TN 107 (05-18)

PS 01825.042 Pennsylvania

A. PS 17-135 River Communities Fiduciary Services, Inc. Pooled Trust

Date: August 8, 2017

1. Syllabus

This Regional Chief Counsel (RCC) Opinion examines whether the Master Trust Agreement (“Trust”) and National Joinder Agreement (“Joinder Agreement”) from River Communities Fiduciary Services, Inc. satisfy the pooled trust exception at 42 U.S.C. § 1396p(d)(4)(C). The RCC concluded that the Trust satisfies the pooled trust exception to counting assets in the Trust sub-accounts as resources, and the beneficiary sub-accounts are also not countable as resources under the regular resource rules.

2. Opinion

Question Presented

You asked us to determine whether the Master Trust Agreement (“Trust”) and National Joinder Agreement (“Joinder Agreement”) from River Communities Fiduciary Services, Inc. satisfy the pooled trust exception at 42 U.S.C. § 1396p(d)(4)(C).

Short Answer

The Trust satisfies the pooled trust exception to counting assets in the Trust sub-accounts as resources. The beneficiary sub-accounts are also not countable as resources under the regular resource rules.

Background

Definitions, Establishment, and Purpose

Pennsylvania nonprofit corporation River Communities Fiduciary Services, Inc. (“River Communities” or “the Trustee”) established the Trust. Trust at 4, § A(1). The Trust seeks to create a pooled trust with sub-accounts for each beneficiary. Trust at 4, § A(1). Distributions from each sub-account can “be used to supplement the funds and services” a beneficiary receives from SSI and Medicaid. Trust at 4, § A. Distributions can be used to supplement care, provide clothing, provide transportation and travel expenses for someone to help the Beneficiary receive care, and other purposes. See Joinder Agreement at 2, § C.

The “Trustee” is River Communities. Trust at 5, § A(4). River Communities will receive and consider requests to distribute funds from each Beneficiary’s subaccount. Trust at 5, § A(4). A “Beneficiary” is an individual who meets the definition of disability at 42 U.S.C. § 1382c(a)(3). Trust at 5, § A(3). The Beneficiary “will receive the benefits” of their sub-account within the Trust. Trust at 4, § (A)(2). A “Settlor” is the creator of a sub-account within the Trust and can be the Beneficiary herself; the parent, grandparent, or legal guardian of the Beneficiary; or the court. Trust at 4, § (A)(2). The Beneficiary and Settlor are specified in the Joinder Agreement, along with specific kinds of distributions the Settlor would like the Trustee to “especially consider.” Joinder Agreement at 1-2.

All of the sub-accounts within the Trust are pooled for investment and management of the funds. Trust at 4, § A(1)-(2).

Amendment, Termination, and Distribution of Assets Upon Termination

The Trust is irrevocable and funds deposited into a sub-account are non-refundable. Joinder Agreement at 3; Trust at 4, § A(2). However, the Board of River Communities retains authority to “conform this agreement [the Trust]” to relevant laws and regulations “while permitting assets to be retained in the Pooled Trust without causing ineligibility.” Trust at 6, § E. Further, if it becomes impossible or impractical to fulfill the purpose of the Trust, the Board has discretion to either terminate the Trust or resign as Trustee, in which case the Board will transfer all sub-account assets to another trust that meets the requirements of 42 U.S.C. § 1396p(d)(4)(C). If a successor trustee cannot be found, then the state(s) will be reimbursed, allowed expenses paid, and all remaining funds distributed to the Beneficiary. Trust at 6, § E. This early termination provision is discussed later in this opinion.

Absent early termination, a sub-account terminates upon the death of the Beneficiary and all residual funds are retained by the Trust. Trust at 7, § H. To the extent these funds are not retained by the Trust, the Trust will pay the state(s) an amount equal to the total amount of medical assistance paid on behalf of the individual under the state Medicaid plan. Trust at 7, § H. Finally, the Joinder Agreement allows the Settlor to specify a residual beneficiary who will receive residual funds upon the Beneficiary’s death. Joinder Agreement at 3, § E. The residual beneficiary will only receive the funds “after payment to the State(s) as reimbursement for Medical Assistance received.” Joinder Agreement at 3, § E.

Spendthrift Provision

The Trust states that no money or property in the Beneficiary’s sub-account will be “pledged, assigned, transferred, or in any manner anticipated, charged or encumbered by any Beneficiary or remainderman,” except by operation of law. Trust at 5, § B. The Trust also provides that no money or property in the sub-account will be “in any manner liable while in the possession of the Trustee for [the Beneficiary’s] debts, contracts or obligations, voluntary or involuntary or for any claims, legal or equitable against the Beneficiary or remainderman.” Trust at 5, § B. Finally, the Trust provides that the Trustee is not liable for the debts of a Beneficiary but may, in its sole discretion, choose to pay such debts. Trust at 5, § B.

Trust and Joinder Agreement

The Trust is effective as to a Beneficiary once the Settlor signs and dates the Trust, completes the Joinder Agreement, and submits funds for deposit in the Beneficiary’s account. The account is created once accepted by the Trustee. Trust at 4, § A(2); see also Joinder Agreement at 3. The Trust is irrevocable once the Joinder Agreement is executed and funds are deposited into the Beneficiary’s account. Trust at 4, § A(2); Joinder Agreement at 3.

