficiary of a self-settled trust could sell his beneficial interest in the trust and the purchaser could obtain the maximum amount that the trustee could distribute to or for the settlor's benefit. However, the Office of General Counsel has determined that the better reading of this provision presumes that only an assignee who is a creditor, not a purchaser for value, could reach the maximum amount the trustee could distribute for the settlor's benefit. See POMS 01825.039 Ohio (PS 08-159 SSI Review of the Trust and Annuity for Dustin). Therefore, it appears that spendthrift provisions in self-settled trusts governed by Ohio law may be fully valid with respect to the limitation on selling the settlor's beneficial interest in the trust. This interpretation of Ohio law would not have a significant impact where a trust is wholly discretionary. Even if the settlor could sell that interest, it would have no significant value. However, this interpretation would also mean that even the right to future mandatory disbursements could not be sold and therefore would not be a resource. This would be a significant departure from the Restatement (Third) of Trusts, as well as the Restatement (Second) of Trusts, both of which state that a spendthrift provision restraining the voluntary and involuntary alienation of the settlor's interest in the trust is invalid. See RESTATEMENT (SECOND) OF TRUSTS § 156(1), RESTATEMENT (THIRD) OF TRUSTS § 58(2). In fact, Ohio adopted the comment to Uniform Trust Code provision, which specifically cites to the Restatement (Second) of Trusts § 58(2) and states that "[a] spendthrift provision is ineffective against a beneficial interest retained by the settler." Ohio Rev. Code Ann. § 5805.01, cmt.; Unif. Trust Code § 502, cmt. It would seem odd, therefore, if the Ohio code (and the uniform code) intended to deviate from the Restatement in this important way. Since the law is not entirely clear, and since there are not yet any cases interpreting the Ohio provisions, we recommend that you refer to our office any self-settled trust governed by Ohio with a spendthrift provision and provisions for mandatory disbursements.

Wisconsin

Wisconsin recognizes spendthrift trusts as valid and not subject to voluntary or involuntary alienation only where the beneficiary is a person other than the settlor. Wisc. Stat. Ann. § 701.06(1)-(2). Therefore, it appears that a spendthrift provision would not prevent a settlor from selling his beneficial interest in the trust when he is also the settlor of the trust. Wisc. Stat. Ann. § 701.06(1)-(2). 4 However, we believe that Wisconsin would likely follow the Restatement (Third) approach--that a transferee would receive only the rights the settlor had under the trust, i.e., mandatory or discretionary disbursements. See In re W~ Family Trust, 685 N.W.2d 172 (Wis. Ct. App. 2004) (unpublished) (parties recognizing Restatement (Third) of Trusts as controlling law); see also POMS PS 01825.055 (PS 08-156 - Wisconsin - Review of the Trust for Brian) (citing to Restatement (Third) of Trusts as controlling authority in Wisconsin)). Therefore, the right to future mandatory disbursements from a self-settled trust would be considered a resource; however, the right to discretionary disbursements would not be considered a resource, as it is unlikely the right would be of any significant market value.

CONCLUSION

In sum:

• •

  All states in the Chicago region would recognize the validity of a spendthrift provision in a third party trust.

• •

  In all states in the Chicago Region, the beneficial interest in a self-settled discretionary trust would not be a countable resource because even if the individual can sell the interest, it would have no significant market value.

• •

  In Illinois, Michigan, Minnesota, and Wisconsin, the beneficiary of a self-settled trust can sell the right to future mandatory disbursement, regardless of whether the trust has a spendthrift provision.

• •

  Trusts governed by Indiana or Ohio law should be referred for a legal opinion if the trust is self-settled and provides for mandatory disbursements and has a spendthrift clause.

This opinion examines whether or not a trust established with the assets of an individual is a resource for Supplemental Security Income (SSI) purposes. This opinion also examines whether or not the annuity payments assigned to the trust are income for SSI purposes. The trust in this case satisfies all of the criteria needed to be excluded under the special needs trust exception, however, the trust must still be evaluated under the regular resource rules. The trust is not a resource under regular resource rules because it is irrevocable under State law and the claimant is unable to direct the use of the trust assets for her support and maintenance. With respect to the annuity payments, the payments were irrevocably assigned to the trust by the court and thus are not income to the claimant. Finally, certain distributions from the trust may be income if they result in the claimant receiving food or shelter.

You asked us whether the Irrevocable Special Needs Trust for Jeri is a resource for SSI purposes. You also asked whether annuity payments made to the trust are income. For the reasons discussed below, we conclude that the trust is not a resource, but that certain distributions from the trust may be income. Also, the annuity payments made to the trust are not income.

BACKGROUND

On February 28, 2007, the Irrevocable Special Needs Trust for Jeri was created by order of the Oakland County, Michigan Probate Court. The trust agreement states that it is intended to be a special needs trust under 42 U.S.C. § 1396p(d)(4)(A). The trust was created with the proceeds of a wrongful death settlement, part of which included a lump sum of $200,234.

The claimant's wrongful death settlement also included a structured settlement to be purchased by one of the defendants. That defendant's insurer purchased annuity policies from Aviva London Assignment Corporation ("Aviva") and Pacific Life and Annuity Services, Inc. ("Pacific Life"). The order of the Emmet County, Michigan Circuit Court, which approved the settlement, mandated that the annuity payments from Aviva and Pacific Life be paid directly to the trust. Both policies name Citizens Insurance Company of America as the assignor; Aviva and Pacific Life, respectively, as the owners; the claimant as the annuitant or measuring life; and LaSalle Bank (the Trustee of the trust) as the payee. Both policies give only the owners of the annuities the right to change the payee, which must be done in writing. Beginning January 10, 2007, the combined monthly annuity payments of $1,820 have been deposited into the trust, and are to continue throughout the claimant's lifetime, with at least 20 years guaranteed.

The trust states that is irrevocable. Art. 3.

The trust names LaSalle Bank, N.A., as the initial Trustee. Art. 8. It appears, however, that around October 2007, Huntington National Bank succeeded LaSalle Bank as Trustee. The trust states that the Trustee has sole discretion to deal with the funds of the trust. Art. 4(A), 4(B)(2), 9. The claimant does not have the power or authority to demand any distribution or loan from the Trustee. Art. 4(A)(3). The Trustee may also withhold distributions to the claimant in its sole discretion. Id.

The trust contains a spendthrift provision, which states that no beneficial interest is subject to anticipation, assignment, pledge, sale, or transfer in any manner, and no beneficiary may anticipate, encumber, or charge such interest. Art. 7.

The trust terminates upon the claimant's death. Art. 4(B)(4). At that time, the Trustee shall distribute the remaining trust assets to any state providing medical assistance paid on the claimant's behalf an amount equal to the previously unreimbursed medical assistance provided under the state's Medicaid plan. Id. The balance of the trust shall then be distributed in the following order: (1) according to the terms of the claimant's will, if any, or (2) if none, to her spouse, if any, in such percentages as determined under Michigan's intestacy laws, and (3) if no spouse, or for such amounts beyond that which her spouse would receive, then in equal shares to her descendants, per stirpes, if any, or (4) if none, then to her surviving parent(s) in equal shares, or (5) if none, then to the claimant's heirs-at-law. Id.

The trust agreement is governed by Michigan state law. Art. 11(B).

The trust has been paying all of the claimant's household expenses, except rent. The trust also paid off all of her personal loans and credit cards. In January 2008, the trust purchased a house for the claimant for $109,000.

DISCUSSION

I. The Trust is not a Resource

Pursuant to 42 U.S.C. § 1382b(e), the principal of a trust created on or after January 1, 2000, with the assets of an individual will be considered a resource to the extent that the trust is revocable or, in the case of an irrevocable trust, to the extent that any payments from the trust could be made to or for the benefit of the individual (or the individual's spouse), with certain exceptions. See also POMS SI 01120.201(D)(1)-(2).

Whether a trust can be revoked or terminated depends on the terms of the trust and/or the applicable state law. See POMS SI 01120.200(D)(2). Here, the trust agreement states that it is irrevocable. Art. 3. But a trust is revocable, notwithstanding any contrary language, where a grantor of the trust is also the sole beneficiary. See POMS SI 01120.200(B)(2), SI 01120.200(D)(3), SI CHI01120.200(C). In this case, the claimant is the grantor of the trust, since the trust was established with her funds. However, she is not the sole beneficiary, as the trust names specific residual beneficiaries who will receive the remaining assets in the trust upon her death if she does not name anyone in her will to receive the funds, i.e., (1) her spouse, if any, or (2) her descendants, per stirpes, if any, or (3) her surviving parent(s), or (4) her heirs-at-law. See Art. 4(B)(4); POMS SI CHI01120.200(C) ("[I]f the trust names a residual beneficiary to receive the benefit of the trust interest after a specific event, usually the death of the primary beneficiary, the trust is irrevocable. The primary beneficiary cannot unilaterally revoke the trust; he needs the consent of the residual beneficiary."), (D) (specifically named categories such as parents, siblings, children, issues, or descendants, are considered residual beneficiaries). Accordingly, the trust is irrevocable.

In addition, the trust was established in February 2007, and payments from the trust could be made to or for the benefit of the claimant, since she is the sole beneficiary during her lifetime. Thus, the entire trust would be considered a resource under 42 U.S.C. § 1382b(e)(3)(B). The trust, however, appears to fall under one of the exceptions to the general rule of § 1382b(e)(3)(B).

The exception under 42 U.S.C. § 1396p(d)(4)(A), commonly known as the special needs trust exception, applies to a trust which: (1) contains the assets of an individual under age 65 who is disabled; (2) is established for the benefit of such individual through the actions of a parent, grandparent, legal guardian, or a court; and (3) provides that the state(s) will receive all amounts remaining in the trust upon the death of the individual up to an amount equal to the total medical assistance paid on behalf of the individual under a state Medicaid plan. See also 42 U.S.C. § 1382b(e)(5); POMS SI 01120.203(B)(1).

These elements seem to be satisfied here. First, the claimant is under age 65 and is presumably disabled. Second, the trust was established for the claimant's benefit by a court order. Third, the trust agreement includes a provision which states that, upon the claimant's death, the Trustee shall distribute the remaining trust assets to any state providing medical assistance paid on the claimant's behalf an amount equal to the previously unreimbursed medical assistance provided under the state's Medicaid plan. See Art. 4(B)(4). Thus, since the trust meets the requirements of the exception under 42 U.S.C. § 1396p(d)(4)(A), it is not considered a resource under 42 U.S.C. § 1382b(e).

The Agency, however, must still apply the regular resource rules set forth in POMS SI 01120.200 to determine whether the trust is a resource. See 42 U.S.C. § 1382b(e)(1); POMS SI 01120.203(B)(1)(a). Under the regular resource rules, the trust principal will be a resource if the individual can:

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

(2) direct the use of the trust principal for her support and maintenance under the terms of the trust. See POMS SI 01120.200(D)(1)(a). In addition, if the individual can sell her beneficial interest in the trust, that interest is a resource. See id.

Here, as explained above, the claimant cannot revoke the trust. The trust agreement also states repeatedly that the Trustee has absolute discretion to make distributions, and that the claimant has no right to compel the Trustee to make a distribution of principal to her or for her benefit. Art. 4(A), 4(B)(2), 9. Therefore, the trust principal is not a resource.

With respect to the claimant's ability to sell her beneficial interest in the trust, the trust agreement contains a spendthrift provision which states that no beneficial interest is subject to anticipation, assignment, pledge, sale, or transfer in any manner, and that no beneficiary may anticipate, encumber, or charge such interest. Art. 7. However, such provisions are generally not valid with respect to the grantor of the trust. See In re Hertsberg Intervivos Trust, 578 N.W.2d 289, 291 (Mich. 1998); Restatement (Third) of Trusts § 58(2) & cmt. e (2003) (stating general trust principal that a grantor is not permitted to create a spendthrift trust for her own benefit); POMS SI 01120.200(B)(16). But even if the claimant could sell her beneficial interest in the trust, that interest would likely have no significant market value because we believe that, under Michigan law, the transferee would receive only the interest the claimant had--to receive payment only at the Trustee's discretion. See Restatement (Third) of Trusts § 60 and cmt. e, f (2003). Thus, the claimant's beneficial interest in the trust is not a resource.

II. Certain Distributions from the Trust are Income

You also indicated that the trust has been paying all of the claimant's household expenses, except rent, and that the trust purchased a house for the claimant in January 2008. Any disbursements made to a third party resulting in the claimant's receipt of food or shelter are income in the form of in-kind support and maintenance (ISM) and are valued under the presumed maximum value (PMV) rule. See 20 C.F.R. §§ 416.1102, 416.1130, 416.1140; POMS SI 00835.300, SI 01120.200(E)(1)(b).

Here, it appears that the trust purchased the house outright, and that the claimant lives in the house as her primary residence. In that case, the trust holds legal title to the home for the benefit of the claimant, who has an equitable ownership interest, and the claimant is considered to be living in her own home. See POMS SI 00835.110, SI 01110.515(C)(2), SI 01120.200(F)(1). The purchase of the home outright by the trust results in income in the form of ISM in the month of purchase--January 2008--valued at no more than the PMV. See POMS SI 00835.400, SI 01120.200(F)(3)(a). However, the home is an excluded resource in subsequent months. See 42 U.S.C. § 1382b(a)(1); POMS SI 01130.100.

In addition, to the extent that the Trustee pays for the claimant's additional shelter expenses including property taxes, heating fuel, gas, electricity, water, sewer, and garbage removal, such expenses would be considered income in the form of ISM in the month the claimant has use of the item (but the total ISM will not be more than the PMV). See 20 C.F.R. §§ 416.1130(b), 416.1140; POMS SI 00835.350, SI 00835.465(D), SI 01120.200(F)(3)(c).

III. The Annuity Payments are not Income

Under the income rules, a legally assignable payment that is assigned to a trust that is not a resource is income, unless the assignment is irrevocable. See POMS SI 01120.201(J)(1)(d). Here, the court order approving the settlement of the wrongful death claim mandated that the annuity payments from Aviva and Pacific Life be paid directly to the trust. In addition, both annuity contracts name LaSalle Bank, the Trustee of the trust, as the payee. Furthermore, both annuity contracts give only the owners of the annuities (i.e., Aviva and Pacific Life) the right to change the payee. Thus, the annuity payments have been irrevocably assigned to the trust, and they are not income to the claimant.

CONCLUSION

For the reasons discussed above, we conclude that the Irrevocable Special Needs Trust for Jeri is not a resource (although certain distributions from the trust may be income), and that the annuity payments made to the trust are not income.

This decision emphasizes a more direct approach in defining the requirements of a Special Needs Trust. Although several provisions of the Trust appear ambiguous specific language, taken almost directly from the POMS, leaves no doubt that Medicaid reimbursement is the first priority. The possibility that another party could profit from the Trust during the recipient's lifetime through a partial termination of stock was also addressed and the Regional Counsel makes clear that any distribution could only be made to the recipient. If a distribution was made it would be counted as income.

You asked whether the Cheryl Irrevocable Special Needs Trust is a resource for purposes of determining eligibility for SSI. After reviewing the trust and relevant laws and regulations, we have concluded that the trust should not be considered a resource.

BACKGROUND

On May 29, 2007, a Michigan probate judge ordered the establishment of an OBRA '93 Disability Payback Trust for the benefit of Cheryl, who was identified as a person in need of protection. Pursuant to that order, the Cheryl ~ Irrevocable Special Needs trust was created with Cheryl's assets. See Trust Art. I(B). The trust states that it is for Cheryl's sole benefit during her lifetime to supplement any government benefits or assistance she receives. See Trust Art. I(A)-(B), Art. II(B). The trustee has full discretion to determine whether and how the assets in the trust are to be used to meet Cheryl's special needs. See Trust Art. II(A). Generally, the trustee should not disburse trust funds directly to Cheryl in an amount that would disqualify her from any government benefits. Trust. Art. (H)(1). Under one provision, however, the trustee has discretion to distribute stock in an S corporation directly "to the beneficiaries as if the trust had terminated while continuing to hold any other property in such trust." Trust Art. VI(D)(15).

The trust provides that there is an automatic duty to repay Medicaid or any successor program for all benefits received by Cheryl during her lifetime, but only upon her death. Trust Art. I(C), Art. II(D)(7), (F), (G). Under the terms of the trust, the "duty to repay Medicaid has higher priority over all debts and expenses except those given higher priority by law." See Trust Art. III(D)(7), Art. IV(A). The trust is to terminate on Cheryl's death, and at that time, the trustee may pay for Cheryl's last illness, funeral, and burial expenses. However, the trust also specifies that payments of debts owed to third parties, funeral expenses, and payments to residual beneficiaries are prohibited and cannot be paid prior to reimbursing the State for any and all medical assistance. Trust Art. IV. If any funds remain in the trust after all of these payments, the funds are to be distributed as Cheryl directs in her will, or, if she does not appoint anyone to receive the trust property in her will, then to her spouse and then her dependants or to her heirs at law. Trust Art. IV.

DISCUSSION

Generally, a trust established with the assets of the individual is considered a resource for SSI purposes under the statute, even if the trust is irrevocable, unless the trust meets one of the Medicaid payback exceptions under 42 U.S.C. § 1396p(d)(4)(A). See 42 U.S.C. § 1382b(e); POMS SI 01120.201, 01120.203. For the exception to apply to an individual trust like this one, the trust must:

(1) be established with the assets of a disabled individual under age 65;

(2) be established for the sole 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 the individual up to an amount equal to the total medical assistance paid on behalf of the individual under a state Medicaid plan.

42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203(B)(1)(a). Although some of the language in this trust document is confusing, we believe that the trust should be read consistently with these requirements.

You noted that the trust contains language that the "duty to repay Medicaid has higher priority over all debts and expenses except those given higher priority by law." See Trust Art. III(D)(7), Art. IV(A). This language could be problematic if State or local laws were used to circumvent the duty to repay Medicaid. However, it appears that this language was included in the trust because the Michigan Department of Human Services, which administers the Medicaid program in that State, requires that the trust "provide that repaying Medicaid has priority over all debts and expenses except those given higher priority by law." Program Eligibility Manual 401, at 6 (available at http://www.mfia.state.mi.us/olmweb/ex/pem/401.pdf). The language in the trust appears to be included to track that apparently required language. In fact, the trust incorporates by reference, "the specific regulations promulgated by the Michigan Department of Human Services." Trust Art. I(A).

The Social Security POMS also recognizes that certain payments may be made from the trust prior to reimbursing Medicaid. Specifically, the trustee may pay taxes due from the trust because of the death of the beneficiary and reasonable fees for administration of the trust, such as an accounting of the trust to a court, completion and filing of documents, or other required actions associated with terminating and wrapping up of the trust. POMS SI 01120.203(B)(3)(a). The POMS also lists examples of payments that may not be made prior to reimbursing Medicaid, including payment of debts owed to third parties, funeral expenses, and payments to residual beneficiaries. POMS SI 01120.203(B)(3)(b).

In this trust, immediately after language stating that expenses "given higher priority by law" may be paid prior to Medicaid, the trust states (in bolded type):

So that there is no misunderstanding, it shall be understood that the State is the first payee and has priority under this Trust over payment of all other debts and administrative expenses, except as permitted by law, such as taxes, reasonable administrative expenses, fees for maintaining the Trust, court costs, or other required actions associated with the termination or disposition of the trust. Payments of debts owed to third parties, funeral expenses and payments to residual beneficiaries are considered Prohibited Expenses and Payments and cannot be paid prior to reimbursing the State for any and all medical assistance.

Trust Art. IV (emphasis in original). This language fairly closely tracks the language in the POMS.

This situation is different from the situation we found in some other trusts that used broad language that would allow payments prior to reimbursing Medicaid if the payment was permitted under any statute or regulation now in existence or hereafter enacted or issued. Compare POMS PS 01825.016 (MM. PS 00259) (Illinois). The language in this trust seems to limit payments "permitted by law" to those that would fit within the language of SSA's POMS provisions. It appears that the trust was drafted with an intent to meet the criteria for both the Michigan Medicaid program and the Social Security program and to limit any payments made prior to reimbursing the State for Medicaid payments to those payments that are permitted to be paid first under both of those programs. Indeed, the trust states that "[a]ll terms of this trust, wherever they may appear, shall be interpreted to conform to this primary goal, namely that the governmental financial assistance, which would otherwise be available to the beneficiary if this trust and/or trust corpus did not exist, will in no way be reduced, diminished, or denied." Trust Art. II(A).

We believe that the language in this trust should be interpreted to meet the requirements of the statute and the POMS, because, to the extent the trust allows payments "given higher priority by law," (1) the trust closely tracks language from the POMS regarding permissible and prohibited expenses that may be paid prior to reimbursing Medicaid, and payments "given higher priority by law" appear to be limited to those that would be permissible under the POMS; (2) the trust appears to include language about making payments "given higher priority by law" because this language seems to be required by the Michigan Medicaid program; and (3) the stated intent of the trust is that the State Medicaid payback trust requirements be incorporated into the trust and that the trust be interpreted consistently with the primary goal that the trust not prevent Cheryl from being eligible for governmental financial assistance.

We also carefully examined the trust provision that allows for partial termination of the trust in certain situations when the trust holds stock in an S corporation. Initially, we were concerned that this provision might result in someone benefiting from the trust, besides Cheryl, during her lifetime. The trust provision states that, in some circumstances, the trustee would have discretion to distribute the stock in such a corporation outright to the trust "beneficiaries as if the trust had terminated while continuing to hold any other property in such trust." Trust Art. VI(D)(15). However, it appears that any such distribution would be made only to Cheryl during her lifetime. The trust provides for distributions to other beneficiaries after Cheryl's death, but there are no provisions that would allow payment to any other beneficiaries if the trust is terminated or partially terminated during Cheryl's lifetime. In fact, the trust was intended to be solely for Cheryl's benefit. See Trust (introductory paragraphs). Under Michigan law (which controls this trust), when a trust is terminated and there are no provisions stating to whom the property would pass on termination, the property reverts back to the original owner. See Thompson v. Stehle, 116 N.W.2d 900, 905-06 (Mich. 1962). Here, if the partial termination occurred while Cheryl was living, the trust property would revert back to Cheryl, and she would be the only beneficiary entitled to such a distribution. Therefore, this trust provision does not create a beneficial interest in anyone other than Cheryl during her lifetime. If and when the trustee were to make such a distribution, however, that distribution would be income to Cheryl.

Since the trust appears to meet the Medicaid payback exception to counting the trust as a resource under the statute, we also considered whether the trust would be a resource under the regular resource rules. See POMS SI 011020.200. We concluded that the trust would not be a resource under those rules since Cheryl cannot revoke the trust without the consent of the contingent residual beneficiaries; she cannot compel the trustee to provide for her support and maintenance; and she is not entitled to mandatory disbursements under the trust which she might be able to sell. See POMS SI 011020.200(D)(1)(a).

CONCLUSION

For these reasons, we believe the trust should not be considered a resource under the statutory or regular resource rules.

This precedent involves a non-countable trust funded by countable income. The trust meets all the requirements for exception as a Special Needs Trust. However, the funds that are received by the claimant are considered income because the benefits are non-assignable. The Employee Retirement Income Security Act (ERISA) makes clear that certain types of income are not assignable. The attorney for our claimant used two arguments to assert that the income should not be countable. First, he indicated his claimant was not the individual who earned the pension and second, that it was a state court that awarded her the benefits from her spouse's retirement funds. The Regional Counsel determined that ERISA states that an individual named as alternate payee, as our claimant was, has a right under Federal law to receive payments and these payments cannot be assigned. This Federal act preempts state law. The Trust is not countable but the income is countable.

You asked us to review a trust agreement created by the Saginaw County Probate Court for the benefit of Peggy to determine whether, for Supplemental Security Income (SSI) purposes, the funds placed in the trust constitute a resource to Peggy and whether the pension payments awarded to Peggy as a result of an Amended Judgment of Divorce by the Saginaw County Circuit Court constitute income to Peggy. For the reasons set forth below, we believe that the trust meets the requirements of the Medicaid Trust exception and is not a resource. However, we also believe that the monthly annuity payments into the trust constitute income for SSI purposes.

BACKGROUND

On December 12, 2005, the Saginaw County Circuit Court entered an Amended Judgment of Divorce awarding Peggy 50% of her ex-husband's General Motors Pension Benefits, including post-retirement surviving spouse benefits. As part of its Amended Judgment, the court ordered that Peggy's portion of the Qualified Domestic Relations Order (QDRO) concerning the General Motors Pension Benefits be paid to a special needs trust based on agreement of the parties.

On May 17, 2006, the Saginaw County Probate Court entered an order establishing the "Peggy Discretionary Trust" (hereinafter "the Trust"). In establishing the Trust, the court found clear and convincing evidence that Peggy is an adult who is unable to manage her property and business affairs due to her physical and mental disabilities and is dependent in need of support, care, and welfare which is necessary and desirable for her to obtain. The court ordered that the property and benefits Peggy is entitled to receive as part of the QDRO entered by the Saginaw County Circuit Court be irrevocably transferred to the Trust.

The Trust states that it is established pursuant to 42 U.S.C. 1396p(D)(4)(A). The express intent of the Trust is to be a Medicaid payback trust. Trust 1.3. The Trust names Nancy, Peggy's guardian, as grantor and trustee. Trust, page 1. Under the terms of the Trust, the trustee has full authority and power to manage the funds of the Trust at her discretion. Trust 1.4(B). The trustee shall pay for Peggy's special needs at the trustee's discretion. Trust 2.1(a). The Trust defines "special needs" as including expenses for: medical and dental needs; housing; transportation; companionship; education; entertainment; travel; and quality of life items. Trust 2.1(b). The Trust contains a spendthrift clause, prohibiting any of the principal or income of the estate or any interest therein from being anticipated, assigned, encumbered by any beneficiary. Trust 5.5. The Trust states that it is irrevocable. Trust 1.2. Peggy has no right or power, whether alone or in conjunction with others to alter, amend, revoke or terminate the Trust or to designate persons who shall posses or enjoy the Trust estate. Trust 1.2.

The Trust provides that it will terminate upon Peggy's death, unless it terminates sooner by exhaustion of the corpus. Trust 3.1. Upon Peggy's death, the trustee shall distribute to the State of Michigan and any other state which has provided medical assistance Trust property up to an amount equal to the total medical assistance paid on behalf of Peggy by the State. Trust 3.1(a). The trustee shall have authority to pay administrative expenses, legally enforceable debts, last illness and funeral expenses, and any inheritance, state and succession taxes. Trust 3.1(b). Any undistributed income of the Trust shall be distributed equally to the living children of Peggy and their descendents. Trust 3.1(c).

DISCUSSION

The Social Security Act was amended in 1999 to explain when some trusts would be considered resources for purposes of SSI eligibility. Pursuant to the new rules for determining SSI eligibility, a trust established on or after January 1, 2000, counts as a resource if it is a revocable trust established by an individual. See 42 U.S.C. § 1382b(e)(3)(A). Irrevocable trusts established by an individual on or after January 1, 2000, count as a resource to the extent that payments from the trust could be made to or for the benefit of the individual or his/her spouse. See 42 U.S.C. § 1382(e)(3)(B). However, these rules do not apply where (1) the Commissioner determines that such rules would work an undue hardship on an individual or (2) the trust is a Medicaid payback trust as described in 42 U.S.C. § 1396p(d)(4)(A) or (C). See 42 U.S.C. § 1382b(e)(4)-(5); POMS SI 01120.203. If a trust meets the definition of a Medicaid payback trust, the regular resource rules still apply, and the trust will be a resource if: (1) it is revocable; (2) the claimant can compel the trustee to use the funds for her support and maintenance; or (3) the claimant can sell her beneficial interest in the trust. POMS SI 01120.203(B)(1)(a); 01120.200.

