TN 22 (06-14)

PS 01825.033 New Jersey

A. PS 14-108 Michael Supplemental Benefits Trust

DATE: May 30, 2014

1. SYLLABUS

This opinion examines whether the assignment of child support payments into the Michael Supplemental Benefits Trust (Trust) is irrevocable. Child support payments may be considered irrevocably assigned to a trust when they are court ordered or when the terms of the assignment cannot be modified. In this case, the Court did not directly order the child support payments. However, the Court neither approved nor disapproved the “Agreement” that discussed the child support payments, but merely incorporated it into the Judgment of Divorce. New Jersey law recognizes that a property settlement agreement is a binding contract and should be enforced according to the original intent of the parties. Because the Agreement was incorporated as part of the Judgment of Divorce and is treated as a binding contract under New Jersey law, and the terms of the assignment cannot be changed without modifying a court-ordered judgment of divorce and property settlement agreement, the child support payments are irrevocably assigned to the Trust.

2. OPINION

QUESTION PRESENTED

Whether the assignment of child support payments into the Michael Supplemental Benefits Trust (Trust) is irrevocable, such that the payments should not be considered as income to the claimant Michael (Michael) for purposes of determining eligibility for Supplemental Security Income (SSI).

OPINION

Because the terms of the assignment cannot be changed without modifying a court-ordered judgment of divorce and property settlement agreement, we conclude that the assignment of child support payments is irrevocable absent a change in circumstances. However, we note that the treatment of any additions to the Trust as income may be dependent in part on other factors, including the status of the underlying Trust as a resource.

BACKGROUND

Michael was born in 1997. His parents, Sandra and John, divorced in October 2013, after entering into a Property Settlement Agreement (Agreement). At the request of the parties, this Agreement was incorporated by Court order as part of the Dual Final Judgment of Divorce, with Property Settlement Agreement Attached (Judgment of Divorce), on October 28, 2013. Under the terms of the Agreement, John agreed to pay permanent child support directly into a “Special Needs Trust” to be established on Michael’s behalf, but the Court did not expressly order the creation of a trust. [1] The Trust instrument was executed the following month, in November 2013. The Trust states that it is intended to be the recipient of Michael’s child support payments “in order to protect and continue [his] qualification for public benefits.” Trust, Article (Art.) II(C). Michael’s mother stated that all funds deposited in the account consist of child support payments owed in accordance with the Agreement, although it appears that the account may have been opened with a nominal sum ($5.00) provided separately by Michael’s parents.

The terms of the Trust provide that “[a]t no time shall [Michael] obtain a vested interest in Trust income or principal.” Trust, Art. III(F). However, Michael’s parents retain the right to revoke the Trust or amend any of its terms, if both parties agree. Trust, Art. V(A)-(B). The Trust may also be revoked or amended by the action of one parent alone, if the other is incapacitated or deceased. Id. After the death of both parents, the “Trust shall become irrevocable.” Trust, Art. V(C).

ANALYSIS

Child support payments are generally considered to be unearned income to the recipient. 42 U.S.C. § 1382a(a)(2)(E); 20 C.F.R. § 416.1121(b); see Program Operations Manual System (POMS) SI 00830.420 (providing that some payments from an absent parent may be excluded). However, if a legally assignable payment is irrevocably assigned to be paid directly to a trust that is not itself a resource, the payment is not considered to be income for SSI purposes. POMS SI 01120.201(J)(1); see also POMS SI 01120.200(G)(1). [2] If the assignment is revocable, in contrast, the payment remains income to the individual legally entitled to receive it. Id. Child support payments may be considered irrevocably assigned to a trust when they are court ordered or when the terms of the assignment cannot be modified. See POMS SI 01120.201(C)(2)(b).

In this case, Michael’s parents entered into a Property Settlement Agreement, which included a provision that child support payments would be made directly to the Trust. See Agreement, ¶ 5.1 (providing that “Husband will pay $770.50 per month permanent child support for Michael ” and that “Michael’s child support will go directly into the Special Needs Trust”). The Agreement was incorporated as part of the Judgment of Divorce, and child support payments are presumably being made to the Trust at present. You have asked whether the court’s order renders the assignment of these funds to the Trust irrevocable.

