TN 197 (09-20)

PS 01825.045 South Carolina

A. PS 20-074 Revocability of Special Needs Trust Under South Carolina Law

Date: August 6, 2020

1. Syllabus

This Regional Chief Counsel opinion examines whether the residual beneficiary language of a special needs trust renders the trust revocable under South Carolina law and a countable resource to the trust beneficiary for determining his eligibility for Supplemental Security Income (SSI). The opinion concludes that the residual beneficairy language makes the trust revocable under South Carolina law and, therefore, a countable resource for SSI purposes.

2. Opinion

QUESTION

Whether the residual beneficiary language of a special needs trust renders the trust revocable under South Carolina law and a countable resource to T~, the number holder (NH), for determining his eligibility for Supplemental Security Income (SSI).

SHORT ANSWER

The trust is revocable under South Carolina law and, therefore, it is a countable resource for determining NH’s eligibility for SSI.

BACKGROUND

NH is the beneficiary of the Special Needs Trust for the Benefit of [NH] (Trust), established in South Carolina on May XX, 2020. Trust, Preamble, Art. I. According to the information provided, the agency determined the Trust met the exception requirements set forth in Program Operations Manual Systems (POMS) SI 01120.203, i.e., the Trust is a special needs trust under section 1917(d)(4)(A) of the Social Security Act (Act). However, the agency questioned whether the “residual beneficiary” language in Article V § 7 of the Trust renders the Trust revocable under South Carolina law, and thus a countable resource for determining NH’s SSI eligibility.

In relevant part, Article V § 7 provides:

. . . this Trust shall terminate upon [NH’s] death . . . [and] . . . [a]ny amount remaining in the trust at [NH’s] death (up to the amount expended by the State of South Carolina, or any other state, for medical assistance) shall be paid to appropriate state agencies, as reimbursement to the State of South Carolina or such other state as has (or have) provided benefits to [NH] during his lifetime. After repayment to the State, the Trustee[1] may pay any outstanding, reasonable expenses for maintaining the existence of the Trust, any final bills, debts, expenses, fees, funeral-related items, estate taxes, and probate expenses. The balance of the trust estate shall then be paid over to [NH’s] heirs at law.

The Trust states it shall be construed, regulated, and governed by and in accordance with the laws of the State of South Carolina unless the situs of the Trust or any portion of the Trust is moved because NH is then living in another jurisdiction. Trust, Art. XIII.

DISCUSSION

A. Federal Law

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 (2020).[2] “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. 20 C.F.R. § 416.1201(a); accord POMS SI 01110.100.B.1; POMS SI 01120.010.B. “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 01110.100.B.1, .B.3; POMS SI 01110.115.A; 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. 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. 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”). According to the information provided, the agency has already determined that the Trust is a valid special needs trust.

Although the Act exempts a valid special needs trust from counting as a resource under section 1613(e), the agency still applies its regular resource-counting rules to determine if the trust is a resource affecting eligibility for SSI.[3] See POMS SI 01120.203.B.1. 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 is usually a resource to that individual if he or she can revoke the trust and reclaim the trust assets.” POMS SI 01120.200.B.11.[4] “Some states 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 to the contrary.” POMS SI 01120.200.D.3 (emphasis added); 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 . . . 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; see also POMS SI ATL01120.201.B (stating that “ if there is a residual beneficiary properly designated in the trust document, then the trust is irrevocable by its terms and is not a resource for SSI purposes”); POMS PS 01825.045.H (PS 16-141, June 3, 2016) (finding a special needs trust that named the NH’s mother and father as remaindermen was irrevocable because there were named beneficiaries who were “definite” and not the settlor himself). “A residual beneficiary . . . is not a current beneficiary of a trust, but he or she will receive the residual benefit of the trust contingent upon the occurrence of a specific event, such as the death of the primary beneficiary.” POMS SI 01120.200.B.10; accord POMS SI 01120.200.D.3. To determine whether the Trust is revocable, the agency must look at the terms of the Trust 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 on State law.”).

The Trust states it is irrevocable. Trust, Art. II. The Trust also states that NH’s access to the trust is restricted and that no part of the income, accumulated income, or principal of the Trust shall be subject to transfer, assignment, sale, or pledge. Trust, Art. VI § 1. Thus, the terms of the Trust indicate that it is irrevocable.