The Medicaid payback trust exception for individual trusts applies where a trust created on or after January 1, 2000, (1) is established with the assets of a disabled individual under age 65; (2) is established for the benefit of such individual by a parent, grandparent, legal guardian, or a court; and (3) expressly provides that any amounts remaining in the trust upon the death of the individual will be distributed first to the state, up to an amount equal to the total medical assistance paid on behalf of the individual under a State Medicaid plan. See POMS 01120.203(B)(1). The "Peggy Discretionary Trust" appears to meet these criteria.

First, the protective order authorizing the establishment of the Trust indicates that Peggy is under age 65. POMS 01120.203(B)(1)(b). The protective order also indicates that Peggy is disabled. POMS 01120.203(B)(1)(c). Further, it appears that the Trust currently consists of Peggy J.'s assets-in particular, assets derived from the December 2005 Amended Judgment of Divorce, including monthly payments from the General Motors pension benefits. Second, the Trust was established by a court and provides that it is for the benefit of Peggy POMS 01120.203(B)(1)(d)-(e). Third, on the death of Peggy, any remaining funds in the Trust will first be used to reimburse all states where Peggy received medical assistance payments. POMS 01120.203(B)(1)(f). Because the Trust satisfies the Medicaid Trust exception requirements, the Trust is not a countable resource under the statute. Therefore, the regular resource rules apply.

Under these rules, the Trust would not be a resource. Peggy could not revoke the Trust unilaterally because she is not the sole beneficiary of the Trust. See Restatement (Second) of Trusts, § 339 (1959) ("If the settlor is the sole beneficiary of a trust and is not under an incapacity, he can compel the termination of the trust...."); Henderson v. Sherman, 11 N.W. 153, 156 (Mich. 1882). The Trust provides that, if Peggy does not exercise her limited power of appointment, any remaining residue from the Trust upon Peggy's death after the state is reimbursed and her last expenses are paid, shall be distributed to a limited class of beneficiaries-specifically, to Peggy's children. See POMS SI CHI01120.200(D)(3) (remainder of trust assets paid to "heirs at law" presumed, under Michigan law, to create residual beneficiaries). Because the Trust creates a contingent interest in Peggy's children, Peggy is not the sole beneficiary of the Trust and therefore cannot terminate the Trust unilaterally. Secondly, Peggy cannot compel the trustee to use the Trust funds for her support and maintenance. See POMS SI CHI01120.200(D)(2) ("If an individual does not have the legal authority to revoke the trust or direct the use of the trust assets . . . the trust principal is not the individual's resource for SSI purposes."). Finally, Peggy could not sell her interest in the Trust, as it would have no market value because the trustee is not obligated to make any payments. See Restatement (Third) of Trusts, § 60 and comments c, f.

The next issue is whether the pension benefits from Peggy's ex-husband constitute income for SSI purposes. Under the Qualified Domestic Relations Order (QDRO) entered August 8, 2006, 50% of Peggy's ex-husband's retirement benefits were awarded to Peggy, named as the alternate payee on the retirement plan. Under a severable provision of the QDRO, Peggy's share of the retirement benefits are to be paid to the Trustee of Peggy's special needs trust and not directly to Peggy. However, if the terms of the severable provision are deemed to be in violation of federal or state law, the severable provision shall be deemed null and void, such that Peggy would again be eligible to receive her portion of the retirement benefits directly.

Under the POMS, retirement benefits are not assignable by law, and therefore are to be considered income. See POMS SI 01120.201(J)(1)(c) (Certain payments are not assignable by law and, therefore, are income to the individual entitled to receive the payment under regular income rules. Examples of such non-assignable payments include private pensions under the Employee Retirement Income Security Act (ERISA)). The ERISA statute dictates that benefits under the plan may not be assigned or alienated. 29 U.S.C. § 1056(d)(1). There is only one express exception to this anti-assignment provision: assignment of benefits by a QDRO. See 29 U.S.C. § 1056(d)(3)(A).

Peggy's attorney concedes that retirement benefits received by Peggy's husband, as the plan's beneficiary, would constitute income under the SSI rules. However, he argues that the anti-assignment provision of ERISA does not apply to Peggy because she was not the actual employee. Peggy's position is not supported by the ERISA statute or federal case law. Under the ERISA statute, a person who is an alternate payee under a QDRO shall be considered a beneficiary under a retirement plan and, therefore, is subject to the same anti-assignment provision as her husband. See 29 U.S.C. § 1056(d)(3)(J). As a beneficiary, Peggy is precluded from assigning her benefits to anyone other than persons specifically defined in the ERISA statute as "alternate payee." The term "alternate payee" is limited to any spouse, former spouse, child or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of the benefits payable under a plan with respect to such a participant. See 29 U.S.C. § 1056(d)(3)(K). There is no provision in ERISA allowing a beneficiary to assign her benefits to a special needs trust, and the Supreme Court has made clear that the QDRO exception to section 1056(d)(1) is to be narrowly construed and is "not subject to judicial expansion." See Boggs v. Boggs, 520 U.S. 833 (1997). Although Plaintiff's attorney has argued that the retirement benefits are construed under Michigan state law as an asset of the marriage, ERISA broadly preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." 29 U.S.C. § 1144(a). Therefore, the pension benefits paid to Peggy constitute income to Peggy POMS SI 00830.160, 01120.020; see also POMS SI CHI 01140.215(B)(3).

CONCLUSION

For the foregoing reasons, we conclude that the Trust is not a resource to Peggy, but that the pension payments into the Trust are income to Peggy.

This opinion addresses whether or not the Synod Pooled Disability trust is a resource for SSI purposes. In order to meet the special needs pooled trust exception, a trust must satisfy several criteria. One of those criteria is that the individual trust account be established for the sole benefit of the disabled individual. In this case, there are circumstances where the trustee, during the disabled individual's lifetime, may terminate the trust account and distribute the assets as if the disabled individual had died. This early termination provision violates the requirement that the trust account be established for the sole benefit of the disabled individual. However, the trust contains a savings clause that renders the early termination provision ineffective. For this reason, the trust satisfies all of the special needs exception criteria and is not a countable resource for SSI purposes.

You asked whether Ricky's sub-account in the Synod Pooled Disability Trust is a resource for purposes of eligibility for Supplemental Security Income (SSI). We have concluded that the trust is not a resource. However, Ricky and the trustee should be advised that we consider certain trust provisions, which could benefit other individuals during Ricky's lifetime, to be void.

BACKGROUND

Synod Residential Services, Inc., which is apparently a non-profit corporation, established the Synod Residential Services Disability Pooled Trust. The trust was intended to be established consistent with 42 U.S.C. § 1396p as a supplemental needs trust. Pooled Trust Agreement § 3.2. The trustee has discretion to expend trust funds for each beneficiary's supplemental needs and has no obligation to provide for any beneficiary's basic support and maintenance. Pooled Trust Agreement Art. III; Joinder Agreement § 1.2.

A sub-account is created in the pooled trust when an individual signs a joinder agreement and contributes funds. Ricky signed an agreement and established a sub-account with his own funds.

Contributions to the trust are irrevocable. Pooled Trust Agreement § 5.1; Joinder Agreement §§ 1.1, 5.4(e). Only the trustee can amend the trust, primarily to ensure that the trust is consistent with the requirements of 42 U.S.C. § 1396p.

The trust recognizes that, if a sub-account in the pooled trust is funded with a beneficiary's own money, federal law requires that, unless the pooled trust retains the funds, any unspent amounts remaining in the sub-account on the death of that beneficiary must be used to reimburse the State for medical services received. Pooled Trust Agreement § 12.2; Joinder Agreement § 3.7. The trust provides that, if the sub-account is funded by the beneficiary, on his or her death, all amounts remaining in the sub-account shall be retained by the pooled trust to benefit other indigent disabled persons. Pooled Trust Agreement § 12.2(b); Joinder Agreement § 3.7.

If the assets in a sub-account are or will become liable for basic maintenance, support, or care that has been provided by a government or agency, the trustee may terminate the sub-account and distribute the assets as if the individual had died. See Pooled Trust Agreement § 12.1(a). Under some circumstances the trustee also has discretion to terminate the trust and to distribute any funds contributed by the beneficiary back to the beneficiary. Pooled Trust Agreement § 12.3.

The tryst states that, notwithstanding the discretionary payments allowable under the trust, trust assets shall not be used in any way that would result in a manner that would result in the reduction or denial of government benefits. Pooled Trust Agreement § 3.5(a). The Joinder Agreement further provides that the trust is "governed by the laws of Michigan, in conformity with the provisions of 42 U.S.C. § 1396p" and that "[t]o the extent there is a conflict between the terms of this Trust and the governing law, the law and regulations shall control." Joinder Agreement § 5.3. The trust provides that if any portion of the trust is held invalid, other provisions of the trust will remain valid and enforceable. Pooled Trust Agreement § 15.2.

DISCUSSION

Under the Social Security Act, a trust established for the benefit of an individual with the assets of that individual on or after January 1, 2000 generally is a resource to the individual, even if the trust is irrevocable, unless a statutory exception applies. 42 U.S.C. § 1382b(e); POMS SI 01120.201(D). There is an exception for pooled trusts, like this one, if certain criteria are met. See 42 U.S.C. §§ 1382(b)(e), 1396p(d)(4)(C). However, even if the trust meets an exception to counting it as a resource under the statute, it will still be a resource under the regular resource rules if it is revocable; if the individual can compel the trustee to provide for his support and maintenance; or if there are mandatory disbursements and the individual could sell his beneficial interest in the trust. See POMS SI 01120.200(A), (D). Here, the pooled trust meets the pooled trust exception to counting it under the statute, but only because it has a savings clause that renders ineffective any provision that is inconsistent with the statute. The trust is not a resource under the regular resource rules.

To meet the pooled trust exception to counting a trust account under the statute for a disabled person the following conditions must be met:

• •

  The trust must be established and maintained by a non-profit association;

• •

  The trust must have separate accounts for each beneficiary, although assets may be pooled for investing and management purposes;

• •

  The sub-account must be established solely for the benefit of the disabled individual;

• •

  The sub-account must be established by the individual, a parent, grandparent, legal guardian or a court; and

• •

  The trust must provide that, on the death of the beneficiary, any funds not retained by the trust must be used to reimburse any state for Medicaid payments made for the benefit of the beneficiary during his lifetime.

42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203(B)(2). Here the only potential problem with the trust appears to be with the third requirement, in that there are some circumstances under which funds in a sub-account could be used other than for the sole benefit of the disabled individual during his lifetime. Specifically, under some circumstances the trustee may, during the disabled individual's lifetime, terminate a sub-account and distribute the assets as if the disabled individual had died. See Pooled Trust Agreement § 12.1. In that case, all amounts remaining in the sub-account would be retained by the pooled trust to benefit other indigent disabled persons. Pooled Trust Agreement § 12.2(b); see also Joinder Agreement § 3.7. We have previously advised that this type of provision is inconsistent with the requirement that the pooled trust account be established solely for the benefit of the disabled individual during that individual's lifetime. See POMS PS 01825.039 Ohio (L) (PS 04-003 SSI-Ohio-Review of the Sub-Account of Mary, in the Community Fund Management Foundation Pooled Medicaid Payback Trust Your Reference: S2D5G6 OH) (Sept. 23, 2003).

However, the trust also provides that it is governed by the laws of Michigan in conformity with the provisions of 42 U.S.C. § 1396p, and that to the extent that there is a conflict between the terms of the trust and the governing law, the law and regulations shall control. Joinder Agreement at § 5.3; see generally Pooled Trust Agreement § 3.5(a). We have previously advised that this type of provision, if valid under State law, essentially voids any provisions in the trust that are inconsistent with the statutory requirements of 42 U.S.C. § 1396p. See POMS PS 01825.016(E) Illinois (PS 05-225 SSI Review of the Sub-Account of Jesus in the Illinois Disability Pooled Trust). We have also advised that nothing in Michigan law appears to prohibit this type of provision. See Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, SSI-Michigan-Review of the Sub-Account of Michael, ~, in the Elder Law of Michigan, Inc., Pooled Account Trust (Jan. 31, 2007); see also In re Estate of Butter F v. Page, 341 N.W.2d 453, 259-60 (Mich. 1983) (courts look to the trust instrument to determine intent regarding the purpose and operation of the trust); RESTATEMENT (THIRD) OF TRUSTS § 4, comment d (2003) (settlor can incorporate terms of statute in a trust). We found no new developments in Michigan law that suggest otherwise. In this case, the trust also provides that, to the extent any provisions are held void, the remainder of the trust provisions will remain valid and enforceable. Pooled Trust Agreement § 15.2. This provides further support for our conclusion that certain trust provisions may be considered void, and that the trust will, nevertheless, continue to operate. Therefore, we can reasonably assume that the termination provision in § 12.1(a) of the trust is void, such that the trust meets the exception to counting it under the statute.

The trust also is not a resource under the regular resource rules. The trust states that it is irrevocable, and there are other remainder beneficiaries to the trust (i.e., the pooled trust beneficiaries) whose consent would be required to revoke the trust. Furthermore, the trustee cannot be compelled to provide for Ricky's support and maintenance, and there are no mandatory disbursements under the trust.

CONCLUSION

For these reasons, we conclude that Ricky's trust account is not a resource under the regular resource rules, and that the trust meets the pooled trust exception to counting it under the statute because the early termination clause, which might otherwise permit other pooled trust beneficiaries to benefit from the funds in his trust during his lifetime, should be considered void. We recommend, however, that you advise Ricky and the trustee that the Agency considers Section 12.1(a) of the pooled trust agreement to be void.

This precedent is included because of the changes made in Michigan law in 1998 and effective in 04/2000. The change in Michigan's law retroactively opens the door for creating a contingent remainder in an individual's estate and, therefore, the individual is no longer the sole beneficiary of the trust. This specific Trust was created in 1993 with only references to distributions upon death to "those persons entitled to a share in her estate" the new Michigan law "expressly abolished the doctrine of worthier title, both as a rule of law and as a rule of construction." Hence, this Trust is considered irrevocable and meeting all other criteria it is not a countable resource.

You have request an opinion whether a Trust Agreement is a resource of Elaine for purposes of determining her SSI eligibility. We have reviewed the documents that you provided and concluded that, for the reasons stated below, the Trust Agreement is not a resource of Elaine.

BACKGROUND

According to the Declaration of Trust and Trust Agreement ("Trust Agreement"), Elaine attorney and another attorney made the trust agreement on December 7, 1993, and named themselves as Trustees. Trust Agreement, p.1. Funds belonging to Elaine from the settlement of a lawsuit established the trust. Trust Agreement, p. 1. The Trust Agreement states that because the trust is intended for the primary benefit of Elaine, it is only incidentally for the benefit of those to receive the balance of the trust upon her death. Trust Agreement, Art. Five, A(3), p. 5.

The trust declaration provides that its express intention is to provide benefits to supplement those which may otherwise be available to Elaine form various sources, including insurance benefits and governmentally sponsored programs. Trust Agreement, p. 2. It further states that it is intended to benefit Elaine by providing for her extra and supplemental needs, over and above benefits which she may otherwise be entitled to receive from any governmental or private programs as a result of her disabilities. Trust Agreement, Art. Five, A, p. 4. The trust document provides that, during Elaine lifetime, any portion of the net income or principal of the Trust may, at the sole discretion of the Trustee, be paid for her benefit, or for the benefit of her issue, if any, and any and all discretionary distributions shall be based primarily upon the needs of Elaine. Trust Agreement, Art. Five, p. 4. The trust provides that no trust income or principal shall be paid or expended if the Trustee determines there are sufficient resources available to her for her care, comfort, and welfare from any governmental or private programs. Trust Agreement, Art. Five, A(2), p. 5. The Trust Agreement states that, under no circumstances, shall Elaine have the power or authority to demand any distribution from the Trustee, who is under no obligation, implied or otherwise, to make any distributions to her. Trust Agreement, Art. Five, C(2), p. 6. The trust declaration contains a spendthrift provision that protects the trust assets from claims by a beneficiary's creditors and forbids any beneficiary from selling or in any other manner disposing of her interest in the trust principal or income. Trust Agreement, Art. Seven, p. 10-11.

The Trust Agreement provides that, during Elaine lifetime, the trust may be amended, provided that any modification shall always be in Elaine best interest and subject to the prior approval of the probate court having jurisdiction over her estate. Trust Agreement, Art. Three, p.3.

At Elaine death, if funds remain in the trust, the Trustee is authorized, but not required, to pay all estate, inheritance or other similar taxes which may be imposed on Elaine estate, together with the expenses of her last illness, funeral and burial costs, enforceable debts and reasonable administrative expenses. Trust Agreement, Art. Six, A, p. 9-10. The trust further provides that all of the rest of the trust estate shall be distributed to the estate of Elaine, deceased, and distributed to those persons who are determined to be entitled to share in her estate by the court having jurisdiction over her estate. Trust Agreement, Art. Six, B, p. 10.

DISCUSSION

The pertinent SSI regulations provide at 20 C.F.R. § 416.1201 that:

resources means cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance.

(1) 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. . . .

Therefore, if an individual is able to obtain funds or convert property to cash to be used for her support and maintenance, such funds or property are to be included as resources for purposes of SSI eligibility determinations. Trust assets are a resource to the individual if he or she can revoke the trust and use the assets to meet his or her needs for food, clothing, and shelter or if the individual can direct the use of the trust principle for his or her support and maintenance under the terms of the trust or sell her beneficial interest in the trust. See POMS SI 01120.200(D)(1)(a).

The spendthrift provision would not prevent Elaine from selling her beneficial interest in the Trust since she is the Grantor of the Trust. See Restatement (Third) of Trusts § 58(2). However, her interest in the Trust would have no market value, since it is a discretionary trust for her benefit. Under the terms of the Trust, Elaine also does not have any authority to direct the payment of Trust principal for her support and maintenance. Rather, the Trustee has the discretion to make payments from the Trust and Elaine does not have the power or authority to demand any distribution from the Trustee. See Trust Agreement, Art. Five, p. 4; Art. Five, C, p. 6. Further, the Trust Agreement explicitly precludes the Trustee from using any of the trust funds for Elainebasic support, which would otherwise be provided for at public expense. See Trust Agreement, Art. Five, A(2), C(2)-(3), p. 6-7. Elaine does not have any power to direct payment from the Trust, and the Trustee cannot use funds for Elaine basic support. Therefore, the Trust should not be considered a countable resource for this reason. See 20 C.F.R. § 416.1201; POMS SI 01120.200(D)(1)(a).

As stated above, the Trust may also be considered a resource if Elaine can revoke it and use the funds for her support and maintenance. The Trust does not provide whether it is revocable, but states that it may be amended, provided that any modification shall always be in Elaine best interest and subject to the prior approval of the probate court having jurisdiction over her estate. See Trust Agreement, Art. Three, p. 3. Therefore, while it might appear that Elaine has the power to amend the Trust, she cannot do so unilaterally, and the probate court would approve a request for amendment only if it concluded it was in her best interest. In determining Elaine best interests, the court might consider the intent and purpose of the Trust to protect her eligibility for benefits.

Nor is the Trust otherwise revocable. Because the Trust was funded with the proceeds of a lawsuit settlement brought on Elaine behalf, she is the Grantor. See Memorandum from Reg. Chief Counsel, Chicago to Ass't Reg. Comm.-MOS, Chicago, Review of Trust for Stephanie E~ (9/27/99) ("E~ Review"); In re J~ Trust, 479 N.W. 2d 25, 30 (Mich. App. 1991). In general, where a grantor is also the sole beneficiary of the trust, she can revoke or compel termination of the trust. See Restatement (Second) of Trusts § 339, comment a (1959); POMS SI 01120.200(D)(3). The issue then becomes whether Elaine is the sole beneficiary of the trust. If a grantor who is also a beneficiary manifests an intention to create a vested or contingent interest in someone other than herself, she is not the sole beneficiary. See Restatement (Second) of Trusts § 339, comment b. Where a grantor is not the sole beneficiary, she cannot revoke the trust without the consent of other beneficiaries. We have previously advised that these general trust principles apply in Michigan. See Memorandum from Reg. Chief Counsel, Chicago to Ass't Reg. Comm. - MOS, Chicago, Six State Synopsis of Trust Laws (2/26/92); E~ Review; H~ v. H~, 543 N.W.2d 19, 20 (Mich. App. 1995) (even irrevocable trust may be terminated with consent of grantor and all beneficiaries).

In the past, the law has presumed that no additional beneficiaries were intended when a grantor transfers property in trust to himself for life and, upon her death, to her heirs or next of kin (doctrine of worthier title). See Restatement (Second) of Trusts § 127, comment b (1959). However, in 1998, the Michigan legislature expressly abolished the doctrine of worthier title, both as a rule of law and as a rule of construction. Mich. Comp. Laws § 700.2719 (2000); Uniform Probate Code § 2-710. Michigan law now provides that language in a governing instrument describing the beneficiaries of a disposition as the transferor's "'heirs', 'heirs at law', 'next of kin', 'distributees', 'relatives', or 'family' or language of similar import, does not create or presumptively create a reversionary interest in the transferor." Mich. Comp. Laws § 700.2719 (2000). These provisions took effect on April 1, 2000, but the effective date provision states, "a rule of construction or presumption provided in this act applies to a governing instrument executed before that date unless there is a clear indication of a contrary intent." Id. at § 700.8101(e). We have found no reported case law interpreting these provisions. While this is a close case, we believe that under this rule of construction, a court would likely find that the Trust creates a contingent remainder in the distributees of Elaine estate. Elaine, therefore, is not the sole beneficiary of the trust. Therefore, she alone cannot revoke the trust.

CONCLUSION

Under current Michigan law, Elaine would not be considered the sole beneficiary of the Trust. Therefore, she does not have the power to revoke the Trust. While it might appear that Elaine has the power to amend the Trust, it does not seem that she would be able to amend it unilaterally. Finally, Elaine does not have any power to compel the Trustee to use Trust principal or income for her support and maintenance and her beneficial interest in the trust would not have any marketable value. Therefore, the Trust is not a countable resource for SSI purposes. Distributions to Elaine or for her benefit, however, may constitute unearned income in the month in which they are received, see 20 C.F.R. §§ 416.1121-416.1124, or cause the "presumed value rule" or "one-third reduction rule" to reduce Elaine benefits. See 20 C.F.R. §§ 416.1130-1141; see also POMS SI 01120.200.

This opinion evaluates whether a life insurance funded burial trust is a countable resource to an SSI beneficiary. In January, 2005 the beneficiary purchased a single premium life insurance policy that was subsequently assigned to a funeral home and transferred to a burial trust by the funeral home. A burial trust is not considered to be a countable resource if an individual irrevocably contracts with a provider of funeral services, funds the contract by prepaying for the goods and services, and the funeral provider places the funds in trust. The transaction ultimately resulting in formation of the trust is deemed to be a purchase of goods and services in those instances. In the case evaluated in this opinion the contract between the beneficiary and the funeral home fails to satisfy three of the Michigan state statutory requirements. As such, a Michigan court would likely find the assignment of proceeds is void. In the absence of a valid contract between the beneficiary and the funeral home, none of the burial trust exceptions can apply and the trust is determined to be a countable resource.

You have asked whether the above-captioned, life insurance funded burial trust is a resource to Marilyn V~ D~ for SSI purposes. We have concluded that the burial trust would be considered a resource.

BACKGROUND

The National Guardian Life (“NGL”) Insurance Policy (“policy”), purchased on January 21, 2005, identifies Barbara J. V~ D~ as the insured and Virginia as the owner. The “Statement of Insured's Incapacity,” signed by Virginia (Ms. V~ D~'s sister), informs that Ms. V~ D~ is not capable of signing the application for insurance due to mental incompetence and that Virginia has full authority to use the funds tendered as a premium for the policy. The policy has a single premium of $6,653.00 and does not state the minimum death benefit.

In the “Revocable Assignment of Life Insurance Policy and Death Benefit Proceeds,” (“Assignment”) executed on the same day, Virginia assigned the proceeds of the life insurance policy to the Matthysse-Kuiper-DeGraaf Funeral Directors (Grandeville) to be used to pay for funeral goods and services upon the death of the insured, Ms. V~ D~. The Assignment specified that Virginia could “cancel this assignment by writing to the Insurer any time before the funeral merchandise and services are provided by the Funeral Provider.” Virginia also entered into a funeral arrangement agreement with the funeral home.

Also on January 21, 2005, Virginia signed an “Irrevocable Transfer of Ownership.” In this document, Virginia “transfer[red] ownership” of the life insurance policy to the funeral home “in return for the promise to deliver funeral services and merchandise,” and for the promise “to immediately transfer ownership of the policy to the [National Guardian Life] American Trust.” The document specified that Virginia waived “all rights under the policy to surrender it for cash and to obtain a loan against the policy,” and that the change in ownership was “permanent.”

Under the Trust provisions, Virginia, as owner, retains the right to change the funeral provider before the funeral provider delivers the funeral services or merchandise. The Trust clarifies that this right should not be construed as meaning that the owner may regain ownership of the Policy's cash value or to permit the owner to transfer ownership of the Policy from the Trust (See 7).

DISCUSSION

As an initial matter, we note that Virginia appears to be acting under a power of attorney on behalf of Ms. V~ D~. Therefore, any actions that Virginia took with respect to the matter at hand should be attributed to Ms. V~ D~.

A life insurance policy can be a resource if the individual can surrender it for cash or recover the premiums paid. See 20 C.F.R. § 416.1230. Michigan law provides that all life insurance policies must contain notice that the policyholder may cancel the policy and receive prompt refund of any premiums paid during a period of not less than ten days after the date the policyholder receives the policy. Mich. Comp. Laws 500.4015. As part of her application for the policy, Virginia executed a “Notice of Cancellation” which provides that she may cancel the transaction within three business days after the date of the transaction. The statue, however, probably trumps the contrary policy language, and thus, pursuant to state law, the policy should be considered a resource for the first 10 days.

Next, we must determine whether the trust to which the policy was assigned was a resource after the initial, 10-day cancellation period. A trust established by an individual on or after January 1, 2000, as this one was, will be considered a resource, under federal law, if it is revocable, or even if it is irrevocable, to the extent that payments from the trust could be made to or for the benefit of the individual unless certain exceptions are satisfied. 42 U.S.C. § 1382b(e)(3)(B); POMS SI 01120.201(D)(1)-(2). This rule applies if payments can be made for the benefit of the individual “under any circumstance, no matter how unlikely or distant in the future.” POMS SI 011020.201(D)(2)(b).

But these provisions do not apply to burial trusts where the individual irrevocably contracts with a provider of funeral goods and services and the individual funds the contract by prepaying for the goods and services, and either (1) the funeral provider subsequently places the funds in a trust, or (2) the individual establishes an irrevocable trust, naming the funeral provider as the beneficiary. POMS SI 01120.201(H)(1). The POMS explains that such a transaction is a “purchase of goods and services by the individual” and that the funeral home is considered to have established the trust. Id.

