You asked us to determine whether the Dakota Pooled Trust (Trust) and Joinder Agreement
conform to the pooled trust exception at 42 U.S.C. § 1382c(a)(3).
The Trust does not meet the pooled trust exception to counting assets in the Trust
sub-accounts as resources because:
The Trust provides a Funds Manager with the authority to invest funds without proper
oversight by the Trustee;
The Trust potentially allows prohibited payments to, or on behalf of, third parties
during the beneficiary’s lifetime; and
The Trust contains an early termination provision stating that the Trustee may direct
the Funds Manager to continue to administer a sub-account under “separate arrangement,”
without limiting that “separate arrangement” to another pooled trust, as required
by the POMS.
But if the Trust were amended to satisfy the pooled trust exception, and assuming
no other changes were made, beneficiary sub-accounts would not be countable as resources
under the regular resource counting rules.
Definitions, Establishment, and Purpose
A North Dakota nonprofit corporation, Guardian, Fiduciary & Advocacy Services, Inc.
(GFAS), established the Trust in 2010. See Declaration of Trust. The purpose of the Trust is to provide distributions for the
special needs, supplemental needs, and supplemental care of the “Beneficiaries,” i.e.,
persons with disabilities as defined in the Social Security Act (Act) who have sub-accounts
established within the Trust. See Art. 2.2, 2.10, 3.2, 3.3. The Trust defines special needs, supplemental needs, and
supplemental care as “non-support disbursements for the benefit of the Beneficiaries,”
which may include medical or dental treatment, therapy, insurance premiums, entertainment,
companionship, cultural experiences, vacations, television, educational materials,
and other expenses authorized by the Funds Manager or Trustee. Art. 3.3. Grantors
are defined as “a parent, grandparent, or Guardian of a Beneficiary, the Beneficiary
himself or herself, any court, or any other person or entity that established a Sub-Account
within the Trust for the benefit of a Beneficiary.” Art. 2.7. GFAS maintains a separate
sub-account for each Beneficiary, but the Trust sub-accounts are pooled for the purpose
of investing and managing the funds. Art. 6.1.
Amendment, Termination, and Distribution of Assets upon Termination
The Trust is irrevocable upon execution of the Joinder Agreement by the Grantor and
Trustee, and funding of a sub-account for a beneficiary. Art. 11.1. But the Trust
may be amended to accommodate a change in law related to the Medicaid program, the
SSI program or other government assistance program, or to “improve the administration
of the Trust provided, however, that no amendment may be made that will materially
change the purposes of the Trust and the intent of the Settlor.” Art. 11.2. Amendments
may not alter the purpose of the Trust, make gifts revocable that are otherwise irrevocable,
or change the duties of the Funds Manager without his consent. Art. 11.3.
A Trust sub-account may be terminated if, due to developments in the law, the Trustee
and Funds Manager have “reasonable cause to believe that the assets of a Trust Sub-Account
are or will become liable for basic maintenance, support, or care that has been or
would otherwise be provided to such Beneficiary by local, state, or federal government,
or an agency or department thereof.” Art. 12.1. Similarly, if it becomes impossible
or impracticable to carry out the purposes of the entire Trust with respect to all,
or substantially all, beneficiaries, the Trustee, or in his absence, the Funds Manager,
may use discretion to terminate the entire Trust. Art. 12.3.
In the event of the termination of a sub-account or the entire Trust, the Trustee
or Funds Manager may distribute the trust assets in each sub-account by first making
any required payments to any state and then distributing any remaining balance of
Trust assets to the beneficiary. Art. 12.3. But rather than termination and distribution,
the Trustee may direct the Funds Manager to continue to administer a sub-account under
a “separate arrangement” with the affected Beneficiary. Art. 12.1.2.
Upon the death of a beneficiary, remaining amounts in the sub-account will be distributed
as follows: (1) reimbursement for services by the State of North Dakota, or such other
state that provides Medicaid benefits to the beneficiary, up to the amount equal to
the total medical assistance paid on behalf of the beneficiary; (2) unpaid funeral
expenses of the beneficiary and any necessary administrative costs in the settlement
of the sub-account; and (3) to the final remainder beneficiaries listed in the Joinder
Agreement. Art. 12.2; Joinder Agreement § L.3.
The Trust provides that no part of the Trust shall be subject to anticipation, assignment,
attachment, control by a creditor of a beneficiary, judicial process, or levy against
a beneficiary. Further, no beneficiary may compel a disbursement from the Trust. Art.
The trust documents are governed by North Dakota law. Art. 13.2.
