TN 78 (08-17)

PS 01825.045 South Carolina

A. PS 17-125 Resource Status of a Trust for Determining Eligibility for Supplemental Security Income

Date: August 1, 2017

1. Syllabus

The Regional Chief Counsel (RCC) opinion examines whether a trust established for a recipient of Supplemental Security Income (SSI) with the recipient’s Uniform Gifts to Minors Act account is a resource to the recipient, and if the trust is a third-party trust or a special needs trust under section 1917(d)(4)(A) of the Social Security Act (Act). It was concluded that under South Carolina law, the Trust is a self-settled trust and a resource under Section 1613(e) of the Social Security Act. The trust is not a special needs trust under section 1917(d)(4)(A) of the Act because it does not contain a Medicaid payback provision.

2. Opinion

QUESTION

For determining whether a trust established for a recipient of Supplemental Security Income (SSI) is a resource to the recipient, you asked if the trust is a third-party trust or a special needs trust under section 1917(d)(4)(A) of the Social Security Act (Act).

OPINION

The trust is not a third-party trust or a special needs trust for determining whether the trust is a resource to the recipient.

BACKGROUND

A~ (Recipient) applied for SSI on September XX, 2016, at the age of twenty-six, and the Social Security Administration (SSA) found her presumptively disabled and entitled to SSI. In connection with her application, Recipient submitted a copy of a trust agreement dated November XX, 2007, entered into when Recipient was seventeen years old. The trust agreement created the A~ Trust Agreement Dated November 8, 2007 (Trust). See Trust, art. I, ¶ (b). The trust agreement indicates that J~, Recipient’s father, as Recipient’s custodian under the South Carolina Uniform Gift to Minors Act (UGMA) and grantor, and Recipient’s father and mother, as Trustees, created the Trust. See Trust, pmbl. Recipient’s father is named as the grantor of the Trust, and he and Recipient’s mother are named as Trustees. See Trust, pmbl., art. I, ¶ (c). The material purpose of the Trust was to allow Recipient’s father and mother, as Trustees, to continue to manage assets given to Recipient by her grandfather under the South Carolina UGMA beyond Recipient attaining the age of majority. See Trust, art. I, ¶ (c). Recipient’s UGMA property, with her acknowledged, was transferred to the Trust the same day the Trust was created. See Trust, Exh. A.

The Trust states that the Trustees are to manage the trust assets and may at their discretion use the trust assets “for the medical care, education, maintenance and support in reasonable comfort of” Recipient. Trust, art. I, ¶ (c), art. III, ¶ (a). The Trust allows the Trustees to terminate the Trust if, in their sole discretion, they determine that:

(1) the size of the Trust is too small to make its continued administration efficient or economical; or

(2) a trust beneficiary, including Recipient, has reached a status of sufficient age and maturity so as to render the Trust unnecessary.

See Trust, art. III, ¶ (b); see also Trust art. IX, ¶ (r) (granting Trustees discretion to terminate Trust after the grantor’s death if continuation impractical). Upon Recipient’s death (assuming the Trust has not been terminated), the Trustees must distribute any remaining trust assets to Recipient’s descendants, or if she has no descendants, to her brother or his descendants, and if he has died and has no descendants, to the final beneficiaries. See Trust, art. III, ¶¶ (c)-(f), art. IV; see also art. VII (defining final beneficiaries). The Trustees must continue to hold any remaining assets or distributed assets, after payment of any expenses or distribution under Recipient’s will, unless the descendant has reached the age of twenty-one. See Trust, art. IV, art. V, art. VI. The Trustees have the power to deal with any property held in the Trust as the grantor (Recipient’s father) might in the handling of his own affairs. See Trust, art. IX.

The Trust also grants the Trustees the discretion to establish “a separate Special Needs Trust” if a descendant of the grantor (Recipient’s father) suffers from a disability. See Trust, art. X. The intent of authorizing the establishment of a separate special needs trust is to facilitate the financial eligibility of each special needs beneficiary for means-tested public benefits, including SSI. See id. The Trust also provides that if an individual is serving as a sole trustee is also a beneficiary, the individual has no power to make discretionary distributions from the trust to himself or herself. See Trust, art. XI, ¶ (k)(1). An individual who is a beneficiary and is not serving as sole trustee has no power to make discretionary distributions from the trust to or for his or her benefit. See Trust, art. XI, ¶ (k)(2). The Trust also includes a spendthrift provision that states that neither Recipient nor any other beneficiary has any power to dispose of, encumber, or charge by way of anticipation any interest he or she may have in the Trust. See Trust, art. XII.