In addition, recent guidance from the Office of Income Security Program (OISP) indicates that when an individual irrevocably assigns ownership of a life insurance policy to purchase a revocable burial contract from a funeral provider and the provider places the policy in trust, the transaction constitutes a purchase of goods and services by the individual and not the establishment of a trust by the individual. See POMS SI 01120.201(H)(2) (third category of cases where “an individual enters into a revocable funeral contract with a funeral provider, even if the funeral provider places the money in a trust”). The subsequent trust created by the funeral provider is considered to be established by the funeral provider and not the individual, and the trust would then fall under the exceptions of POMS SI 01120.201(H)(1).

Significantly, for purposes of assessing Ms. V~ D~'s burial trust, each of these burial-trust exceptions requires that a valid contract exist between the individual and a funeral home. In this case, however, it appears that the Ms. V~ D~'s pre-need funeral arrangement does not meet all the state statutory criteria for a valid “pre-death assignment of the proceeds of a life insurance policy or annuity contract as payment for cemetery or funeral services or goods.” Under Michigan law, each requirement must be met or the assignment will be deemed “void.” Mich. Comp. Law 500.2080(6). The assignment here does not meet the following three conditions under Mich. Comp. Law 500.2080(6): the assignment does not contain the bold-faced language described in subsection (6)(d); the assignment does not describe the dispute resolution rights required by subsection 6(h); and the assignment does not contain certification that the insured has not contracted with any other funeral home for funeral goods or services, as required by subsection 6(l). See Mich. Comp. Law 500.2080(6)(d), (h), (l).

Because these statutory criteria are not met, a Michigan court would almost certainly find the assignment of insurance proceeds was void and, in the absence of an assignment of proceeds, the funeral home could never be paid for any services. Thus, there is no contractual relationship between Ms. V~ D~ and the funeral home. Without a valid contract between Ms. V~ D~ and the funeral home, the burial trust does not meet any of the statutory exceptions in POMS SI 01120.201(H)(1). As such, the statutory trust resource rules apply and the burial trust would be considered a resource to Ms. V~ D~ under 42 U.S.C. § 1382b(e)(3)(B).

CONCLUSION

We advise that the burial trust would be considered a resource to Ms. V~ D~ for SSI purposes. Under Michigan statutory law, an assignment of insurance proceeds as payment for cemetery or funeral services or goods is void unless a variety of criteria are met. In this case, because the funeral contract fails to satisfy three of the statutory requirements, a Michigan court would likely find the assignment of proceeds void. Because the funeral home could never be paid under such an arrangement, there is no valid contract between Ms. V~ D~ and the funeral home. In the absence of a valid contract, the trust cannot meet any of the burial-trust exceptions outlined in POMS SI 01120.201(H)(1). As such, the trust is a resource to Ms. V~ D~ under the statutory trust resource rules. POMS SI 01120.201(D)(2)(a).

A trust was established on 2/16/05 as a result of a personal injury settlement received by an SSI beneficiary. The settlement resulted in an annuity being purchased from an insurance company and the subsequent annuity payments being irrevocably assigned to the court-ordered trust. The trust language provides that the SSI beneficiary has no access to the trust and cannot direct use of the funds found therein. Language found in the trust dictates that, upon the beneficiary's death, any funds remaining in the trust will be distributed to applicable State Medicaid agencies for reimbursement prior to any payments to the SSI beneficiary's “heirs at law”. A change in Michigan state law effective 4/1/00 establishes that “heirs at law” or similar language constitutes creation of a beneficial, or remainder, interest. Thus, the trust is irrevocable and meets the Medicaid Trust Exception. As such, the trust itself is excluded from countable resources, and the annuity payments irrevocably assigned to the trust are excluded from countable income.

You asked whether the Julia Trust, dated February 16, 2005, is a resource to Julia and whether her annuity payments have been irrevocably assigned to the Trust (and thus would not be income) for purposes of determining eligibility for Supplemental Security Income (SSI). We conclude that the trust is not a resource and that the annuity payments have been irrevocably assigned for purposes of SSI eligibility.

BACKGROUND

On November 9, 2004, a settlement was reached in a certain personal injury lawsuit filed on behalf of Julia by her mother and plenary guardian of the person, Della . To effect the settlement agreement, an annuity was purchased from an insurance company providing for a monthly life annuity for Julia in the amount of $637.61 per month, commencing on January 1, 2005. The payee for the annuity is listed as the “Julia Irrevocable Trust.”

After a hearing on February 16, 2005, a Michigan probate court, upon the request of Della, entered an order on March 9, 2005, calling for the establishment of the Julia Irrevocable Trust, and further ordering that Della, as guardian, should execute the trust for and on behalf of the court. The court also ordered that the net proceeds from a certain personal injury lawsuit filed by Julia, including all future annuity payments, should be paid over to the trust. The court indicated that its order was made after hearing testimony and after reviewing a favorable report from a guardian at litem.

On February 16, 2005, Della, as grantor and trustee, executed the “Irrevocable Declaration of Trust and Trust Agreement for the benefit of Julia .” The Trust provides that the trustee, in her sole and uncontrolled discretion, may make payments for Julia's benefit during Julia's lifetime. Article V. Julia has no power to demand distributions. Article V(B)(2). Upon Julia's death, the Trustee will first reimburse all states where Julia has received medical assistance payments for their proportionate share of Medicaid benefits, and will then make certain other payments for taxes, funeral expenses and other debts. Article VI(A). After that, the trustee will pay the residue as Julia appoints in her will, and in default of such an appointment, to Julia's heirs at law.

DISCUSSION

The Trust Is Not a Resource.

Generally, a grantor of a trust (and Julia should be considered the true grantor since she provided the funds for the Trust) can revoke her contributions to the trust if she is also the sole beneficiary of the trust, even if the trust purports to be irrevocable. See POMS SI 01120.200(B)(2), 01120.200(D)(3), 01120.201(B)(7), CHI01120.200; RESTATEMENT (THIRD) OF TRUSTS § 65 & comment a & Reporter's Note (2003). In this case, however, Julia is not the sole beneficiary of the Trust, and she could not unilaterally revoke her contributions to the Trust and recover those assets to use for her support and maintenance. Specifically, the Trust indicates that Julia can appoint the Trust residue by will, and that, in default, the residue goes to her heirs at law. Although it is unclear whether the power of appointment creates a beneficial trust interest, RESTATEMENT (THIRD) OF TRUSTS §§ 44, 46 (2003), the designation of heirs at law clearly does, POMS SI CHI01120.200(D)(3). Accordingly the Trust is irrevocable.

Pursuant to POMS SI 01120.201(D)(2), the principal of an irrevocable trust established with the assets of an individual (on or after January 1, 2000) is a resource if payments from the trust principal could be made to or for the benefit of the individual or the individual's spouse (which is the case here, since Julia is the sole beneficiary during her lifetime), unless one of the exceptions in POMS SI 01120.203 applies.

Here, the exception in POMS SI 01120.203(B)(1) (Section 1917(d)(4)(A) of the Act) applies. This exception requires (1) that the trust be established with the assets of an individual under age 65 who is disabled; (2) that the trust be established for the benefit of such individual by a parent, grandparent, legal guardian or a court; and (3) that the trust provides that, on the death of the individual, any funds remaining in the trust will be used to reimburse the state for Medicaid payments made on behalf of the individual. These elements are satisfied since Julia is under age 65 and disabled; the Trust was established for her benefit by a court; and the Trust provides for reimbursement to Medicaid. We note that the Trust was actually established prior to entry of the court's order, but it was clearly established pursuant to the court's oral directive (on February 15, 2005), which was later memorialized in the March 2005 written order. And, state law permits a probate court to direct the creation of a trust, so long as certain preliminary findings are made, which we assume was the case here even though the probate court order did not explicitly articulate the findings (e.g., the Trust preamble indicates that the court determined the Trust to be in Julia's best interests). See MICH. COMP. LAWS ANN. §§ 700.5401(3), 700.5407(2)(c)(v), 700.5408(2) (West 2006) (requiring finding that individual is unable to manage property effectively and that trust is in individual's best interests).

However, even if a trust is not a resource under POMS SI 01120.201(D)(2), the Agency applies regular resource counting rules to determine if it is a resource. POMS SI 01120.200, SI 01120.203(B)(1). Under the ordinary resource rules, the trust principal will be a resource if (1) the claimant can revoke the trust and use the assets for her support and maintenance, or (2) the claimant can direct the trustee to pay her the funds or use the funds for his support and maintenance. POMS SI 01120.200(D). In addition, the claimant's interest in the Trust is a resource if it can be sold. POMS SI 01120.200(D).

As we have indicated, the Trust is not revocable. Nor does Julia have the power or authority to direct the use of the Trust property for her support and maintenance. Under the terms of the Trust, the Trustee has sole discretion to determine when payments will be made for her benefit. Finally, even if Julia could sell her beneficial interest in the Trust, that interest would have little or no value because the trustee is not required to make any payments for her benefit. See RESTATEMENT (THIRD) OF TRUSTS § 60 & comments e, f. Thus, the Trust is also not a resource under the regular resource rules.

B. The Annuity Payments Paid Directly to the Trust Pursuant to the Court Order Are Not Income to Julia.

Because the Trust is not a resource, the annuity payments made to the trust are not income to Julia if she has irrevocably assigned them to the Trust. POMS SI 01120.200(G)(1)(d). Although the court order states that the annuity payments will be made directly to Della, as trustee, if Julia could ask the court to modify the order so that the payments would be made directly to her, the annuity payments should be considered income to her. See Memorandum from Reg. Chief Counsel, Chicago, to Ass't Reg. Comm.-MOS, Chicago, Review of the Marital Settlement Agreement for Patricia and Floyd and the Patricia Special Needs Trust, at 3-4 (Dec. 4, 2003).

It appears, however, that, as with the creation of the Trust, the court's order with respect to the annuity would have to be based on a finding that, among other things, the annuity assignment was in the best interests of Julia. MICH. COMP. LAWS ANN. § 700.5408(2) (West 2006) (probate court may direct transaction related to protected individual's property and business affairs only if court determines that transaction is in individual's best interests). Indeed, the court appointed a guardian ad litem for Julia, and indicated that it had reviewed the guardian's favorable report before issuing its order (thus indicating careful consideration of Julia's best interests). Accordingly, for Julia to convince the court to redirect the annuity payments to her, she (or Della, her guardian) would have to show that such a change was in her best interests. Id. This, however, is unlikely since we are not aware of any change of circumstance since the probate court hearing that would cause the court to reconsider its finding that assigning the annuity payments to the Trust is in Julia's best interests. Therefore, the annuity payments are, at this time, irrevocably assigned to the trust, and thus are not income under POMS SI 01120.200(G)(1).

CONCLUSION

For these reasons, we conclude that the trust is not a resource, and the annuity payments are not income.

The opinion in this case addresses two issues: 1) Is the SSI recipient’s life insurance funded burial trust agreement valid under Michigan law? 2) Is the cash surrender value of the life insurance policy a countable resource? Under Michigan law, a person entering into an irrevocable prearranged funeral contract reserves the right to change funeral providers, although not the right to terminate the underlying services to be rendered. In this case, the trust agreement makes clear that the trust is irrevocable and that the SSI recipient retains the right to change funeral providers but cannot surrender the policy for cash or obtain a loan against it. Consequently, under Michigan law, the life insurance funded burial trust is valid. With regard to whether or not the cash surrender value of the life insurance policy is a countable resource, the SSI recipient no longer owns the policy or has the ability to use it for support and maintenance thus it is not a countable resource for SSI purposes.

This is in reply to your September 23, 1996 inquiry concerning whether the life insurance funded burial trust agreement for Patricia , an SSI recipient, was valid under Michigan law. For the following reasons, we conclude that the trust agreement is valid, and the cash surrender value of the life insurance policy is not a countable resource.

FACTS

On May 23, 1996, Patricia redeemed $4,396.80 in savings bonds. On May 25, 1996, she purchased $4,298.88 in funeral merchandise and services from funeral provider, G~-R~ Company. Specifically, Patricia purchased a $2,000 irrevocable trust, a guaranteed trust in the amount of $1060.00, and a life insurance policy with a face value of $1,424.00.

Services such as embalming, and “basic services of the funeral director and staff” were funded by the irrevocable trust. The casket and outer burial container were funded by the guaranteed trust. Items including unspecified “professional services,” memorial cards, and death certificates were funded by the life insurance policy.

The life insurance policy was transferred to the funeral provider, and then to an trust. This trust purports to be irrevocable but allows Patricia the option to obtain the contracted for funeral services with a different funeral provider if she so desires. You asked whether, under these facts, the life insurance funded trust agreement was valid.

DISCUSSION

A life insurance funded burial contract involves an individual purchasing a life insurance policy in his name and then assigning, revocably or irrevocably, either the proceeds or ownership of the policy to a third party, generally a funeral provider. The purpose of the assignment is to fund a pre-arranged burial contract. See Program Operating Manual System (POMS) § SI 01130.425(A)(2). Here, ownership of Patricia's life insurance policy was transferred to the funeral provider, and then to an irrevocable trust. Since the policy was placed in trust, the resource value of the trust must be evaluated according to the rules governing trust funds in order to determine whether it is a countable resource for SSI purposes. POMS §§ SI 01130.425(A)(2), SI 01120.200(E).

The “Irrevocable Transfer of Ownership” trust agreement in this case provides that Patricia waived all rights under the insurance policy to surrender it for cash or to obtain a loan against it. Because this transfer is permissible under state law, the trust is irrevocable. The agreement also provided that Patricia “reserves the right to revoke any assignment of benefits and to change the designated Funeral Provider” named in the insurance policy. So the question becomes whether a revocably assigned life insurance policy placed in an irrevocable trust is a countable resource.

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

In 1986, the state of Michigan enacted the Prepaid Funeral Contact Funding Act (PFCFA), which applies to all agreements entered into after March 31, 1987, and makes such agreements generally revocable. See MCL §§ 328.204, 328.223. See OGC V (L~) to ARC-POS (M~) “SSI Regional Transmittal Concerning Michigan Burial Contracts” (May 20, 1996 (approx.)) However, the PFCFA exempts from revocability certain contracts approved by the Michigan Department of Social Services. Id.; see also MCL § 328.228(2). Patricia apparently applied to have the irrevocable funeral contract certified by the Michigan Department of Social Services. The pertinent section indicates that a person entering into an irrevocable prearranged funeral contract reserves the right to change funeral providers, although not the right to terminate the underlying services to be rendered. That is, an irrevocable prearranged funeral contract “shall permit the depositor of the funds in the account to alter the agreement to provide for a different party to provide the [funeral services], but in any event the funds in the account shall be used only to provide [funeral services].” See M.L.A. § 328.202(3); see also M.L.A. § 328.229(2) (1992). Here, the trust agreement makes clear that the trust itself is irrevocable and that Patricia simply retains the right to change funeral providers, not that she is able to surrender the policy for cash or to obtain a loan against it. Consequently, pursuant to Michigan law, the life insurance trust in this case is valid.

The insurance policy has been transferred to a valid irrevocable trust, and Patricia no longer owns the policy or has the power to use it for her support and maintenance. The cash surrender value of Patricia's life insurance is therefore not a countable resource for SSI purposes. See 20 C.F.R. § 416.1201(a); POMS SI 01130.425(E).

CONCLUSION

We conclude that Patricia's irrevocable life insurance funded burial trust agreement is valid under Michigan law, despite her retained ability to change funeral providers. Additionally, the cash surrender value of the life insurance policy is not a countable resource for SSI purposes.

This 1999 opinion concerns a Michigan trust and concludes that the trust is a countable resource for SSI purposes because it is a support trust. In general, a support trust imposes on the trustee the obligation to provide funds for the support of the beneficiary. In this case, the trust imposes such an obligation which gives the beneficiary a judicially enforceable right to receive support.

You asked us to review a trust dated August 11, 1994, to determine whether the funds placed in trust would be a countable resource to Michael, a minor recipient of Supplemental Security Income payments. For the following reasons, we believe that the money in trust is available for use for Michael's support and maintenance. Therefore, it is a countable resource to him.

FACTS

We base our opinion on the following facts that have been provided to us. According to a Report of Contact dated April 27, 1998, the trust includes $12,000 from a Z~ retroactive benefit award. Michael, the grantor, is the SSI beneficiary and is a minor. His mother, Pamela, is his representative payee and is named as trustee.

The trust document is not wholly clear. It is dated August 11, 1994 “between” Michael, as “Trustor,” and Pamela, as “Trustee.” Article 1 of the trust purports to transfer funds held in the “Putnam Investment Fund” irrevocably to the trustee to hold and administer. Article 2 or the trust sets out that the trustee will “receive and hold” the investment “for the use and benefit of” Michael. Apparently inconsistently, Article 2 continues and states that “I hold . . . said securities . . . IN TRUST to the following named beneficiary: Thomas -my father.” Later, in Article 4, the trust states that it is “my intention to make to the beneficiary named herein an absolute gift of the asset described” in Article 1.

DISCUSSION

The trust document presented here raises numerous questions concerning its validity and terms. We will not attempt to address all of these possible issues, however, because the trust does provide that the funds in question were given to the trustee “for the use and benefit of” Michael, the SSI recipient. Because the trust allows the use of the funds for his support and maintenance, the amounts in trust are a countable resource to him.

An asset is a resource to an individual if it is cash or if the individual can convert it to cash and use it for his or her support and maintenance. 20 C.F.R. § 416.1201(a) (1999).

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.

20 C.F.R. § 416.1201(a)(1). Property held in trust for an individual is a resource if (1) the individual can direct the trustee to use the property for his or her support and maintenance; (2) the individual can revoke or terminate the trust and gain access to the trust property and use it for his or her support and maintenance; or (3) the individual can transfer his or her interest in the trust and use the proceeds for support and maintenance. See POMS SI 01120.200(D)(1). Here, the trust document is unclear. It is possible that the trust is either invalid or revocable. (If the trust is invalid or revocable, it is a resource to Michael.) Regardless, the trust expressly allows the trustee, Michael's mother, to access the trust property and use it for his support and maintenance. Therefore, the property in trust is Michael's resource.

The declaration of trust states that “[t]he Trustee shall receive and hold said investment in Trust for the use and benefit of: Michael Trustor.” This language suggests what Michigan courts refer to as a “support trust.” See Miller v. Dep't of Mental Health, 442 N.W.2d 617, 618 (Mich. 1989) (there are three types of trusts: trusts giving the right to receive some portion of the income or principal; support trusts; and discretionary trusts). A support trust is one that provides that the trustee shall pay so much of the income or principal as necessary for the education or support of the beneficiary. Id.; see also 1 Restatement of Trusts (Second) § 154. Here, the trust document requires the trustee to use the trust property “for the use and benefit of Michael” and does not provide any standards by which the trustee should exercise discretion in the use of the property. Because the trust document imposes on the trustee the duty to use the funds for Michael's “use and benefit,” it is a “support trust.” A support trust imposes on the trustee the obligation to provide funds for the support of the beneficiary. Here, the support trust imposes on his mother as trustee the duty to provide funds for the support of Michael, and, as a result, it gives Michael the entitlement to enforce payment of such amount. See M~, 442 N.W.2d at 619-20 (support trust gives beneficiary a judicially enforceable right to receive support).

Because under Michigan law this trust is a support trust, Michael has the right to enforce payment of his support by the trustee. Id. Consequently, the funds in the trust are available to be used for Michael's support and maintenance. The funds in trust are a countable resource.

CONCLUSION

For the foregoing reasons, we believe that the property in trust in this matter should be considered a resource to Michael. The trust appears to be a support trust, and Michael would have a judicially enforceable right to command the trustee to provide necessary support payments from the trust.

Sincerely,

In this opinion, OGC found that an insurance policy assigned to a trust was a resource for SSI purposes because the owner retained the power to revoke the agreement and could convert the policy to cash which she could use for her support and maintenance. While the trust established by the funeral provider was irrevocable, the assignment of the insurance proceeds was revocable. Once the 10-day cancellation period under the policy lapsed, the cash surrender value of the insurance policy, i.e., the value of the trust, became a countable resource to the owner. Further, OGC concluded that the undue hardship provision explained at SI 01120.203E. need not be considered in this case because the trust was revocable.

You asked whether the subject life insurance funded burial trust is a countable resource for Previsteria for purposes of SSI eligibility. We conclude that the trust is a resource under federal law. Furthermore, the undue hardship exception would not appear to apply in this case because the trust is likely revocable.

FACTS

On November 19, 2002, Previsteria purchased a life insurance policy with a single premium of $3,000. The minimum death benefit amount is not stated in the policy application. Also on November 19, 2002, Previsteria signed a “Revocable Assignment of Life Insurance Proceeds,” in which she assigned the proceeds of her life insurance policy with Fortis Benefits Insurance Company to the Bagnasco & Calcaterra Funeral Home to be used to pay for funeral goods and services upon her death. The Assignment specified that it could “be revoked by the assignor or assignor's successor. . . or by the representative of the insured's estate before the rendering of the funeral services or goods.” That same day, Previsteria also signed a “Change of Ownership to Funeral Firm and Pre-Thana Trust.” The state purpose of the “Change of Ownership” agreement was to “transfer ownership” of the life insurance policy to the funeral home in return for the promise to deliver funeral services and goods, and “for the promise of the Funeral Firm to immediately transfer ownership of the policy to the Pre-Thana trust” on Previsteria's behalf. The “Change of Ownership” agreement specified that the change of ownership was “permanent” and that Previsteria renounced her power to control the policy, and that she waived “all rights under the policy to surrender it for cash and to obtain a loan against the policy.” Under the trust provisions, Previsteria (or her representative) retaines the right to purchase funeral services or merchandise from another vendor and change the designated Funeral Firm under the Pre-Thana trust.

DISCUSSION

However, statutory provisions at 42 U.S.C. § 1382b(e)(3)(B) will apply where an individual establishes a burial trust with his or her own assets but does not enter into a pre-need funeral contract with a funeral provider; or the individual enters into an irrevocable funeral contract with a funeral provider, but establishes a revocable trust to fund the contract; or the individual enters into a revocable funeral contract with a funeral provider, even if the funeral provider places the money in a trust. POMS SI 01120.201H.2. In these circumstances, the individual, rather than the funeral home, is considered, for federal law purposes, to have established the trust.

Here, Previsteria's assignment of life insurance proceeds to the funeral home is, by its very terms, revocable. The first numbered paragraph of the agreement expressly states that the assignment can be revoked “by the assignor or assignor's successor” or by the representative of the insured's estate after her death at any time before the rendering of funeral goods and services. Therefore, even if the trust is irrevocable, as it purports to be, and even if the insurance policy has been irrevocably assigned to trust, the trust (and therefore the policy held in trust) is a resource to Previsteria under federal law. POMS SI 01120.201.H.1. - 2. The value of the trust, after any cancellation period under the policy, is the cash surrender value of the lift insurance policy. 20 C.F.R. § 416.1230.

SSA may waive application of the statutory trust counting provisions if the individual is ineligible for benefits by virtue of counting an irrevocable trust as a resource and if the individual meets the criteria for undue hardship. See 42 U.S.C. § 1382b(e)(4); POMS SI 01120.203C.2.a.; Exclusion of Certain Burial Trusts from Section 206 of Public Law Number (Pub. L. No.) 106-169, Associate General Counsel Office of Program Law to Associate Commissioner for Legislative Development (Aug. 29, 2000). When evaluating whether the individual has established undue hardship, the Agency would not consider the assets in an irrevocable trust to be available funds. Id. Here, however, it appears that the Pre-Thana trust is revocable.

The documents submitted suggest that the parties intended the trust to be irrevocable. However, the trust must be evaluated under Michigan law to determine whether the trust may be revoked under state law. In general, where a grantor is also the sole beneficiary of the trust, he or she can revoke or compel termination of the trust, even when the trust declaration states that the trust is irrevocable. Restatement (Second) of Trusts § 339, cmt. a (1959); POMS SI 01120.200D.3. The issue then becomes whether Previsteria is the sole beneficiary of the trust. If a grantor who is also a beneficiary manifests an intention to create a vested or contingent interest in someone other than herself, she is not the sole beneficiary. Restatement (Second) of Trusts § 339, comment b. Where a grantor is not the sole beneficiary, she cannot revoke the trust without the consent of the other beneficiaries. We have previously advised that these general trust principals apply in Michigan. See Memorandum from Reg. Chief Counsel, Chicago to Ass't Reg. Comm. - MOS, Chicago, Six State Synopsis of Trust Laws (10/16/02); Hein v. Hein, 543 N.W.2d 19, 20 (Mich. App. 1995) (even irrevocable trust may be terminated with consent of grantor and all beneficiaries).

Here, Previsteria is the sole beneficiary of the trust because the trust proceeds are intended to provide funeral goods and services to her upon her death and she did not manifest an intention to create a vested or contingent interest in someone other than herself. Although her daughter is the named beneficiary of the life insurance policy, there is no evidence that she was an irrevocable beneficiary of that policy or the trust and no evidence that her consent was necessary in order for Previsteria to assign the policy to a third party. In addition, it is not necessary to determine whether the funeral home is an intended beneficiary of the trust because Previsteria's assignment of her life insurance policy to the funeral home is clearly revocable. Therefore, Previsteria is the grantor and sole beneficiary of the trust and the trust is revocable under Michigan law. As such, the Agency cannot waive application of the statutory trust counting provisions even if Previsteria could meet the undue hardship criteria. See 42 U.S.C. § 1382b(e)(4); POMS SI 01120.203C.2.a.

CONCLUSION

We conclude that the Pre-Thana trust and, thus the insurance policy assigned to the trust, is a resource for SSI purposes because Previsteria has the power to revoke the agreement and convert the policy to cash, which could be used for her support and maintenance. The value of the life insurance policy during any cancellation period, which should have been at least ten days (and should be evidence from looking at the policy), is the premiums that had been paid as of that time. After the cancellation period, the value is the cash surrender value of the policy. The undue hardship exception to counting the trust likely need not be considered since the trust appears to be revocable because Previsteria appears to be the sole beneficiary of the trust.

Sincerely,

Federal law prohibits the assignment of a Civil Service Pension annuity to a trust. Therefore, for the purposes of SSI eligibility, the Civil Service Pension Trust assets are a countable resource and the annuity payments are unearned income when received.

On January 10, 2001, we advised the Agency that a Civil Service Pension Trust established for Sylvia , the developmentally disabled daughter of a retired civil servant, constituted a countable resource for purposes of determining her SSI eligibility. We explained that federal law prohibits the assignment of the Civil Service Pension annuity to a trust and, therefore, the "trust" assets should be considered a resource, and the annuity payments should be considered unearned income for purposes of SSI eligibility. You have asked us to address Sylvia request for reconsideration of our earlier decision. We have considered each of Sylvia arguments, but still conclude that the pension was not assignable to trust.

Background

As the developmentally disabled daughter of a retired civil servant, Sylvia is eligible for a Civil Service Pension Annuity through her father, Guido . Upon his death, Guido directed that his daughter's United States Civil Service Annuity be placed into trust. See First Codicil to Will and Testament, Paragraph I. In accordance with Guido wishes, the Wayne County Probate Court ordered that all money received from Sylvia Civil Service Survivor Annuity be placed into a trust. See Order of Wayne County Probate Court. The Court further ordered that all trust assets be expended only in accordance with the terms of Guido will and codicil. Id. Guido will appointed Sylvia siblings as co-trustees and stated that the trust assets should not be used for his daughter's "basic day to day care for food, shelter and clothing, but only for extraordinary care or needs." See Will, § VI, Paragraph 2.

Discussion

Sylvia has made several arguments in support of her claim that the annuity payments assigned to the trust are not a resource to her. We do not believe that any of her arguments are convincing, and that the Agency properly found the assets are a resource. We address each of her arguments in turn below.