The Trust is effective as to a beneficiary upon: (1) execution of a Joinder Agreement
by a Grantor or a court order, (2) certification of the Joinder Agreement by the Trustee;
and (3) Grantor’s delivery to the Funds Manager, and the Funds Manager’s acceptance
of, assets. Art. 4.3. The Trust is irrevocable upon delivery and acceptance of assets,
and the Grantor releases all rights in, control of, and interest in the assets. Art.
A. The Master Trust Does Not Meet the
Pooled Trust Exception Under 42 U.S.C.
In general, irrevocable trusts created after January 1, 2000, that are established
with the assets of an individual by means other than transfer by a will are considered
to be a resource of that individual for SSI eligibility purposes. See 42 U.S.C. § 1382b(e)(2)(A). The purpose of the trust, the discretion of the trustee,
and restrictions on distributions will not affect its status as a resource. See id. at § 1382b(e)(2)(C). There is an exception to this general rule for trusts that are
established pursuant to the provisions of § 1917(d)(4)(C) of the Act, commonly known
as the pooled trust exception. See 42 U.S.C. § 1396p(d)(4)(C). For this exception to apply, the pooled trust must satisfy
1) The trust must be established and maintained by a non-profit association;
2) A separate account must be maintained for each beneficiary of the trust, but the
trust pools these accounts for purposes of investing and managing the trust;
3) Accounts in the trust must be established solely for the benefit of the disabled
4) Accounts must be established by the individual, a parent, a grandparent, a legal
guardian, or a court; and
5) The trust must provide that, to the extent that amounts remaining in the beneficiary’s
sub-account upon the death of the beneficiary are not retained by the trust, 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 the state Medicaid plans.
See id.; POMS SI 01120.203(B)(2). As discussed below, the Trust does not meet the first and third pooled trust
1. The Trust Is Established and Maintained by a Nonprofit Association, But
it Provides Excess Authority to a Funds Manager
The Trust was established by GFAS, a North Dakota nonprofit corporation. But the Trust
has employed an entity as Funds Manager to receive, hold, manage, and control all
income arising from the Trust. Art. 2.4, 7.4. Because the Trust provides that the
Funds Manager must be a bank or trust company, we assume that the Funds Manager is
a for-profit entity. Art. 7.3 Pursuant to POMS SI 01120.225(D), a nonprofit corporation may employ a for-profit entity as Funds Manager if the
nonprofit corporation maintains ultimate managerial control over the Trust. For example,
the nonprofit corporation must remain responsible for determining the amount of the
trust corpus to invest, removing or replacing the trustee, and making the day-to-day
decisions regarding the health and well-being of the pooled trust beneficiaries. See id.
Here, the Funds Manager has the authority to control all of the Trust income, as well
as sell, mortgage, and encumber property, and invest or borrow money under any terms
and conditions it deems proper. Art. 7.4. Furthermore, where the Trustee has not provided
direction, the Funds Manager has the authority to terminate the entire Trust if it
becomes impossible or impracticable to carry out its purposes with respect to all
or substantially all beneficiaries. Art. 12.3.
It appears that the Trust provides the Funds Manager with authority exceeding the
limits set forth in POMS SI 01120.225. The provision of the Trust granting authority to the Funds Manager allows for investment
of the assets in the Funds Manager’s common funds, and does not specify that GFAS
will be responsible for determining the amount of the Trust corpus to invest. Art.
7.4; see POMS SI 01120.225(D).
2. Separate Sub-Accounts Are Maintained
Consistent with the second requirement, each beneficiary has a separate sub-account,
which is then pooled for purposes of investing and managing the funds. Art. 6.1.
3. Multiple Provisions of the Trust Appear to Violate the Requirement that
Accounts Be Established Solely for the Benefit of the Disabled
Each beneficiary’s sub-account must be established for the sole benefit of the disabled
individual in order to meet the third requirement. See POMS SI 01120.203(B)(2)(a), (e). The sub-account cannot benefit any other individual or entity during
the disabled individual’s lifetime, or allow for termination of the account prior
to the individual’s death and payment of the corpus to another individual or entity.
Id. Exceptions are permitted for certain administrative expenses and payments to a third
party for goods, services, and limited travel expenses. POMS SI 01120.201(F)(2)(b)-(c).
a. The Trust Allows for Prohibited Payments to, or on Behalf of, Third Parties
The Trust states that the Trustee or Funds Manager, in their sole discretion, may
provide payments for various special, supplemental, and non-support needs of a beneficiary,
including medical treatment, travel, entertainment, telephone services, and cable.
Art. 3.3. But the Trust also provides that assets “shall not be used” to pay for services
that are not “necessary” to enhance the beneficiary’s quality of life, which includes
“avoiding disbursements that only incidentally benefit a beneficiary.” Art. 3.5.4.