The Trust also states that the grantor (Recipient’s father) declared the Trust irrevocable. See Trust, art. XIV. Specifically, the grantor is “without power to revoke, change, alter, amend, vary or annul any of the provisions contained in this Trust Agreement or the trust created hereunder.” Id. A Trust Certification also declares the Trust irrevocable. The Trust provides that South Carolina law governs all questions pertaining to the validity and construction of the Trust. See Trust, art. XVI.

DISCUSSION

SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Act §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2017).*1 “Resources” include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to be used for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a); Program Operations Manual System (POMS) SI 01110.100B.1; POMS SI 01120.010B. “If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual . . . .” 20 C.F.R. § 416.1201(a)(1); see POMS SI 01110.100B.1, B.3; POMS SI 01120.010B.

Generally, SSA must consider the principal or corpus of a trust established with the assets of an individual to be a resource of the individual. See Act § 1613(e)(1)-(3); POMS SI 01120.201A.1. “[A]n individual shall be considered to have established a trust if any assets of the individual . . . are transferred to the trust other than by will.” Act § 1613(e)(2)(A); see POMS SI 01120.201B.7, C.2. If an individual establishes a revocable trust, SSA will consider the corpus of the trust to be a resource available to the individual. See Act § 1613(e)(3)(A); POMS SI 01120.201D.1.a. If an individual establishes an irrevocable trust, SSA will consider the corpus of the trust to be a resource available to the individual “if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual.” Act § 1613(e)(2)(B); see POMS SI 01120.201D.2.a. The provisions in section 1613(e) of the Act apply to a trust without regard to: (1) the purposes for which the trust is established; (2) whether the trustees have or exercise any discretion under the trust; (3) any restrictions on when or whether distributions may be made from the trust; or (4) any restrictions on the use of distributions from the trust. Act § 1613(e)(2)(C); see POMS SI 01120.201C.2.d.

However, trusts established on or after January 1, 2000, that contain only assets of third parties or the portion of a commingled trust attributable to assets of third parties are not subject to the statutory provisions in section 1613(e) of the Act. See POMS SI 01120.200A.2.b. A third-party trust is a trust established with the assets of someone other than the beneficiary. See POMS SI 01120.200B.17. A trust that may appear to be established with the assets of a third party may in reality be created with the beneficiary’s property; such a trust would be a grantor trust, not a third-party trust. See id.

The Act also provides exceptions to the statutory rules in Section 1613(e) of the Act for trusts established in accordance with section 1917(d)(4) of the Act. See Act § 1613(e)(5); POMS SI 01120.201A.1; POMS SI 01120.203A. Special needs trusts are one such exception. See Act § 1917(d)(4)(A); POMS SI 01120.203.B.1 (noting trusts established under § 1917(d)(4)(A) are commonly referred to as special needs trusts). To qualify as a special needs trust, a trust must: (1) contain the assets of an individual under age sixty-five who is disabled; (2) be established for the benefit of the individual by a parent, grandparent, legal guardian, or court; and (3) provide that the state(s) will receive all amounts remaining in the trust upon the individual’s death up to an amount equal to the total medical assistance paid on behalf of the individual under the state(s) Medicaid plan. See Act § 1917(d)(4)(A); POMS SI 01120.203B.1.a. The trust also must list the state(s) as the first payee with priority over payment of other non-exempted debts and administrative expenses. See POMS SI 01120.203B.1.h.

You asked whether the Trust is a third-party trust because Recipient’s father transferred Recipient’s assets in her UGMA account to the Trust before she reached the age of majority. The South Carolina UGMA allows an adult person to make a gift of property to a person who is a minor at the time of the gift. See S.C. Code § 63-5-520(A) (2017). A gift made under the South Carolina UGMA “is irrevocable and conveys to the minor indefeasibly vested legal title to the” property except as provided in the South Carolina UGMA. S.C. Code § 63-5-530(A) (2017); see McLeod v. Sandy Island Corp., 1216 S.E.2d 746, 749 (S.C. 1975). Such a gift also grants to the custodian the powers and rights provided in the South Carolina UGMA. S.C. Code § 63-5-530(B). The custodian has the duty to collect, hold, manage, invest, and reinvest the custodial property. S.C. Code § 63-5-540(A) (2017). The custodian must use the custodial property to cover expenditures by the minor or expend the custodial property for minor’s benefits, but the custodian has the discretion to determine how to use the custodial property for the support, maintenance, education, and benefit of the minor. See S.C. Code § 63-5-540(B). A custodian also has all powers that a guardian has with respect to property not held as custodial property. See S.C. Code § 63-5-540(I). Under South Carolina law, a guardian has the same powers “respecting a ward as a parent has respecting his unemancipated minor child.” S.C. Code § 62-5-313(a) (2017).