(1) The assignment to trust was invalid under federal law.

Sylvia argues that the Trust assets are not her resource because the Trust is overseen by the Wayne County Probate Court and there are restrictions on the use of and access to the Trust monies. See June 4, 2001 letter. However, as we previously stated, we are doubtful that Sylvia father had the power or authority after his death to assign the assets on her behalf in his will. Even if he had the power or authority to act on her behalf when he was living, this power would terminate upon his death. Furthermore, if Sylvia was the beneficiary of the pensions funds, the funds passed to her upon her father's death, and not to her father's estate.

In any event, even if Sylvia father had the power or authority to assign Sylvia assets after his death, federal law prohibits the assignment into trust of a Civil Service Pension Annuity. See 5 U.S.C. § 8346(a). Because this type of annuity is non-assignable by law, it may not be paid directly into a trust to avoid SSI eligibility. See POMS SI 01120.200G.1c. Therefore, the father's assignment of Sylvia annuity into trust was invalid.

Because the assignment of Sylvia annuity payments into trust was invalid under federal law, the provisions of Guido will cannot govern Sylvia use of those annuity payments. Instead, we must look to federal law governing pension annuity expenditures. 5 U.S.C. § 8345(e) expressly states that civil service retirement annuity payments to which a minor child or legally disabled individual is entitled may be paid to a guardian or representative payee “legally vested with the care of the claimant.” Consequently, Sylvia annuity was paid to Dottie (Sylvia’s sister and legal guardian) as a representative payee, not as trustee. Thus, the Agency should reject Sylvia argument (3(e) in the June 4, 2001 letter) that the CSRS statute, 5 U.S.C. § 8345(e), allows for payment of the CSRS funds to trustees, since the trustees are “fiduciaries” of a mentally incompetent person or person under other legal disability.

In order to meet her obligations as representative payee, it will be necessary for Sylvia to make the annuity available for use in meeting the ordinary and necessary expenses related to Sylvia care. Because Ms. S~, the representative payee of the annuity, is required to use the annuity for Sylviaordinary care, the annuity payments made to her for Sylvia benefit were and are income to Sylvia, and any funds held in the invalid “trust” were and are a resource to her, under section 1612(a)(2)(B) of the Act, and 20 C.F.R. § 416.1121.

(2) The Agency is not required to ignore Sylvia resource simply because it previously found that the annuity payments were not a resource.

In August 1993, the Agency determined that Sylvia annuity payments paid to and held in “trust” were not income or resources for purposes of SSI eligibility. That determination became final and binding. Continuing resource and income determinations in SSI cases are made each month after the claimant begins receiving benefits. See 20 C.F.R. §§ 416.1123(a), 416.1207. Each such determination is deemed an “initial determination.” See POMS SI 04070.015 thru SI 04070.030(A)(1).

The regulations allow the Agency to reopen SSI determinations within one year of an initial determination for any reason and within two years of an initial determination for good cause shown. See 20 C.F.R. § 416.1488. Good cause for reopening is shown where it is clear on the face of the evidence that an error was made in making the determination. See 20 C.F.R. § 416.1489. There is an error on the face of the evidence in the determination that Sylvia annuity payments were paid to and held in “trust,” and therefore were not income or resources to her. Therefore, the Agency may reopen the deemed initial determination on eligibility for each month dating back two years.

Furthermore, it is well settled that the Government cannot be stopped on the same terms as any other litigant or party. See Heckler v. Community Health Services of Crawford County, 467 U.S. 51, 60 (1984). When the Government is unable to enforce the law because the conduct of its agents has given rise to an stopped, the interest of the citizenry as a whole in obedience to the rule of law is undermined. Id. Therefore, the Agency should also reject Sylvia argument that it must be bound by its previous incorrect determination.

(3) Sylvia has provided insufficient evidence that OPM consented to the assignment or that she meets any of the other exceptions under 5 U.S.C. §§ 8346(h) or (j).

In part (a) of her third argument, Sylvia alleges that, before he died, her father wrote to the U.S. Civil Service Commission and asked whether the annuity payments could be paid to the co-trustees of the trust he established in his will. Sylvia alleges that the response indicated that “[t]he person or institution having care and custody of your daughter can arrange for payments to go into an established trust.” This alleged response from OPM is essentially consistent with the Agency's conclusions. OPM's alleged response confirms that the annuity payments could not be assigned directly into trust, but that, after they are received, the payee may have some discretion about how to spend the funds for the care and maintenance of Sylvia.

In any event, Sylvia interpretation of OPM's response is entirely inconsistent with OPM's express action in similar cases. OPM has consistently acknowledged that federal law prohibits the direct assignment into trust of CSRS payments, and that funds from the CSRS must be used by the representative payee for the care and maintenance of the annuitant. See Office of Personnel Management letter, attached.

In parts (b) and (d) of her third argument, Sylvia argues that we should infer that CSRS's legal department decided that it was permissible for the payments to be assigned into trust, since all of the payments have been made to the trust and not to Sylvia directly. Sylvia relies on a statutory provision that allows individuals to make allotments or assignments of amounts from the annuity “for such purposes as the Office of Personnel Management in its sole discretion considers appropriate.” 5 U.S.C. § 8345(h). However, the mere fact that OPM might be making the payments directly to the trustees or the trust itself is not conclusive evidence that OPM affirmatively exercised its discretion to find that the assignment into trust was permissible. In fact, OPM has expressly limited its discretionary exception to the rule against assignment to situations involving allotments to organizations. See 5 C.F.R. § 831.1511; Neikirk v. Massanari, No. 00-1459, 2001 WL 776812, at *3 (10th Cir. July 11, 2001); SSA Baltimore Federal Credit Union v. Bizon, 52 B.R. 338, 345 (D. Md. 1984)(“the regulations issued by [OPM] indicate that [the right of assignment in § 8345(h) is severely restricted.”). The Agency's position is also consistent with the legislative history of 5 U.S.C. § 8345(h)(originally § 8345(g)), which indicates that this provision was enacted to give Federal annuitants the same rights as Federal employees, who were permitted “to make allotments or assignments from their pay for purposes prescribed by regulations of the Civil Service Commission [now OPM]. Such purposes [included] charitable contributions, dues to labor organizations, family support and savings.” See S. Rep. No. 537, at 1 (1975), reprinted in 1975 U.S.C.C.A.N. 2064, 2065.

As previously noted, OPM has expressly stated that it does not approve of the assignment of CSRS annuity payments into trust. See OPM letter, attached (discussing a case factually similar to this one).

(4) Federal law provides that CSRS annuity payments are not subject to legal process.

Finally, in part (d) of her third argument, Sylvia argues that her father's will constitutes a “legal process,” which falls within the category of exceptions in § 8346(h). Contrary to Sylvia assertions, federal law provides that CSRS payments are not subject to legal process. 5 U.S.C. § 8346(a) (“The money...is not assignable...or subject to execution, levy, attachment, garnishment or other legal process...”)(emphasis added). Thus, the probate court was without authority to assign the CSRS payments to trust.

Conclusion

None of Sylvia arguments change our earlier determination that Sylvia annuity payments could not be assigned to a trust. Therefore, the annuity payments should have been considered income when received and a resource when held in the invalid “trust.”

The issue concerns whether or not the funds held in the irrevocable trust are countable resources for SSI purposes. Under Michigan Law, the recipient is not considered the sole beneficiary of the trust, and cannot unilaterally revoke the trust. Moreover, the recipient cannot direct use of the assets for maintenance and support under the terms of the trust or sell the interest in the trust and use the proceeds for support and maintenance. Recognizing these facts, the trust assets are not considered resources for SSI purposes. However, although the trust principal is not a countable resource, disbursements from the trust, under certain circumstances, would be countable income for determining SSI eligibility and level of benefits.

INTRODUCTION

You asked us to review a trust agreement created by the St. Clair Circuit Court for the benefit of Ashlee to determine whether the funds placed in the trust constitute a countable resource for Supplemental Security Income (SSI) purposes. For the reasons set forth below, our opinion is that the trust is not a countable resource. However, any distributions or in-kind payments from the trust that are used for the support and maintenance of Ashlee and any cash distributions paid directly to Ashlee would be countable income for SSI purposes.

BACKGROUND

On September 3, 1998, the St. Clair Circuit Court entered an order establishing the “Ashlee Irrevocable Trust.” The trust agreement provides that the trust is established for the benefit of Ashlee, who has multiple physical and developmental disabilities arising from birth trauma. The trust is funded from proceeds resulting from the settlement of litigation associated with the birth trauma. The trust agreement names Michelle (Ashlee's mother) and Comerica Bank as the trustees. The trust states that it is established pursuant to 42 U.S.C. § 1396p(d)(4)(A).

The trust provides that, during Ashlee's lifetime, any person may transfer property to the Trustee for the trust. Article Two. The trust states that it is irrevocable. Article Three. The trust states that trust shall not be construed as a support trust and is established as a purely discretionary trust. Article Five, para. B, section 2. The trustee has sole and uncontrolled discretion to pay to Ashlee or for her benefit any portion of the income or principal of the trust. Article Five. The primary purpose of the trust is to provide for the “greatest degree of security” for Ashlee, who has multiple disabilities. Article Five, para. A. The trust is intended to benefit Ashlee by providing for her extra and supplemental items over and above the benefits she may be entitled to receive from any governmental or private programs as a result of her special needs. Article Five, para. B, section 1.

Distributions from the trust are at the complete discretion of the trustee and may include, but are not limited to, payments for medical and dental expenses, rehabilitative training, adaptive equipment and therapy, tutoring expenses, entertainment and recreation, funeral and burial arrangements, advocacy on her behalf, and a home or a vehicle. Article Five, para. D, section 1. The trust states that Ashlee has no power or authority to compel the trustee to make distributions to her. Article Five, para. D, section 2.

The trust document contains a spendthrift provision that purports to protect the trust assets from any claims by a beneficiary's creditors and forbids any beneficiary from selling or in any manner disposing of his or her interest in the trust or the income it generates. Article Seven.

Ashlee is the sole beneficiary of the trust during her lifetime, and the trust states that it is primarily for her benefit and only “incidentally” for the benefit of those who would receive the balance of the trust upon her death. Article Five, para. B, section 4.

The trust provides that it will continue until Ashlee's death or until all trust funds are expended on her behalf. Article Six. If assets remain at the time of Ashlee's death, the trustee shall first reimburse all states where Ashlee received medical assistance payments. Article Six, para. A. The trustee shall then pay all estate, inheritance or other similar taxes, including funeral and reasonable administration expenses. Article Six, para. A. The residue and remainder of the trust shall be distributed in equal shares to Ashlee's surviving issue, by right of representation. Article Six, para. B. If Ashlee leaves no surviving issue at her death, the residue is distributed to her heirs at law, with distributions made as though she had died intestate under the laws of Michigan in effect at the time of her death. Article Six, para. B. The trust document states that, as of the date on which the trust was established (September 3, 1998), Ashlee's heirs would be her mother and her father (or the survivor of them), and thereafter, her younger sister. Article Six, para. B.

DISCUSSION

Trust assets are resources if the SSI recipient can: terminate the trust and use the assets for food, clothing, and shelter; direct the use of the assets for personal maintenance and support under the terms of the trust; or, sell the interest in the trust and use the proceeds for support and maintenance. 20 C.F.R. § 416.1201(a); POMS SI 01120.200(D)(1)(a). We conclude that the trust is not a resource under any of these tests.

A. Can Ashlee terminate the trust?

In general, where a grantor is also the sole beneficiary of a trust, he or she can revoke or compel termination of the trust, even when the trust declaration states that the trust is irrevocable. Restatement (Second) of Trusts § 339, comment a (1959); POMS SI 01120.200(D)(3). Because this trust was funded with the proceeds of a personal injury suit brought on Ashlee's behalf, she is the grantor. See Memorandum from Reg. Chief Counsel, Chicago to Ass't. Reg. Comm.-MOS, Chicago, Review of a Trust for Anthony (6/29/01) (hereinafter Anthony Review); In re J~ Trust, 479 N.W. 2d 25, 30 (Mich. App. 1991).

The issue then becomes whether Ashlee is the sole beneficiary of the trust. If a grantor who is also a beneficiary manifests an intention to create a vested or contingent interest in someone other than herself, she is not the sole beneficiary. Restatement (Second) of Trusts § 339, comment b (1959). Here, the trust provides that any remaining residue from the trust upon Ashlee's death after the state is reimbursed and her last expenses are paid, shall be distributed to Ashlee's issue, or if there are no surviving issue, then to Ashlee's heirs at law. Previously, OGC advised that a grantor trust, created under Michigan law, which names only “heirs at law” as residual beneficiaries, is revocable and therefore, would be countable as a resource. See C~ Review; Memorandum from Reg. Chief Counsel, Chicago to Ass't Reg. Comm.-MOS, Chicago, Michigan Trust for Arthur (7/15/97). However, there has been a recent change in Michigan law. Effective April 1, 2000, the new law states that language in a governing instrument describing the beneficiaries of a disposition as the transferor's “'heirs' [or] 'heirs at law' . . . does not create or presumptively create a reversionary interest in the transferor." Mich. Comp. Laws § 700.2719 (West 2000). The law provides that, absent evidence to the contrary, this language manifests an intent to create a beneficial interest in a particular class of people. See Mich. Comp. Laws § 700.2719. Here, Ashlee appears to have intended just that, since she specifically names certain individuals. The new Michigan law applies to trusts created before April 1, 2001, as it appears Ashlee's trust was. See Mich. Comp. Laws § 700.8101. In any event, the naming of Ashlee's issue probably would be sufficient to create additional beneficiaries even under prior law. Restatement (Second) of Trusts § 127, comment b.

We believe that the provisions in the trust must be read as creating a contingent interest in Ashlee's issue and heirs. She is therefore not the sole beneficiary of the trust, and cannot unilaterally revoke the trust.

B. Can Ashlee direct the trustees to use the trust for her support and maintenance or sell her interest in the trust?

Ashlee also could not direct the use of the assets for her maintenance and support under the terms of the trust or sell the interest in the trust and use the proceeds for support and maintenance. The trust states that the trustee has sole and uncontrolled discretion to pay to Ashlee or for her benefit any portion of the income or principal of the trust and that under no circumstances shall Ashlee serve as trustee or have any power or authority to compel the trustee to make distributions to her. Articles Four, para. A, and Five. Given that the trustees have full discretion as to whether or not to make payments from the trust, Ashlee could not direct the use of assets, and we assume that her beneficial interest in the trust would have no significant fair market value, even if it is sellable. See Memorandum from Reg. Chief Counsel, Chicago to Ass't Reg. Comm.-MOS, Chicago; Review of Supplemental Needs Trust for Christopher (9/21/01); Restatement (Third) of Trusts § 60 and comment f (Tentative Draft No. 2, Mar. 10, 1999).

C. How do we treat disbursements from the trust?

Although the trust principal is not a countable resource, disbursements from the trust, under certain circumstances, would be countable income for determining Ashlee's SSI eligibility and level of benefits. See POMS SI 01120.201(I)(1). If the trustee were to authorize disbursements from the trust consisting of cash paid directly to Ashlee or payments to a third party for any food, clothing, or shelter received by Ashlee, such disbursements or in-kind payments would constitute income for SSI purposes. See POMS SI 01120.200(E)(1)(a)-(b). Trust disbursements resulting in Ashlee's receipt of goods or services other than food, clothing, or shelter—such as medical care— would not constitute countable income for SSI purposes. See POMS SI 01120.200(E)(1)(c).

CONCLUSION

For the foregoing reasons, we conclude that the trust assets are not a resource to Ashlee, but that trust disbursements may, under some circumstances, constitute income to her.

This trust is not a resource for SSI because the beneficiary cannot revoke the trust, direct the use of the funds for his support and maintenance or sell his beneficial interest. However, disbursements from the trust may be income to the beneficiary.

Because of a change in the Social Security Act, this precedent may only be applicable to a trust established by an individual before 1/1/00.

You have requested an opinion on whether the assets of the “Anthony Irrevocable Trust” count as a resource of Anthony for purposes of determining his SSI eligibility and whether a change in Michigan law creates an exception to OGC's previous opinions. For the reasons discussed below, our opinion is that the trust is not a countable resource.

FACTS

On May 4, 1994, the Oakland County Probate Court of the State of Michigan entered an Order Appointing Trustee and Establishing Trust Agreement. That Order states that “all payments from the 1982 settlement” shall be received into the Trust. A report of contact verified that the money in the trust came from the settlement of a malpractice suit brought on Anthony's behalf as an infant. The Order appoints Richard and Mary C~ as trustees.

The trust declaration provides that its primary purpose is to “provide for the greatest degree of security” for Anthony, who has developmental disabilities, and that the trustees are authorized to pay any portion of the income or principle of the trust for the benefit of Anthony “or his issue.” Trust Declaration, Article Five. It also states, “[b]ecause this trust is intended for the primary benefit of Anthony , it is only incidentally for the benefit of those named to receive the balance of the trust, if any, upon his death.” Trust Declaration, Article Five, B.4. The trust document states that it should be “administered and managed so as to maximize and protect any insurance and public assistance benefits for which Tony is or may be eligible for.” Trust Declaration, Article Five, A. Distributions are in the discretion of the trustee, and the trust states it shall not be construed as a support trust. Trust Declaration, Article Five, B. Distributions are to be made only to supplement any public or private benefits to which Anthony is entitled for support and maintenance. Trust Declaration, Article Five, D.3. The trustee also has the discretion not to make distributions and Tony has no power or authority to demand any distributions. Trust Declaration, Article Five, C, D. The trust declaration contains a spendthrift provision that protects the trust assets from any claims by a beneficiary's creditors and forbids any beneficiary from selling or in any other manner disposing of his or her interest in the trust principal or income. Trust Declaration, Article Seven.

Regarding revocation or amendment, article three of the trust states, “[d]uring Tony's lifetime, this trust shall not be amended or revoked unless a court of competent jurisdiction determines any modification is in the best interest of Anthony.” If a court or other competent authority determines that the trust renders Anthony ineligible for government benefits, then the trustee has the discretion to terminate the trust and distribute the principle to Anthony's heirs at law or under a court approved alternate distribution plan. Trust Declaration, Article Six, B, Article Ten, B.

At Anthony's death, the trust is authorized to pay all taxes, the expenses of his last illness, funeral and burial costs, enforceable debts, and any State claim for Medicaid benefits. Trust Declaration, Article Six, A. The remainder of the trust is to be “distributed to those persons who are determined to be Anthony's heirs at law, with distributions in the manner provided as though Anthony died intestate under the laws of the State of Michigan in effect at that time” Trust Declaration, Article Six, B. The trust declaration further states that, “[n]otwithstanding these directives, a court of competent jurisdiction may approve an alternate distribution plan for the remainder of the trust property if it determines the plan to be in the best interests of” Anthony. Trust Declaration, Article Six, B. Anthony does not have any power of appointment by will.

DISCUSSION

Trust assets are resources if the SSI recipient can: terminate the trust and use the assets for food, clothing, and shelter; direct the use of the assets for personal maintenance and support under the terms of the trust; or sell the interest in the trust and use the proceeds for support and maintenance. 20 C.F.R. § 416.1201(a); POMS SI 01120.200(D)(1)(a). Memorandum from Reg. Chief Counsel, Chicago to Ass't Reg. Comm. - MOS, Chicago, Clarification of Regional Program Circular 94-05—Question from LitchF D.O. Concerning Trust with Multiple Grantors (December 17, 1999).

Can Anthony terminate the trust?

The trust declaration provides that the trust cannot be revoked or amended, except with court approval, and only if it is in Anthony's best interest. Trust Declaration, Article Three. Because the trust was funded with the proceeds of a personal injury suit brought on Anthony's behalf, he is the grantor. See Memorandum from Reg. Chief Counsel, Chicago to Ass't Reg. Comm.- MOS, Chicago, Review of Trust for Stephanie (9/27/99) (hereinafter “Stephanie Review”); In re J~ Trust, 479 NW 2d 25, 30 (Mich. App. 1991). Therefore, we must consider whether the grantor trust rule makes this trust revocable.

In general, where a grantor is also the sole beneficiary of the trust, he or she can revoke or compel termination of the trust, even when the trust declaration states that the trust is irrevocable. Restatement (Second) of Trusts § 339, cmt. a (1959); POMS SI 01120.200(D)(3). The issue then becomes whether Anthony is the sole beneficiary of the trust. If a grantor who is also a beneficiary manifests an intention to create a vested or contingent interest in someone other than himself, he is not the sole beneficiary. Restatement (Second) of Trusts § 339, comment b. Where a grantor is not the sole beneficiary, he cannot revoke the trust without the consent of the other beneficiaries. We have previously advised that these general trust principals apply in Michigan. See Memorandum from Reg. Chief Counsel, Chicago to Ass't Reg. Comm. - MOS, Chicago, Six State Synopsis of Trust Laws (2/26/92); E~ Review; H~ v. H~, 543 N.W.2d 19, 20 (Mich. App. 1995)(even irrevocable trust may be terminated with consent of grantor and all beneficiaries).

Generally, the law has presumed that no additional beneficiaries were intended when a grantor transfers property in trust to himself for life and, upon his death, to his heirs or next of kin. Restatement (Second) of Trusts § 127, cmt. b (1959). In the past, OGC has advised that a grantor trust, created under Michigan law, which names only “heirs at law” as residual beneficiaries is revocable and, therefore, would be a countable resource. See e.g., Memorandum from Reg. Chief Counsel, Chicago to Ass't Reg. Comm. - MOS, Chicago, Michigan Trust for Arthur (July 15, 1997) (hereinafter “Arthur Trust”). Anthony's attorney suggests that a change in Michigan probate law, repealing the “Doctrine of Worthier Title,” would make the trust irrevocable and, thus, not a countable resource. See Mich. Comp. Laws § 700.2719 (West 2000). Under the Doctrine of Worthier Title, the owner of property could not, during his life, create a remainder interest in his heirs and, if he purported to do so, he instead created a reversionary interest in himself. During the grantor's life, the heirs were deemed to hold no interest at all. See generally David, Anglo-American Land Law: Diverging Developments From A Shared History Part II: How Anglo-American Land Law Diverged After American Colonization and Independence, 34 REAL PROP. PROB. & TR. J. 295, 306-07 (1999); 56 N.Y. JUR. 2d Estates, Powers, and Restraints on Alienation § 170 (1986 & Supp. 2001). The Restatement (Second) of Trusts explains that 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, cmt. b (1959). The doctrine has been unevenly applied as a rule of construction. See e.g., H~ v. R National Bank, 361 F.2d 559 (D.C. Cir. 1966)(criticizing application of doctrine of worthier title as a rule of construction; ruling that doctrine has no applicability in District of Columbia; ruling that settlor's heirs must give consent before settlor may revoke trust).

We have advised in the past that Restatement (Second) of Trusts, § 127 applies in Michigan. In 1998, however, the Michigan legislature adopted the provisions of the 1990 version of the Uniform Probate Code which abolish the doctrine of worthier title, both as a rule of law and as a rule of construction. Mich. Comp. Laws § 700.2719 (West 2000); Unif. Probate Code § 2-710. Michigan law now provides that language in a governing instrument describing the beneficiaries of a disposition as the transferor's “'heirs' [or] 'heirs at law' . . .does not create or presumptively create a reversionary interest in the transferor.” Mich. Comp. Laws § 700.2719 (West 2000). The legislature further defined how the terms “heirs” or “heirs at law” would be interpreted. Id. at §700.2720. These provisions took effect on April 1, 2000, and the effective date provision states, “a rule of construction or presumption provided in this act applies to a governing instrument executed before that date unless there is a clear indication of a contrary intent.” Id. at § 700.8101. We have found no reported case law interpreting these new provisions. We believe that we must read these provisions as creating a contingent remainder in Anthony's heirs.

Because we believe that the trust declaration creates an interest in Anthony's heirs, we believe that Anthony is not the sole beneficiary of the trust. Therefore, he cannot revoke the trust alone.

Can Anthony direct the trustees to use the trust for his support and maintenance?

The trust declaration explicitly provides that distributions of income or principal are to be made in the sole discretion of the trustees and only to supplement benefits from governmental or private programs. Trust Declaration, Article Five. The trust declaration also states, “Under no circumstances shall Tony have the power or authority to demand any distribution from the Trustee, who is under no obligation, implied or otherwise, to make any distributions to him.” Trust Declaration, Article Five, D2. In addition, the spendthrift provision protects the trust principal and income from the claims of Anthony's creditors. Trust Declaration, Article Seven. Anthony, thus, cannot compel the trustees to use any portion of the trust for his support and maintenance.

Can Anthony sell his interest in the trust?

The trust declaration explicitly provides that no beneficiary “shall have any power to sell, assign, transfer, encumber or in any other manner anticipate or dispose of his or her interest in this trust or the income it generates.” Trust Declaration, Article Seven. Thus, Anthony cannot sell his interest in the trust. Even if Anthony had the power to sell his beneficial interest in the trust, his interest would presumably have no value on the open market because the trustees, having full discretion as to whether or not to make payments from the trust, cannot be compelled to make any distributions.

CONCLUSION

Under current Michigan law, Anthony would not be considered the sole beneficiary of the trust. Therefore, he does not have the power to revoke the trust. Nor does Anthony have any power to sell his beneficial interest in the trust or to compel the trustees to use trust principal or income for his support and maintenance. Therefore, the trust is not a countable resource for SSI purposes. Distributions to Anthony or for his benefit, however, may constitute countable unearned income in the month in which they are received, see 20 C.F.R. §§ 416.1121- 416.1124, or cause the “presumed value rule” or “one-third reduction rule” to reduce Anthony's benefits. See 20 C.F.R. §§ 416.1130-1141 (1999); see also POMS SI 01120.200.

This opinion concerns a “Giftrust” in the State of Michigan. The trust was established by a father (the grantor) for his son (the beneficiary) and will mature in February 2021. The beneficiary cannot revoke the trust, cannot direct the use of the trust assets, and cannot sell his beneficial interest due to a spendthrift clause. Therefore, the trust is not a resource for SSI purposes. In 2021, the funds will be released to the beneficiary and will be considered income.

You have asked whether the assets of a trust established by Richard , for his son Richard, should be considered a countable resource for purposes of determining the son's eligibility for SSI. For the reasons set forth below, we conclude that the assets in the trust should not be considered a countable resource.

FACTS

On February 19, 1991, Richard D. O~ entered into a Trust Agreement and established a “Giftrust” for “Richard E. O~.” The Giftrust agreement named Richard D. O~ as the creator or grantor of the Giftrust, and Richard E. O~ as the sole beneficiary. The directors of the Giftrust fund appointed the trustee. Richard D. O~ initially funded the trust with $250.00, which the fund invested. The Giftrust agreement provides that the trust was established as an irrevocable trust for the benefit of Richard E. O~, from his father, with a maturity date of February 5, 2021. During the period of the trust agreement, the Giftrust provides that the trustee will reinvest any dividends earned on the principal. As of March 31, 2000, the Giftrust was worth $2,870.29. On the maturity date of February 5, 2021, the Giftrust will terminate and the accumulated trust assets will be distributed to Richard E. O~ “to use as you please.”

The Giftrust agreement provides that if Richard E. O~, the beneficiary, dies before the maturity date, the trust shall terminate and the trustee shall distribute the remaining trust property to the designated alternate beneficiary. Page 3 of American Century Giftrust, “What Happens When the Giftrust Matures?”