The Trust explains that this prohibition would cover travel expenses for a companion
when the beneficiary is capable of travel without a companion or travel expenses for
a non-beneficiary when a visit to the beneficiary is incidental to the travel. Art.
22.214.171.124. It would also cover the purchase or rental of a home that greatly exceeds
the needs of the Beneficiary and is used by others, or the purchase or rental of a
motor vehicle that is ordinarily used by others. See Art. 126.96.36.199-.4.3.
These “incidental benefits” provisions could potentially allow a sub-account to benefit
third party in contravention of POMS SI 01120.203(B)(2)(e). The language of the provisions appears to contemplate that a Trust sub-account
can permissibly benefit another individual or entity during the disabled individual’s
lifetime, as long as the benefit to the beneficiary is more than “incidental.” See Art. 3.5.4; POMS SI 01120.203(B)(2)(e). For example, the Trust’s language regarding payment of travel expenses
for third parties is overly broad. The provision implies that the Funds Manager may
pay travel expenses in circumstances where: (1) a companion is necessary for the beneficiary
to travel; or (2) when the primary purpose of a trip is to visit a beneficiary. However,
under the POMS, third-party travel expenses are more narrowly limited to situations
where: (1) the companion’s travel is necessary for the beneficiary to obtain medical treatment; and (2) the companion’s travel is to visit the beneficiary in an institution, nursing
home, or other long-term care facility. See POMS SI 01120.201(F)(2)(b) (emphasis added).
Because this Trust language impermissibly allows for the possibility of a Trust sub-account
benefitting another individual or entity during the disabled individual’s lifetime,
it violates the POMS requirement that the accounts be established for the sole benefit
of the disabled individual. See POMS SI 01120.203(B)(2).
b. The Trust Allows For Early Termination of a Sub-Account and Creation of a “Separate
Arrangement” that May Not Meet the Requirements of the Pooled Trust Exception
Generally, a trust that can be terminated during a beneficiary’s lifetime only remains
for “the sole benefit of the disabled individual” if the following criteria are met:
1) Upon early termination, the trust must reimburse the state(s) in an amount equal
to the total amount of medical assistance paid under state Medicaid plan(s);
2) After reimbursement to the state(s) and payment of allowed expenses, all remaining
funds must be given to the trust beneficiary; and
3) The early termination power is provided to someone other than the trust beneficiary.
See POMS SI 01120.199(F).
For a pooled trust under § 1917(d)(4)(C), however, an early termination clause does
not need to meet the above criteria if the clause solely allows for a transfer of
the beneficiary’s assets from one pooled trust to another pooled trust. POMS SI 01120.199(F)(2). The early termination clause must contain “specific limiting language” making
it clear that the early termination does not result in any disbursements other than
to the secondary pooled trust or to pay for allowable administrative expenses. Id.
Here, the Trust provides that where future developments in the law affect the sub-account,
and “the Trustee and the Funds Manager have reasonable cause to believe that the assets
of a Trust sub-account are or will become liable for basic maintenance, support, or
care that has been or that would otherwise be provided to such Beneficiary by local,
state, or federal government, or an agency or department thereof,” the Trustee may
direct the Funds Manager to either terminate the sub-account, or continue to administer
the sub-account under “separate arrangement” with the affected beneficiary. Art. 12.1,
12.1.1, 12.1.2. The provision allowing for the creation of a “separate arrangement”
with the affected beneficiary does not contain any specific limiting language indicating
disbursement would only be to another pooled trust meeting the requirements of § 1917(d)(4)(C).
Thus, it fails to satisfy POMS SI 01120.199(F)(2).
c. The Other Early Termination Provisions Appear to Satisfy the Relevant Criteria
The Trust also provides that the Trustee or Funds Manager may determine that the entire
Trust should be terminated in the event that, in either of their discretion, “it becomes
impossible or impracticable to carry out the purposes of the Trust with respect to
all or substantially all beneficiaries.” Art. 12.3. A related provision states that
where the Trustee determines that the Trust has become impossible to implement for
the affected beneficiary, he may direct the Funds Manager to terminate the sub-account
pursuant to Article 12.3. See Art. 12.1.1.
Upon termination of either the entire Trust or a sub-account during the beneficiary’s
lifetime, the assets are to be distributed to the beneficiary “following any required
payment to any state.”
Art. 12.3. While this language does not specifically address reimbursement to states
for medical assistance paid under Medicaid, the payback provision does broadly cover
payment to states before distributing any remainder to the beneficiary. Further, the
beneficiary does not have the authority to terminate the Trust. Thus, these Trust
provisions appear to comply with the early termination requirements of POMS SI 01120.199(F).
4. The Trust Properly Provides that Individuals Authorized by Statute May
Establish a Sub-Account
To meet the fourth requirement, the accounts in the Trust must be established by a
parent, grandparent, legal guardian of an individual, individual himself, or by a
court. See 42 U.S.C.