South Carolina law does not appear to specifically allow or prohibit a custodian of UGMA to transfer the custodial property into a trust for the minor. Given the broad powers granted custodians under the South Carolina UGMA, we see no reason why Recipient’s father could not transfer Recipient’s UGMA property to the Trust. Although Recipient’s father created the Trust, he used Recipient’s assets to create the trust. Therefore, the Trust is not a third-party trust.

You also asked whether the Trust qualifies as a special needs trust. As discussed above, the Trust contains Recipient’s assets, and SSA has found that Recipient, who is under age sixty-five, is presumptively disabled. See Act § 1917(d)(4)(A); POMS SI 01120.203B.1.a, B.1.b, B.1.d. The Trust also was established for Recipient’s benefit by her father. See Act § 1917(d)(4)(A); POMS SI 01120.203B.1.a, B.1.f. However, the Trust does not establish that, upon Recipient’s death, the assets in the Trust will be used to reimburse the state(s) for providing medical assistance under the state(s) Medicaid plan(s). See Act § 1917(d)(4)(A); POMS SI 01120.203B.1.a, B.1.h. Notably, the Trust grants the Trustees the discretion to establish a separate special needs trust if a descendant of the grantor suffers from a disability, the intent being to facilitate the financial eligibility of each special needs beneficiary for means-tested public benefits, including SSI. See Trust, art. X. The information provided, however, does not indicate that the Trustees have attempted to establish such a special needs trust for Recipient. Thus, the Trust is not a special needs trust and is not exempt from section 1613(e) of the Act.

CONCLUSION

The Trust is not a third-party trust or a special needs trust under section 1917(d)(4)(A) of the Act for determining whether the Trust is a resource to Recipient.

Sincerely,

Mary Ann Sloan

Regional Chief Counsel

By: Brian C. Huberty

Assistant Regional Counsel

B. PS 16-200 Resource Status of a Trust Governed by South Carolina law – Supplemental Opinion

Date: September 21, 2016

1. Syllabus

This Regional Chief Counsel opinion examines whether the amended Babcock Center Foundation, Inc., Pooled Fund Trust (Master Trust) meets the requirements for a pooled trust exception under section 1917(d)(4)(C) of the Social Security Act (Act). As of August 17, 2016, the amended Master Trust meets all the requirements for the pooled trust exception. The amended Master Trust does not count as a resource for SSI purposes.

2. Opinion

QUESTION

Whether the amended Babcock Center Foundation, Inc., Pooled Fund Trust (Master Trust) complies with the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant provisions of the Program Operations Manual System (POMS).

OPINION

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

BACKGROUND

In a memorandum dated June 10, 2016, we advised that the Master Trust established by the Babcock Center Foundation, Inc. (Babcock) did not comply with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS.2 We explained that the Master Trust was not managed by a nonprofit association. We noted that although Babcock is a nonprofit organization, Security Federal Bank, a for-profit organization, served as Trustee and retained managerial control under the Master Trust. We also explained that the sub-accounts were not established for the sole benefit of disabled individuals. In particular, we explained that Babcock could apportion costs and expenses in defending the Master Trust to all trust sub-accounts regardless of whether all sub-accounts were affected by the action, and the Master Trust allowed the Trustee to use trust funds to pay the income taxes that a beneficiary’s parent or parents owed on any payment to or on behalf of a beneficiary. We also noted that the Master Trust’s early termination provision allowed the Trustee to pay the amount remaining in a sub-account to a special needs trust, in violation of POMS SI 01120.199. Finally, we explained that the Master Trust did not require that sub-accounts contain the assets of disabled individuals or that the sub-accounts be established by the disabled individual, his or her parent, grandparent, or legal guardian, or a court.