Discussion

(A) The Trust Meets the Pooled Trust Exception Under 42 U.S.C. § 1396p(d)(4)(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). However, there is an exception for trusts that are established under 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 these requirements:

(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 individual;

(4) The sub-account at issue 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 meets these requirements.

(1) The Trust Is Established and Maintained by a Nonprofit Association

The Trust was established by River Communities, a Pennsylvania nonprofit.[1] See River Communities IRS 501(c)(3) Letter; Trust at 4, § A(1); 5, § A(4). The Trust states that River Communities will manage the Trust, and there is no indication that a for-profit investment advisor or fund manager will be used to oversee the Trust. Trust at 4, § A(1). River Communities thus maintains the Trust.

(2) Separate Sub-Accounts Are Maintained

Consistent with the second requirement, each Beneficiary has a separate sub-account that is pooled for investing and managing the funds. See Trust at 4-5.

(3) The Trust Satisfies the Requirement that Accounts Be Established Solely for the Benefit of the Disabled Individual

To meet the third requirement, each beneficiary’s sub-account must be established for the sole benefit of the disabled individual. 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).

Trusts may provide for reasonable compensation of the trustee and for reasonable costs. POMS SI 01120.201(F)(2)(c). Here, the Trust allows the Trustee to charge monthly fees for trust maintenance and other services related to the trust. Trust at 6, § C. The Board of River Communities determines the fee amount on an annual basis. If the fees charged to an account exceed the annual Trust maintenance fee, the Trustee will seek permission from the court to charge the account. Trust at 6, § C. Agency policy cautions against “routinely question[ing] the reasonableness of a trustee’s compensation,” and in this case, there is no indication that the Trustee’s fees are unreasonable. POMS SI 01120.201(F)(2)(c). Thus, the fees charged by the Trustee satisfy the administrative expenses exception to the sole benefit requirement.

Trusts may also allow certain third party payments and still satisfy the sole benefit requirement. See POMS SI 01120.201(F)(2)(b). Here, the Joinder Agreement allows the Trustee to “especially consider” certain distribution uses. Joinder Agreement at 2, § C; Trust at 5, §§ A(4), B. These uses include supplemental care and clothing, which are permitted under the third party payment exception to the sole benefit rule. See POMS SI 01120.201(F)(2)(b). The Joinder Agreement also states the Trustee will consider transportation and travel expenses for one person “which are necessary in order for the trust beneficiary to obtain medical treatment and/or travel expenses to visit a trust beneficiary who resides in an institution, nursing home, or other long-term care facility…in which a non-family member or entity is being paid to provide or oversee the individual’s living arrangement.” Joinder Agreement at 2, § C. The Joinder Agreement clarifies that the “travel must be for the purpose of ensuring the safety and/or medical well-being of the individual.” These provisions track agency policy and would fall under the third party travel expenses exception to the sole benefit rule. See POMS SI 01120.201(F)(2)(b).

The Joinder Agreement also allows for payment of “[t]ravel companion expenses” for “non-medical related travel” when the need for a travel companion is established by a doctor’s order. Joinder Agreement at 2, § C. Although not specifically listed in the POMS related to third-party travel expenses, we understand that the narrow construction of this POMS is intended to ensure that third-party travel is consistent with the sole benefit requirement. If a travel companion is required pursuant to a doctor’s order, this is sufficient to show that the travel is necessary for the sole benefit of the beneficiary. POMS SI 01120.201(F)(2)(b).

The Joinder Agreement also contains a provision allowing the Trustee to especially consider distributions for “Moderate Birthday and Holiday presents for the sole benefit of the Beneficiary.” Joinder Agreement at 2, § C. It is not clear whether this provision would provide for gifts to the beneficiary, or gifts to others from the beneficiary. Even if the latter is intended, our view is that an SSI recipient has an interest in reciprocal gift giving, and as long as the gifts are reasonable, a reciprocal gift can be viewed as for the beneficiary’s benefit. Thus, we do not believe this provision violates the sole benefit requirement.See POMS SI 01120.203(B)(1)(e).

Finally, the Trust contains an early termination provision. See Trust at 6, § E. Agency policy provides that a pooled trust with an early termination provision will be excepted from the resource counting rules if three criteria are met: (1) after payment of allowable administrative expenses, the State(s) receive all amounts remaining in the trust up to an amount equal to the amount of medical assistance paid on behalf of the beneficiary; (2) 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), (3); POMS SI 01120.203(B)(2)(g). The administrative expenses that may be deducted before State Medicaid reimbursement include state and federal taxes incurred by the termination of the trust, and reasonable fees and administrative expenses associated with the termination of the trust. POMS SI 01120.199(F)(3).