First, we note that the Judgment of Divorce expressly states that the Court “neither approved or disapproved” the Agreement, but merely incorporated the Agreement by reference at the request of the parties. However, even if this created doubt as to whether the assignment was “court ordered,” as stated in your question, New Jersey law recognizes that a property settlement agreement is a binding contract and should be enforced according to the original intent of the parties. See, e.g., Pacifico v. Pacifico, 920 A.2d 73, 77 (N.J. 2007). We therefore conclude that the assignment in this case was binding once signed and incorporated, whether as a result of the court order or the underlying contract between the parties.

New Jersey law also permits child support payments to be made to a trust, especially when that trust is designed to meet the present and future needs of a dependent, disabled child. See J.B. v. W.B., 73 A.3d 405, 419 (N.J. 2013) (“The redirection of a child support obligation from a parent to a trust designed to meet the present and future needs of the dependent, disabled child should not be considered exceptional or extraordinary relief, if such a plan is in the best interests of the unemancipated child.”). Michael’s child support payments, therefore, are legally assignable.

Furthermore, as a general rule, “absen[t] . . . unconscionability, fraud, or overreaching in negotiations of the settlement,” a trial court has “no legal or equitable basis . . . to reform the parties’ property settlement agreement.” Miller v. Miller, 734 A.2d 752, 758 (N.J. 1999); see J.B. v. W.B., 73 A.3d at 417 (noting that “care must be taken not to upset the reasonable expectations of the parties”) (internal citations omitted). Support obligations may nonetheless be modified, provided the requesting party meets the threshold standard of changed circumstances. Lepis v. Lepis, 416 A.2d 45, 54 (N.J. 1980). In this case, the Judgment of Divorce indicates that both parties represented to the Court that the Agreement was entered into freely and voluntarily, and the Agreement itself states that “the parties are satisfied that [the] Agreement is fair and equitable.” Agreement, ¶ 6.8. We are also not aware of any change of circumstances that would cause the Court to modify the order and Agreement requiring that child support payments be made directly to the Trust.

Although the Trust does include an article reserving the right of Michael’s parents to revoke the Trust if both parents agree or one parent is incapacitated or deceased, the language of the Agreement itself is mandatory and does not provide for an alternative to the deposit of “child support . . . directly into the Special Needs Trust.” Agreement, ¶ 5.1; see Trust, Art. V. Because the Agreement was incorporated as part of the Judgment of Divorce, and is treated as a binding contract under New Jersey law, it seems likely that a modification would be necessary if the parties wished to cease making payments into the Trust or to revoke the Trust entirely. This again would require a showing of changed circumstances. See Lepis v. Lepis, 416 A.2d at 54; see also J.B. v. W.B., 73 A.3d at 417 (noting that where parents have “agreed to undertakings advantageous to a child beyond that minimally required, the public policy favoring stability of arrangements usually counsels against modification”) (internal citations omitted). In the absence of such circumstances, at this time the child support payments are irrevocably assigned to the Trust.

Although we were asked only for an opinion as to whether the assignment of child support payments into the Trust is irrevocable as a result of the Court’s order, your question suggested that you are reviewing these payments for treatment as potential income. We therefore note that, even if the Court’s order directing payment of Michael’s child support into the trust is irrevocable at present, the treatment of any additions to the trust as income may be dependent in part on other factors. In particular, if the underlying Trust is itself determined to be a resource, additions to the trust principle may be considered as income or conversion of a resource. See POMS SI 01120.201(B)(3), SI 01120.201(C)(3), SI 01120.201(J)(2)-(3); see also POMS SI 01120.200(G)(2)(b).

CONCLUSION

We conclude that the child support payments are irrevocably assigned to the Trust, but note that this may not fully determine whether additions to the Trust are appropriately considered as income.