B. State Law

Therefore , the issue is whether the trust is revocable under applicable state law. The Trust states it should be construed in accordance with the laws of South Carolina. Trust, Art. XIII. The information provided does not indicate that NH has moved from South Carolina. Therefore, pursuant to the South Carolina Trust Code, this designation of applicable law in the Trust is controlling. See S.C. Code Ann. § 62-7-107(1) (2020).[5]

Under South Carolina law, a trust is revocable unless the trust expressly provides that the trust is irrevocable. S.C. Code Ann. § 62-7-602(a). Here, the Trust Agreement expressly provides that the Trust is irrevocable. Trust, Art. II.

However, under South Carolina law, even a purportedly irrevocable trust may be revoked if it fails to identify a residual beneficiary. S.C. Code Ann. § 62-7-411(a) (allowing a settlor to terminate a noncharitable irrevocable trust only with the consent of all beneficiaries); ­see also­ POMS SI ATL01120.201.C.2. More specifically, South Carolina law states that 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. S.C. Code Ann. § 62-7-411(a); accord POMS SI 01120.200.D.3; POMS SI ATL01120.201.B. The Trust identifies NH as the sole beneficiary of the Trust for and during his lifetime. Trust, Preamble, Art I. Accordingly, whether the Trust is revocable depends on whether it 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, cmt.

The Restatement (Second) of Trusts provides further guidance on the definite beneficiary requirement.[6] Restatement (Second) of Trusts § 112 (1959). In particular, it states, “[a] trust may be created for the benefit of a person not ascertained or not yet in existence at the time of the creation of the trust if the interest must vest if at all within the period of the rule against perpetuities.” Id. at § 112 cmt c. As an example, the Restatement explains a residual beneficiary of “children then living” at the death of a life estate beneficiary is sufficiently definite regardless of whether such children exist at the time of declaration of trust. Id. On that basis, the agency recently determined that when a trust specifies “then living issue” as the residual beneficiary at the time of the settlor’s death, under South Carolina law, the trust is irrevocable. POMS PS 01825.045.B (PS 20-049, May 22, 2020); S.C. Code Ann. § 62-7-402(c); see also POMS SI ATL01120.201.C.2 (“[I]f the trust states that after death the trust will go . . . ‘to my children, or issue, or descendants,’ this is specific enough to identify a person and the trust is irrevocable.”).

On the other hand, the Restatement also provides that “[i]f the settlor is the sole beneficiary of a trust and is not under an incapacity, he can compel the termination of the trust.” Restatement (Second) of Trusts § 339 (1959). Even if the trust sets outs that it is irrevocable, it is revocable if the settlor is the sole beneficiary and he does not manifest an intention to give a beneficial interest to anyone else. Id. at § 339 cmts a, b. To determine whether the settlor is the sole beneficiary of the trust, the question is:

. . . whether the settlor has only a life interest, with a legal or equitable interest in remainder given to the persons who ultimately become his heirs, or whether the settlor has not merely a life interest but also a legal or equitable reversionary interest so that he is the sole beneficiary of the trust.

Restatement (Second) of Trusts § 127 cmt a. Consistent with § 112 and the agency’s previous guidance, “if the beneficial interest is limited to the settlor for life and on his death the property [of the trust] is to be conveyed to his children, or issue, or descendants, [the settlor] is not the sole beneficiary of the trust.” Id. at § 127 cmt b. In that instance, the trust created a remainder interest in the settlor’s children, issue, or descendants—sufficiently definite residual beneficiaries to make the trust irrevocable. Id.

But where the trust pays income to the settlor for life and “upon his death [is] to pay the principal to his heirs or next of kin,” the inference is that the settlor is the sole beneficiary of the trust—that he does not intend to create any interest in the person who may become his heirs or next of kin. Id.; see also POMS SI ATL01120.201.C.2 (stating that, in South Carolina, if “the trust language says that after death, the trust will go ‘to my estate’ or ‘to the heirs’ of the primary beneficiary,” the trust would be revocable by the settlor “because this wording is not specific enough to identify persons who, upon his death, may become his heirs”). Because the Trust does not name a specific residual beneficiary, it is revocable. Trust, Art. V § 7; cf.Mayer, 555 S.E.2d at 410 (citing the Restatement (Second) of Trusts, indicating that South Carolina courts rely on the provisions of the Restatement in deciding trusts law).