The Giftrust agreement does not allow the grantor, the beneficiary or any other person to revoke or terminate the trust or to redeem any portion of the trust principal or dividends until the maturity date of the trust. See February 13, 1991 letter from Nancy D. S~, Registered Agent, Twentieth Century Investors; see also Giftrust Agreement, paragraph 4. Nor can the beneficiary of the trust sell his beneficial interest at any time before the maturity date of February 5, 2021. Id.

DISCUSSION

A countable resource is defined as cash or other liquid assets, or any real or personal property that an individual owns and could convert to cash to use for his support and maintenance. See 20 C.F.R. § 416.1201(a); Program Operations Manual System (“POMS”) SI 01110.100(B)(1). If the individual has the right, authority, or power to liquidate the property or his share of the property, it is considered a resource. See 20 C.F.R.. § 416.1201(a)(1); POMS SI 01110.100(B)(1). Trust assets are a resource if (i) the individual can revoke or terminate the trust and obtain unrestricted access to the trust assets; (ii) the individual has access to the trust assets and can direct the use of the trust assets to meet his need for food, clothing, and shelter; or (iii) the individual can sell his beneficial interest in the trust. See POMS SI 01120.105(A)(1), 01120.200(D)(1)-(3).

Whether the claimant can revoke or terminate the trust or direct use of the trust assets depends upon the terms of the trust agreement and applicable state law. See id. SI 01120.200(D)(2). We have reviewed the documents you provided, as well as the actual trust terms (which we requested from the creators of the trust fund), and conclude that the trust principal and accumulated dividend income are not currently countable resources to Richard E. O~, because he does not have the right, under the terms of the Giftrust agreement or Michigan state law, to revoke or terminate the trust before its maturity date of February 5, 2021. Furthermore, until February 5, 2021, Richard E. O~ does not have any access to the trust assets and cannot direct the use of the trust assets to meet his needs for food, clothing, and shelter. Nor can he sell his beneficial interest in the trust before the maturity date.

A. Beneficiary Does Not Have the Right to Revoke or Terminate the Trust Before February 5, 2021.

Whether a trust is revocable or terminable depends on the terms of the trust and applicable state law. See POMS SI 01120.200(D)(2). Here, Richard E. O~ does not have the right to terminate the trust under its own terms or Michigan state law.

Here, the father of Richard E. O~ was expressly named as the creator or grantor of the Giftrust agreement, and there is no indication that anyone other than the father provided the consideration for the trust. The terms of the Giftrust agreement itself do not give Richard E. O~ or anyone else the right to terminate or modify the trust. There is no indication that the grantor of the trust intended that his son could terminate the trust and obtain the assets. Nothing in state law would give the beneficiary of a trust the right to terminate a trust and obtain the assets where the grantor of the trust did not so provide. As of February 5, 2021, however, the trust will terminate, and Richard E. O~ will be entitled to access the entire balance of the trust at that time.

B. Beneficiary Does Not Have the Right to Direct Use of the Trust's Assets Before Maturity Date of February 5, 2021.

Although Richard E. O~ does not have the legal authority to terminate the trust, the trust may still be counted as a resource in determining SSI eligibility if he has the ability to direct the use of the trust principal. See POMS SI 01120.200(D)(1)(a).

Such authority may be included specifically in a trust provision allowing the beneficiary to act on his own or in a provision allowing him to order actions by the trustee. See id. SI 01120.200(D)(1)(b). Here, the trust agreement includes no such provisions, and only allows the trust assets to be distributed on the date of the Giftrust's maturity, which is February 5, 2021. The Giftrust agreement gives the trustee the discretion to reinvest the trust dividends, but does not allow Richard E. O~ the right to unilaterally direct use of the trust's assets until after the maturity date.

C. Beneficiary Cannot Sell His Beneficial Interest in the Trust Before February 5, 2021.

A trust can also be a resource if the individual can sell his beneficial interest in the trust. Here, however, the Giftrust agreement contains a spendthrift clause that prevents Richard E. O~ from assigning or otherwise transferring his rights in the trust. See Giftrust Agreement, paragraph 4 (copy attached).

D. Dividend Payments Are Reinvested In The Giftrust, And Therefore Are Not Currently Income.

Lastly, the Giftrust does not provide for any disbursements of income from the trust, and in fact, provides that any dividend income be reinvested in the trust until the maturity date. Thus, under these circumstances, the trust dividends would not be income, during the term of the trust, for determining Richard E. O~'s SSI eligibility and level of benefits. The Giftrust does not provide for any payment of the trust assets, including the reinvested dividends, until the maturity date in February 2021.

CONCLUSION

Based on the documents provided to us, it is our opinion that the trust established for the benefit of Richard E. O~ is not currently a countable resource for purposes of determining his eligibility for SSI. Prior to the date of the trust's maturity in February 2021, Richard E. O~ does not have the right to revoke the trust; direct the use of its assets to meet his needs for food, clothing, and shelter; or sell his beneficial interest in the trust. In February 2021, the funds will be released to him and will constitute income.

Federal law prohibits the assignment of a Civil Service Pension annuity to a trust and, therefore, the “trust” assets should be considered a resource and any annuity payments should be considered unearned income for purposes of SSI eligibility.

You asked whether a Civil Service Pension Trust established for Sylvia , the developmentally disabled daughter of a retired civil servant, constitutes a countable resource for purposes of determining her SSI eligibility. We conclude that federal law prohibits the assignment of the Civil Service Pension annuity to a trust and, therefore, the “trust” assets should be considered a resource and the annuity payments should be considered unearned income for purposes of SSI eligibility.

You also asked us when Sylvia could be charged with the income and resource, should we determine that the assignment to the trust was invalid. We conclude that the Agency can reopen the case (based on good cause) and suspend her benefits (if appropriate) effective up to two years ago.

Background

As the developmentally disabled daughter of a retired civil servant, Sylvia is eligible for a Civil Service Pension Annuity through her father, Guido . Upon his death, Guido directed that his daughter's United States Civil Service Annuity be placed into trust. See First Codicil to Will and Testament, Paragraph I. In accordance with Guido's wishes, the Wayne County Probate Court ordered that all money received from Sylvia 's Civil Service Survivor Annuity be placed into a trust. See Order of Wayne County Probate Court. The Court further ordered that all trust assets be expended only in accordance with the terms of Guido's will and codicil. Id. Guido's will appointed Sylvia 's siblings as co-trustees and stated that the trust assets should not be used for his daughter's “basic day to day care for food, shelter and clothing, but only for extraordinary care or needs.” See Guido’s Will, § VI, Paragraph 2.

Discussion

Trust assets are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for her support and maintenance. See 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate the property, it is a resource. Id. Trust assets are a resource if the individual can revoke the trust and use the assets to meet his needs for food, clothing, and shelter, or if the individual can direct the use of the trust assets to be used for her support and maintenance, or sell her beneficial interest in the trust. See POMS SI 01120.200(D).

Although Guido's will expressly states that the trust assets should not be used for Sylvia 's care and maintenance for food, clothing, and shelter, we must first determine whether the trust is valid. If the trust is invalid, the annuity payments would be unearned income and would affect Sylvia 's eligibility for SSI. See 20 C.F.R. § 416.1121(a)(annuities are unearned income for purposes of SSI eligibility).

1. Federal Law Prohibits the Assignment of a Civil Service Pension Annuity.

As the developmentally disabled daughter of a retired civil servant, Sylvia is entitled to Civil Service Pension Annuity payments. Sylvia 's father attempted to assign her annuity payments into a trust, but federal law prohibits the assignment of a Civil Service Pension Annuity. See 5 U.S.C. § 8346(a). Because this type of annuity is non-assignable by law it may not be paid directly into a trust to avoid SSI eligibility. See POMS SI 01120.200G.1c. Therefore, the father's assignment of Sylvia 's annuity into trust was invalid.

It is also doubtful that Guido had the power or authority to assign the assets to trust after he died. Even if he had the power and authority to assign his daughter's assets on her behalf while he was living, this power and authority presumably would terminate upon his death.

2. Civil Service Annuity Payments were (and are) Unearned Income When Received, and Resources When Held.

Because the assignment of Sylvia 's annuity payments into trust was invalid under federal law, the provisions of Guido's will cannot govern Sylvia's use of those annuity payments. Instead, we must look to federal law governing pension annuity expenditures. 5 U.S.C. § 8345(e) expressly states that civil service retirement annuity payments to which a minor child or legally disabled individual is entitled may be paid to a guardian or representative payee “legally vested with the care of the claimant.” Consequently, Sylvia 's annuity was paid to Dottie (Sylvia 's sister and legal guardian) as a representative payee, not as trustee.

In order to meet her obligations as representative payee, it will be necessary for Dottie to make the annuity available for use in meeting the ordinary and necessary expenses related to Sylvia 's care. Because Dottie, the representative payee of the annuity, is required to use the annuity for Sylvia 's ordinary care, the annuity payments made to her for Sylvia 's benefit were and are income to Sylvia , and any funds held in the invalid “trust” were and are a resource to her, under section 1612(a)(2)(B) of the Act, and 20 C.F.R. § 416.1121.

3. Sylvia's Claim Can Be Reopened For Up to Two Years Prior Based on Good Cause, and Benefits Should Be Suspended Effective With the First Month in the Past Two Years When Her Income and Resources Exceeded the Eligibility Limitations.

Because Sylvia 's annuity payments should have been considered income and resources to her, we must determine the extent to which Sylvia 's SSI eligibility is affected. In August 1993, we made a reconsideration determination that Sylvia 's annuity payments paid to and held in “trust” were not income or resources for purposes of SSI eligibility. That determination became final and binding. However, continuing resource and income determinations in SSI cases are made each month after the claimant begins receiving benefits. See 20 C.F.R. §§ 416.1123(a), 416.1207. Each such determination is deemed an “initial determination.” See POMS SI 04070.015 thru SI 04070.030(A)(1).

The regulations allow the Agency to reopen SSI determinations within one year of an initial determination for any reason and within two years of an initial determination for good cause shown. See 20 C.F.R. § 416.1488. Good cause for reopening is shown where it is clear on the face of the evidence that an error was made in making the determination. See 20 C.F.R. § 416.1489. There is an error on the face of the evidence in the determination that Sylvia 's annuity payments were paid to and held in “trust,” and therefore were not income or resources to her. Therefore, the Agency may reopen the deemed initial determination on eligibility dating back two years.

Benefits should be suspended effective with the first month, within that two year period, when Sylvia 's income or resources (including income and resources resulting from the annuity payments), exceeded applicable limits. 20 C.F.R. §§ 416.1123(a), 416.1323.

Conclusion

In summary, we conclude that Sylvia 's annuity payments could not be assigned to a trust. Therefore, the annuity payments should have been considered income when received and a resource when held in the invalid “trust.” The Agency should determine whether this income or resource would have rendered Sylvia ineligible for SSI within the last two years. If so, the Agency should reopen her case (based on good cause) and suspend her benefits effective wit the first month within the last two years when her income or resources (including that resulting from the annuity payments) rendered her ineligible for SSI. The income and resources from the annuity payments also should be considered when determining any future eligibility.

This trust, which was created in July 2000, satisfies the requirements of the Medicaid Trust exception (SI 01120.203). Therefore, the trust principal is not a countable resource. However, even though the principal is not a resource, any income distributions from the trust could be income and should be developed under the SSI income rules. For example, any cash disbursements made to the SSI beneficiary would be considered unearned income.

You asked us to review a trust agreement created by the Wayne County Probate Court for the benefit of Vanessa to determine whether the funds placed in the trust constitutes a countable resource for Social Security Income (SSI) purposes. For the reasons set forth below, we believe that the trust meets the requirements of the Medicaid Trust and the trust principal is not a countable resource to Vanessa. Some distributions may, however, constitute unearned income.

FACTS

Following settlement of a medical malpractice claim initiated on behalf of Vanessa, the settlement funds were transferred into a trust for the benefit of Vanessa. The trust was created in July 2000, by the Wayne County Probate Court, naming Vanessa, a minor, the sole beneficiary of the trust. Trust Declarations, Article One § 1.2.

The trust agreement states that the “Trust is intended to be a special needs trust for the benefit of a person with a disability under the age of sixty-five (65) under 42 U.S.C. Section 1396p(d)(4)(A).” Trust, Declarations. The trust purports to be a “nonsupport, supplemental needs trust.” Trust Article One § 1.2. Pursuant to the trust agreement, neither the income nor the principal of the trust is to be used for Vanessa's support, including her food clothing and shelter needs. Trust Article Five § 5.4. The trustee is authorized to make payments for goods and services, including uninsured medial or dental treatments, rehabilitative or educational training, entertainment, recreation, travel, vacations, funeral and burial expenses and other amenities not available from public assistance. Trust Article Five § 5.2. Vanessa has no power or authority to demand distributions from the trustee. Trust Article Five § 5.3. In addition, the trustee is not permitted to make payments of income or principal, other than small amounts of money advanced for incidentals, directly to Vanessa. Trust Article Five § 5.3.

Vanessa's attorney and conservator submitted a statement indicating that the state court authorized creation of the trust on or about August 31, 2000. The agreement provides upon Vanessa's death, the trust will terminate and the trustee will repay the State of Michigan for any Medicaid assistance received by Vanessa. Trust Article Seven § 7.1. Likewise, if Vanessa lives in any other state the trust will repay that state for any Medicaid Vanessa received. Trust Article Seven § 7.1.

ANALYSIS

Under the regulations, “resources” are “[c]ash or other liquid assets or any other real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance.” 20 C.F.R. § 416.1201(a). If an individual has the right, authority or power to liquidate the property it is considered a resource. 20 C.F.R. § 416.1201(a)(1). Certain trusts are considered countable resources to individuals who created them. 42 U.S.C. § 1382b(e)(3). However, trust assets are not considered a countable resource if the trust was created in compliance with 42 U.S.C. section 1396p(d)(4)(A) after January 1, 2000. See 42 U.S.C. §1382b(e)(5). Under this provision a trust created after January 1, 2000 will not be considered a resource if the following four elements are met: (1) the trust was established for the benefit of a disabled individual under the age of 65; (2) the assets contained in the trust are the individual's; (3) the trust was established by the individual's parent, grandparent, legal guardian or the court; and (4) upon the individual's death the State will be reimbursed for any medical assistance paid on the individual's behalf. 42 U.S.C. §§ 1382b(e)(5), 1396p(d)(4)(A); POMS EM 00067(D).

This trust expressly states that it was intended to be a special needs trust under 42 U.S.C. section 1396p(d)(4)(A) and it appears to meet the criteria of this section. The state court authorized and established the trust in August 2000. See, File 28. Vanessa is apparently disabled for SSI purposes and is under the age of sixty-five. Trust Agreement, Declarations, 1.2.

Because the trust principal consists of funds Vanessa received as settlement of a medical malpractice claim, the assets deposited in the trust are Vanessa's. POMS EM 00067(B)(2)(b). Finally, upon Vanessa's death, the trustee is required to repay the State of Michigan any Medicaid assistance Vanessa received during her lifetime. Trust Article Seven, § 7.1. Therefore, the trust satisfies the requirements of the Medicaid Trust exception and the trust principal is not a countable resource for SSI purposes. 42 U.S.C. § 1382b(e)(5); POMS EM 00067(D),(I).

Although the trust principal is not considered a countable resource, certain distributions may be considered income. POMS EM 00067(E). For example, any disbursements of cash made directly to Vanessa are considered unearned income. POMS SI 01120.200(E)(1)(a). The trustee is permitted to advance small amounts of cash to Vanessa for incidentals. Trust Article Five § 5.3. These advancements would be considered income. POMS SI 01120.200(E)(1)(a). In addition, any disbursements made to a third party which result in Vanessa receiving food, clothing or shelter would be considered income in the form of “in-kind support.” POMS SI 01120.200(1)(b). Thus, if despite provision 5.4, which prohibits the trustee from distributing trust income or principal for Vanessa's support, the trustee authorized payments to a third party for any food, shelter or clothing received by Vanessa, these disbursements would be considered income for SSI purposes.

CONCLUSION

The trust principal is not a countable resource for Vanessa. Under some circumstances, distributions from the trust may be considered an applicable resource.

The issue concerns a discretionary trust where the individual does not have a judicially enforceable right to command the trustee to make disbursements from the trust. Furthermore, he cannot unilaterally revoke the trust or transfer his interest in the trust, and thereby gain access to trust assets. Thus, the trust assets are not a countable resource for SSI purposes. However, since the individual does have limited withdrawal rights in contributions made to the trust, those contributions may be considered income when received and a resource for a brief period thereafter.

CAUTION: Because of a change in the Social Security Act, this precedent may only be applicable to trusts established before 1/1/00.

You asked us to review a trust dated February 4, 1999, to determine whether the assets placed in trust would be a countable resource to Scott, an SSI claimant. For the following reasons, we believe that the assets in trust are not available for use for Scott support and maintenance. Therefore, the assets in trust are not a countable resource to him.

FACTS

We base our opinion on our review of the trust instrument you provided to us, as well as information provided by the attorney who drafted the trust, Dirk. The trust was established by Scott’s grandmother, Helen , on February 4, 1999. Jean, Helen's daughter and Scott's mother, was named as trustee. The trust instrument does not indicate how the trust was funded, but Dirk advised us that the trust was initially funded with approximately $5000 (cash). The trust indicates that assets of any type may be added to the trust, either by the settlor, Helen, or by others (art. 1.2). According to Dirk, Helen made an additional contribution of approximately $5000 in the Spring of 2000.

Article Two provides that Scott has certain withdrawal rights. In particular, it provides that whenever a contribution is made to the trust prior to Helen's death, the trustee must notify Scott in writing within 15 days of the contribution that he has the right to withdraw the amount of the contribution, subject to certain limitations (art. 2.1, 2.2). The amount of the withdrawal is limited to $20,000 if the donor is married and $10,000 if the donor is unmarried (art. 2.7). Scott's withdrawal rights expire 30 days after the date of the contribution (art. 2.3).

Article Three provides that the trustee “may distribute any portion or all of the income and principal of the Trust for Scott's benefit if, in the exercise of its sole discretion, the Trustee deems it appropriate for any purpose whatsoever to supplement other income and resources available to him” (art. 3.1). It further provides that “no distribution shall be made for Scott's benefit ... that would reduce any aid otherwise available for his maintenance, health care, education, or general welfare” (art. 3.1).

Scott is the sole current beneficiary of the trust. If Scott dies before complete distribution of the trust assets, the remaining assets will be distributed to his estate provided he exercises his general power appointment in his last will and testament (art. 3.2(a)). However, if Scott fails effectively to exercise his general power of appointment, the trust assets will be distributed to the issue then living of Jean (art. 3.2(b)). If there is no taker under that provision, then the trust assets will be distributed to the settlor's issue then living, by right of representation (art. 3.2(c)). Thus, in addition to Scott's current beneficial interest, two additional classes of individuals have contingent future interests in the trust property.

DISCUSSION

Property held in trust for an individual is a resource under 20 C.F.R. 416.1201 if: (1) the individual has legal authority to revoke the trust and gain access to the trust property and use it for his or her support and maintenance; (2) the individual can direct the trustee to use the property for his or her support and maintenance under the terms of the trust; or (3) the individual can transfer his or her interest in the trust and use the proceeds for support and maintenance. See POMS SI 01120.200(D)(1)(a); 20 C.F.R. 416.1201(a)(1) (1999) (“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.”). We have reviewed the Scott Trust and conclude that the trust assets are not a countable resource for purposes of determining Scott's SSI eligibility.

Because Scott did not create the trust and the trust creates future interests in addition to Scott's current beneficial interest, the trust is not revocable by Scott alone, and it does not appear that Scott has the legal authority to revoke the trust and use the assets for his support and maintenance. Further, the trust provides that the trustee may at her discretion distribute “any portion” of the trust assets for “any purpose whatsoever” (art. 3.1). Because the trustee has unfettered discretion as to whether and when distributions may be made for Scott's benefit, the trust appears to be a discretionary trust. See 1 Restatement of Trusts (Second) 155; see also Miller v. Dep't of Mental Health, 442 N.W.2d 617, 618 (Mich. 1989) (distinguishing discretionary trusts and support trusts). The trustee is not required to distribute any of the assets, and the trust does not create any asset or income rights in the beneficiary. See generally Lawrence A. F~, Discretionary Trusts for a Disabled Beneficiary: A Solution or Trap for the Unwary, 46 U. Pitt. L. Rev. 335, 341-42 (1985). Therefore, Scott does not have a judicially enforceable right to direct distribution of trust property for his support and maintenance. See M~, 442 N.W.2d at 619 (providing that because the beneficiary's receipt of any amount depends on the trustee's discretion, the beneficiary does not have an ascertainable interest in the assets of a discretionary trust); 1 Restatement of Trusts (Second) 187 (“Where discretion is conferred upon the trustee with respect to the exercise of a power, its exercise is not subject to control by the court....”). Scott thus does not have the power to direct distribution of trust assets.

However, Scott does have certain withdrawal rights. In particular, within the first 30 days after a contribution to the trust, Scott has the right to withdraw the contribution, subject to the limitations provided Articles 2.6 and 2.7. Accordingly, contributions to the trust should be considered income to Scott on the date of the contribution. See 20 C.F.R. 416.1121(g), 416.1207(a). (The contribution should be considered income, however, only to the extent of any withdrawal limits set forth by the donor, as provided in Article 2.6, or to the extent of the withdrawal ceiling outlined in Article 2.7.) If Scott does not exercise his withdrawal rights by the first day of the subsequent month, and the 30-day period has not expired, then the amount of the contribution (subject again to any limits imposed by Articles 2.6 and 2.7) should be considered a resource to him for that subsequent month. See 20 C.F.R. 416.1207(d). Since Scott's withdrawal rights expire 30 days from the date of the contribution, and thus cannot extend beyond the following calendar month, the contribution will be a resource to him only for this one month. The trust specifically provides that the withdrawal rights are not cumulative and will lapse if not exercised (art. 2.3).

We note two reservations regarding the analysis outlined above. First, Scott's withdrawal rights apply only to contributions made to the trust prior to Helen's death (she is currently in her nineties) (art. 2.1). After her death, Scott has no right of withdrawal. Second, the trust provides that Scott must be notified of his withdrawal rights within 15 days after each contribution (art. 2.2). If he is not notified as required by the terms of the trust, he may have a legal cause of action against the trustee for breach of trust. We assume for purposes of our analysis that the trustee, where necessary, has complied with (and will in the future comply with) the notification provision as outlined in Article 2.2.

Finally, the trust contains a spendthrift provision which provides that no principal or income payable may be assigned by its beneficiary or be reached by any creditor (art. 6.7). Thus, it does not appear that Dirk has any power to transfer his interest in the trust and use those proceeds for support and maintenance. In sum, Dirk does not have the legal authority to revoke the trust, direct the use of the trust assets for his own support and maintenance, or transfer his interest in the trust, and the trust assets are not a countable resource for SSI purposes.

CONCLUSION

For the foregoing reasons, we believe that the trust assets should not be considered a countable resource to Scott. The trust appears to be a discretionary trust, and Dirk does not have a judicially enforceable right to command the trustee to make disbursements from the trust. Furthermore, he cannot unilaterally revoke the trust, or transfer his interest in the trust, and thereby gain access to trust assets. However, Scott does have limited withdrawal rights in contributions made to the trust, and those contributions may be considered income when received and a resource for a brief period thereafter, as discussed above.

The trust was established in the State of Michigan. It is not a countable resource for the following reasons:

The SSI applicant is not the settlor or the sole beneficiary. He does not have direct use of the assets for his support and maintenance, and, He cannot sell his interest in the trust.

NOTE: Because of a change in the Social Security Act, this precedent may only apply to trusts established before 1/1/00.

You have asked whether the assets of a trust established by John should be considered a countable resource for purposes of determining the eligibility of one of his children, Brian, for SSI. For the reasons set forth below, we conclude that the assets in the trust should not be considered a countable resource.

FACTS

On or about June 1, 1997, John entered into a Trust Agreement and established the “John FBO Brian Irrevocable Trust.” The Trust Agreement named John as settlor and John,Jr. and Mark as co-trustees. John apparently funded the trust with certain life insurance policies and property identified in a Schedule of Insurance and a Schedule of Property, copies of which were not provided to this office. The Trust Agreement provides that the trust was established for the benefit of John's family and so that all assets of the trust could be excluded from his gross estate for federal estate tax purposes.

The Trust Agreement provides that the trustee may, in his or her discretion, pay to Brian or use for his benefit so much as or all of the net income and principal as the trustee determines to be required or desirable for his health, care, support, emergencies, education, the maintenance of his accustomed standard of living, establishing or purchasing a business or profession, purchasing a residence, providing for all expenses of a first wedding, or for any special purpose that the trustee may determine to be in his best interest. Trust Agreement, Article 3(A)(1). The Trust Agreement provides that if Brian dies before the complete distribution of the trust, the trust shall terminate and the trustee shall distribute the remaining trust property to or for the benefit of Brian's children. Trust Agreement, Article 3(A)(2). If Brian does not have any children at the time of his death, the Trust Agreement provides that the trustee shall distribute the remaining trust property to the settlor's then living children and then the children of any deceased child. Trust Agreement, Article 3(A)(2).

The Trust Agreement further provides that a beneficiary shall have the right to demand that a portion of the trust income and principal be distributed to himself or herself under certain circumstances. Trust Agreement, Article 4. Specifically, any beneficiary shall have the right to immediate distribution from the income and principal of the trust where the settlor or any other donor makes a contribution to the trust and provides written notice to the trustee that such contribution is subject to withdrawal by a beneficiary. Trust Agreement, Article 4(A). Under these circumstances, the immediate distribution from the income and principal cannot exceed the amount of the contribution. Trust Agreement, Article 4(A). If the beneficiary is under a legal disability, a legal guardian can exercise this right to demand on behalf of the beneficiary. Trust Agreement, Article 4(B)(2). The demand must be made within thirty of the contribution. Trust Agreement, Article 4(B)(4).

The Trust Agreement provides that the settlor waives all right, power, and authority to amend or revoke the trust. Trust Agreement, Article 12.

DISCUSSION

A countable resource is defined as cash or other liquid assets, or any real or personal property that an individual owns and could convert to cash to use for his support and maintenance.

See 20 C.F.R. § 416.1201(a); Program Operations Manual System (“POMS”) SI 01110.100(B)(1). If the individual has the right, authority, or power to liquidate the property or his share of the property, it is considered a resource. See 20 C.F.R.. § 416.1201(a)(1); POMS SI 01110.100(B)(1). Trust assets are a resource if (i) the individual can revoke or terminate the trust and obtain unrestricted access to the trust assets; (ii) the individual has access to the trust assets and can direct the use of the trust assets to meet his need for food, clothing, and shelter; (iii) or the individual can sell his beneficial interest in the trust. See POMS SI 01120.105(A)(1), 01120.200(D)(1)-(3).

Whether the claimant can revoke or terminate the trust or direct use of the trust assets depends upon the terms of the trust agreement and applicable state law. See id. SI 01120.200(D)(2). We have reviewed the documents you provided and conclude that the trust principal and accumulated income are not countable resources to Brian. Brian does not have the right, under the terms of the Trust Agreement or Michigan state law, to revoke or terminate the trust and thereafter obtain unrestricted access to the trusts assets or to direct use of the trust's assets to meet his need for food, clothing, and shelter. Nor can he sell his beneficial interest in the trust.

Brian Does Not Have the Right to Revoke or Terminate the Trust

Whether a trust is revocable or terminable depends on the terms of the trust and applicable state law. See POMS SI 01120.200(D)(2). Here, Brian does not have the right to revoke or terminate the trust under its own terms or Michigan state law.