B. PS 14-042 Spendthrift Trusts – New York and New Jersey

DATE: January 8, 2014

1. SYLLABUS

This opinion addresses whether spendthrift clauses are recognized in New York and New Jersey and whether these states presume the existence of a spendthrift clause if a trust is silent as to whether it is a spendthrift trust. A spendthrift clause prohibits both involuntary and voluntary transfers of the beneficiary's interest in the trust income or principle. New York and New Jersey both enforce spendthrift clauses in trusts, except when the beneficiary of the trust is also the trust’s grantor. In New York, a trust is presumed to be a spendthrift trust with respect to an income interest in the trust but not for other interests. In New Jersey, a trust can be presumed to be a spendthrift trust based on evidence about the intent of the grantor.

2. OPINION

QUESTION PRESENTED

Whether New York and New Jersey recognize the validity of spendthrift clauses in trusts, and whether these states will presume the existence of a spendthrift clause if a trust is silent as to whether it is a spendthrift trust.

OPINION

Both New York and New Jersey recognize the validity of spendthrift clauses in trusts, except when the beneficiary of the trust is also the trust’s grantor. In New York, a trust is presumed to be a spendthrift trust with respect to an income interest in the trust but not for other interests. In New Jersey, a trust can be presumed to be a spendthrift trust based on evidence about the intent of the grantor.

BACKGROUND

A spendthrift clause or trust prohibits both voluntary and involuntary transfers of a beneficiary’s interest in trust income or principal. See, e.g., Program Operations Manual System (POMS) SI 01120.200(B)(16). This protects the interest from creditors, and also prevents the beneficiary from selling her interest to a third party; for example, a beneficiary who is entitled to $100 per month from a spendthrift trust is not permitted to sell her right to receive monthly payments for one lump sum. Id. If a trust contains a valid spendthrift clause, so that the beneficiary cannot sell her interest, the trust will not be counted as a resource for the purposes of SSI eligibility. POMS SI 01120.200(D)(1)(a).

ANALYSIS

  1. A. 

    New York

    1. 1. 

      Spendthrift Trusts Are Valid Under New York Law, Except When the Grantor Is Also the Beneficiary.

      Spendthrift clauses are recognized as valid by New York law. See In re V~ Estate, 250 N.E.2d 343, 349 (N.Y. 1969) (“[T]he will of the testator should be given effect, and the interest of the assignor [is] deemed unassignable during the life of the trust.”); In re Estate of M~, 723 N.Y.S.2d 349, 350 (Sur. Ct. 2001); see also N.Y. Est. Powers & Trusts Law § 7-1.5(a)(1). (McKinney 2013).

      A spendthrift clause is not valid under New York law, however, when the beneficiary of the trust was also the trust’s grantor; a beneficiary of a spendthrift trust who was also the trust’s grantor will be permitted by the New York courts to sell her interest in the trust despite the spendthrift clause. See In re Mordecai’s Trust, 201 N.Y.S.2d 899, 901-02 (Sup. Ct. 1960); City Bank Farmers Trust Co. v. Kennard, 1 N.Y.S.2d 369, 370-71 (Sup. Ct. 1937); In re Blake’s Will, 235 N.Y.S. 324, 327 (App. Div. 1929); see also N.Y. Est. Powers & Trusts Law § 7-3.1(a) (McKinney 2013) (“A disposition in trust for the use of the creator is void as against the existing or subsequent creditors of the creator.”). [3]

    2. 2. 

      New York Law Presumes a Spendthrift Clause for Income Interests in a Trust, But Not for Other Interests.

      When a trust neither prohibits nor expressly grants the beneficiary the right to sell her interest in the trust, New York law presumes a spendthrift clause with respect to any income interest in the trust. N.Y. Est. Powers & Trusts Law § 7-1.5(a)(1) (McKinney 2013); see also In re Estate of S~, 602 N.Y.S.2d 742 (Sur. 1991) (“The income interest of a beneficiary of a testamentary trust is inalienable in this state unless the instrument creating the trust provides otherwise.”) [4] For interests in a trust other than income interests (e.g., a remainder interest), New York law presumes that there is no spendthrift clause unless the trust expressly includes such a provision. N.Y. Est. Powers & Trusts Law § 7-1.5(a) (McKinney 2013); see also In re N~ Estate, 389 N.Y.S.2d 420, 421 (App. Div. 1976) (presuming a trust includes no spendthrift clause with regard to a remainder interest).