Here, the Trust’s early termination provision satisfies all three criteria. The Trust first contemplates that, if termination is necessary, the Trustee will transfer sub-account assets to another trust that meets the pooled trust requirements. Trust at 6, § E. This is permissible. POMS SI 01120.199(F)(2). Otherwise, the Trust states that upon early termination, “after reimbursement to the state(s) and payment of allowed expenses, all remaining funds will be distributed to the beneficiary.” Trust at 6, § E. This language satisfies the first two criteria. See POMS SI 01120.199(F)(1), (3). The third requirement is also met because the early termination provision states that the Board of River Communities has “sole and absolute discretion” to terminate the Trust.[2]

(4) Only Individuals Authorized by Statute May Establish a Sub-Account

To meet the fourth requirement, a sub-account must be established by a parent, grandparent, legal guardian of an individual, the individual herself, or by a court. See 42 U.S.C.
§ 1396p(d)(4)(C); see also POMS SI 01120.203(B)(2)(f). Here, only those designated parties may establish sub-accounts. See Trust at 4, § A(2); Joinder Agreement at 2, § D(1).

(5) The Trust Properly Provides for Medicaid Reimbursement

The Trust also satisfies the fifth requirement. As permitted by the POMS, the Trust states that any amounts remaining in a sub-account following a Beneficiary’s death “shall be retained by the Trust.” See Trust at 7, § H; POMS SI 001120.203(B)(2)(g). It also states that “[t]o the extent amounts remaining in an individual’s sub-account are not retained by the Trust, the Trust will pay 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.” Trust at 7, § H. The Joinder Agreement also allows a Settlor to specify a residual beneficiary upon the Beneficiary’s death, but this provision clarifies that such distribution can only occur “after payment to the State(s) as reimbursement for Medical Assistance received.” Joinder Agreement at 3, § E. Since the Trust and Joinder Agreement contain Medicaid payback provisions that are not limited to any particular state, and since the Joinder Agreement’s distribution provision gives priority to the states over payments to residual beneficiaries, the Trust adequately provides for Medicaid reimbursement. See POMS SI 01120.203(B)(1)(h), (3)(b).

(B) The Sub-Accounts Are Not a Resource Under the Regular Resource Counting Rules

Even where a pooled trust meets all of the above requirements, sub-accounts must still be evaluated under the regular resource rules. See POMS SI 01120.203(B)(1)(A), SI 01120.200. Under 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 her basic needs for food or shelter; (2) can direct the use of the trust principal for her support and maintenance; or (3) can sell her beneficial interest in the trust. See POMS SI 01120.200(D)(1)(a)-(b).

(1) Is the Trust Revocable?

No, the Trust is not revocable. The Trust and Joinder Agreement provide that the Trust sub-account and all funds deposited into it are irrevocable. Trust at 4, § A(2); Joinder Agreement at 3. Despite this language, Pennsylvania follows the general principle of trust law that if a settlor is also the sole beneficiary of a trust, the trust is revocable regardless of language to the contrary. See Long v. Tradesmen’s Nat’l Bank & Trust. Co., 165 A. 56 (1933); see also Schellentrager v. Tradesmens Nat’l Bank & Trust Co., 88 A.2d 773 (Pa. 1952) (citing Restatement (First) of Trusts § 339). In this case, the Trust remains irrevocable because the Trust provides that, upon the death of a beneficiary, all residual funds shall be retained by the Trust. Trust at 7, § H. This makes the Trust itself an identifiable residual beneficiary.

(2) Can the Beneficiary Direct the Use of the Trust Principal?

No, the Beneficiary cannot direct the use of the Trust principal for her support and maintenance. The authority to control the Trust principal may be indicated by either “specific trust provisions allowing the beneficiary to act on his or her own or by permitting the beneficiary to order actions by the trustee.” POMS SI 01120.200(D)(1)(b). Here, while the Joinder Agreement allows the Settlor to specify certain distribution uses that she would like the Trustee to “especially consider,” the Trustee retains the power to “determine whether the request [for a distribution] will be honored.” Joinder Agreement at 2, § C; Trust at 5, §§ A(4), B. Thus, the Beneficiary cannot direct the use of the Trust principal.

(3) Can the Beneficiary Sell Her Beneficial Interest in the Trust?

The Beneficiary might be able to sell her interest in the Trust, but it would have no significant market value. The Trust contains a spendthrift provision precluding the Beneficiary from assigning or otherwise transferring her interest in her sub-account. See Trust at 5, § B; see also POMS SI 01120.200(D)(1)(a).

In the event the Beneficiary is also funding her own sub-account, the spendthrift provision may be invalid. See In re Bower’s Trust Estate, 29 A.2d 519, 521 (Pa. 1943). In such case, though, the Beneficiary’s interest in the Trust would have no significant market value because the disbursements are ultimately within the discretion of the Trustee. See Trust at 5, § A(4). Thus, the Beneficiary’s interest in the Trust would have zero market value. See POMS SI 01120.200(D)(1)(a) (stating that if the beneficiary can sell his interest in the trust, that interest is a resource); POMS SI 01140.044(A)(1).

Conclusion

We conclude that the Trust satisfies the pooled trust exception as well as the regular resource rules. Therefore, sub-accounts should not be counted.