CONCLUSION

The Trust is revocable under South Carolina law; therefore, it is a countable resource for determining NH’s SSI eligibility.

B. PS 20-061 Survey of State Laws on Dry or Empty Trusts – Region IV

Note: This survey updates and replaces "PS 16-184 State Law for Empty and Dry Trusts in Atlanta Region," which has been removed from POMS.

Date: July 10, 2018 (published June 2020)

1. Syllabus

This Regional Chief Counsel opinion provides the State laws on trusts established with no funds (i.e., dry or empty trusts) for the states in Region IV, to help field offices address how to consider such purported trusts under the agency's Supplemental Security Income (SSI) resource rules.

2. Opinion

QUESTION

You asked us to provide the laws for the states in Region IV, related to trusts established with no funds (i.e., dry or empty trusts), to help field offices address how to consider such purported trusts under the agency’s 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 (2017).[7] The Act does not define “resources” and provides only a list of certain items excluded in determining the resources of an individual. See Act § 1613(a). However, Congress empowered the Commissioner to promulgate rules and regulations to establish the right to SSI payments. See Act §§ 205(a), 1631(d)(1). Pursuant to that authority, the Commissioner has clarified that resources include “any real or personal property interest that an individual . . . owns and could convert to cash to be used for his or her support and maintenance.” 20 C.F.R. § 416.1201(a); see Program Operations Manual System (POMS) SI 01110.100.B.1; POMS SI 01120.010.B. “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 01110.100.B.1, B.3; POMS SI 01110.115.A; 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 Act § 1613(e); 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 or 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 statutes indicate that a trust may be established through the conveyance of property, but do not otherwise explain the property requirements to establish a trust. See Ala. Code §§ 19-3B-401, 19-3B-402 (2018). Alabama case law indicates the existence of property held by a trustee for the benefit of a trust is an essential element of a trust. SeeCorretti 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). Alabama’s trust code defines “property” generally as “anything that may be the subject of ownership, whether real or personal, legal or equitable, or any interest therein.” See Ala. Code § 19-3B-103(13). Alabama’s statutes regarding wills and estates, however, appear to recognize at least some unfunded trusts by describing situations in which a will may validly transfer property to a trustee of a trust. See Ala. Code Ann. § 43-8-140. Specifically, Ala. Code § 43-8-140 indicates a will may validly transfer property to the trustee of, among other types of trusts, an “unfunded life insurance trust,” and a trust identified in a will, where the terms of the trust are set forth in a written instrument other than a will, “regardless of the existence, size, or character of the corpus of the trust.” Thus, Alabama law appears to recognize a trust may be established with no funds under certain situations.

Florida:

Florida’s trust statutes indicate a trust may be created when property or a property interest is transferred to a trustee, but do not further explain the property requirements to establish a trust. See Fla. Stat. Ann. §§ 736.0401, 736.0402 (West 2018); see also Fla. Stat. Ann. § 736.0103(15) (West 2017) (defining “property” as “anything that may be the subject of ownership, real or personal, legal or equitable, or any interest therein”). Florida case law, however, indicates a trust is not created until property is conveyed for the purpose of the trust. SeeVaughan v. Boerckel, 963 So.2d 915, 920 (Fla. Dist. Ct. App. 2007) (noting a corpus is essential to a valid trust in holding an express trust cannot exist unless there is a transfer of legal ownership in the subject property); McLemore v. McLemore, 675 So. 2d 202, 205 (Fla. Dist. Ct. App. 1996). Thus, Florida does not appear to recognize dry or empty trusts.[8]

Georgia:

Georgia statutes, which recognize two types of trusts, express and implied,[9] require express trusts to include trust property, and presume implied trusts include trust property. See Ga. Code Ann. §§ 53-12-2(3), (5); 53-12-20(b)(2); 53-12-130; 53-12-132 (West 2018); see also Ga. Code Ann. § 53-12-20(9) (West 2018) (defining property as “any type of property, whether real or personal, tangible or intangible, legal or equitable”). Georgia case law also holds that an essential element of an express trust is the existence of trust property. SeeHayes 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). Georgia’s statutes regarding wills and estates, however, appear to recognize at least some unfunded trusts by describing situations in which a will may validly transfer property to a trustee of a trust. See Ga. Code Ann. § 53-12-101(a). Specifically, Ga. Code Ann. § 53-12-101(a) indicates a will may validly transfer property to the trustee of, among other types of trusts, an “unfunded life insurance trust,” and a trust identified in a will, where the terms of the trust are set forth in a written instrument other than a will, “regardless of the existence, size, or character of the corpus of the trust.” Thus, Georgia law appears to recognize a trust may be established with no funds under certain situations.