  2. B. 

    New Jersey

    1. 1. 

      Spendthrift Trusts Are Valid Under New Jersey Law, Except When the Grantor Is Also the Beneficiary.

      New Jersey courts recognize spendthrift clauses as legally binding. See In re Estate of B~, 871 A.2d 103, 108 (N.J. Super. Ct. App. Div. 2005); Moore v. Moore, 44 A.2d 639, 646 (N.J. Ch. 1945) (“[T]he several attempted alienations or assignments by beneficiaries of anticipated income payments . . . are invalid and ineffectual as such, because [they are] contrary to the [spendthrift] restrictions attached by the trustor to his gifts.”).

      However, where the beneficiary of a spendthrift trust was also the grantor of that trust, the spendthrift clause is unenforceable under New Jersey law. N.J. Stat. Ann. § 3B:11-1(a) (West 2013) (“The right of any creator of a trust to receive either the income or the principal of the trust . . . shall be freely alienable and shall be subject to the claims of his creditors, not-withstanding any provision to the contrary in the terms of the trust.”). [5]

    2. 2. 

      New Jersey Law Presumes a Spendthrift Clause Where Evidence Suggests the Grantor Intended to Restrict the Beneficiary’s Ability to Sell Her Interest in the Trust.

      Where a trust neither prohibits nor expressly permits a beneficiary to sell her interest in a trust, New Jersey law will presume a spendthrift clause where this appears to have been the grantor’s intent. See, e.g., Heritage Bank-North, N.A. v. Hunterdon Med. Ctr., 395 A.2d 552, 554 (N.J. Super. Ct. App. Div. 1978); see also B~, 871 A.2d at 108. Evidence of the grantor’s intent to create a spendthrift trust can include the grantor’s attempt to “make the trust immune from attachment by creditors” and the grantor’s intent that “the beneficiary was to be protected against acts of his own improvidence.” Ampere Bank & Trust Co. v. Esterly, 49 A.2d 769, 772 (N.J. Ch. 1946).

CONCLUSION

New York and New Jersey both enforce spendthrift clauses in trusts, except when the beneficiary of the trust is also the trust’s grantor. In New York, a trust is presumed to be a spendthrift trust with respect to an income interest in the trust but not for other interests in trusts. In New Jersey, a trust can be presumed to be a spendthrift trust based on evidence about the intent of the grantor.

C. PS 01-013 New Jersey Law of Trusts

DATE: June 8, 1999

1. SYLLABUS

This opinion provides a summary of New Jersey law, when an irrevocable trust is considered revocable, whether the use of the terms "heirs," "heirs at law," or "next of kin" create a residual beneficiary of the trust and whether the State of New Jersey can be a beneficiary of a trust.

2. OPINION

You have requested an update on New Jersey trust law. In this memorandum, we discuss (1) when an "irrevocable" trust is revocable, (2) whether the use in a trust of the terms "heir," "heir at law," "next of kin," or "distributee" creates a beneficiary of the trust who must give consent prior to the revocation of a trust, (3) whether the State of New Jersey can be a beneficiary of a trust, and (4) whether changes in New Jersey trust law require an amendment to the New Jersey regional supplement to the Program Operations Manual System ("POMS") section SI R01120.200.

Revocability of an "Irrevocable" Trust

Under New Jersey law, the settlor of an otherwise irrevocable trust may revoke the trust only with the consent of all those persons who have a remainder interest in the trust. See Clark v. Judge, 84 N.J.Super. 35, 50, 200 A.2d 801, 810 (N.J. Super. Ct. Ch. Div. 1964), aff'd, 44 N.J. 550, 210 A.2d 415 (1965); Fidelity Union Trust Co. v. Parfner, 135 N.J. Eq. 133, 37 A.2d 675 (N.J. Ch. 1944). If the settlor is the sole beneficiary of an irrevocable trust, he or she may revoke such trust by his or her own act. See e.g., Manice v. Howard Savings Bank, 30 N.J. Super. 267, 270 (N.J. Super. Ct. Ch. 1954); Doyle v. Bank of Montclair, 9 N.J. Super. 586, 590 (N.J. Super. Ct. Ch. 1950); Fidelity Union Trust Co., 135 N.J. Eq. at 136, 37 A.2d at 677-78. The settlor is considered the sole beneficiary when the settlor is the income beneficiary during his or her life and at the settlor's death, the trust conveys the remaining property to settlor's estate, or as the settlor may appoint by deed or by will. M~, 30 N.J. Super. 30 N.J. Super. at 270, 104 A.2d at 75.