On August 17, 2016, Babcock amended the Master Trust. See Sixth Amendment and Restatement of Pooled Fund Trust Agreement of Babcock Center Foundation, Inc. (6th Trust Decl.). The amended Master Trust includes several revisions to its Article II Definitions. In particular, the Master Trust redefines “Beneficiary” and “Sponsor” and includes definitions for “Sub-accounts” and “Manager.” Compare Fifth Amendment and Restatement of Pooled Fund Trust Agreement of Babcock Center Foundation, Inc. (5th Trust Decl.), Art. II, with 6th Trust Decl., Art. II. The amended Master Trust defines “Beneficiary” as any person who “is disabled as defined in § 1614(a)(3)” of the Act and qualified under 42 U.S.C. § 1396p (section 1917 of the Act) to receive services and benefits under the Master Trust.3 6th Trust Decl., Art. II, § 1. A “sub-account” is a “financial account within the Pooled Trust maintained for the benefit of an individual disabled [b]eneficiary and established with the funds of that individual disabled [b]eneficiary.” 6th Trust Decl., Art. II, § 9. “Sponsor” is defined as a parent, grandparent, legal guardian, a beneficiary himself or herself, or any court.4 6th Trust Decl., Art. II, § 8. The amended Master Trust also identifies Babcock as the “Manager.” 6th Trust Decl., Art. II, § 5.

The amended Master Trust includes new Articles VII and VIII, identifying and distinguishing the roles of the Manager and the Trustee. See 6th Trust. Decl., Art. VII, VIII. The Master Trust provides that, as Manager, Babcock:

shall manage the Trust and shall have full power and authority in its sole discretion to do all acts and things necessary to accomplish the purposes of this Trust and to do such other acts concerning the Trust as may be advisable, including but not limited to 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.

6th Trust Decl., Art. VII; see also 6th Trust Decl., Art. III, §§ 2, 3, 4, 6, 9, 10, Art. VI, §§ 2, 3, 5, 6, 7, Art. VIII, §§ 3, 4 (describing further the powers and duties of the Manager). The Trustee, Security Federal Bank, is employed by the Manager to provide certain investment and accounting functions, but the Manager “retains full discretion as to disbursements to be made from the Trust.” 6th Trust Decl., Art. VIII. “Subject to the control and direction of the Manager,” the Trustee is authorized to take several actions including investing and reinvesting trust property and selling or disposing of trust property. 6th Trust Decl., Art. IX. Babcock may also designate another non-profit corporation as a successor Manager, who would succeed in all the rights, powers, and privileges accorded to the Manager. See 6th Trust Decl., Art. VII.

The Master Trust also includes some revisions related to the administration of the trust and payment of trust property. The Manager may direct the Trustee to pay or apply for the supplemental care needs of each beneficiary. See 6th Trust Decl., Art. III, § 2. Babcock amended the Master Trust to limit payment of third party travel expenses to: (a) those that are necessary for a beneficiary to obtain medical treatment; or (b) for visiting a beneficiary, who resides in an institution, nursing home, other long-term care facility, or other supported living arrangement in which a non-family member or entity is being paid to provide or oversee the beneficiary’s living arrangement and the travel is for ensuring the safety and/or medical well-being of the beneficiary. See 6th Trust Decl., Art. II, § 6. The Manager will charge against all sub-accounts on a pro rata basis fees for its services and the Trustee is entitled to reasonable compensation for its services which will be agreed on from time to time between the Trustee and Manager. See 6th Trust Decl., Art. VII, Art. VIII, § 6. The Manager may also only charge the costs and expenses of defending the Master Trust from any claim, demand, legal or equitable action, suit, or proceeding to the sub-account of an affected beneficiary or sub-accounts of a group of affected beneficiaries. See 6th Trust Decl., Art. VI, § 7. The amended Master Trust omits language from the prior version that permitted the Trustee to reimburse the parent or parents of a beneficiary for any federal, state, and municipal income taxes, which he/she or they may be required to pay because of payments of trust income to or on behalf of the beneficiary.

Compare 5th Trust Decl., Art. III, §10, with 6th Trust Decl., Art. VI.

The Master Trust’s early termination clause was revised as follows to permit the Manager to direct the Trustee to pay remaining amounts in the sub-account:

either (a) to another Pooled Trust, which meets the requirements of 42 U.S.C. § 1396p(d)C or (b) to the State(s) the amount remaining up to an amount equal to the total of medical assistance paid on behalf of the [b]eneficiary under the State Medicaid Plan(s), and if there are funds remaining, to pay for allowable expenses including taxes due from the Trust to the State(s) or federal government due to the termination and reasonable fees and administrative expenses associated with the termination and, if there are funds remaining after reimbursement to the State(s) and payment of allowable expenses, any balance shall be distributed to the affected [b]eneficiary.

6th Trust Decl., Art. XIII, § 1.