B. PS 17-002 Revisions from 2016 to The Community Trust Pooled Trust

Date: September 28, 2016

1. Syllabus

The Shenango Valley Foundation (now called Community Foundation of Western PA and Eastern OH), a Pennsylvania nonprofit corporation, executed a Master Trust Agreement on January 24, 2005. The agreement was previously reviewed in 2004 and was found to meet the Medicaid exception to resource counting. However, since the 2004 review, SSA has promulgated additional guidance and clarification regarding early termination provisions in pooled trusts (see POMS SI 1120.199—Early Termination Provisions and Trusts). As currently drafted, Article XIII of the Master Trust Agreement, and Section K of the Joinder Agreement, do not meet the requirements to be excepted from resource counting. Pursuant to POMS SI 01120.199.A.2, the trust will continue to be excepted from resource counting, provided that it is amended within 90 days.

2. Opinion

I. QUESTION

You asked whether B~’s account in The Community Trust is excepted from resource counting under section 1917(d)(4)(C) of the Social Security Act (Act).

II. SHORT ANSWER

B~’s account does not satisfy the requirements to be excepted from resource counting under section 1917(d)(4)(C) of the Act.

III. FACTUAL BACKGROUND

The Shenango Valley Foundation (now called Community Foundation of Western PA and Eastern OH), a Pennsylvania nonprofit corporation, executed a Master Trust Agreement on January 24, 2005. The agreement was previously reviewed in 2004 and was found to meet the Medicaid exception to resource counting. However, since the 2004 review, SSA has promulgated additional guidance and clarification regarding early termination provisions in pooled trusts (see POMS SI 1120.199—Early Termination Provisions and Trusts). Therefore, an updated review of the Master Trust Agreement and the Joinder Agreement is necessary.

On May XX, 2015, number holder B~ executed a Joinder Agreement, and deposited $8,800.00 in The Community Trust.

IV. RELEVANT TRUST PROVISIONS

The Community Foundation of Western PA and Eastern OH, a Pennsylvania nonprofit corporation, is the Trustee of the Master Trust. 2005 Master Trust, Art. IV. A beneficiary is a disabled person as defined by 42 U.S.C. §1382c(a)(3) (or any successor statute) for whose sole benefit The Community Foundation maintains a separate sub-account within the Trust.

2005 Master Trust, Art. I, III, XI. A beneficiary enrolls in the Trust by entering into a Joinder Agreement with The Community Foundation. 2005 Master Trust, Art. VI.

The following discussion is limited to the provisions of The Community Foundation Master Trust Agreement and Joinder Agreement that are relevant to the legal analysis that follows:

  • Article VIII of the Master Trust Agreement, “Trustee Discretion Conclusive,” states that “Nothing in this Agreement nor in the Joinder Agreement shall be deemed to require the Trustee to make or refrain from making a distribution to or for the benefit of a Beneficiary.” Master Trust, Art. VIII.

  • Article XIII of the Master Trust Agreement, “Termination,” states that, “If a court or agency of competent jurisdiction makes a final, nonappealable decision that an account resulting from the adoption of this Agreement does not qualify as a Medicaid Qualifying Trust, that account shall thereupon terminate and the Trustee, if permitted by applicable law, shall distribute the then remaining assets to the Contributor who created the account.” Master Trust, Art. XIII.

  • Article XIII of the Master Trust Agreement, “If Trust Purpose Impracticable,” states that, “[i]f it becomes impossible or impracticable to carry out the purpose of this Agreement, the Trustee may terminate the Trust and, in its sole and absolute discretion, distribute trust assets held for the sole benefits of the affected Beneficiaries, as provided in the Joinder Agreement.” Master Trust, Art. XIII.

  • Section K of the Joinder Agreement, “Distribution of the Remainder Upon the Beneficiary’s Death (or upon early termination of the trust)”, states that if the Trust is terminated early (prior to the Beneficiary’s death), “the Trustee will distribute the account’s funds and assets either to the Beneficiary or on behalf of the Beneficiary unless the Trustee in its sole discretion deems such distribution not to be in the Beneficiary’s best interest.” Joinder Agreement, Section K.

V. RELEVANT AUTHORITIES

A. Social Security Act

As a general rule, a trust established after January 1, 2000 with an individual’s assets for his or her own benefit is considered a resource under sections 1613 and 1917 of the Social Security Act (the Act). Social Security Act §§ 1613(e), 1917(d). A trust established with the assets of a disabled individual that is part of a pooled trust may be excepted from resource counting under certain circumstances. Social Security Act §§ 1613(e)(5), 1917(d)(4)(C). To meet this exception: (1) the trust must be established and managed by a non-profit association; (2) a separate account must be maintained for each beneficiary of the trust; (3) accounts in the trust must be established for the sole benefit of the beneficiaries by a parent, grandparent, legal guardian, by the beneficiaries themselves, or by a court; and (4) upon the beneficiary’s death, any amount not retained by the trust must be used to repay the State(s) for 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).

B. Program Operations Manual System (POMS)

Additional guidance is provided in the Program Operations Manual System (POMS) SI 01120.201 (Trusts Established with the Assets of an Individual on or after 1/1/00) and POMS SI 01120.203 (Exceptions to Counting Trusts Established on or after 1/1/00). As a general rule, a trust established after January 1, 2000, with the assets of an individual, for his or her own benefit – even if irrevocable – must be counted as a resource. POMS SI 01120.201. Consistent with the Act, however, POMS recognizes there are exceptions, including trusts established to meet the needs of disabled individuals under section 1917(d)(4)(C) of the Act.