Next of Kin, Heir, Heir at Law, or Distributee

The settlor may or may not be the sole beneficiary of a trust in which the settlor is the income beneficiary and at the settlor's death, the trust conveys the remaining property to the settlor's "next of kin." The settlor's intent determines whether this distribution creates a reversion to the settlor or whether it creates beneficiaries in the class of people who meet the criteria of next of kin. See Fidelity Union Trust Co., 135 N.J. Eq. at 137-8, 37 A.2d at 677-78; D~, 9 N.J. Super. at 589, 76 A.2d at 43. When trusts have been created primarily for a settlor's benefit or when trust assets were allowed to be used for a settlor's needs, courts have held that the settlor intended to create a reversion to himself despite naming his next of kin to receive trust assets at the settlor's death. D~, 9 N.J. Super. at 590, 76 A.2d at 43 Fidelity Union Trust Co., 135 N.J. Eq. at 139, 37 A.2d 675, 678. Where the settlor's use of the term "next of kin" creates a reversionary interest in the settlor, the settlor may revoke the trust by his own act.

There is no case law stating whether the settlor's designation of his "heir," "heir at law," or "distributee" to receive trust assets creates a beneficiary of the trust who must give consent prior to the revocation of a trust.

The State of New Jersey as a Beneficiary

Generally, states may be beneficiaries to a trust. 2 Scott, Law of Trusts § 116 (3d ed. 1967 & Supp. 1985). However, the issue of whether the State of New Jersey, or one of its departments, can be a beneficiary of a trust is not discussed in state statutes and has not been determined by the courts. Though New Jersey law is not clear on this issue, the general rule on states as beneficiaries, together with an oral opinion from the New Jersey Attorney General's Office that the State of New Jersey could be a beneficiary, have led us to conclude that the State of New Jersey may be a trust beneficiary, depending on the wording of the trust.

Even though we believe that the State of New Jersey may be a beneficiary of a trust, caution must be taken when determining whether a trust actually makes the State a beneficiary or only a lien holder (creditor) of the trust's assets. The beneficiary of a trust is the equitable owner of the trust and has a fiduciary relationship with the trustee, while a creditor only has a personal claim against a debtor. 1 Scott, Law of Trusts § 12.1 (1987). The failure to expressly designate the relationship as one of trust does not necessarily negate its existence. In the Matter of Penn Central Transportation Co., 486 F.2d 519, 524 (3d Cir. 1973); see also State v. United States Steel Co., 12 N.J. 51, 58, 95 A.2d 740, 744 (1953). The intent and the nature of the transaction between the parties determines whether a beneficial or creditor relationship exists. See United States Steel Co., 12 N.J. at 58, 95 A.2d at 744. If the intention is that the money shall be kept or used for the benefit of the payer or a third party, a trust is created, State v. Western Union Telegraph Co., 17 N.J. 149, 152, 110 A.2d 115, 117 (1954). However, intent to create a debt may be shown when the receiver of the funds is obligated to pay interest on those funds. See State v. Plainfield-Union Water Co., 75 N.J. Super. 571, 579, 183 A.2d 684, 688-89 (N.J. App. Div. 1962)(quoting State v. Atlantic City Electric Co., 23 N.J. at 267, 128 A.2d at 866). The nature of the transaction can be determined through an explicit understanding as to the terms upon which the payee is to hold funds, but, when these are not clear, the nature of the transaction must be divined through consideration of the parties' behavior and the attendant circumstances, on a case by case basis. See State v. Atlantic City Electric Co., 23 N.J. 259, 266, 128 A.2d 861, 865 (1957).