The Master Trust was also revised to provide that, upon a beneficiary’s death, the Manager may direct the Trustee to pay allowable administrative expenses including taxes due from the trust to the State(s) or federal government because of the beneficiary’s death and reasonable fees for administration of the trust estate, such as an accounting of the trust to a court, and completion and filing of documents or other required actions associated with termination and wrapping up the trust. See 6th Trust Decl., Art. III, § 9, Art. XIII, § 2. Any amounts remaining will be retained by the Master Trust. See 6th Trust Decl., Art. XIII, § 2. However, to the extent amounts remaining are deemed not to be retained by the Master Trust, such sums will be paid to the State(s), up to the amount equal to the total amount of medical expenses paid on behalf of the beneficiary under the State Medicaid Plan(s). See id.

DISCUSSION

As discussed in the June 10, 2016 memorandum, to satisfy the exception for pooled trusts under section 1917(d)(4)(C), a trust must contain the assets of an individual who is disabled (as defined in section 1614(a)(3)) and meet the following conditions:

The trust is established and managed by a nonprofit association.

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

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

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

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

The amended Master Trust complies with the requirement that it be managed by a nonprofit association. See Act § 1917(d)(4)(C)(i); POMS SI 01120.203.B.2.a; POMS SI 01120.225.B. Babcock, a nonprofit association,5 now retains managerial control over the Master Trust. See 6th Trust Decl., Art. VII; see also 6th Trust Decl., Art. III, §§ 2, 3, 4, 6, 9, 10, Art. VI, §§ 2, 3, 5, 6, 7, Art. VIII, §§ 3, 4. Although Security Federal Bank remains as the Trustee and still manages many of the Master Trust’s financial activities, Babcock, the current Manager, “retains full discretion as to disbursements to be made from the Trust” and any action the Trustee takes is “[s]ubject to the control and direction of the Manager.” 6th Trust Decl., Art. VIII, Art. IX. A nonprofit association may employ a for-profit entity to manage some of the trust’s financial activities, provided the nonprofit association, as here, retains “ultimate managerial control” over the trust. See POMS SI 01120.225.D. Babcock, as the Manager, is ultimately responsible for determining the amount of the Master Trust corpus to invest, removing or replacing the trustee,6 and making the day-to-day decisions regarding the health and well-being of the Master Trust’s beneficiaries. See 6th Trust Decl., Art. VII; POMS SI 01120.225.D (providing list of actions for which the non-profit association must be responsible).

The amended Master Trust also complies with the requirement that the trust sub-accounts be established for the sole benefit of the beneficiary. See 6th Trust Decl., Art. II, § 9, Art. VI, § 1. A trust is established for the sole benefit of the individual if it benefits no one but the individual, whether at the time the trust is established or at any time during the individual’s lifetime. See POMS SI 01120.201.F.2.a. As amended, the Master Trust no longer allows Babcock to apportion to all sub-accounts any costs and expenses of defending the Master Trust from any claim, demand, legal or equitable action, suit, or proceeding regardless of whether all the sub-accounts are affected. Compare 5th Trust Decl., Art. VII, § 8, with 6th Trust Decl., Art. VI, § 7. Rather, the amended Master Trust now provides that costs and expenses of defending the Master Trust may be charged only against the sub-account of the affected beneficiary or the sub-accounts of a group of affected beneficiaries. See 6th Trust Decl., Art. VI, § 7; POMS SI 01120.201.F.2.c (limiting legal costs to those rendered on behalf of the individual with regard to the trust). The amended Master Trust also deleted the provision that permitted the Trustee to reimburse the parent or parents of the beneficiary for any federal, state, and municipal income taxes, which he/she or they may be required to pay because of payments of trust income to or on behalf of the beneficiary. Compare 5th Trust Decl., Art. III, §10, with 6th Trust Decl., Art. VI.

Further, the amendments limiting payments of third party travel expenses to those necessary for a beneficiary to receive medical treatment or to visit beneficiaries residing in supported living arrangements is consistent with permissible third party travel payments under the POMS. See 6th Trust Decl., Art. II, § 6; POMS SI 01120.201.F.2.b. A pooled trust may also provide for reasonable compensation for a trustee(s) to manage the trust, as well as costs associated with investment or other services rendered on behalf of the individual with regard to the trust. See POMS SI 01120.201.F.2.c. Thus, the provisions permitting the Manager to charge against all sub-accounts on a pro rata basis fees for its and the Trustee’s services are permissible. See 6th Trust Decl., Art. VII, Art. VIII, § 6.