See POMS SI 01120.201, POMS SI 01120.203. To satisfy the pooled trust exception, the trust must be established and managed by an organization that has been established and certified under a State nonprofit statute. POMS SI 01120.203.B.2.c; see Social Security Act § 1917(d)(4)(C)(i). The trust also must maintain a separate account for each trust beneficiary, although the funds may be pooled for investment and management purposes. POMS SI 01120.203.B.2.d; see Social Security Act § 1917(d)(4)(C)(ii). POMS also explains that “the trust must contain specific language that provides that, to the extent that amounts remaining in the individual’s account upon death of the individual are not retained by the trust, the trust pays 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.B.2.g; see Social Security Act § 1917(d)(4)(C)(iv).

The agency has interpreted “the sole benefit” requirement of section 1917(d)(4)(C) of the Act to mean the trust cannot benefit anyone but that individual from the time of the trust’s establishment through the remainder of the individual’s life. POMS SI 001120.201.F.2.a; see Social Security Act § 1917(d)(4)(C)(iii). Therefore, aside from payments for goods or services for the trust beneficiary and reasonable administrative expenses, the trust must not (1) provide a benefit to any other individual or entity during the disabled individual’s lifetime, or (2) allow for termination of a trust account prior to the individual’s death and payment of the assets to another individual or entity. POMS SI 01120.203.B.2.e. Thus, if the trust contains an early termination clause, it might not be excepted as a resource. See POMS SI 01120.203.B.2.e.

POMS SI 01120.199.F (Early Termination Provisions and Trusts) provides additional guidance as to when an early termination clause renders a trust a countable resource. Trusts established with the resources of an individual that contain an early termination clause are not to be counted as a resource 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. For a pooled trust established under section 1917(d)(4)(C) of the Act, the trust need not meet the above criteria to be excepted as a resource if the early termination clause (1) “solely allows for transfer of the beneficiary’s assets from one [pooled] trust to another [pooled] trust,” and (2) contains specific language precluding disbursements other than to the secondary trust or for the payment of certain taxes, fees and expenses. POMS SI 01120.199.F.2 (citing POMS SI 01120.201.F.2.c).

The POMS specify that a pooled trust must also be evaluated under the “regular resource rules” in order to determine if it is a countable resource. See POMS SI 01120.203.B.1.a. Specifically, the trust principal is a resource for SSI purposes if:

  • the beneficiary can revoke or terminate the trust and then use the funds to meet his food or shelter needs;

  • the beneficiary can direct the use of the trust principal for his or her support and maintenance under the terms of the trust. See SI 01120.200.D.1.a; or

  • the beneficiary can sell his or her beneficial interest in the trust, that interest is a resource. For example, if the trust provides for payment of $100 per month to the beneficiary for spending money, absent a prohibition to the contrary (e.g., a valid spendthrift clause; see SI 01120.200B.16.), the beneficiary may be able to sell the right to future payments for a lump-sum settlement. See POMS SI 01120.200.D.1.a.

Additionally, such disbursements may temporarily disqualify the recipient from receiving SSI (or Medicaid) if they are counted as “income.” See POMS SI 01120.201.I.1.a. (“Cash paid directly from the trust to the individual is unearned income.”). See POMS SI 01120.201.I.1.b. (“Food or shelter received as a result of disbursements from a trust by the trustee to a third party is income in the form of in-kind support (ISM) and maintenance and is valued under the presumed maximum value (PMV) rule. (For instructions pertaining to the PMV rule, see POMS

SI 00835.300, and for rules pertaining to a home, see POMS SI 01120.200F”)).

VI. ANALYSIS

B~ established his account in The Community Trust on May XX, 2015, and used his own assets to fund the account. Accordingly, unless the Trust is excepted under section 1917(d)(4)(c) of the Act, B~’s account will constitute a countable resource.

The following sections of the Master Trust Agreement and the Joinder Agreement are in violation of Social Security’s rules pertaining to pooled trusts and, therefore, will need to be amended in order to except B~’s account from resource counting.

Article XIII of the Master Trust, in the section titled, “Termination” states that “[i]f a court or agency of competent jurisdiction makes a final, nonappealable decision that an account resulting from the adoption of this Agreement does not qualify as a Medicaid Qualifying Trust, that account shall thereupon terminate and the Trustee, if permitted by applicable law, shall distribute the then remaining assets to the Contributor who created the account.” This language is problematic because this is not a “Medicaid Qualifying Trust,” but rather is a “pooled trust” authorized by Section 1917(d)(4)(C) of the Act. Section 1917(d)(4)(C) of the Act presupposes that the pooled trust was funded, at least in part, by the disabled individual. To the extent that this section can be read to mean that if the Trust terminates while the Beneficiary is still alive it may be returned to the Beneficiary (without Medicaid payback), it violates SSA’s countable resource rules. See POMS SI 01120.199.F.1. The language should be amended to clarify that in the event of early termination, Medicaid payback is required.

Article XIII of the Master Trust, in the section titled, “If Trust Purpose Becomes Impracticable” states that the Trustee may terminate the trust and “distribute assets held for the sole benefits of the affected Beneficiaries, as provided in the Joinder Agreement.” This provision, standing alone, does not violate SSA’s resource rules. But Section K of the Joinder Agreement, which directs the disbursement of funds on early termination, must be revised in order to exclude the trust as a resource.