Recent Changes in New Jersey Trust Law

There have been no significant recent changes to New Jersey's trust law. However, legislation creating "payback" trusts, allowable under 42 U.S.C. § 1396p(d)(4)(A) (trust) and 1396p(d)(4)(C) (pooled trust account) of the Medicaid law, has been introduced in both legislative houses (copy of assembly bill attached). The purpose of this legislation is to facilitate the establishment of trusts to supplement or augment assistance provided by government entities to persons with severe chronic disabilities and persons who are disabled under the federal Social Security Act. 1998 N.J. A.B. 2593(1)(e). Payback trusts could be established by a court; however, it would not be necessary to have court involvement to establish such a trust. 1998 N.J. A.B. 2593(3)(b) and (c). Most significantly, this legislation provides that notwithstanding any provision or principle of law to the contrary, a beneficiary of a payback trust may not revoke or terminate the trust if the instrument that governs the trust designates the trust as irrevocable or otherwise provides that the beneficiary shall not have the authority to revoke or terminate the trust. 1998 N.J. A.B. 2593(3)(e). Though this legislation would not affect current trusts, future trusts made under its provisions would be irrevocable without exception. We will continue to track the legislation and will inform you when it is signed into law.

D. PS 01-009 SSI Resource Issue - Trust for Albert ; SSN: ~

DATE: March 24, 1999

1. SYLLABUS

The trust in this opinion is not a countable resource for SSI purposes as the SSI beneficiary does not have the authority to revoke the Trust or direct the use of its principal for his support and maintenance without the consent of other individuals named in the court order as "remaindermen".

NOTE: Because of a change in the Social Security Act, this opinion may only be valid to trusts established by an individual prior to 01/01/00.

2. OPINION

You have requested our opinion as to whether the trust established for Albert ("the Trust") is a countable resource for the purposes of his Supplemental Security Income ("SSI") eligibility. We conclude that the Trust is not a countable resource.

Terms of the Trust

The Trust was established on May 14, 1998, pursuant to an Order of the Superior Court of New Jersey, Law Division, Somerset County. The Trust Agreement states that the Trust is irrevocable.

The Trust Agreement designates Man-Sum and So-Yee as settlors of the Trust and as co-trustees, along with The Bank of New York. The court ordered that the proceeds of a medical malpractice settlement award received by Albert be deposited in the Trust.

The Trust Agreement and the court order establishing the Trust provide that the Trust may be used only to meet those needs of Albert that cannot be met through private insurance or under any government or private program of financial entitlement, services, or other benefits. The trustees are precluded from reimbursing any public or private agency for the care, support, maintenance, or education of Albert. In addition, the proceeds may not be paid to Albert or applied to his benefit for any purpose, including payment for food, clothing, or shelter, if to do so would render him ineligible for any public or private program, or reduce the benefits to which he is entitled.

The court order establishing the trust and the Trust Agreement also provide that, upon the death of Albert , the trust income and principal will be made available to reimburse the New Jersey Division of Medical Assistance and Health Services for the cost of medical assistance and then to any other public agency that has provided her with medical assistance for the cost of such assistance. The court order also states that any amount remaining will be given in equal shares to So-Yee and Man-Sum equally, or the survivor thereof. The Trust Agreement does not have a provision naming So-yee and Man-sum as remaindermen, but, rather, indicates that any amount remaining shall be paid to the estate of A~ . However, the Trust Agreement expressly provides that to the extent that there is any conflict between the terms of the agreement and the terms of the court order, the terms of the court order shall govern.

Discussion

As you know, a trust is a countable resource for SSI purposes if an individual has the authority to revoke the trust or direct the use of its principal for his or her support and maintenance. POMS § SI 01120.200(D)(1)(b), (2). If a trust is irrevocable, the trust principal is not anyone's resource. POMS § SI 01120.200(D)(2). Revocability depends on the terms of trust agreement and on State law. Id.

Here, the Trust is irrevocable by its own terms. Accordingly, the question is whether it is also irrevocable under New Jersey law.