The Master Trust’s termination provisions also comply with the relevant provisions of the POMS interpreting section 1917(d)(4)(C) of the Act. A pooled trust with an early termination provision must require that any funds from an early termination either be paid to another pooled trust, see POMS SI 01120.199.F.2, or be paid first to the State for medical assistance provided to the individual under the State Medicaid Plan, with any remaining funds used only for allowable administrative expenses, reasonable compensation to the trustee, or distributions to the trust beneficiary, see POMS SI 01120.199.F.1. The Master Trust’s early termination clause as amended now provides that if the Manager determines that the Trust has become impossible to implement to the affected beneficiary, the Manager may direct the Trustee to pay the amount remaining in the account under one of the two scenarios outlined in POMS SI 01120.199.F. Specifically, the Manager has discretion to direct the Trustee either to: (a) pay the amount remaining to another pooled Trust; or (b) pay the amounts remaining first to the State(s) that provided medical assistance under the State Medicaid Plan(s), and if there are funds remaining, to pay allowable expenses and any balance to the affected beneficiary. See 6th Trust Decl., Art. XIII, § 1. Further, upon a beneficiary’s death, the amendments permit the Manager to direct the Trustee to pay for allowable administrative expenses, prior to reimbursement of medical assistance to the State(s), including taxes due from the trust to the States(s) or Federal government because of a beneficiary’s death and reasonable fees for administration of the trust estate. See 6th Trust Decl., Art. III, § 9, Art. XIII, § 2. This provision is permissible. See POMS SI 01120.203.B.3.a.

Finally, the Master Trust was amended to require the sub-accounts contain the assets of disabled individuals and that a sub-account be established by a disabled individual, his or her parent, grandparent, or legal guardian, or a court. See Act § 1917(d)(4)(C); POMS SI 01120.203.B.2.a. Under the Master Trust’s terms, a sub-account is established when a sponsor contributes property and Babcock accepts it. See 6th Trust Decl., Art. V. A sponsor must be a parent, grandparent, legal guardian, a beneficiary himself or herself, or any court. See 6th Trust Decl., Art. II, § 8. The amended Master Trust also defines sub-account to be the “financial account within the Pooled Trust maintained for the benefit of an individual disabled [b]eneficiary and established with the funds of that individual disabled [b]eneficiary.” 6th Trust Decl., Art. II, § 9. Thus sub-accounts must contain the funds of disabled individuals and be established by a disabled individual, his or her parent, grandparent, or legal guardian, or a court.

CONCLUSION

The amended Master Trust complies with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions. If we may provide additional assistance, please contact Laura Verduci, Assistant Regional Counsel, at 404-562-1078.

Sincerely,

Mary Ann Sloan

Regional Chief Counsel

By: Laura Verduci

Assistant Regional Counsel

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

Date: April 25, 2016

1. Syllabus

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

2. Opinion

QUESTION

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

BACKGROUND

SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Social Security Act (Act) §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2015).*7 “Resources” include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to use for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a). “If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual . . . .” 20 C.F.R. § 416.1201(a)(1); see Program Operations Manual System (POMS) SI 01120.010.B. Even if property has no current market value, it may still be considered a resource if it is property that an individual owns and has the right to convert to cash, and the individual is not legally restricted from using the property for his or her support and maintenance. See POMS SI 01110.100.B.2, B.3.

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

DISCUSSION

Alabama:

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

Florida:

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

Georgia:

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

Kentucky:

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

Mississippi:

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

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

North Carolina:

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

South Carolina:

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

Tennessee:

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

CONCLUSION

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

Sincerely,

Mary Ann Sloan

Regional Chief Counsel

By: Natalie Liem

Assistant Regional Counsel

D. PS 16-141 Revocability of Special Needs Trust Under South Carolina Law- SSI

Date: June 3, 2016

1. Syllabus

This legal opinion discusses whether a valid special needs trust (Trust) identifies residual beneficiaries and whether the trust is revocable under South Carolina law. The Trust establishes that the trust beneficiary’s mother and father have a future contingent beneficial interest in the Trust. Thus, the Trust Agreement identifies definite beneficiaries, other than the current trust beneficiary, per POMS SI ATL01120.201.B. The Trust is irrevocable under South Carolina law.

2. Opinion

QUESTION

For determining a number holder’s resources and eligibility for Supplemental Security Income (SSI), you asked whether a valid special needs trust established for the number holder is revocable under South Carolina law.

SHORT ANSWER

Because the trust identifies beneficiaries other than the number holder, the trust is irrevocable under South Carolina law.

BACKGROUND

According to the information provided, the field office determined that D~, the number holder (NH), is no longer eligible for SSI because a special needs trust established for him is a countable resource under Program Operations Manual System (POMS) SI 01120.200. Specifically, the field office believes that pursuant to POMS SI ATL01120.201.C.2, the trust is revocable under South Carolina law because it does not sufficiently identify a beneficiary who will receive property held by the trust upon NH’s death.