Specifically, Section K of the Joinder Agreement states that, on early termination, the funds must be paid directly to the Beneficiary or for his/her benefit or to the guardian or representative payee, unless the Trustee determines otherwise. This provision is inconsistent with SSA’s rules, which provide that the funds must either be rolled over into another pooled trust or first used for Medicaid payback before a Beneficiary can be paid. See POMS SI 01120.199F.1 & 2. The only expenses that can be paid prior to Medicaid payback are: (1) taxes due from the trust to the state(s) or federal government due to the termination of the trust; and (2) reasonable fees and administrative expenses associated with the termination of the trust. See POMS SI 01120.199F.3.

Additionally, no residual beneficiaries—in this case the guardian or representative payee—can receive the funds on early termination. See POMS SI 01120.199.F.1. (“no entity other than the trust beneficiary may benefit from the early termination (i.e., after reimbursement to the State(s), all remaining funds are disbursed to the trust beneficiary”). Although it is unlikely that the funds would “benefit” the guardian or the representative payee, this limitation was not made express in the Joinder Agreement. Therefore, Section K of the Joinder Agreement must be modified to comply with SSA’s early termination rules.

VII. CONCLUSION

As currently drafted, Article XIII of the Master Trust Agreement, and Section K of the Joinder Agreement, do not meet the requirements to be excepted from resource counting. Pursuant to POMS SI 01120.225.A.2, the trust will continue to be excepted from resource counting, provided that it is amended within 90 days. The 90-day period will begin on the day the recipient or representative payee is informed that the trust contains provisions that must be amended in order to continue qualifying for the exception to resource counting under section 1917(d)(4)(A) or (C) of the Social Security Act. The trust should not be counted as a resource during the 90-day amendment period.

C. PS 15-035 Update to Survey of State Trust Law Within Region III

Date: November 25, 2014

1. Syllabus

Revision of the 2003 Regional Chief Counsel (RCC) opinion on whether a parent or grandparent can establish an empty trust for the purpose of receiving a competent adult’s supplemental security income (SSI) payments at a later date under the law of the jurisdiction within Region III. Since 2003 four out of the six States within Region III have adopted the Uniform Trust Code (UTC) provision requiring identifiable trust property. The two states that have not adopted the UTC provisions do not have statutes that permit empty trusts. No State within Region III will recognize as valid an empty trust, and for a trust to be permissible under the exceptions of Social Security Act § 1917(d)(4)(A) the parent or grandparent that establishes the trust will have to “seed” it with their own money before transferring the individuals money to the trust.

2. Opinion

INTRODUCTION

On August 27, 2003, we provided advice on whether a parent or grandparent can establish an empty trust for the purpose of receiving a competent adult supplemental security income (SSI) beneficiary’s assets at a later date under the laws of the jurisdictions within Region III (Delaware, District of Columbia, Maryland, Pennsylvania, Virginia, and West Virginia). In preparing this advice, we were instructed to assume that the trust agreements that we were to consider satisfied the requirements of Social Security Act § 1613(e)(5), 42 U.S.C. '1382b(e)(5). In 2003, our research of case law led us to conclude that every jurisdiction in Region III would recognize empty trust agreements as valid if there was an expectation of funding, such as from a court order awarding funds that would become the property of a trust. We have recently reviewed the applicable law in the intervening 11 years, and found that the law has evolved more clearly to require some funds be transferred to a trust at the time it is established. Since 2003, four jurisdictions within Region III have adopted the Uniform Trust Code (UTC), thereby offering legal authority other than case law for the establishment of trusts. Although two states did not adopt the UTC, the Restatement (Third) of Trusts also supports our conclusion. Consequently, we believe that jurisdictions within Region III would not recognize as valid trust agreements that satisfy the provisions of Social Security Act § 1613(e)(5) when a parent or grandparent establishes only an empty trust. Therefore, we recommend replacing our

August 27, 2003 memorandum (which is found at SSA POMS PS 01825.042, 2002 WL 1879916) with this revised opinion.

BACKGROUND

To qualify for SSI, an individual must not have resources that total more than $2,000. 20 C.F.R. ' 416.1205 (2013). In addition, as a general rule, a trust established with the assets of an individual (or spouse) will be considered a resource for SSI eligibility purposes. Social Security Act § 1613(e)(3). There is, however, an exception to these resource provisions. Under Social Security Act § 1613(e)(5), if any agreement satisfies the criteria found in Social Security Act § 1917(d)(4), 42 U.S.C. ' 1396p(d)(4), it is not counted as a resource. Social Security Act § 1917(d)(4)(A) provides the following exception for counting a trust as a resource:

A trust containing assets of an individual under age 65 who is disabled (as defined in section 1614(a)(3)) and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court if the state will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this title.

With respect to trust property, “[i]n the case of a legally competent, disabled adult, a parent or grandparent may establish a ‘seed’ trust using a nominal amount of his or her own money, or if State law allows, an empty or dry trust.” POMS SI 01120.203(B)(1)(f). Consequently, the POMS answers in the affirmative the question of whether a special needs trust can be established with nominal or seed funds, and leaves the resolution of questions pertaining to empty trusts to the individual states.