First, the terms of the Trust Agreement itself do not give Brian or anyone else the right to revoke or modify the trust. To the contrary, the Trust Agreement is titled as an irrevocable trust agreement and provides that the settlor has waived his right to amend or revoke the agreement. Trust Agreement, Article 12. There is no other indication that the settlor of the trust intended the trust to be revocable. See Fornell v. Fornell Equipment, Inc., 213 N.W.2d 172, 176 (Mich. Ct. App. 1973) (“Ordinarily, revocability is a question of the intention of the settlor . . . .”).

Second, Brian does not have the right to revoke the Trust Agreement or otherwise modify it in order to gain access to the principal under Michigan law. In the absence of express language providing a right of revocation or termination, a trust cannot be revoked or modified unless the grantor or settlor and all of the beneficiaries agree. See Hein v. Hein, 543 N.W.2d 19, 20 (Mich. Ct. App. 1995) (citing RESTATEMENT (SECOND) OF TRUSTS § 338(1)). Thus, Brian would only be capable of revoking the Trust Agreement if he were the sole beneficiary as well as grantor or settlor of the trust. See RESTATEMENT (SECOND) OF TRUSTS § 339 & comment a (1959) (grantor or settlor of trust can compel termination of trust irrevocable by its terms if she is the sole beneficiary).

There is no evidence in the documentation provided to us that Brian was the actual settlor of the trust. The settlor of a trust is generally the person who provides the consideration for the trust, even if another entity nominally creates the trust. See Ronney v. Department of Social Services, 532 N.W.2d 910, 913 (Mich. App. 1995); 76 Am. Jur. 2d § 55. Here, John was expressly named as the settlor in the Trust Agreement and there is no indication that anyone other than John provided the consideration for the trust.

Moreover, regardless of whether Brian is or is not the settlor, he is not the sole beneficiary. The Trust Agreement provides that the trustee shall make discretionary payments to Brian during his lifetime and, upon Brian's death, shall terminate the trust and distribute the remaining trust property to Brian's children. Trust Agreement, Article 3(A)(2). Under such circumstances, Brian's children are considered to be beneficiaries of the trust, even if Brian does not currently have any children, regardless of whether Brian is or is not the settlor of the trust. See RESTATEMENT (SECOND) OF TRUSTS § 127, comment b ("[I]f 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."); RESTATEMENT (SECOND) OF TRUSTS § 127, comment c ("[I]f a beneficial interest is limited to a person other than the settlor for life and the remainder on his death is limited to his heirs or next of kin, his heirs or next of kin as well as the person himself are beneficiaries of the trust in the absence of a manifestation by the settlor of an intention to give the whole beneficial interest to him."). Brian, therefore, cannot unilaterally revoke the trust in order to use the principal for food, clothing, or shelter.

Brian Does Not Have the Right to Direct Use of the Trust's Assets

Although Brian does not have the legal authority to revoke the trust, the trust may still be counted as a resource in determining SSI eligibility if Brian has the ability to direct the use of the trust principal. See POMS SI 01120.200(D)(1)(a).

Such authority may be included specifically in a trust provision allowing the beneficiary to act on his own or in a provision allowing him to order actions by the trustee. See id. SI 01120.200(D)(1)(b). Here, the trust agreement includes no such provisions.

Instead, the Trust Agreement gives the trustee discretion to apply to or expend trust assets and income for the benefit Brian.

Trust Agreement, Article 3(A)(1). Although Brian does have the right to demand a portion of any contribution made to the trust, this is only applicable if the settlor or donor who made the contribution specifically informs the trustee that the contribution is subject to withdrawal. Trust Agreement, Article 4(A). Thus, Brian does not have the right to unilaterally direct use of the trust's assets to meet his need for food, clothing, or shelter.

Brian's Interest in the Trust Has No Marketable Value

A trust can also be a resource if the individual can sell his beneficial interest in the trust. Here, however, the Trust Agreement contains a spendthrift clause that prevents Brian from assigning or otherwise transferring his rights in the trust. Trust Agreement, Article 5. Moreover, even if the Trust Agreement did not contain a spendthrift clause, the trust would still not have any marketable value. Under the terms of the Trust Agreement, Brian only has the right to receive payments at the discretion of the trustee. Thus, Brian could only sell the right to receive or have distributions made on his behalf in the sole discretion of the trustee. We assume this would have no significant value. See Z~ Trust as an SSI Resource - Wisconsin Bernard W~, OGC-V (M~) to John , ARC (February 23, 1993) at 4-6.

Payments Made from the Trust May be Income

Lastly, although the trust principal is not a countable resource, disbursements from the trust under certain circumstances would be countable income for determining Brian's SSI eligibility and level of benefits. If the trustee were to authorize disbursements from the trust consisting of cash paid directly to Brian, or payments to a third party for any food, clothing, or shelter received by Brian, such disbursements or in-kind payments would constitute income for SSI purposes. See 20 C.F.R. § 416.1102; POMS SI 01120.200(E)(1)(a), (b).

CONCLUSION

Based on the documents provided to us, it is our opinion that the trust established for the benefit of Brian is not a countable resource for purposes of determining his eligibility for SSI. Brian does not have the right to revoke the trust; direct the use of its assets to meet his need for food, clothing, and shelter; or sell his beneficial interest in the trust.

A supplemental needs trust is not a resource when the grantor (the SSI recipient) cannot direct the assets for his/her food, clothing, or shelter needs, cannot terminate or revoke the trust and gain access to the trust property, and cannot sell his/her beneficial interest in the trust.

CAUTION: Because of a change in the Social Security Act, this precedent may only be applicable to trusts established before 1/1/00.

You asked for our assistance in determining whether the trust agreement in question is a resource to Joshua, a Supplemental Security Income ("SSI") claimant. For the following reasons, it is our opinion that the trust is not a countable resource for Joshua.

FACTS

The Joshua Special Needs Trust appears to have been executed in 1994. Art I § 1. The trust agreement names Joshua as sole lifetime beneficiary, Tracey (apparently Joshua's mother) as settlor, and Tracey and Mark (apparently Joshua's parents) as trustees. Id. It states that it is being funded with the proceeds of a personal injury settlement and that Joshua is the beneficial owner of these funds. It states that it is irrevocable. Art. I, sec. 4.

The trust allows the trustee almost total discretion concerning the use of the trust assets. Art. II, secs. 1, 2. The trust, however, expresses the general intent that the trust assets be used for the Joshua's "supplemental needs." Art. II, sec. 1. The trust further makes clear the intention that the trustees should attempt to use trust assets to benefit Joshua in ways that do not affect his eligibility for public or private assistance, including SSI. Art. II, sec. 1. The trust also includes a spendthrift clause. Art. II, sec. 5.

Upon Joshua's death, the trust allows Joshua the right to exercise a general power of appointment by will. Art. III, sec. 1. If Joshua does not exercise this power of appointment, the trust provides for distribution of the remaining trust property to Joshua's parents, or to his siblings. Art. III, sec. 2.

DISCUSSION

1. Introduction

Under the applicable regulation, "resources" are cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance. 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. 20 C.F.R. § 416.1201(a) (1999). Therefore, if an individual is able to obtain funds or convert property to cash to be used towards his or her support and maintenance, such funds or property is resources for purposes of determining SSI eligibility. Trust assets are a resource if (1) the individual has access to the trust assets and can direct the use of the assets to meet his or her need for food, clothing, and shelter; (2) if he or she can revoke or terminate the trust and obtain unrestricted access to the trust assets; or (3) if beneficial interest in the trust can be sold. See POMS SI 01120.200(D).

Based on the documents you provided, we conclude that the assets held in trust should not be considered a countable resource under 20 C.F.R. § 416.1201.

2. Joshua does not have authority to direct the use of the trust assets.

The trust agreement expressly provides that the trustee (Joshua's parents) have "sole discretion" to direct the use of the assets for the satisfaction of Joshua's supplemental needs. Art II, sec. 2. Thus, Joshua cannot "direct the use of the assets." See POMS SI01120.200(D)(1)(a), (b).

3. Joshua cannot revoke or terminate the trust.

Joshua is the grantor and the primary beneficiary of this trust. The grantor or settlor of a trust is generally the person who provides the consideration for the trust, even if another entity nominally creates the trust. 76 Am. Jur. 2d § 55; see In re J~ Trust, 479 N.W. 2d 25, 29 (Mich. App. 1991). We generally regard trusts that have been established from personal injury settlements as being established by the person who received the awards. POMS SI 01120.200(B)(2). Hence, although Tracy L. Y~, Joshua's mother (his conservator), is named as the grantor in the trust agreement, Joshua is, in fact, the grantor of the trust, since it is his personal injury settlement award that comprises the trust fund. The trust, itself, acknowledges that Joshua is the beneficial owner of the assets that were initially placed in the trust. Art. 1, sec. 2.

Although Joshua is the grantor, he cannot revoke or terminate the trust and obtain unrestricted access to the trust assets because the trust is irrevocable on its face. Art I, sec. 4. Although the general law of trusts recognizes an exception to the irrevocability of a trust where the grantor is also the sole beneficiary, Joshua is not the sole beneficiary of the trust assets. Upon Joshua's death, the trust agreement provides for distribution of the remaining trust principal and trust estate to his parents or to his siblings. Art III § 1-2. Thus, the he cannot revoke or terminate the trust without the consent of the other beneficiaries, and we do not assume that he can obtain their consent.

4. Joshua cannot sell his beneficial interest in the trust.

The trust could be resource if Joshua could sell his beneficial interest in the trust. See POMS SI 01120.200(D)(1)(b). Here, the trust is discretionary; therefore, the trustee has no obligation to make any payments to Joshua. Additionally, the trust includes a spendthrift provision, Art. II, sec, 5, which prohibits makes the trust not subject to assignment. Therefore, Joshua cannot sell his interest in trust payments.

5. Conclusion

The trust includes assets set aside for Joshua's supplemental needs. Joshua cannot direct the use of the assets for his food, clothing, or shelter needs. He cannot terminate or revoke the trust and gain access to the trust property. And he cannot sell his beneficial interest in the trust. Therefore, the property held in the trust is not a countable resource for SSI purposes.

A trust was established for an SSI beneficiary in 1996 based on a personal injury settlement. The corpus of the trust was funded with the distribution from the settlement. Trust language indicated that upon the SSI beneficiary's death, remaining funds would be distributed to pay expenses and then to persons determined to be the beneficiary's "heirs at law." However, trust language indicating a remainder interest for unspecified persons determined to be "heirs at law" does not create additional beneficiaries. The trust agreement also names the SSI beneficiary's guardian as the grantor, however, trusts funded with personal injury awards are generally regarded as established by the recipient of the award. Even though the trust is described as irrevocable, when a grantor of a trust is also the sole beneficiary the trust is deemed revocable despite language to the contrary. Since the SSI beneficiary is the grantor and also the sole beneficiary, the trust is determined revocable and, thus, a countable resource for SSI purposes.

You have asked for our assistance in determining whether assets of the trust in question are a resource to Karmone, a Supplemental Security Income (SSI) claimant. For the following reasons, it is our opinion that Karmone is the grantor of the trust, the trust agreement is revocable, and the assets in the trust can be considered a countable resource.

FACTS

On October 2, 1996, a Michigan circuit court authorized settlement of a personal injury suit involving Karmone, a disabled child. The court ordered that settlement proceeds of $224,959.46 be deposited in a trust established for the benefit of Karmone. The trust agreement names Joseph, Karmone's guardian ad litem, as the grantor and Michelle, Karmone's mother, and Pamela as the co-trustees. Trust Declaration at 1. By its terms, the trust agreement is to be irrevocable during Karmone's life time. Trust Declaration Article 3. However, the trust also provides that it can be amended or modified if a "court of competent jurisdiction" determines that a change would be in Karmone's "best interests". Id. In addition, the trust allows the trustees "administer the trust so as to...address the change" if Karmone has a "material change of circumstances" Trust Dec. Art. 5, Paragraph F.

The trust agreement directs the trustee on Karmone's death to pay expenses such as state inheritance taxes, or other similar taxes, any expenses associated with his last illness, funeral and burial costs, and reasonable administration expenses. Trust Dec. Article 6(A). Finally, the agreement provides that any remaining residue of the trust should be distributed to persons determined to be Karmone's "heirs at law." Id at 6(B).

DISCUSSION

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 or maintenance. 20 CFR § 416.1201 (a)(1997). If the individual has the right, authority, or power to liquidate the property or his share of the property, it is considered a resource. 20 CFR § 416.1201 (a)(1)(1997); see also Program Operations Manual System (POM) SI 01110.100(B).

Therefore, if an individual is able to obtain funds or convert property to cash to be used towards his support and maintenance, such funds or property are resources for purposes of determining SSI eligibility. 20 C.F.R. § 416.1201(a) (1997). Trust assets are a resource if the individual has access to the trust assets, and can direct the use of the assets to meet his need for food, clothing, and shelter, or if he can revoke the trust and obtain unrestricted access to the trust assets. See POMS SI 01120.105 (A)(1), 01120.200(D)(1)-(3).

According to the express language of the agreement, the trust in this case is irrevocable. Trust Decl. at Article 3. Under general trust law, however, where the grantor or settler of a trust is also the sole beneficiary of the trust, he can compel termination of the trust, even where the trust, by its terms, is irrevocable. Restatement (Second) of Trusts § 339 and comment a (1959). We have reviewed the documents you have provided and, for the following reasons, we conclude that the assets subject to the trust agreement should be considered a countable resource under 20 C.F.R. § 416.1201(1997).

The trust agreement establishes a grantor trust because Karmone is the legal grantor and is also the sole beneficiary. The grantor or settler of a trust is generally the person who provides the consideration for the trust, even if another entity nominally creates the trust. We generally regard trusts that have been established from personal injury settlements as being established by the person who received the awards. POMS SI 01120.200(J)(3). Hence, although Joseph is named as the grantor in the trust agreement, Karmone is in fact the grantor of the trust, since it is his personal injury settlement award that comprises the trust fund.

The trust agreement's language that the remainder of the trust's assets are to be distributed to "those persons who are determined to be Karmone's heirs at law," does not create any additional beneficiaries. As a general rule, when a trust purports to create an interest in favor of the grantor's heirs at law, the grantor is considered the sole beneficiary of the trust. Restatement (Second) of Trusts § 127 comment b (1959); Clarification of Regional SSA Program Circular 94-05 Concerning Trusts, OGC-V (K~) to L~, Acting ARC, at 3-5 (5/24/95); Michigan Trust for Harley L~, OGC-V (M~) to Gloria, ARC-MOS, at 5 (6/27/97). Thus, Karmone is the sole beneficiary of the trust. Because Karmone is the sole beneficiary as well as the grantor of the trust, he can compel termination of the trust, even though it is irrevocable on its face. See Hein v. Hein, 543 N.W. 2d 19, 20 (Mich. Ct. App. 1995) ("irrevocable" trust may be terminated with consent of the settlor and all beneficiaries); Ronney v. Dept. Of Social Servs., 532 N.W. 2d 910, 913-14 (Mich. Ct. App. 1995) ("irrevocable" trust could be revoked because settlor was also sole beneficiary). Because Karmone can revoke the trust, he has access to the trust assets. Those assets are his resources for purposes of determining SSI disability.

CONCLUSION

Since Karmone as both grantor and sole beneficiary, can "revoke the trust and obtain unrestricted access to the trust assets," the trust is a countable resource.

If an SSI recipient is a beneficiary of a trust but his/her access to the trust is restricted, the trust funds are not a resource to the recipient. If the SSI recipient is the trustee and has the right to revoke the trust, the trust funds are a resource to that individual.

Caution: Because of a change in the Social Security Act, this precedent may only be applicable to trusts established before 1/1/00.

ISSUE

This is with reference to your memorandum inquiring whether the trust created by Karen is a countable resource to Nathan , an SSI recipient and whether the trust is a countable resource to Karen, also an SSI recipient. We conclude that this trust is not a countable resource to Nathan but is a countable resource to Karen under 20 C.F.R. § 416.1201 (1993).

FACTS

The facts may be briefly summarized: On September 16, 1992, Karen , as grantor, created a Discretionary Revocable Trust Agreement. Karen appointed herself as trustee and she deposited $2,000 into the trust account. Janice was appointed as the successor trustee. The Agreement stated in relevant part:

(1) The trustee is authorized to hold, manage, pledge, invest and reinvest said funds in his sole discretion; (2) The undersigned grantor reserves the right to revoke said trust in part or in full at any time and any partial or complete withdrawal by the original trustee if he is the grantor shall be a revocation by the grantor to the extent of such withdrawal. . .

According to the terms of the trust, Nathan's access to the trust funds were restricted until he reached his 21st birthday.

DISCUSSION

The primary issue to be resolved here is whether either Nathan or Karen, both SSI recipients, has any access to the trust funds. If either has access, then the trust is considered as a countable resource to that individual. A resource, for the purpose of this opinion, is defined as property that the SSI recipient owns and could convert to cash, or property over which the recipient has the right, authority, or power to liquidate. 42 U.S.C. § 1382b; 20 C.F.R. § 416.1201 (1993). In applying this definition to trusts, the Program Operation Manual System ("POMS") states that if the recipient is a beneficiary of a trust but has his access to the trust funds restricted, then the funds are not a resource for the claimant. POMS § 01120.105(A)(2). As we explain below, Nathan currently has no access to the trust funds, and they, as a result, cannot be counted as a countable resource to him. The POMS explains further, however, that if the recipient is the trustee and has the right to revoke the trust, the funds are a resource to that individual. POMS § 01120.105(A)(1). As we shall explain, Karen's access to the trust funds, is unrestricted, and, as a result, the funds are a countable resource to her.

It is clear from the terms of the trust agreement that Nathan has no right to access the trust funds until he reaches 21. As a result, the trust is not a countable resource to him. It is equally clear, however, that Karen, as grantor and trustee of the trust, has unfettered access to the trust funds. The trust grants her the right to manage, hold, and invest the trust funds. Moreover, she has the right to revoke the trust at any time. Accordingly, the trust funds are a countable resource to Karen.

The source of the funds in a trust is important in determining if the trust is revocable. An otherwise irrevocable trust is considered to be revocable if the grantor is also the sole beneficiary.

You inquired whether the funds held pursuant to the terms of a trust agreement should be treated as a countable resource for purposes of SSI eligibility for Brian, the beneficiary of the trust.

The pertinent SSI regulations provide at 20 C.F.R. § 416.1201(a) that:

resources means cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance.

(1) 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....

Thus, if an individual is able to obtain funds or convert property to cash to be used toward his support and maintenance, such funds or property are to be included as resources for purposes of determining SSI eligibility. Trust assets are a resource to the individual if he can revoke the trust and use the assets to meet his needs for food, clothing, and shelter. See POMS SI 01120.200(D)(1)-(3).

We have reviewed the documents provided to us. If the funds held in the shared savings account (which constitutes the trust principal) belonged to or were attributable to Brain prior to the creation of the trust, then those funds would constitute a countable resource for Brian under 20 C.F.R. § 416.1201. If, however, the funds were not Brian's, then the trust would not be a resource. Further factual development, therefore, is necessary to determine the outcome.

FACTS

The trust agreement provides that Roger and Rhonda, the settlors, transfer and assign to themselves, as co-trustees, the trust principal for the benefit of Brian, the beneficiary. By its terms, the trust is irrevocable. The trust is to terminate either upon the death of the beneficiary, with the remaining principal and interest being distributed to the heirs at law of Brian, or the trust terminates in the event that judicial proceedings and or governmental administrative action is commenced to reach funds in the Trust, "which in the sole opinion of the Trustee is likely to result in a loss or reduction of benefits or eligibility of the beneficiary." Trust Agreement, Paras. 12, 13. The trust principal consists of $ 10,267.43 held in a shared savings account by the co-trustees. We do not know the source of these funds.

DISCUSSION

Although the trust agreement at issue is by its terms irrevocable, the presence of an express irrevocability clause is not determinative. The general trust principle is that, where a grantor or settlor is the sole beneficiary of the trust and is not under an incapacity, he can compel termination of the trust, although the purposes of the trust have not been accomplished. Restatement (Second) of Trusts § 339 (1959); 76 Am. Jur. 2d § 96 (1992). We have previously advised that absent any statute or case law in Michigan prohibiting the revocability of a grantor trust in which the grantor is the sole beneficiary, this general trust principle applies in Michigan. See Six State Synopsis of Trust Laws, OGC-V (P~) to Panama, ARC, POS SSA-V (2/26/92) at 4; see generally Mich. Comp. Laws Ann. Ch. 555 (West 1988 & Supp. 1998) and § 700.801 et seq. (West 1995 & Supp. 1998).

The information we have been provided does not indicate whether the funds held in the shared savings account (which constitutes the trust principal) belonged to or were attributable to Brain prior to the creation of the trust. That is significant because it determines whether he is the grantor or settlor of the trust. The grantor or settlor of a trust is the person who provides the consideration for the trust, even if another entity nominally creates the trust. 76 Am. Jur. 2d § 55 (1992); In re J~ Trust, 479 N.W.2d 25, 29 (Mich. App. 1991). The money held in the shared savings account would still be considered to have come from Brian if it was money derived through the settlement of a claim belonging to or attributable to him. See POMS SI 01120.200(J)(3) (grantor trust created where recipient's mother, as his legal guardian, established the trust with a monetary judgment received by recipient as a result of a car accident because the funds belonged to the recipient and mother's actions were imputed to the recipient); Michigan Trust for Nibras , OGC-V (M~) to K~, Director, POS-RSI/SSIB, SSA-V (4/14/97) at 2 (grantor trust created where claimant's conservator established the trust with personal injury settlement proceeds belonging to the claimant/beneficiary although paid to the conservator on behalf of the claimant). Brian would properly be characterized as the settlor of the trust if he contributed the assets to the trust.

Brian is the sole, identifiable beneficiary of the trust.

To revoke a trust, it is required that the settlor and all beneficiaries consent to the revocation, 76 Am. Jur. 2d § 94 (1992), and a contingent beneficiary appears to be considered a beneficiary for that purpose. See Restatement (Second) of Trusts § 127 cmt. b, § 339 cmt. b (1959); 76 Am. Jur. 2d § 95 (1992) ("a trust cannot be terminated by the consent or acts of beneficiaries where there are contingent interests in the trust which cannot be determined until the happening of certain events"). Brian is the only beneficiary of the trust during his lifetime. The only other possible beneficiaries are his heirs at law who, on the event of his death, appear to take any remaining assets after reimbursement (due to 42 U.S.C. § 1396) of any State medical assistance provided on his behalf. See Trust Agreement, paras. 13, 16. But the Restatement (Second) of Trusts § 127 cmt. b (1959) supports an inference that, if the only other beneficiaries are Brian's "heirs at law," he is the sole beneficiary of the trust.

As stated above, the general rule is that where the settlor is the sole beneficiary of the trust, he "can compel termination of the trust, although the purposes of the trust have not been accomplished." Restatement (Second) of Trusts § 339 (1959); see also 76 Am. Jur. 2d § 96 (1992). If Brian provided the assets of the trust, he is the grantor or settlor. Because he also appears to be the sole beneficiary of the trust, Brian could revoke the trust, have unrestricted access to the trust principal, and use the principal for his support and maintenance.

But, if further factual development reveals that the funds were not Brian P~'s, then he would not be the grantor or settlor of the trust, and the trust would not be a resource.

Conclusion

In sum, we conclude that if further factual development confirms that funds held in the shared savings account belonged to or were attributable to Brian before the creation of the trust, those funds constitute a countable resource for determining Brian's SSI eligibility.

This opinion concerns a discretionary trust in Michigan. The trust is countable as a resource for SSI purposes because the individual can revoke the trust and use the assets for his own support and maintenance. The trust was established with the individual's own funds which makes him the grantor under Michigan law. And the individual is the sole beneficiary of the trust because the trust does not establish a residual beneficiary. CAUTION: Because of a change in the Social Security Act, this precedent may only be applicable to trusts established before 1/1/00.

You asked that we review the "L~ Family Discretionary Trust" to determine whether it is a countable resource for Carl (Carl), a Supplemental Security Income (SSI) recipient. For the reasons stated below, we conclude that the funds in the trust should be considered a resource to Carl.

FACTS

This trust was established by Carl's mother, Millie (Millie) as Carl's guardian, and it appears to be funded with a personal injury settlement payment of $240,000 related to injuries received by Carl. Prior to this financial settlement, Millie was appointed guardian over Carl's person and estate by the Tribal Court of the Sault Ste. Marie Tribe of Chippewa Indians because he was not capable of caring for himself, including his financial affairs. The trust names Millie as settlor or grantor, and Millie and Calvin as trustees. Under this trust, the trustees may in their discretion distribute any part of the net income or principal in the best interest or benefit of Carl as the trustees determine to be for the greatest degree of "security" for Carl. Carl's "security" shall include consideration of his overall circumstances and maximization of his personal, spiritual, social, and financial well-being. The trust provides that Carl does not have the power or authority to demand any distribution of the trust estate from the Trustee.

The trust also provides that on Carl's death, the trustees shall pay debts, taxes, and expenses imposed on Carl's estate, and then pay state claims where Carl received medical assistance payments. After satisfaction of these provisions, the remainder of the trust estate shall be distributed to classes of beneficiaries identified by Carl consisting of his immediate family, relatives by blood, marriage, or adoption, or to those charities designated by Carl under his Last Will and Testament. If Carl does not exercise this power of appointment, the Trustee shall distribute the trust estate to Carl's heirs at law as though he died intestate under the laws of the State of Michigan.

DISCUSSION

To qualify for SSI benefits, a claimant must show that his or her resources are below a statutory maximum. 20 C.F.R. §§ 416.202, 416.1205; 42 U.S.C. § 1382(a). Under the applicable regulation, "resources" are defined as:

cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance.

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.

20 C.F.R. § 416.1201(a)(1).

A trust can be a resource. The Program Operations Manual System (POMS) specifies that if an individual has the authority to revoke the trust and use the trust assets for his support and maintenance, the trust assets are a resource to the individual. POMS SI 01120.200(D)(1). In this case, the trust is a countable resource for determining Carl's SSI eligibility because he can revoke the trust and use the assets for his support and maintenance under the terms of the trust. POMS SI 01120.200(D)(1)(a).

In general, and under Michigan law, the grantor of a trust is the person who provides the consideration for the trust. 76 Am. Jur. 2d § 55; POMS SI 01120.200(B)(2); see In re J~ Trust, 479 N.W.2d 25, 29 (Mich. App. 1991). When a trust is funded with proceeds from the settlement of a personal injury claim brought by the guardian on behalf of the ward, the ward is the individual who established the trust and is considered the true grantor of the trust. POMS SI 01120.200(J)(3)(A); see Ronney v. Department of Social Services, 532 N.W.2d 910, 913 (Mich. App 1995). In this case, although Millie created the trust and was named as settlor in the trust agreement, she established the trust using assets Carl received from a personal injury settlement. Therefore, Carl is the legal grantor of the trust.

Carl is also the sole beneficiary of the trust. If the grantor of the trust estate has the power to appoint the residue of the trust estate by will alone, and in default of appointment the property is to be distributed to his heirs at law who would be entitled as though he had died intestate, he intended to be the sole beneficiary of the trust. Restatement (Second) of Trusts § 127, cmt. b (1959). The terms of the trust instrument provide that on Carl's death, the Trustee shall pay all taxes, debts, and expenses and costs imposed on Carl's estate, and then pay state claims where Carl received medical assistance payments,

Finally, after satisfaction of these provisions, the remainder or residue of the trust estate shall be distributed to classes of beneficiaries identified by Carl consisting of his immediate family, relatives by blood, marriage, or adoption, or to those charities designated by Carl under his Last Will and Testament.