§ 1396p(d)(4)(C); see
also POMS SI 01120.203(B)(2)(f). This requirement is satisfied in the present case as the sub-account at
issue was established by the disabled individual. See Art. 2.7; Joinder Agreement §§ B-C. We note, however, that the Trust also allows “other
person[s] or entit[ies]” to establish sub-accounts. See Art. 2.7. If an individual beneficiary sub-account was established by anyone other
than a parent, grandparent, legal guardian, disabled individual, or court, it would
still be a countable resource.
5. The Trust Properly Provides for Medicaid Reimbursement
The Trust satisfies the fifth requirement because it contains specific language providing
that, upon the death of a beneficiary, the Trust shall first pay claims for reimbursement
for services by the State of North Dakota or such other state that provided medical
benefits to the beneficiary, up to the amount of benefits paid. Art. 12.2.1. The Trust
does not limit payment to any particular state or time-period. See id.; see also POMS SI 01120.203(B)(2)(g). Nor does the Trust allow for payment of any prohibited expenses prior to
reimbursement. Art. 12.2; see also POMS SI 01120.203(B)(3).
B. Assuming the Trust Were Amended to Comply with 42 U.S.C. § 1396p(d)(4)(C), the
Sub-Account Would Not Be a Resource Under the Regular Resource Counting Rules
Even if the Trust is amended to address the issues noted above, the sub-accounts must
still be evaluated under the regular resource rules. See POMS SI 01120.203(B)(1)(A); POMS SI 01120.200. Pursuant to the Joinder Agreement, the sub-account will be funded by the beneficiary.
See Joinder Agreement § P.1. The Agency applies the regular resource rules to determine
whether a trust that is established with a beneficiary’s own assets is a resource.
See POMS SI 01120.200(D). Pursuant to these rules, trust property may be a resource for SSI purposes if the
individual: (1) has the authority to revoke the trust and then use the funds to meet
his basic needs for food or shelter; (2) can direct the use of the trust principal
for his support and maintenance; or (3) can sell his beneficial interest in the trust.
See POMS SI 01120.200(D)(1)(a)-(b).
The Trust provides that the sub-accounts are irrevocable as to the grantor and the
beneficiary. Art. 5.1, 11.1. But a general principle of trust law holds that if a
grantor is also the sole beneficiary of a trust, the trust is revocable regardless
of language to the contrary in the trust document. See Restatement (Second) of Trusts § 339 (1959). It is unclear whether North Dakota follows
this general principle. But even assuming they do, the Trust remains irrevocable because the Trust and Joinder
Agreement identify residual beneficiaries—any remaining funds (after the reimbursement
of Medicaid payments and payment of funeral expenses and administrative costs) are
distributed to the “Final Remainder Beneficiaries,” who are parties designated in
the Trust Joinder Agreement. See Art. 12.2.3; Joinder Agreement § L.3 (requiring the identification of remainder beneficiaries).
See also POMS SI 01120.200(D)(3) (providing that “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 remaining assets in the trust upon the grantor’s death. In such case, the
trust is considered to be irrevocable.”).
Further, beneficiaries do not have the right to direct the use of the Trust principal
for their support and maintenance; rather the Funds Manager or Trustee have the sole
and absolute discretion to elect to disburse such funds for the benefit of the beneficiary.
See Art. 3.1, 3.4, 3.6. The Trust also contains a spendthrift clause that prohibits beneficiaries
from anticipation, assignment, attachment, or compelling a disbursement from the Trust.
Art. 3.9; see also POMS SI 01120.200(D)(1)(a). But where the grantor is also the beneficiary, such spendthrift provisions
are generally invalid. See Restatement (Third) of Trusts § 58 cmt. e (2003); POMS SI 01120.200(B)(16). While unable to locate any North Dakota authority on point, we again believe
that North Dakota courts would follow the general rule. Even so, the beneficiary’s
interest in the Trust has no significant market value because disbursements are within
the sole discretion of the Trustee. See Art. 3.1. Thus, the beneficiary’s interest in the Trust should be considered a resource
with zero market value. See POMS SI 01140.44.
In sum, we conclude that the Trust does not satisfy the pooled trust exception to
counting assets in the sub-account as resources. The Trust allows for the Funds Manager
to have excess authority, and the potential benefits to third parties and early termination
provision allowing for creation of a separate arrangement appear to violate the requirement
that the Trust be established solely for the benefit of the disabled individual. If
GFAS were to amend only the problematic (and no other) provisions of the Trust to
satisfy the pooled trust exception, the sub-accounts would not be countable as resources
under the regular resource counting rules.