DISCUSSION

Since we prepared our August 27, 2003 memorandum, the majority of jurisdictions within Region III (Pennsylvania, Virginia, West Virginia, and the District of Columbia) have adopted § 401 of the UTC. See 20 Pa.C.S.A. § 7731 (effective Nov. 6, 2006), VA Code Ann. § 64.2-719 (effective Oct. 1, 2012), W. Va. Code, § 44D-4-401 (effective June 10, 2011), and DC ST

§ 19-1304.01 (effective Mar. 10, 2004). This section of the UTC explains how trusts are established and reads, as relevant:

A trust may be created by:

(1) transfer of property to another person as trustee during the settlor's lifetime or by will or other disposition taking effect upon the settlor's death;

(2) declaration by the owner of property that the owner holds identifiable property as trustee; or

(3) exercise of a power of appointment in favor of a trustee.

Unif. Trust Code § 401 (2000) (emphasis added). Therefore, the UTC requires that a trust must contain identifiable property, and empty trusts will not satisfy this requirement.

The comments found in the Restatement of Trusts further clarify that a trust must have identifiable property. The UTC was drafted in close coordination with the revision of the Restatement (Second) of Trusts to the extent that a significant number of UTC provisions could be described as a codification of the Restatement. D~, The Uniform Trust Code (2000): Significant Provisions and Policy Issues, 67 Mo. L. Rev. 143, 148 (Spring 2002). Similar to § 401 of the UTC, the Restatement (Third) of Trusts provides that a trust cannot be created unless there is trust property in existence and ascertainable at the time of the creation of the trust. See Restatement (Third) of Trusts (2003) § 2, cmt. i.

CONCLUSION

In summary, four of the six jurisdictions within Region III have adopted the UTC provision requiring identifiable trust property. The two jurisdictions (Delaware and Maryland) that have not yet adopted the UTC provision, do not have statutes that permit empty trusts. Thus, we conclude that no state within our region would recognize as valid an empty trust. Accordingly, to qualify for the exception under Social Security Act § 1917(d)(4)(A), when a parent or grandparent establishes the trust, they must first “seed” the trust with some of the parent or grandparent’s own money before transferring the individual’s money to the trust. POMS SI 01120.203(B)(1)(f). Since empty trusts are not considered valid in our region, simply transferring the individual’s money to the trust without first seeding would be considered equivalent to the individual establishing the trust on their own, which is not permitted under the trust exception codified at 42 U.S.C. § 1396p(d)(4)(A). Accordingly, we recommend replacing our August 27, 2003 memorandum (which is found at SSA POMS PS 01825.042, 2002 WL 1879916), with this updated opinion.

Nora Koch
Acting Regional Chief Counsel

By: Andrew C. Lynch

Assistant Regional Counsel

D. PS 00-224 Pennsylvania Trust for Alexander J. E~

Date: November 1, 1999

1. Syllabus

At issue in this opinion is whether or not the trust is considered a countable resource for Supplementary Security Income (SSI) purposes.

Under Pennsylvania law, if one is both the settlor and sole beneficiary of a trust, he/she has the authority to revoke the trust and use the assets for support and maintenance. Thus, the trust is a countable resource for SSI purposes.

2. Opinion

You asked for an opinion on whether the trust established for the benefit of Alexander E~ is a countable resource for Supplemental Security Income (SSI) purposes. Because Mr. E~ has the legal authority to revoke the trust and use the assets for his support and maintenance, we conclude that the assets in the trust should be considered a resource to him.

FACTS

At issue is a discretionary trust entitled "Alexander J. E~ Irrevocable Trust Agreement" [hereafter "Trust Agreement"] created for the benefit of Alexander J. E~, who is disabled. Alexander's parents, James and Rebecca E~ are named as the settlors and co-trustees. The stated intent of the trust is to serve as a special and/or emergency fund to provide for Alexander's "special needs" (Section 2.02). The trust agreement states that the trust funds are not meant to displace or supplant public assistance or other sources of support which may be otherwise available to Alexander, and that the trust funds should not be administered in such a way as to cause public benefits "not to be initiated or terminated" (Section 2.03) The trust agreement further states that the trust principal or income should not be considered available to Alexander for purposes of determining his eligibility for public assistance, and in the event of a contrary ruling, the trustees may take whatever administrative or judicial steps are necessary to obtain a ruling that the trust funds are unavailable (Section 2.04).

According to the terms of the Trust Agreement, upon Alexander's death and after reimbursement to the state of Pennsylvania for prior medical assistance provided to Alexander and payment of any remaining funeral expenses, taxes, and/or expenses related to the running of the trust, the residue should be distributed upon the terms and conditions of Alexander's last will and testament, or in the absence of such will, to those persons who would be the Alexander's heirs had he died intestate (Section 2.05.02). The trust is to be governed, construed, and administered according to Pennsylvania law (Section 6.03).