Carl's power of appointment to distribute the residue of the trust estate by will is limited to these beneficiaries. However, Carl may default in appointing the trust property by not executing a will, and in the event he does execute a will, he has the power to change the beneficiaries at any time prior to his death. Because of these two possibilities, none of the beneficiaries has any interest in the residue of the trust estate. If Carl does not exercise this power of appointment, the trust contains explicit instructions that the Trustee shall distribute the trust estate to Carl's heirs at law as though he died intestate under the laws of the State of Michigan. Even though upon Carl's death the residue of his estate is to be distributed by will or upon default of such appointment to his heirs at law as if he died intestate, he is still considered the sole beneficiary of the trust.

Because Carl is the grantor and the sole beneficiary of the trust, he can revoke or compel termination of the trust. Restatement (Second) of Trusts § 339, cmt. a (1959); POMS SI 01120.200(D)(3). We have previously advised that this general trust principal applies in Michigan. See Six State Synopsis of Trust Laws, OGC-V (P~) to P~-W~, ARC, SSA-V (2/26/92); R~, 532 N.W.2d at 911-13. Because Carl is the grantor and the sole beneficiary of the trust, he can revoke the trust and use the funds for his benefit and security. The trust, therefore, is a resource.

Thus, we conclude that the trust property at issue should be considered a resource to Carl for SSI purposes because as grantor and sole beneficiary of the trust, he can revoke the trust and use the trust income and principal for his best interest and security.

The trust addressed in this opinion is generally a standard irrevocable trust established by a third party. The opinion provides an analysis of a provision whereby the trust beneficiary has a limited right to withdraw certain additions to the trust for 30 days after the addition is deposited. NOTE: This limited right of withdrawal confers certain gift tax rights on the donor.

You asked us to review a trust dated February 4, 1999, to determine whether the assets placed in trust would be a countable resource to Scott ~ , an SSI claimant. For the following reasons, we believe that the assets in trust are not available for use for Mr. ~ support and maintenance. Therefore, the assets in trust are not a countable resource to him.

FACTS

We base our opinion on our review of the trust instrument you provided to us, as well as information provided by the attorney who drafted the trust, Dirk ~. The trust was established by Scott’s grandmother, Helen , on February 4, 1999. Jean , Ms. ~ daughter and Scott's mother, was named as trustee. The trust instrument does not indicate how the trust was funded, but Mr. ~ advised us that the trust was initially funded with approximately $5000 (cash). The trust indicates that assets of any type may be added to the trust, either by the settlor, Ms. ~ , or by others (art. 1.2). According to Mr. ~ , Ms. ~ made an additional contribution of approximately $5000 in the Spring of 2000.

Article Two provides that Scott has certain withdrawal rights. In particular, it provides that whenever a contribution is made to the trust prior to Ms. ~ death, the trustee must notify Scott in writing within 15 days of the contribution that he has the right to withdraw the amount of the contribution, subject to certain limitations (art. 2.1, 2.2). The amount of the withdrawal is limited to $20,000 if the donor is married and $10,000 if the donor is unmarried (art. 2.7). Scott's withdrawal rights expire 30 days after the date of the contribution (art. 2.3).

Article Three provides that the trustee "may distribute any portion or all of the income and principal of the Trust for Scott's benefit if, in the exercise of its sole discretion, the Trustee deems it appropriate for any purpose whatsoever to supplement other income and resources available to him" (art. 3.1). It further provides that "no distribution shall be made for Scott's benefit that would reduce any aid otherwise available for his maintenance, health care, education, or general welfare" (art. 3.1).

Scott is the sole current beneficiary of the trust. If Scott dies before complete distribution of the trust assets, the remaining assets will be distributed to his estate provided he exercises his general power appointment in his last will and testament (art. 3.2(a)). However, if Scott fails effectively to exercise his general power of appointment, the trust assets will be distributed to the issue then living of Jean (art. 3.2(b)). If there is no taker under that provision, then the trust assets will be distributed to the settlor's issue then living, by right of representation (art. 3.2(c)). Thus, in addition to Scott's current beneficial interest, two additional classes of individuals have contingent future interests in the trust property.

DISCUSSION

Property held in trust for an individual is a resource under 20 C.F.R. § 416.1201 if: (1) the individual has legal authority to revoke the trust and gain access to the trust property and use it for his or her support and maintenance; (2) the individual can direct the trustee to use the property for his or her support and maintenance under the terms of the trust; or (3) the individual can transfer his or her interest in the trust and use the proceeds for support and maintenance. See POMS SI 01120.200(D)(1)(a); 20 C.F.R. § 416.1201(a)(1) (1999) ("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."). We have reviewed the Scott Trust and conclude that the trust assets are not a countable resource for purposes of determining Scott's SSI eligibility.

Because Scott did not create the trust and the trust creates future interests in addition to Scott's current beneficial interest, the trust is not revocable by Scott alone, and it does not appear that Scott has the legal authority to revoke the trust and use the assets for his support and maintenance. Further, the trust provides that the trustee may at her discretion distribute "any portion" of the trust assets for "any purpose whatsoever" (art. 3.1). Because the trustee has unfettered discretion as to whether and when distributions may be made for Scott's benefit, the trust appears to be a discretionary trust. See 1 Restatement of Trusts (Second) § 155; see also Miller v. Dep't of Mental Health, 442 N.W.2d 617, 618 (Mich. 1989) (distinguishing discretionary trusts and support trusts). The trustee is not required to distribute any of the assets, and the trust does not create any asset or income rights in the beneficiary. See generally Lawrence A. F~, Discretionary Trusts for a Disabled Beneficiary: A Solution or Trap for the Unwary, 46 U. Pitt. L. Rev. 335, 341-42 (1985). Therefore, Scott does not have a judicially enforceable right to direct distribution of trust property for his support and maintenance. See Miller, 442 N.W.2d at 619 (providing that because the beneficiary's receipt of any amount depends on the trustee's discretion, the beneficiary does not have an ascertainable interest in the assets of a discretionary trust); 1 Restatement of Trusts (Second) § 187 ("Where discretion is conferred upon the trustee with respect to the exercise of a power, its exercise is not subject to control by the court ."). Scott thus does not have the power to direct distribution of trust assets.

However, Scott does have certain withdrawal rights. In particular, within the first 30 days after a contribution to the trust, Scott has the right to withdraw the contribution, subject to the limitations provided Articles 2.6 and 2.7. Accordingly, contributions to the trust should be considered income to Scott on the date of the contribution. See 20 C.F.R. §§ 416.1121(g), 416.1207(a). (The contribution should be considered income, however, only to the extent of any withdrawal limits set forth by the donor, as provided in Article 2.6, or to the extent of the withdrawal ceiling outlined in Article 2.7.) If Scott does not exercise his withdrawal rights by the first day of the subsequent month, and the 30-day period has not expired, then the amount of the contribution (subject again to any limits imposed by Articles 2.6 and 2.7) should be considered a resource to him for that subsequent month. See 20 C.F.R. 416.1207(d). Since Scott's withdrawal rights expire 30 days from the date of the contribution, and thus cannot extend beyond the following calendar month, the contribution will be a resource to him only for this one month. The trust specifically provides that the withdrawal rights are not cumulative and will lapse if not exercised (art. 2.3).

We note two reservations regarding the analysis outlined above. First, Scott's withdrawal rights apply only to contributions made to the trust prior to Ms. ~ death (she is currently in her nineties) (art. 2.1). After her death, Scott has no right of withdrawal. Second, the trust provides that Scott must be notified of his withdrawal rights within 15 days after each contribution (art. 2.2). If he is not notified as required by the terms of the trust, he may have a legal cause of action against the trustee for breach of trust. We assume for purposes of our analysis that the trustee, where necessary, has complied with (and will in the future comply with) the notification provision as outlined in Article 2.2.

Finally, the trust contains a spendthrift provision which provides that no principal or income payable may be assigned by its beneficiary or be reached by any creditor (art. 6.7). Thus, it does not appear that Mr. ~ has any power to transfer his interest in the trust and use those proceeds for support and maintenance. In sum, Mr. ~ does not have the legal authority to revoke the trust, direct the use of the trust assets for his own support and maintenance, or transfer his interest in the trust, and the trust assets are not a countable resource for SSI purposes.

CONCLUSION

For the foregoing reasons, we believe that the trust assets should not be considered a countable resource to Scott. The trust appears to be a discretionary trust, and Mr. ~ does not have a judicially enforceable right to command the trustee to make disbursements from the trust. Furthermore, he cannot unilaterally revoke the trust, or transfer his interest in the trust, and thereby gain access to trust assets. However, Scott does have limited withdrawal rights in contributions made to the trust, and those contributions may be considered income when received and a resource for a brief period thereafter, as discussed above.

The issue concerns whether funds held by a conservator as fiduciary for a minor SSI beneficiary are countable resources for SSI purposes. Generally, under Michigan law, such funds are presumed to be available for support and maintenance. However, if a court restricts use of the funds to certain medical expenses and precludes use of the funds for everyday support of the child, the funds are not resources of the beneficiary for SSI purposes.

SUBJECT:

This is with reference to your May 13, 1993 inquiry concerning whether funds held by a conservator as fiduciary for a minor SSI beneficiary, Melanie , would constitute countable resources for Supplemental Security Income (SSI) purposes. We conclude that, although generally such funds are presumed to be available for support and maintenance under Michigan law, in this particular case a court order restricts use of the funds to certain medical expenses and precludes use of the funds for everyday support of the child. The funds, therefore, are not resources of the beneficiary for SSI purposes.

Melanie apparently had claims for personal injuries she sustained as a result of an automobile accident. On May 29, 1990, a Michigan court entered an order authorizing Melanie' conservator to settle an uninsured motorist claim on Melanie' behalf in the amount of $20,000, out of which $6,809.77 in attorney's fees and costs was to be paid. The net recovery was to be placed in a joint account that would require two signatures for withdrawal -- that of her conservator, and that of the court. The funds were not to be distributed except for payment of bond premiums unless ordered by the court. On November 26, 1991, the court entered a second order authorizing Melanie' conservator to settle all the minor's claims against Mason County Central Schools for the amount of $7,500, out of which $2,499.75 in attorney's fees was to be paid. The net recovery was to be placed in a joint account that would require both the conservator's and the court's signatures. On April 16, 1993, the court entered a third order "to emphasize the necessity of maintaining the restricted withdrawal of these accounts as ordered by the Court on May 29, 1990." The court restricted the funds to be used only in a medical emergency for medical expenses related to the accident. The court explicitly precluded use of the funds for the everyday support of the child. The court indicated that the funds are intended to be released when Melanie reaches the age of eighteen. The order applied retroactively.

It is not entirely clear whether the April 16, 1993 order emphasizing the restriction applies to the account created by the November 26, 1991 order, as the April 1993 order mentions only the May 29, 1990 order specifically./ The April 1993 order, however, refers in the first paragraph to "these accounts," which suggests that the order applies to the accounts created by both the May 29, 1990 and November 26, 1991 orders. Also, all of the orders were issued by the same judge under the same case caption, and the judge used the same language in both the May 1990 and November 1991 orders regarding the deposit of the funds into joint accounts that would require the signature of both the conservator and the court. The April 16, 1993 order, therefore, likely applies to both the May 1990 and the November 1991 orders. You may wish to ask for clarification, however, as to which accounts are specifically covered by the April 1993 order. Any accounts determined to be covered by the April 16, 1993 order would not be countable resources for SSI purposes for the reasons explained below.

A resource, for SSI purposes, includes assets that the individual owns and could convert to cash to be used for his or her support and maintenance. 20 C.F.R. § 416.1201(a) (1992). When a fiduciary (such as a conservator) manages and controls funds owned by an SSI recipient, those funds are considered to be available to the recipient for the recipient's support and maintenance, absent a legal restriction on the use of or access to the funds. See POMS SI 01120.010.C (Feb. 1992); POMS SI 01120.110.C (Mar. 1988). The funds in this case are held in a "blocked" account, in that the conservator may access funds held on behalf of Melanie only with the permission of the court. We have previously advised that funds held in a blocked account under Michigan law are presumed to be available to beneficiaries for their support and maintenance, absent a legal restriction on the conservator's use of or access to the funds. See Blocked Account in Michigan as SSI Resource: Richard B~, ~, OGC-V (M~) to SSA-V, ARC-POS (P~ W~) (Dec. 4, 1990) [hereinafter B~ Memorandum]; Blocked Accounts as SSI Resources — ACTION, OGC-V (L~) to SSA-V, ARC-POS (W~) (Aug. 3, 1989), at 1 [hereinafter Blocked Accounts Memorandum]; see also POMS SI 01140.215.B.1 (Mar. 1992); see also POMS SI 01120.010.C.3 (Feb. 1992); POMS SI R01120.010 (May 1991) (regional instructions—Michigan); Mich. Stat. Ann. § 700.485(1)(b) (West 1980).

We have also advised, however, that certain circumstances may nullify the presumption of availability of such funds. See B~ Memorandum, supra, at 2; Blocked Accounts Memorandum, supra, at 2. The POMS explains that the presumption of availability can be overcome by "restrictive language in the court order that established the account or in a subsequent court order." POMS SI 01140.215.B.2 (Mar. 1992); see also B~F Memorandum, supra (conservatorship funds that could not be withdrawn until recipient reached age eighteen or until further order of the court were not a resource). The POMS also indicates that when the court or state law restricts the use of a damage award from a personal injury action to be paid only for medical expenses related to the accident, the funds are not considered resources, as they are not available for food, clothing, or shelter. See POMS SI 01140.215D.2 (Mar. 1992) (if state law restricts use of personal injury funds held in conservatorship accounts to use for medical expenses only, funds are not resources); POMS SI 01120.010D.5 (Feb. 1992) (if court orders the damage award in automobile accident case to be used solely for medical expenses related to the accident, the funds are not a resource). Here, the court order specifically restricted use of the funds received for settlement of the personal injury claims to pay for medical expenses related to the accident; the order explicitly precludes use of the funds for the child's food, clothing, or shelter. The order, therefore, nullifies the presumption of availability of the funds in the affected accounts. The funds are not countable resources for SSI purposes.

This 1992 opinion explains why the cash surrender value of the Forethought life insurance-funded burial agreement was not a resource at that time.

However, Section 205 of the Foster Care Independence Act of 1999 changes how certain trusts are evaluated under SSI resource counting rules. Therefore, adjudicators should be aware that trusts established after 1/1/00 must be evaluated under the revised rules.

On December 4, 1991, you asked us to review under Michigan law a Forethought life insurance-funded burial agreement for Ora , an SSI applicant. On December 10, 1991, you asked us to review under Michigan law a Forethought life insurance-funded burial agreement for Minnie, another SSI applicant. We are providing you one answer that responds to both inquiries.

The Forethought life insurance-funded burial agreement package marketed in Michigan consists of: (1) a Forethought life insurance policy purchased by the SSI applicant; (2) irrevocable transfer of ownership of the life insurance policy to the Forethought Trust in Batesville, Indiana; (3) a Funeral Planning Agreement between the insured individual and a particular funeral home; and (4) revocable assignment of the proceeds of the life insurance policy to the funeral home.

We have specifically considered if irrevocable assignment of ownership of Forethought life insurance policies was consistent with the state law requirement that assignment of the policy's proceeds to a funeral home be revocable.

In our opinion, the Forethought life insurance-funded burial agreement packages marketed in Michigan are valid under Michigan law. In a practice that is not prohibited by Michigan law, the purchasers irrevocably transfer ownership of the life insurance policy to a trust and neither own nor have the legal right to direct the use of trust assets to meet their support and maintenance needs. Therefore, the cash surrender values (CSVs) of the policies are not resource of the purchasers for SSI purposes. This is true even though, as required by Michigan law, the purchasers (and their representatives and survivors) retain the right to change the funeral firm that will provide the burial goods and services.

You also notified us that Forethought's attorney asked Regional Commissioner Paul on December 27, 1991 to confirm that the Michigan Forethought policies that have been irrevocably assigned to the Forethought Trust are not resources of the purchasers for SSI purposes. At that time, Forethought was advised that state law aspects of the matter were still pending in our office. The Regional Commissioner will now wish to respond to Forethought's inquiry. To that end, we are attaching hereto a draft response.

DISCUSSION

At M.C.L.A. 500.2080(6), created by P.A. 1986, No. 318, § 1, effective June 1, 1987, Michigan law permits a life insurer to "write a life insurance policy ... which is subject to an assignment of the proceeds of the insurance policy ... as payment for cemetery services or goods or funeral services or goods" if certain conditions regarding the pre-death assignment of the proceeds of the life insurance policy are met. The assignment must be in writing on a form approved by the commissioner of insurance; the assignment must be an inseparable part of the contract for funeral services for which the assigned proceeds serve as payment; the assignment must be revocable; if the assignment is revoked funeral services may be obtained from any other funeral establishment; the revocability of the assignment must be disclosed in boldfaced type; and several other conditions described in the statute must also be met.

The Michigan Commissioner of Insurance has approved the form used by Forethought for assignment of the life insurance proceeds to the funeral home. It also appears to us that the Forethought documents meet all the requirements of M.C.L.A. 500.2080(6). Therefore, under Michigan law Forethought has created a valid, but revocable, assignment of life insurance proceeds.

Under SSI policy, such a life insurance policy must meet two additional conditions under state law in order to not constitute resources of the insured individual. In response to an inquiry on behalf of Forethought, SSA Commissioner Gwendolyn summarized SSI's policy in a July 8, 1991 letter to Congressman Andy, Jr. She stated that revocably assigned policies could be placed in trust to avoid having them count as resources in determining eligibility for SSI if: (1) the state allows insurance policies funding a funeral arrangement to be placed irrevocably in trust; and (2) if such a policy is placed in trust, the individual must have no access to it. On August 8, 1991, Associate Commissioner for SSI Rhoda gave Mark, counsel for Forethought, essentially the same opinion. She stated:

If an individual irrevocably transfers ownership of a life insurance policy to a trust and neither owns nor has the legal right to direct the use of trust assets to meet his or her support and maintenance needs, the cash surrender value (CSV) of the policy is not a resource for SSI purposes. The provisions of the document titled "Change of Ownership to the Forethought Trust" meets these requirements. Under the terms of the document, the CSV is not a resource even though the individual retains the right to change the funeral firm that will provide the burial goods and services.

We agree that a revocably assigned policy placed in an irrevocable life insurance trust will be treated exactly the same as an irrevocably assigned life insurance policy. In both cases, the CSV of the policy is not a resource for SSI purposes since the individual neither owns nor can legally use the CSV for support and maintenance. With respect to a life insurance-funded burial arrangement, State law must permit a policy which funds such an arrangement to be placed irrevocably in trust in order for the policy's CSV not to be considered a resource.

A POMS clarification, teletype No. 52-91 dated August 30, 1991 (with a destruction date of December 31, 1991) states the same thing. We are advised that POMS instructions that will replace the teletype are imminent. We have seen a draft, and they essentially repeat the language of the teletype.

Thus, the determinative questions that must next be answered are: Does Michigan law allow a revocably assigned life insurance policy that funds a funeral contract to be placed irrevocably in trust? And, if so, have the Forethought purchasers irrevocably assigned ownership of the life insurance policies in trust so that they neither own nor have the legal right to direct the use of trust assets to meet their support and maintenance needs?

Forethought has advised you that the Michigan Department of Licensing and Regulation, Insurance Bureau, has approved both the process and the forms used to effect the irrevocable assignment of the Forethought life insurance policy to the Forethought Trust. Forethought stated that the Department of Insurance does not issue formal approval letters, but instead uses a procedure whereby Forethought's letter submitting a form for approval is stamped as approved if the form is authorized. Forethought submitted stamped approvals of two versions of the form it uses to both transfer ownership of the policy to the Forethought Trust and at the same time to preserve the right of the purchaser to change the designated funeral establishment under the trust. We contacted John E~ of Michigan's Department of Licensing and Regulation's Insurance Bureau, and also talked to a lawyer and program personnel from the Michigan Department of Social Services. All recalled a meeting that had included representatives from their offices as well as from the Michigan Attorney General's Office at which the process and the forms were discussed. The requirements of M.C.L.A. 500.2080(6) that the purchaser retain the right to revoke the assignment of the policy's proceeds was not found to be inconsistent with the purchaser's simultaneously irrevocably assigning ownership of the policy to the Forethought Trust. The approval process was as Forethought had described it, and Forethought's forms are in fact approved for use in Michigan.

The transfer of ownership form states that the owner transfers ownership of the life insurance policy to the Forethought Trust, that the owner understands that the transfer is permanent, that the owner renounces his or her power to control ownership of the policy, and that the owner waives all rights under the policy to surrender it for cash and to obtain a loan against the policy. At the same time, the owner states, as required by the Michigan statute described above, that the change of ownership does not restrict the purchaser (or his or her representative or family) from revoking the assignment of the proceeds of the policy to the designated funeral establishment at any time prior to the funeral.

For the foregoing reasons, in our opinion Michigan law does not prohibit a revocably assigned life insurance policy that funds a funeral contract to be placed irrevocably in trust. In addition, the Forethought purchasers have irrevocably assigned ownership of the life insurance policies to the Forethought Trust so that they neither own nor have the legal right to direct the use of trust assets to meet their support and maintenance needs. Therefore, the cash surrender values (CSVs) of the policies are not a resource for SSI purposes.

CONCLUSION

For the foregoing reasons, in our opinion the Forethought life insurance-funded burial agreement plan is valid under Michigan law. Nothing in Michigan law prohibits irrevocably assigning to a trust ownership of a life insurance policy whose proceeds have been revocably assigned to fund a funeral contract, and such a practice has in fact been approved by the Michigan Department of Licensing and Regulation's Bureau of Insurance after consultation with the Attorney General's Office. Even though the Forethought purchasers retain the right to revoke the assignment of the life insurance proceeds to the funeral home, they have irrevocably assigned ownership of the life insurance policies to the Forethought Trust so that they neither own nor have the legal right to direct the use of trust assets to meet their support and maintenance needs. We therefore conclude that the cash surrender values (CSVs) of the policies are not a resource for SSI purposes.

This case concerns whether or not a "Special Needs" Trust is considered a countable resource and whether alimony payments placed in the trust from the beneficiary's former spouse are countable as income for SSI eligibility.

A general rule of trust law asserts that even if a trust purports to be irrevocable, it nevertheless may be revoked if the individual is both the settler and the sole beneficiary of the trust. The addition of residual beneficiaries makes the trust irrevocable because these beneficiaries' consent would be required to revoke the trust. Consequently the trust property is not a resource for SSI purposes.

The corpus of the trust is the alimony that the court ordered to be paid to the beneficiary. The alimony payments are first received by the beneficiary's trustee on her behalf, rather than paid directly into the trust, thus the alimony constitutes income when received. Moreover, the inclusion of the alimony payments in a trust which expressly precludes using the trust assets for the beneficiary's support is improper under Michigan law.

You asked whether the Cynthia "Special Needs" Trust constitutes a countable resource for purposes of SSI eligibility.

You also asked us to consider whether the alimony payments from the SSI beneficiary's former husband are countable as income for SSI purposes.

We conclude that the trust assets would not be a resource, because the SSI beneficiary ("Cynthia") could not direct that the trustee use the trust assets for Cynthia's support and maintenance; sell or otherwise transfer her interest in the trust; or revoke or terminate the trust to obtain the assets.

We conclude that the alimony payments cannot be properly paid into a supplemental needs trust under Michigan law. The alimony payments, when made to Cynthia's conservator on her behalf, are countable income for SSI purposes.

Facts

Cynthia is a legally incapacitated adult who receives SSI and Medicaid. By order of the Kent County Circuit Court, dated November 30, 1998, Cynthia was awarded weekly alimony payments in the amount of $200 and weekly payments of $50 for arrearages, from her former husband, David. On January 8, 1999, the Kent County Probate Court entered an order that directed and authorized her conservator, Daniel , to deposit all alimony (including arrearage) payments into a Special Needs Trust created pursuant to 42 U.S.C. § 1396p(d)(4)(A). The trust was intended to create a "safe harbor" for Cynthia, whose receipt of alimony and arrearage payments would otherwise render her ineligible for SSI and Medicaid.

The trust agreement was entered into on February 12, 1999. The Kent County Probate Court was named as settlor (grantor), and Daniel, Cynthia's court-appointed conservator, was named as trustee. The stated purpose of the trust is to provide for Cynthia's "special needs and is not intended to take the place of federal, state, or local governmental benefits, including but not limited to Medicaid and Supplemental Security Income, or other sources of support which may otherwise be available to beneficiary through any governmental agency, office or department, non-profit organization or other public or private source." Art. IV.B. Distributions to provide support and maintenance can be made only to supplement benefits available through government or private programs. Id. Distributions shall not be used to pay for Cynthia's basic food, clothing, or shelter costs, or for any other forms of primary support for Cynthia. Art. IV.B, Art. IV.D.

The trust states that it is irrevocable and that the trust is interpreted under Michigan law. Art. II, Art. VII.G. No income or principal may be used for anyone else during Cynthia's lifetime. Art. IV. The trust states that it is created pursuant to 42 U.S.C. § 1396p(d)(4)(A). This statute exempts certain types of trusts from being considered as countable resources for purposes of determining Medicaid eligibility.

Neither Cynthia nor any trustee shall have the right or power to alter, amend, revoke, or terminate the Trust, in whole or in part. Art. II. Upon Cynthia's death, the remaining assets of the trust will be used to reimburse the appropriate State agencies, as reimbursement for any amount expended by the state for the Cynthia's medical assistance. Art. IV.F.1. Any remaining balance is to be distributed to Cynthia's children, Michelle and Michael. Art. IV.F.2. If either of these children is not then living, his or her share shall pass to Cynthia's surviving child. Id.

On March 3, 1999, the Kent County Probate Court approved the Cynthia Trust. The probate court also appointed Daniel as trustee, and authorized him to deposit all alimony (including arrearage) payments received from the Kent County Friend of the Court, or directly from Cynthia's former husband, into the trust.

Discussion

1. The trust is irrevocable

As we previously advised, the rules governing when trust assets affect eligibility for Medicaid are different from the SSI rules for determining when assets are a countable resource. Even if a trust is consistent with the provisions of the Omnibus Reconciliation Act of 1993, it still may be a countable resource for SSI purposes.

See States Named as Beneficiary to a Trust, OGC-V (D~) to Gloria , ARC-MOS (June 24, 1997), at 2.

Assets are a resource for SSI purposes if the individual owns them and can convert them to cash to be used for his support and maintenance. See 20 C.F.R. § 416.1201(a). If the individual has the right, authority, or power to liquidate the property, it is a resource. Id. Trust assets are a resource if the individual can revoke the trust and use the assets to meet his needs for food, clothing, and shelter, or if the individual can direct the use of the trust assets to be used for his support and maintenance. See POMS SI 01120.200(D). An individual's beneficial interest in a trust may also be a resource if the individual can sell that interest. See SSI-Illinois- Trust for Heather , SSN ~, OGC-V (P~) to Donna, ARC-MOS (April 9, 1999), at 3.