In February 2007, the “Irrevocable Supplemental Care Trust for the Benefit of [NH]” (Trust) was established for NH with assets he received from the settlement of a court case. The trust instrument (Trust Agreement) identifies NH as the Trust’s settlor. See Trust Agreement, pmbl. The Trust Agreement also indicates that the Trust is irrevocable and that “neither the Settlor, nor any beneficiary of the Trust, shall have any right to alter, amend, revoke or terminate the Trust or any of its provisions.” Trust Agreement, Item I(a). The Trust Agreement states that NH is the sole beneficiary of the Trust for and during his lifetime. Trust Agreement, Item II. The Trust Agreement further provides that upon NH’s death, the property remaining in the Trust will be used to reimburse the entities who paid medical assistance benefits on behalf of NH during his lifetime and are required to be reimbursed pursuant to 42 U.S.C. § 1396p(d)(4)(A), that is, Section 1917(d)(4)(A) of the Social Security Act (Act). See Trust Agreement, Item IV(i). If any property remains after the foregoing reimbursement, the trustee may use it to pay “any transfer, estate, inheritance, succession or other death taxes which shall become payable by reason of [NH’s] death, as well as any and all debts and expenses of administration of the [NH’s] estate.” Trust Agreement, Item IV(j). If any property remains after the trustee takes the foregoing action, then M~ (NH’s Mother) and J~ (NH’s Father) will receive $500 if they are living. See Trust Agreement, Item IV(k)(1). The balance of the property will then be distributed in accordance with the terms of NH’s will. See Trust Agreement, Item IV(k)(2). If NH dies without a valid will or his will does not identify who should receive the remaining property in the Trust, then the balance of the property will be distributed to NH’s estate. See Trust Agreement, Item IV(k)(2).

The Trust Agreement indicates that it should be construed in accordance with the laws of South Carolina. See Trust Agreement, Item X.

DISCUSSION

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

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

Although a valid special needs trust is excepted from counting as a resource under section 1613(e) of the Act, the agency still applies its regular resource counting rules to determine if the trust is a resource affecting eligibility for SSI. See POMS SI 01120.203B.1.a. Under the agency’s regular resource counting rules, a trust is a countable resource if the individual has legal authority to revoke or terminate the trust and use the funds to meet his or her food or shelter needs, or if the individual can direct the use of the trust principal for his or her support and maintenance under the terms of the trust. See POMS SI 01120.200.D.1.a. Also, if an individual can sell his or her beneficial interest in the trust, that interest is a resource. See POMS SI 01120.200.D.1.a. Conversely, if an individual does not have legal authority to revoke or terminate the trust or to direct the use of the trust assets for his or her own support and maintenance, the trust principal is not a resource for SSI purposes. See POMS SI 01120.200.D.2.

“If the individual at issue . . . is the grantor of the trust, the trust will generally be a resource to that individual if that individual can revoke the trust and reclaim the trust assets.” POMS SI 01120.200.B.19. The “general principle of trust law [is] that if a grantor is also the sole beneficiary of a trust, the trust is revocable regardless of language in the trust to the contrary.” POMS SI 01120.200.D.3; see also POMS SI ATL01120.201.B (“Laws for each state in the Atlanta Region follow the general principle of trust law that if a grantor is also the sole beneficiary of a trust, the trust is revocable regardless of language in the trust document to the contrary.”). “However, many of these States recognize that the grantor cannot unilaterally revoke the 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 other specific event.” POMS SI 01120.200.D.3. “A residual beneficiary . . . is not a current beneficiary of a trust, but will receive the residual benefit of the trust contingent upon the occurrence of a specific event, e.g., the death of the primary beneficiary.” POMS SI 01120.200.B.12. “Under the modern view, residual beneficiaries are assumed to be created, absent evidence of a contrary intent, when a grantor names heirs, next of kin, or similar groups to receive the remaining assets in the trust upon the grantor’s death. In such case, the trust is considered to be irrevocable.” POMS SI 01120.200.D.3.