Kentucky:

Under the Kentucky statutes’ chapter on trusts, one may create a trust by transferring property to a trustee or by a property owner’s declaration that the owner holds identifiable property as trustee, but the chapter does not further explain the property requirements to establish a trust. See Ky. Rev. Stat. Ann. § 386B.4-010 (West 2017); see alsoKy. Rev. Stat. Ann. § 386B.1-010(12) (West 2017) (defining property as “anything that may be the subject of ownership, whether legal or equitable, or any interest therein”). Kentucky’s statutes regarding wills and estates, however, appear to recognize at least some unfunded trusts by describing situations where a will may validly transfer property to a trustee. SeeKy. Rev. Stat. Ann. § 394.076 (West 2017). Specifically, Ky. Rev. Stat. Ann. § 394.076 indicates a will may validly transfer property to the trustee of, among other types of trusts, an “unfunded life insurance trust,” and a trust identified in a will, where its terms are set forth in a written instrument other than a will, “regardless of the existence, size, or character of the corpus of the trust.” The Supreme Court of Kentucky has recognized that a dry trust is a valid trust pursuant to Ky. Rev. Stat. Ann. § 394.076 and Kentucky’s adoption of the Uniform Testamentary Additions to Trust Act. SeeCummings v. Pitman, 239 S.W. 3d 77, 84 (Ky. 2007) (finding trust existed at the time trust instrument was executed, despite the fact that the trust did not contain assets until settlor’s death, one year after the trust instrument was executed). Thus, Kentucky law does recognize a trust may be established with no funds under certain situations.

Mississippi:

Under the Family Trust Preservation Act of 1998, Mississippi statutes define 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 2017). Mississippi statutes do not appear to contain any additional explanation regarding any property requirements to establish a trust. Furthermore, Mississippi case law 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., Sligh v. First Nat’l Bank of Holmes Cty., 735 So. 2d 963, 974 (Miss. 1999); Ogle v. Durley, 77 So. 2d 688, 691-92 (Miss. 1955); Smiley v. Yllander, 105 So. 3d 1171, 1175 (Miss. Ct. App. 2012). Thus, we found no Mississippi statute or case law recognizing or prohibiting the establishment of a trust with no funds.

North Carolina:

North Carolina statutes identify a number of requirements to create a trust, and indicates a trust may be established when property is transferred to or held by a trustee, but do not describe any particular property requirements to establish a trust. See N.C. Gen. Stat. Ann. §§ 36C-4-401, 36C-4-402 (West 2017); see also N.C. Gen. Stat. Ann. § 36C-1-103(14) (defining property as “[a]nything that may be the subject of ownership, whether real or personal, legal or equitable, or any interest therein”). North Carolina’s trust code includes a provision on trusts based on life insurance or death benefit interests, which indicates an unfunded trust is valid where the trust is a designated beneficiary of a life insurance policy or retirement benefits. See N.C. Gen. Stat. Ann. § 36C-4-401.1, comment (West 2017). North Carolina statutes on testamentary additions to trusts also indicate a will may devise property to a trustee of a trust that is established at the testator’s death, if the trust is identified in the will and its terms are described in a written instrument executed before or concurrently with the execution of the will, “regardless of the existence, size, or character of the corpus of the trust during the testator’s lifetime.” N.C. Gen. Stat. Ann. § 31-47(a)(2). These statutory provisions indicate North Carolina does recognize that a trust may be established with no funds under certain situations.

South Carolina:

South Carolina statutes indicate that 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 (2017). South Carolina case law indicates that a trust generally can exist only if it is funded. SeePatterson v. Witter, 791 S.E.2d 294, 301 (S.C. Ct. App. 2016) (listing trust corpus as a necessary element to establish existence of 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). South Carolina’s trust code defines “property” generally as “anything that may be the subject of ownership, whether real or personal, legal or equitable, or any interest therein,” including interests created through beneficiary designations in insurance policies, financial instruments, deferred compensation, and other retirement arrangements. S.C. Code Ann. § 62-7-103(11), comment. Thus, although South Carolina defines “property” to broadly include interests in retirement arrangements and other financial instruments or policies, South Carolina law does not appear to recognize a trust that is established with no property.