Where the grantor of a trust is also the sole beneficiary, most states follow the general principle of trust law that the trust is revocable regardless of contrary language contained in the trust document. POMS § SI 01120.200(D)(3). However, some states recognize the irrevocability of a grantor trust if there is a named "residual beneficiary" in the trust document who would, for example, receive the principal upon the grantor's death or the occurrence of some specific event. Id.

In this case, it is not clear to us whether the State of New Jersey Division of Medical Assistance and Health Services or other public agency has a remainder interest in the Trust within the meaning of New Jersey law. However, it is unnecessary to resolve the issue here, because the Trust names So-yee and Man-sum as remaindermen. Although the provision naming these individuals as remaindermen is contained only in the court order, and not in the Trust Agreement, the agreement provides that the terms of the court order shall govern if there is a conflict between the agreement and the trust. Thus, under New Jersey law, Albert may not revoke the trust absent the consent of those individuals. See Clark v. Judge, 84 N.J.Super. 35, 50, 200 A.2d 801, 810 (N.J. Super. Ct. Ch. Div. 1964), aff'd, 44 N.J. 550, 210 A.2d 415 (1965).

In summary, we believe that Albert has no authority to revoke the Trust or to direct the use of its principal for his support and maintenance. POMS § SI 01120.200(D)(1)(B).

Pamela Boorman
Assistant Regional Counsel

E. PS 01-002 SI Resource Issue - Trust for Albert ; SSN: ~

DATE: March 24, 1999

1. SYLLABUS

In the State of New Jersey, an otherwise irrevocable trust is revocable if the grantor of the trust is the sole beneficiary. In this case, the trust does not name a residual beneficiary. However, the court order establishing the trust provides that upon the death of the grantor/beneficiary, the individual's parents would receive the remainder. The trust also provides that in the event of a conflict between the trust and the court order, the court order should be followed. Because of a change in the Social Security Act, this precedent may only be applicable to a trust established by an individual prior to 1/1/00.

2. OPINION

You have requested our opinion as to whether the trust established for Albert ("the Trust") is a countable resource for the purposes of his Supplemental Security Income ("SSI") eligibility. We conclude that the Trust is not a countable resource.

Terms of the Trust

The Trust was established on May 14, 1998, pursuant to an Order of the Superior Court of New Jersey, Law Division, Somerset County. The Trust Agreement states that the Trust is irrevocable.

The Trust Agreement designates Man-Sum and So-Yee as settlors of the Trust and as co-trustees, along with The Bank of New York. The court ordered that the proceeds of a medical malpractice settlement award received by Albert be deposited in the Trust.

The Trust Agreement and the court order establishing the Trust provide that the Trust may be used only to meet those needs of Albert that cannot be met through private insurance or under any government or private program of financial entitlement, services, or other benefits. The trustees are precluded from reimbursing any public or private agency for the care, support, maintenance, or education of Albert. In addition, the proceeds may not be paid to Albert or applied to his benefit for any purpose, including payment for food, clothing, or shelter, if to do so would render him ineligible for any public or private program, or reduce the benefits to which he is entitled.

The court order establishing the trust and the Trust Agreement also provide that, upon the death of Albert, the trust income and principal will be made available to reimburse the New Jersey Division of Medical Assistance and Health Services for the cost of medical assistance and then to any other public agency that has provided her with medical assistance for the cost of such assistance. The court order also states that any amount remaining will be given in equal shares to So-Yee and Man-Sum equally, or the survivor thereof. The Trust Agreement does not have a provision naming So-yee and Man-sum as remaindermen, but, rather, indicates that any amount remaining shall be paid to the estate of A~ . However, the Trust Agreement expressly provides that to the extent that there is any conflict between the terms of the agreement and the terms of the court order, the terms of the court order shall govern.

Discussion

As you know, a trust is a countable resource for SSI purposes if an individual has the authority to revoke the trust or direct the use of its principal for his or her support and maintenance. POMS § SI 01120.200(D)(1)(b), (2). If a trust is irrevocable, the trust principal is not anyone's resource. POMS § SI 01120.200(D)(2). Revocability depends on the terms of trust agreement and on State law. Id.