The trust agreement in this case explicitly states that the trust is irrevocable. However, as we previously advised, even if a trust purports to be irrevocable, it nevertheless may be revoked if the individual is both the settlor and sole beneficiary of the trust. See Supplemental Security Income-Ohio-Medicaid Trust for Silas, ~, OGC-V (C~) to Donna, ARC-MOS (July 13, 1998) at 3; see also Hein v. Hein, 543 N.W. 2d 19 (Mich. App. 1995). Since the corpus of the trust in this case is the alimony that the court ordered to be paid to Cynthia, it would appear that Cynthia is the settlor of the trust. See Michigan Trust for Arthur J. F~F, ~, OGC-V (F~) to Gloria, ARC-MOS (July 15, 1997), at 3. This is the case, even though the Kent County Probate Court was named settlor. Here, however, Cynthia cannot revoke the trust, because she is not its sole beneficiary.

The addition of residual beneficiaries makes the trust irrevocable because these beneficiaries' consent would be required to revoke the trust. See Restatement (Second) of Trusts, § 127, comment b. While the language of the trust makes it clear that Cynthia is intended to be the sole beneficiary while she is alive, the amount left in the trust upon Cynthia's death is to be distributed to her children, Michelle and Matthew. Therefore, Cynthia does not possess the sole interest in the trust, and she would not be entitled to revoke the trust without their consent.

Additionally, the language of the trust does not reserve any power to Cynthia to direct how the income or principal are to be expended. Rather, the trustee appears to have the absolute discretion to distribute the net income or principal for Cynthia's benefit, and then, only to purchase assets exempt from consideration for Medicaid or SSI purposes, to provide for Cynthia's extra and supplemental needs. Art. IV.B. It is also significant that the trust provides that no distributions may be made which would in any way disqualify, frustrate, or reduce any governmental financial assistance which would be available to Cynthia. Art. IV.B.

2. The alimony payments are income

While we conclude that, based on the considerations addressed above, the trust established for Cynthia is irrevocable, we also conclude that the alimony constitutes countable income for SSI purposes. As an initial matter, the Kent County Probate Court's March 3, 1999 Order authorizes the trustee to deposit "all alimony payments, including arrearage payments received from the Kent County Friend of the Court or directly from [Cynthia's] ex-husband into the Cynthia Trust." Since the alimony payments are first received by Cynthia's trustee on her behalf, rather than paid directly into the trust, the alimony would appear to constitute income when received. See 20 C.F.R. § 416.1102; see also POMS SI 00810.030.

Additionally, the inclusion of alimony payments in a trust which expressly precludes using the trust assets for Cynthia's primary support is improper under Michigan law. Michigan law provides that "[i]n every action for divorce . . . either party may be required to pay alimony for the suitable support and maintenance of the adverse party." MCL 552.13 § 13(1). Michigan courts consider eleven factors when determining alimony/spousal support, including the ability of the parties to work, the present situation of the parties, the needs of the parties, and the health of the parties. These cumulative factors indicate that alimony, under Michigan law, is intended to serve as a source of primary support for the recipient spouse.

Here, effectuation of the trust's stated purpose — to supplement, but not supplant, any government benefits to which Cynthia is entitled — precludes use of the trust assets for Cynthia's primary support needs. Yet, as discussed above, in Michigan, alimony payments are intended to serve as funds for the recipient spouse's primary needs. Consequently, we conclude that inclusion of David's alimony payments in the special needs trust is improper under Michigan law, and that the alimony is not sheltered from being countable income to Cynthia. Cf. Illinois Trust for Krystal , ~, OGC-V (B~), to Donna, ARC-MOS (July 10, 1998), at 4 (payment of child support into trust directly at odds with Illinois Law and trust declaration that specifically prohibited use of trust assets for beneficiary's basic support).

Conclusion

In summary, we conclude that the Cynthia Trust should not be considered a resource to the Cynthia, but that the alimony (and amount in arrears) may not be properly paid into the trust under Michigan law, and that the alimony constitutes countable income for SSI purposes.

Footnotes:

[1]The trust may still be a resource for other reasons.

[2]In Matter of P~, 902 F.2d 1254 (7th Cir.1990), the Seventh Circuit Court of Appeals noted the following considerations in determining whether a trust under Illinois law qualifies as a spendthrift trust: "(1) whether the trust restricts the beneficiary's ability to alienate and the beneficiary's creditors' ability to attach the trust corpus; (2) whether the beneficiary settled and retained the right to revoke the trust, and (3) whether the beneficiary has exclusive and effective dominion and control over the trust corpus, distribution of the trust corpus and termination of the trust." See, e.g., In re S~, 96 B.R. 859, 864 (C.D.Ill.1989). The degree of control which a beneficiary exercises over the trust corpus is the principal consideration under Illinois law.

[3]This provision states:(1) Where a person creates for his own benefit a trust with a provision restraining the voluntary or involuntary transfer of his interest, his transferee or creditors can reach his interest. (2) Where a person creates for his own benefit a trust for support or a discretionary trust, his transferee or creditors can reach the maximum amount which the trustee under the terms of the trust could pay to him or apply for his benefit.

[4]Wisconsin law indicates that where a settlor is a beneficiary of a trust regardless of whether it has a spendthrift provision, a creditor may, at the discretion of the court, receive payments from the income or principal of the trust to satisfy a judgment. Wisc. Stat. Ann. 701.06(6)(a).

This RCC opinion examines whether the Pooled Trust of The Arc of Midland meets the requirements for an exception to resource counting. The RCC concludes that sub-accounts in the Arc Pooled Trust do not meet all of the requirements for an exception to resource counting under 42 U.S.C. § 1396p(d)(4)(C). The trust is not clearly managed by a non-profit and it allows for any individual - not just those permitted under statute - to establish a trust sub-account as a "grantor."

Question

You asked whether the master trust and joinder agreement for the Pooled Accounts Trust of the Arc of Midland are in compliance with the procedures governing the Agency’s pooled trust policy. For the reasons discussed below, we conclude that a self-settled sub-account in the Trust would be considered a resource under the Social Security Act because it does not meet all of the requirements of the pooled trust exception. However, a third-party sub-account in the Trust would not constitute a resource under the agency’s regular resource rules. In the case of a comingled sub-account, the portion of the sub-account attributable to the assets of a third party would not be considered a resource, whereas the portion attributable to the assets of the grantor-beneficiary would be considered a resource.

Background

The Arc of Midland (Arc) is a Michigan non-profit organization.^[51] On June 24, 1999, Arc executed a “Declaration of Trust,” establishing the Pooled Accounts Trust of the Arc of Midland (Arc Pooled Trust). Arc subsequently amended the Declaration of Trust in a “Declaration of Trust Including First Amendment Dated June 3, 2013” (Trust Declaration or TD). Arc has submitted the Trust Declaration and a Joinder Agreement for SSA’s review.

The intent of Arc is to establish a pooled supplemental needs trust, as set forth in 42 U.S.C. § 1396p(d)(4)(C), in order to supplement, but not displace, assistance which may otherwise be available to beneficiaries. TD Art. I, III.1, 3. The assets held in the Trust and sub-accounts are not for the primary support of the beneficiaries but rather are “to supplement their care needs only.” TD Art. III.1. A “Beneficiary” is defined as a disabled person who meets the requirements of 42 U.S.C. § 1382c(a)(3) and is a recipient of services and benefits under the Trust. TD Art. II.1.

The Trust Declaration has two definitions for the term “Grantor.” The first meaning appears to pertain to the action of establishing a Trust sub-account: “a parent, grandparent, agent acting under a power of attorney, guarding of a Beneficiary, a Beneficiary himself or herself, or any court.” TD Art. II.3. The second meaning pertains to the funding of a Trust sub-account: “any person or entity that contributes his, her, or its own assets or property to the Trust for the benefit of a Beneficiary.” Id.

The Trust Declaration states that a Beneficiary’s sub-account is established either upon the execution of a Joinder Agreement by a Grantor, or by court order, subject to approval by the Trustee. TD Art. V.1. In addition, once a Grantor delivers property to the Trustee and the Trustee accepts it, the Trust becomes irrevocable as to the Grantor of such property and the designation of the respective Beneficiary. Id.

According to the Trust Declaration, Arc establishes the Trust and is named as the initial Trustee. TD Art. II.6, III.1. The Trustee is given broad powers, which are discussed in various sections of the Trust Declaration. See, e.g., TD Art. III, VI, VIII. Among those powers is the power to determine, in its sole discretion, whether to make any payment from the Trust or a sub-account and how much such payment shall be, although the total amount is limited to the total amount in the sub-account of the Beneficiary for whose benefit the Trustee is considering payment. See Art. III.1-2, VI.6. The Joinder Agreement (JA) also provides that all distributions are at the Trustee’s sole discretion. JA at BB.

The Trustee is allowed to designate a Co-Trustee or Co-Trustees to serve at the Trustee’s pleasure. TD Art. VII. A “Co-Trustee” is defined as a person or entity or both selected to assist with the management, administration, allocation, and disbursement of Trust assets and property. TD Art. II.6. The Trustee may also employ any investment management service, financial institution, or similar organization to advise it, handle all Trust investments, and render all accounting of funds held on its behalf. TD Art. VIII.17.

Beneficiaries “have no entitlement to the income or corpus of [the] Trust, except as the Trustee, in its complete and unfettered discretion, elects to disburse,” and the “Trust corpus and income are not available to any Beneficiary except to the extent of distributions made by the Trustee to a Beneficiary.” TD Art. III.1, 3. Further, Beneficiaries are prohibited from compelling a distribution from their sub-accounts. TD Art. III.5.

The Trust Declaration states that it shall be irrevocable, but that it may be amended to effectuate the terms and purposes of the Trust as set forth in Article III. TD Art. X. Additionally, the Trustee, with court approval, may amend the Trust Declaration to conform with any rules or regulations relating to 42 U.S.C. § 1396p or related statutes, whether State or federal. Id.

The Trust Declaration contains a paragraph pertaining to early termination of the Trust. TD Art. XI.1. Additionally, the Trust Declaration and the Joinder Agreement each contain a paragraph regarding the distribution of trust assets upon the death of a beneficiary. TD Art. XI.2; JA at W. Those paragraphs contain Medicaid payback provisions, under which any amounts remaining in a sub-account after the beneficiary’s death that are not retained by the Trust must be paid to “any state” up to the “amount equal to the total amount of medical assistance paid on behalf of the Beneficiary” by the state. Id.

The Trust Declaration contains a spendthrift provision that prohibits (1) assignment by any Beneficiary of any part of the Trust principal or income; and (2) attachment of any part of the Trust principal or income by any creditor of a Beneficiary, whether private or public. TD Art. III.5. The spendthrift clause also provides that no part of the Trust, principal or income, “may be taken by any legal or equitable process by any voluntary or involuntary creditor, including those that have provided for the Beneficiary’s support and maintenance.” Id.

The Trust Declaration and Joinder Agreement each provide that Arc, as Trustee, is the remainder Beneficiary of each Trust sub-account. TD Art. XIV.1.c; JA at DD.5.a.3.

The Trust Declaration further contains a null and void clause stating that any provision of the Trust that prevents the Trust from qualifying under 42 U.S.C. § 1396p(d)(4)(C) (the pooled trust exception, discussed in detail below) “shall be null and void.” TD Art. I.

The Trust is governed by the laws of the United States and the State of Michigan. TD Art. XIII.4; JA at DD.4.

Discussion

As stated above, the Trust Declaration allows a Trust sub-account to be funded by any person or entity. TD Art. II.3, V.1. Because anyone can contribute assets to a Trust sub-account, three possible types of sub-accounts exist: (1) a sub-account that is funded solely by assets belonging to the Beneficiary (i.e., a self-settled sub-account); (2) a sub-account that is funded solely by third-party assets; and (3) a comingled sub-account containing both third-party and Beneficiary assets. The following discussion addresses each type separately.

I. Self Settled Sub-Accounts

A. Statutory Resource Rules

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

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

• •

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

• •

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

• •

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

• •

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

• •

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

See 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203.D.1.

Here, although the Trust is irrevocable, a self-settled Trust sub-account would be a resource, because funds held in the sub-account are to be used for the individual Beneficiary’s benefit. TD Art. III.1-2; JA at Z, AA. Accordingly, we consider whether the Trust qualifies for the pooled trust exception. As discussed below, we do not believe the Trust satisfies all of the requirements of this exception. As such, a self-settled sub-account in the Trust would not be excepted from resource counting.

1. Established and Managed by a Non-Profit Association

To satisfy the first requirement of the pooled trust exception, the trust must be established and managed by a non-profit association. 42 U.S.C. § 1396p(d)(4)(C)(i); POMS SI 01120.203.D.3. A non-profit association may employ the services of a for-profit entity, but the non-profit association must maintain ultimate managerial control over the trust. POMS SI 01120.225.D. For example, the non-profit association must be responsible for making day-to-day decisions regarding the health and well-being of the beneficiaries. Id. Also, a for-profit entity must not be allowed to determine whether to make discretionary disbursements from the trust. POMS SI 01120.225.E.

Here, Arc, a non-profit association, established and manages the Arc Pooled Trust. See TD Art. III.1; see also JA at DD.4 (Trust is “administered by” Arc). The Trust Declaration designates Arc as the Trustee. TD Art. II.6. The Trust Declaration also states 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.” TD Art. VI.9.

As Trustee, Arc is empowered to “employ any investment management service, financial institution, or similar organization to advise it, handle all Trust investments, and render all accounting of funds held on its behalf under custodial, agency, or other Agreements.” TD Art. VIII.17. While this could result in a for-profit entity managing the Trust investments, that would not be inconsistent with the statement in Art. VI.9 that Arc must maintain “ultimate managerial control” over the Trust. Therefore, such use of a for-profit entity would not violate this first requirement of the pooled trust exception.

However, the Trust Declaration as currently written appears to allow for the possibility that a for-profit entity acting as a Co-Trustee could manage the Trust or execute core managerial duties. The Trust Declaration states that the Trustee may designate a Co-Trustee or Co-Trustees to serve at its pleasure. TD Art. VII. “Co-Trustee” is defined as “a person or entity, or both, selected by the Trustee to assist with the management, administration, allocation, and disbursement of Trust assets and property.” Id. Nothing prohibits the Trustee from selecting a for-profit entity as a Co-trustee.

Significantly, the Trust Declaration provides that “Trustee” shall include any Co-Trustee or Co-Trustees. TD Art. II.6. As such, a Co-Trustee, which could be a for-profit entity, would hold the same powers as the Trustee and could potentially execute core managerial duties. See, e.g., TD Art. III.2 (Trustee has sole discretion to make payments from sub-account for beneficiary’s supplemental care needs), VI.6 (Trustee has sole discretion to make any payment to beneficiary or any suitable person), VIII Introduction (Trustee holds numerous “continuing, absolute, and discretionary powers to deal with any property, real or personal, held in the Trust”).

Moreover, the Trust Declaration does not require that a successor Trustee to Arc be a non-profit association or entity. If a for-profit association or entity were named as successor Trustee, that would also violate the agency policy that the non-profit association must maintain ultimate managerial control over the pooled trust. See POMS SI 01120.225.D.

Accordingly, the Trust does not appear to satisfy the first requirement of 42 U.S.C. § 1396p(d)(4)(C) and POMS SI 01120.203.D.3.

2. Maintenance of Separate Accounts for Each Trust Beneficiary

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

3. Established for the Sole Benefit of the Individual

To satisfy the third requirement of the pooled trust exception, the trust account must be established for the sole benefit of the disabled individual. 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203.D.5. A trust is considered to be established for the sole benefit of an individual if the trust benefits no one but that individual, either at the time the trust is established or at any time for the remainder of the individual’s life. POMS SI 01120.201.F.1.

The POMS states that an individual trust account does not meet the pooled trust exception if the trust account “provides a benefit to any other individual or entity during the disabled individual’s lifetime.” POMS SI 01120.203.D.5. Here, this requirement is not met because an individual’s Trust sub-account could potentially benefit other beneficiaries of the Trust. The Trust Declaration provides that the “costs and expenses of defending the Trust from any claim, demand, legal or equitable action, suit, or proceeding may, in the sole discretion of the directors of” Arc, either “be apportioned on a pro rata basis to all Trust sub-accounts” or “be charged only against the Trust sub-account as to the affected Beneficiary.” TD Art. VI.8. Thus, the Trust Declaration appears to contemplate the potential use of a beneficiary’s assets in a sub-account for the benefit of other beneficiaries, which would contravene the “sole benefit of the individual” requirement.

The POMS also states that an individual trust account does not meet the pooled trust exception if the trust account “allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity.” POMS SI 01120.203.D.5. An early termination clause is acceptable only if all of the following criteria are met: (1) the State(s) receives all amounts remaining in the trust up to an amount equal to the amount of medical assistance paid on behalf of the individual under the State Medicaid plan(s); (2) after payment of allowable administrative expenses,^[52] all remaining funds are distributed to the trust beneficiary; and (3) the power to terminate is given to someone other than the trust beneficiary. See POMS SI 01120.199.F.1. An early termination clause, however, need not meet the foregoing criteria if it solely allows for a transfer of the beneficiary’s assets from one section 1917(d)(4)(C) qualifying pooled trust to another section 1917(d)(4)(C) qualifying pooled trust. See POMS SI 01120.199.F.2.

As noted above, the Trust Declaration contains an early termination clause. It appears to be in compliance with SSA’s policy regarding early termination. Article XI.1.a provides that upon early termination, the State(s) as primary assignee will 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). In turn, Article XI.1.b provides that after the above reimbursement to the State(s), all remaining funds must be distributed to the beneficiary. Additionally, the power to terminate belongs exclusively to the Trustee and not the beneficiary. TD Art. XI.1.c. These provisions comport with the requirements for an acceptable early termination clause in POMS SI 01120.199.F.1. The Trust Declaration further provides that a beneficiary’s assets may be transferred from one qualifying section 1917(d)(4)(C) pooled trust to another qualifying section 1917(d)(4)(C) pooled trust. TD Art. XI.1.d. That also meets the requirement in POMS SI 01120.199.F.2.

4. Established Through the Actions of the Beneficiary, a Parent, Grandparent, Legal Guardian, or a Court

The fourth requirement of the pooled trust exception is that the trust account must be established through the actions of the account beneficiary, his or her parent, grandparent, legal guardian, or a court. 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203.D.6. The Arc Pooled Trust does not appear to meet this requirement. As explained above, the Trust Declaration contains two definitions of “Grantor.” The Trust Declaration provides that a Grantor means a Beneficiary, his or her parent, grandparent, guardian, agent acting under a power of attorney, or a court. TD Art. II.3. However, the Trust Declaration also allows for a Grantor to be “any person or entity that contributes his, her, or its own assets or property to the Trust for the benefit of a Beneficiary.” Id. In turn, it provides that the Trust will become effective as to any Beneficiary “upon execution of a Joinder Agreement by a Grantor, or by court order,” subject to the Trustee’s approval. TD Art. V.1 (emphasis added). The Trust Declaration does not specify to which definition of Grantor it is referring. This is problematic because under the second definition, the Trust would allow any individual or entity, not just those permitted under the statute, to establish a Trust sub-account. Thus, in order to meet this requirement of the pooled trust exception, Arc would need to limit the meaning of “Grantor” in the first sentence of Trust Declaration Art. V.1 to the first definition.

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

To satisfy the fifth requirement of the pooled trust exception, the trust must contain “specific language” that provides that upon a beneficiary’s death, to the extent amounts remaining in the beneficiary’s account are not retained by the trust, the State(s) are reimbursed an amount equal to the total amount of medical assistance paid on behalf of the deceased beneficiary under the State Medicaid plan(s) during his or her lifetime. 42 U.S.C. § 1396p(d)(4)(C)(iv); POMS SI 01120.203.D.8. This is known as the Medicaid payback requirement of the pooled trust exception.

Here, the Trust includes a provision concerning termination upon death. The Trust Declaration states that, upon the death of a Beneficiary, any funds remaining in the sub-account shall be deemed to be surplus Trust property and shall be retained by the Trust and, in the Trustee’s sole discretion, used (a) for the benefit of other Beneficiaries, (b) to “aide persons who are indigent and disabled,” or (c) to provide persons who are indigent and disabled with housing or supplemental support services. TD Art. XI.2. The Trust Declaration goes on to state that “to the extent that any amounts remaining in the Beneficiary’s account” upon the Beneficiary’s death are not so retained by the Trust, the Trustee “shall pay from such remaining amounts in the account to any state an amount equal to the total amount of medical assistance paid on behalf of the Beneficiary under the State’s plan under 42 U.S.C. § 1396(a) et seq.” Id. Thus, the Trust contains the necessary language to satisfy the Medicaid payback requirement. The Joinder Agreement includes the same provision. JA at W. However, we recommend that the word “If” be omitted from the first sentence of that provision in the Joinder Agreement, as it appears to be a typographical error.

Thus, we believe that a self-settled sub-account in the Trust would be considered a resource under the Social Security Act because it does not meet all of the requirements of the pooled trust exception. Accordingly, the defects discussed above would have to be cured to except this Trust from resource counting.^[53]

B. Regular Resource Rules

If Arc is able to cure the above defects and qualify for the pooled trust exception, the regular resource counting rules in POMS SI 01120.200 would apply to determine whether a self-settled sub-account in the Trust would be counted as a resource. See 42 U.S.C. § 1382b(e)(1); POMS SI 01120.203.D.1. Pursuant to POMS SI 01120.200.D.1.a, trust principal will count as a resource if the beneficiary either: (a) has the legal authority to revoke or terminate the trust and then use the funds to meet his or her food or shelter needs; or (b) can direct use of the trust principal for his or her support and maintenance under the terms of the trust. Additionally, if the beneficiary can sell his or her beneficial interest in the trust, that interest is a resource. Id.

With respect to revocability, whether a trust can be revoked depends on the terms of the trust and applicable state law – here, Michigan. See POMS SI 01120.200.D.2. The Trust Declaration states that it shall be irrevocable, but that it may be amended under certain conditions. TD Art. X. Additionally, upon the delivery to and acceptance of a Grantor’s property by the Trustee, the Trust shall be irrevocable as to the Grantor.^[54] TD Art. V.1. Thus, because a Grantor can include the Beneficiary, where the Beneficiary contributes or causes to be contributed his or her own assets to the Trust sub-account, the Trust is irrevocable as to the Beneficiary.

Notwithstanding these provisions, under Michigan law, when a grantor is the sole beneficiary of a trust, the trust is deemed to be revocable even if the trust document states it is irrevocable. See POMS SI CHI01120.200.C. However, if the trust names a residual beneficiary or beneficiaries to receive the benefit of the trust interest after a specific event – usually the death of the primary beneficiary – then the trust is irrevocable, because the primary beneficiary could not unilaterally revoke the trust; rather, he or she would need the consent of the residual beneficiary or beneficiaries. See id. Here, the Joinder Agreement provides that, upon the death of the Beneficiary, if the Trust does not retain the funds in the Beneficiary’s account, “and after all State(s) have been reimbursed the total amount of Medical assistance provided, then the residual beneficiary of any Trust funds shall be” the person named by the Grantor at the time the Joinder Agreement is executed. JA at W. Moreover, the Trustee maintains a contingent residual interest in each sub-account. See TD Art. XIV.1.c; JA at DD.5.a.3. Thus, there is at least one residual beneficiary and, consequently, a self-settled sub-account in the Trust is not revocable. See POMS SI CHI01120.200.C, D.

Regarding the Beneficiary’s ability to direct the use of trust principal, here the Trustee, in its sole discretion, may make any payments under the Trust for the supplemental needs of each Beneficiary. TD Art. III.2, VI.6; JA at BB. Neither the Trust Declaration nor the Joinder Agreement provides for mandatory disbursements to the Beneficiary; indeed, the Trust Declaration states that Beneficiaries are not entitled to the Trust corpus or income and may not compel distributions from their sub-accounts. TD Art. III.1, 3, 5. Thus, the Beneficiary cannot direct the use of the sub-account principal for support and maintenance.

With respect to the Beneficiary’s ability to sell his or her beneficial interest in the Trust, the Trust Declaration contains a spendthrift provision which provides that no part of the Trust, principal or income, shall be subject to anticipation or assignment by the Beneficiaries nor shall it be subject to attachment or control by any public or private creditor of the Beneficiaries; nor may it be taken by any legal or equitable process by any voluntary or involuntary creditor. TD Art. III.5. Generally, states that allow spendthrift trusts do not allow a grantor to establish a spendthrift trust for his or her own benefit. See POMS SI 01120.200.B.13; Restatement (Third) of Trusts § 58(2) & cmt. e (2003). Nonetheless, even assuming the Trust’s spendthrift provision is not valid in Michigan, the beneficiary’s beneficial interest in the account would have no significant market value, because the Trustee cannot be compelled to make any distributions from the account. See TD Art. III.1, 5, VI.6; Restatement (Third) of Trusts § 60 & cmt. e, f (2003). Thus, no fungible beneficial interest exists.

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

II. Third-Party Sub-Accounts

In the case of a trust established solely with the assets of a third party, the regular resource rules set forth in POMS SI 01120.200 apply to determine whether the assets in the trust are a resource. As with a self-settled sub-account, a third-party sub-account would not be a resource under the regular resource rules. First, the Trust does not give the beneficiary the right to terminate his or her sub-account. See POMS SI 01120.200.D.1.b.2 (beneficiary generally does not have power to terminate a trust). Indeed, the Trust Declaration expressly provides that the power to terminate belongs exclusively to the Trustee and not to the Beneficiary. TD Art. XI.1.c. Second, as discussed above, the Trust contains no provision allowing the beneficiary to direct the use of trust principal for his or her support or maintenance. Finally, with respect to a beneficiary’s power to otherwise sell his or her beneficial interest in the Trust, the Trust contains a spendthrift provision, TD Art. III.5, which Michigan allows in third party trusts. See M.C.L.A. 700.7502(1). That spendthrift provision prohibits any beneficiary from selling or otherwise alienating his or her interest. Accordingly, a beneficiary’s beneficial interest in a third-party sub-account also would not be considered a resource.

III. Commingled Sub-Accounts

The Arc Pooled Trust allows contributions to a sub-account from any person. See TD Art. II.3, V.1. Consequently, a sub-account could contain assets attributable to both the beneficiary and one or more third parties. Agency policy provides that, in the case of a comingled trust established on or after January 1, 2000, with the assets of both an SSI claimant (or spouse) and third parties, the regular resource rules apply to the portion of the comingled trust attributable to the assets of third parties, and the statutory resource rules apply to the portion attributable to the assets of the SSI claimant (or spouse). See POMS SI 01120.200A.2.b, SI 01120.201C.2.c.

Here, in the event that a sub-account in the Trust receives any contributions from a third party, the portion of the sub-account attributable to the assets of the third party would not be a resource under the regular resource rules, as discussed in Section II above. However, with respect to the portion of the sub-account attributable to the assets of the grantor-beneficiary, that portion would be considered a resource under the Act based on the defects discussed in Section I.A above.

Conclusion

For the reasons discussed above, we conclude that a self-settled sub-account in the Arc Pooled Trust does not meet all of the requirements for an exception to resource counting under 42 U.S.C. § 1396p(d)(4)(C). However, if the defects identified above with respect to the statutory exception were cured, then a self-settled Trust sub-account would not constitute a resource under the regular resource counting rules. Similarly, a third-party sub-account in the Arc Pooled Trust would not constitute a resource. Finally, in the case of a comingled sub-account, the portion of the sub-account attributable to the assets of a third party would not be considered a resource, whereas the portion attributable to the assets of the grantor-beneficiary would be considered a resource.