To determine whether the Trust is revocable, the agency must look at the terms of the Trust Agreement and applicable State law. See POMS SI 01120.200.D.2 (“The revocability of a trust . . . depend[s] on the terms of the trust agreement and/or on State law.”). The Trust Agreement states that the Trust is irrevocable. See Trust Agreement, Item I(a). The Trust agreement also states that NH can neither direct the use of the Trust principal for his support and maintenance nor sell his beneficial interest in the Trust. In addition, the Trust Agreement appears to identify acceptable “residual beneficiaries” - NH’s Mother and NH’s Father. See Trust Agreement, Item IV(k)(1). Thus, the issue is whether the trust is revocable under applicable State law. The Trust Agreement indicates that it should be construed in accordance with the laws of South Carolina. See Trust Agreement, Item X. Pursuant to the South Carolina Trust Code, this designation of applicable law is controlling. See S.C. Code Ann. § 62-7-107(1) (2016).

Under South Carolina law, a trust is revocable unless the trust agreement expressly provides that the trust is irrevocable. See S.C. Code Ann. § 62-7-602(a). Here, as previously stated, the Trust Agreement expressly provides that the Trust is irrevocable. See Trust Agreement, Item I(a).

However, in South Carolina, a purportedly irrevocable trust can be revoked if the settlor and all beneficiaries consent to the revocation. See S.C. Code Ann. § 62-7-411(a). Thus, under South Carolina law, a trust whose only definite beneficiary is the settlor is effectively revocable even if the terms of its trust agreement indicate that it is irrevocable. See id.; accord POMS SI 01120.200.D.3; POMS SI ATL01120.201.B. The Trust Agreement identifies NH as the settlor of the Trust and the sole beneficiary of the Trust for and during his lifetime. See Trust Agreement, pmbl., Item II. Accordingly, whether the Trust is revocable depends on whether the Trust Agreement identifies a definite beneficiary other than NH.

Under South Carolina law, a beneficiary is one who “has a present or future beneficial interest in a trust, vested or contingent.” S.C. Code Ann. § 62-7-103(2)(A). A beneficiary is definite if he or she “can be ascertained now or in the future, subject to any applicable rule against perpetuities.” S.C. Code Ann. § 62-7-402(c). “The definite beneficiary requirement does not prevent a settlor from making a disposition in favor of a class of persons. Class designations are valid as long as the membership of the class will be finally determined within the applicable perpetuities period.” S.C. Code Ann. § 62-7-402 (Reporter’s Comment).

The Trust Agreement establishes that NH’s Mother and NH’s Father have a future contingent beneficial interest in the Trust because they will receive $500 upon NH’s death if they are living and there is property remaining in the Trust after the trustee reimburses the state Medicaid agency(ies) under section 1917(d)(4)(A) of the Act and pays the expenses he is authorized to pay upon NH’s death. See Trust Agreement, Item IV(k)(1). Thus, NH’s Mother and NH’s Father are definite beneficiaries identified in the Trust Agreement. Because the Trust Agreement identifies definite beneficiaries other than NH, the Trust is irrevocable under South Carolina law.

CONCLUSION

For the reasons discussed above, the Trust is irrevocable under South Carolina law for determining whether the Trust is a countable resource and assessing NH’s eligibility for SSI.

Sincerely,

Mary Ann Sloan

Regional Chief Counsel

By: Peter S. Massaro, III

Assistant Regional Counsel


Footnotes:

[1]

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

[2]

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

[3]

. The amended Master Trust deletes previous language authorizing Babcock to accept beneficiaries who had not been found disabled by the Social Security Administration. See 5th Trust Decl., Art. II, § 1.

[4]

. The amended Master Trust becomes effective with respect to a beneficiary upon execution of a Joinder Agreement between a sponsor and Babcock. See 6th Trust Decl., Art. III, § 1. The amended version deletes previous language providing that a sponsor could also include “any person or entity” that contributed assets to the Master Trust. See 5th Trust Decl., Art. II, § 6.

[5]

. The Internal Revenue Service (IRS) lists Babcock as a tax-exempt organization. See Exempt Organizations Select Check, https://apps.irs.gov/app/eos/pub78Search.do?ein1=57-0868290&names=Babcock+&city=&state=SC&country=US&deductibility=all&dispatchMethod=searchCharities&submitName=Search (last visited June 6, 2016).

[6]

. Although the Master Trust provides that if the Manager does not appoint a successor Trustee within ninety (90) days after either the Trustee gives notice of its intent to resign or after the Trustee receives notice of removal “a Successor Trustee shall be selected and appointed by the Richland County Probate Court,” the Manager retains the authority to replace or remove the Trustee selected by the court when it is ready to make a decision. See 6th Trust Decl., Art. VIII, §§ 3, 4.

[7]

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


To Link to this section - Use this URL:
http://policy.ssa.gov/poms.nsf/lnx/1601825045
PS 01825.045 - South Carolina - 08/29/2017
Batch run: 08/29/2017
Rev:08/29/2017