Tennessee:

Tennessee’s Uniform Trust Code identifies 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; but, it does not further identify any property requirements to establish a trust. See Tenn. Code Ann. § 35-15-402 (West 2017). Tennessee case law appears to indicate that an express trust cannot exist without trust property. SeeIn re Estate of Darken, No. M2016-00711-COA-R3, CV, 2016 WL 7378806, at *10 (Tenn. Ct. App. Dec. 20, 2016); Myers v. Myers, 891 S.W.2d 216, 218 (Tenn. Ct. App. 1994). Tennessee’s trust code defines “property” generally as “anything that may be the subject of ownership, whether real or personal, legal or equitable, or any interest therein,” including interests created through beneficiary designations under insurance policies, financial instruments, deferred compensation, and other retirement arrangements. See Tenn. Code Ann. § 35-15-103(23), comment. Additionally, under Tennessee’s statutes on wills, Tennessee appears to recognize at least some unfunded trusts by describing situations in which a will may validly transfer property to a trustee of a trust. See Tenn. Code Ann. § 32-3-106. Specifically, Tenn. Code Ann. § 32-3-106(a)(1) indicates a will may validly transfer property to the trustee of, among other types of trusts, an “unfunded life insurance trust,” and a trust identified in a will, where its terms are set forth in a written instrument other than a will, “regardless of the existence, size, or character of the corpus of the trust.” Thus, while Tennessee appears to generally require trust property to establish a trust, Tennessee defines “property” for trust purposes to include interests created through beneficiary designations under insurance policies, financial instruments, and deferred compensation and other retirement arrangements. Tennessee law additionally appears to recognize a trust may be established with no funds under certain situations.

CONCLUSION

[None]

C. PS 20-049 Revocability of Special Needs Trust Under South Carolina Law

Date: May 22, 2020

1. Syllabus

This Regional Chief Counsel opinion examines whether the residual beneficiary language of a special needs trust renders the trust revocable under South Carolina law (and therefore a countable resource for SSI eligibility purposes). The opinion concludes that the residual beneficiary language makes the trust irrevocable under South Carolina law (and therefore not a countable resource for SSI).

2. Opinion

QUESTION

Whether the residual beneficiary language of a special needs trust renders the trust revocable under South Carolina law and a countable resource to A~, the number holder (NH), for determining his eligibility for Supplemental Security Income (SSI).

OPINION

The trust is irrevocable under South Carolina law and, therefore, it is not a countable resource for determining NH’s eligibility for SSI.

BACKGROUND

NH is the settlor/grantor and beneficiary of the A~ Special Needs Trust (Trust), established in South Carolina on August xx, 2017. See Trust, Preamble, Art. I. According to the information provided, the agency determined the Trust met the exception requirements set forth in Program Operations Manual Systems (POMS) SI 01120.203, i.e., the Trust is a special needs trust under section 1917(d)(4)(A) of the Social Security Act (Act). However, the agency determined the “residual beneficiary” language in Article V § 7 of the Trust renders the Trust revocable under South Carolina law, and thus a countable resource for determining NH’s SSI eligibility.

In relevant part, Article V § 7 provides:

. . . this Trust shall terminate upon [NH’s] death . . . and . . . [a]ny remaining balance [after reimbursement for state benefits and payment of taxes, administration fees, etc.] may then be distributed to or in trust for such appointee or appointees named by [NH], excluding his state and his creditors, in such manner and in such proportions as he may appoint by making specific reference to this power of appointment in his last will and testament, or in default of the exercise of this power of appointment, to the then living issue, per stirpes, of [NH], or in default of such issue, to his heirs at law.

NH requested reconsideration of the agency’s determination the Trust is revocable. In a letter dated March 16, 2020, NH’s attorney argues the Trust is irrevocable because “[t]he remainder beneficiaries, while not identifiable by name at this time, will be readily identifiable at [NH’s] death.” NH's attorney cites to POMS SI ATL 01120.201C.2, which explains a trust is irrevocable if it states the trust will go “to my children, or issue, or descendants . . . .” NH's attorney Letter, pp. 2-3.