DISCUSSION

The Social Security Act provides that an unmarried individual is not eligible for SSI if his or her countable resources exceed $2000. 42 U.S.C. § 1382(a)(1)(B)(ii). A 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. 20 C.F.R. § 416.1201(a) (1999). Property in trust can be a resource to the extent that it satisfies this definition. Thus, if Alexander has the authority to revoke the trust and then use the funds to meet his food, clothing, or shelter needs, the trust principal is a resource for SSI purposes. See POMS SI 01120.200(D)(1)(a). Whether Alexander can revoke the trust depends on Pennsylvania law.

Alexander Has Authority To Revoke The Trust Because He is Settlor and Sole Beneficiary

In this case, the trust purports to be irrevocable (Section 6.01). However, under Pennsylvania law, even if a trust expressly declares itself irrevocable, it may still be terminated if the settlor is the sole beneficiary of the trust and is not under a legal incapacity. See Schellentrager v. Tradesman Nat. Bank & Trust Co., 88 A.2d 773, 774 (Pa. 1952) (citing RESTATEMENT (SECOND) OF TRUSTS § 339 (1959)); In re Bowers' Trust Estate, 29 A.2d 519, 520-21 (Pa. 1943) (same); POMS SI 01120.200D3 (revocability of grantor trusts).

Here, Alexander's parents are named as the settlors of the trust.

However, under POMS SI 01120.200B2, Alexander would be considered the settlor as the trust was created from the settlement funds of his malpractice lawsuit. See RESTATEMENT (SECOND) OF TRUSTS § 3(1) (1959) (The person who creates the trust is the settlor).

Alexander is also the sole beneficiary. Even though the trust provides that, upon Alexander's death, any remaining assets shall be used to reimburse the state of Pennsylvania for prior medical assistance provided to Alexander and then paid to cover any remaining funeral expenses, taxes, and/or expenses related to the running of the trust, these provisions do not create any additional beneficiaries. Rather, these provisions merely require that the trustee reimburse the appropriate entities for benefits already conferred on Alexander. Thus, Alexander would be considered the actual beneficiary.

Nor does the direction to pay any residue to a class of beneficiaries designated by Alexander in his will create any additional beneficiaries whose consent would be required to terminate the trust. First, there is no indication that Alexander has designated any residual beneficiaries in a written will. Second, even if Alexander had executed a will, because a will is revocable at any time during the testator's life, nothing would prevent him from later canceling it. See Clarification of Regional SSA Program Circular 94-05 Concerning Trusts, OGC-V (Koven) to Trudy Lewis, Acting ARC Programs (5/24/95), at 3, fn 3.

That the residue upon Alexander's death should alternatively be distributed to his heirs as though he had died intestate does not create any additional beneficiaries. Where a trust purports to create an interest in favor of the grantor's "heirs at law," or to his "next of kin," the grantor is considered the sole beneficiary of the trust. See McCreary's Estate v. Pitts, 47 A.2d 235, 238 (Pa. 1946) ("When the remainder interest is to the settlor's next of kin [under the intestate laws], it is in substance a remainder to himself."); RESTATEMENT (SECOND ) OF TRUSTS § 127 cmt. b (1959) (grantor is the sole beneficiary where he transfers property in trust to pay the income to himself for life and on his death to pay the principal to his estate). Under SSA policy, therefore, the trust assets should be considered a countable resource to Alexander as he has the legal authority to revoke the trust and gain access to the funds. POMS SI 01120.D1B (authority to revoke or use trust assets).

CONCLUSION

In conclusion, we note that, because Alexander is the both the settlor and sole beneficiary of the trust, he has the authority under Pennsylvania law to revoke the trust and use the assets for his support and maintenance. The trust assets should therefore be considered a resource to him for purposes of SSI.

 


Footnotes:

[1]

. We believe Pennsylvania law governs the Trust and Joinder Agreement. Although the trust documents do not explicitly state which laws govern, the Trust specifies that disputes over the distribution of account assets will be resolved by the Orphan’s Court Division of the Court of Common Pleas, a Pennsylvania court. Trust at 5, § A(4). Further, while the Settlor and Beneficiary are domiciled in Colorado, the Trust is registered in Pennsylvania and the Trustee is based in Pennsylvania. See Approval of the RCFS Pooled Trust Master Agreement; Joinder Agreement at 1-2. These factors are probably sufficient to designate Pennsylvania law as the governing law of the trust documents. See 20 Pa. Cons. Stat. Ann. § 7707(1) (West 2016); Restatement (Second) of Conflict of Laws § 268 cmts. a-b (Am. Law Inst. 1971). In addition, Colorado trust law presumes that actions among its residents involving out-of-state trusts should be dismissed and referred to the state where the trust is registered. Luebke v. Luebke, 143 P.3d 1088 (Colo. App. 2006) (interpreting Colo. Rev. Stat. Ann. § 15-16-203 (West 2017)).

[2]

. We note that, under Pennsylvania law, there are limited circumstances in which the state Medicaid agency or another state agency “may petition the court for an order terminating the trust.”  62 Pa. Stat. Ann. § 1414(c).  We think it is reasonable to assume that if a court were to terminate the Trust, it would do so in a manner consistent with the purpose and terms of the Trust and, accordingly, would provide for Medicaid reimbursement and order any remaining funds disbursed to the beneficiaries consistent with the requirements of SI 01120.199.


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PS 01825.042 - Pennsylvania - 05/08/2018
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