Here, the Trust is irrevocable by its own terms. Accordingly, the question is whether it is also irrevocable under New Jersey law.

Where the grantor of a trust is also the sole beneficiary, most states follow the general principle of trust law that the trust is revocable regardless of contrary language contained in the trust document. POMS § SI 01120.200(D)(3). However, some states recognize the irrevocability of a grantor trust if there is a named "residual beneficiary" in the trust document who would, for example, receive the principal upon the grantor's death or the occurrence of some specific event. Id.

In this case, it is not clear to us whether the State of New Jersey Division of Medical Assistance and Health Services or other public agency has a remainder interest in the Trust within the meaning of New Jersey law. However, it is unnecessary to resolve the issue here, because the Trust names So-yee and Man-sum as remaindermen. Although the provision naming these individuals as remaindermen is contained only in the court order, and not in the Trust Agreement, the agreement provides that the terms of the court order shall govern if there is a conflict between the agreement and the trust. Thus, under New Jersey law, Albert may not revoke the trust absent the consent of those individuals. See Clark v. Judge, 84 N.J.Super. 35, 50, 200 A.2d 801, 810 (N.J. Super. Ct. Ch. Div. 1964), aff'd, 44 N.J. 550, 210 A.2d 415 (1965).

In summary, we believe that Albert has no authority to revoke the Trust or to direct the use of its principal for his support and maintenance. POMS § SI 01120.200(D)(1)(B). Therefore, the Trust is not a countable resource for SSI purposes.


Footnotes:

[1]

In the event that the trust was not yet in place by October 28, 2013, the Agreement provided that child support payments would be held in trust by Michael’s grandfather until the trust was established.

[2]

Your question refers to the Trust as a “third party trust,” although the Trust appears to include Michael’s own assets in the form of child support. See 42 U.S.C. § 1382b(e)(6)(C)(iii) (defining assets to include payments to which the individual is entitled but does not have access because of action by a person or entity, including a court, with legal authority to act in place of, or on behalf of, the individual); see also POMS SI 01120.201(B)(7) (providing that a “trust is considered to have been established with the assets of an individual [rather than those of a third party] if any assets of the individual (or spouse), regardless of how little, were transferred to a trust other than by a will”), POMS SI 01120.201(C)(2)(b) (providing examples of trusts established with an individual’s own assets, including where child support is assigned by court order directly into a trust). Since we were asked only for an opinion regarding the irrevocability of the assignment of child support payments to the Trust, however, we are including “see” or “see also” citations to the rules for trusts funded with third party assets insofar as the rules are the same for both types of trusts.

[3]

Other provisions may prevent the sale, however, as in the case of self-granted supplemental needs trusts. See N.Y. Est. Powers & Trusts Law §§ 7 1.12(a)(5)(iii), (a)(5)(v), (e)(1); see also 42 U.S.C. §§ 1382b(e) , 1396p(d)(4).

[4]

The beneficiary may nonetheless assign any income over $10,000 per year to her spouse, issue, ancestors, brothers, sisters, uncles, aunts, nephews or nieces, and may transfer income to children or other individuals the beneficiary is legally obligated to support. N.Y. Est. Powers & Trusts Law §§ 7-1.5(b), (d) (McKinney 2013). However, the beneficiary may not sell her interest for a monetary value. See N.Y. Est. Powers & Trusts Law § 7-1.5(b) (providing that the beneficiary may not “receive any consideration in money or money’s worth”).

[5]

New Jersey law does not include specific statutory provisions regarding assignment of funds in self-granted special needs trusts. However, as in New York, use of the funds in a given trust still may be restricted in accordance with federal law. See N.J. Stat. Ann. §§ 3B:11-36, 3B:11-37 (authorizing the establishment of special needs trusts in accordance with 42 U.S.C. § 1396p(d)(4)).


To Link to this section - Use this URL:
http://policy.ssa.gov/poms.nsf/lnx/1601825033
PS 01825.033 - New Jersey - 06/12/2014
Batch run: 02/21/2017
Rev:06/12/2014