The Trust states it shall be construed, regulated, and governed by and in accordance with the laws of the State of South Carolina unless the situs of the Trust or any portion of the Trust is moved because NH is then living in another jurisdiction. Trust, Art. XIII.

DISCUSSION

A. Federal Law

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 (2020).[10] “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. 20 C.F.R. § 416.1201(a); accord POMS SI 01110.100.B.1; POMS SI 01120.010.B. “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 01110.100.B.1, .B.3; POMS SI 01110.115.A; 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. 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. 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”). According to the information provided, the agency has already determined that the Trust is a valid special needs trust.

Although the Act excepts a valid special needs trust from counting as a resource under section 1613(e), the agency still applies its regular resource counting rules to determine if the trust is a resource affecting eligibility for SSI.[11] See POMS SI 01120.203.B.1. 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 is usually a resource to that individual if he or she can revoke the trust and reclaim the trust assets.” POMS SI 01120.200.B.11.[12] “Some states 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 to the contrary.” POMS SI 01120.200.D.3 (emphasis added); 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 . . . 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; see also POMS SI ATL01120.201.B (stating that “ if there is a residual beneficiary properly designated in the trust document, then the trust is irrevocable by its terms and is not a resource for SSI purposes”). “A residual beneficiary . . . is not a current beneficiary of a trust, but he or she will receive the residual benefit of the trust contingent upon the occurrence of a specific event, such as the death of the primary beneficiary.” POMS SI 01120.200.B.10 (emphasis added); accord POMS SI 01120.200.D.3. To determine whether the Trust is revocable, the agency must look at the terms of the Trust 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 on State law.”).

The information provided does not indicate that NH has moved from South Carolina. Therefore, for purposes of this opinion, we assume South Carolina law applies.

B. South Carolina State Law

The Trust states it is irrevocable. Trust, Art. II. The Trust also states that NH’s access to the trust is restricted and that no part of the income, accumulated income, or principal of the Trust shall be subject to transfer, assignment, sale, or pledge. Trust, Art. VI § 1. Thus, the terms of the Trust indicate that it is irrevocable.

Therefore, the issue is whether the trust is revocable under applicable State law. The Trust states it should be construed in accordance with the laws of South Carolina. Trust, Art. XIII. Pursuant to the South Carolina Trust Code, this designation of applicable law is controlling. S.C. Code Ann. § 62-7-107(1) (2020).[13]

Under South Carolina law, a trust is revocable unless the trust expressly provides that the trust is irrevocable. S.C. Code Ann. § 62-7-602(a). Here, the Trust Agreement expressly provides that the Trust is irrevocable. Trust Art. II.

However, under South Carolina law, a purportedly irrevocable trust may be revoked if it fails to identify a residual beneficiary. S.C. Code Ann. § 62-7-411(a) (allowing a settlor to terminate a noncharitable irrevocable trust only with the consent of all beneficiaries); see also POMS SI ATL01120.201.C.2. More specifically, South Carolina law states that 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. S.C. Code Ann. § 62-7-411(a); accord POMS SI 01120.200.D.3; POMS SI ATL01120.201.B. The Trust identifies NH as the settlor of the Trust and the sole beneficiary of the Trust for and during his lifetime. Trust, Preamble, Art I. Accordingly, whether the Trust is revocable depends on whether it 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, cmt.

The Restatement (Second) of Trusts provides further guidance on the definite beneficiary requirement.[14] Restatement (Second) of Trusts § 112 (1959). In particular, it states, “[a] trust may be created for the benefit of a person not ascertained or not yet in existence at the time of the creation of the trust if the interest must vest if at all within the period of the rule against perpetuities.” Id. at § 112 cmt c. As an example, the Restatement explains a residual beneficiary of “children then living” at the death of a life estate beneficiary is sufficiently definite regardless of whether such children exist at the time of declaration of trust. Id.

Here, the Trust specifies “then living issue” at the time of NH’s death as a residual beneficiary, Trust, Art. V § 7, which is sufficiently definite under South Carolina law. S.C. Code Ann. § 62-7-402(c); Restatement (Second) of Trusts § 112 (1959) cmt c; see also POMS SI ATL01120.201.C.2 (“if the trust states that after death the trust will go . . . ‘to my children, or issue, or descendants’, this is specific enough to identify a person and the trust is irrevocable.”). Therefore, the Trust is irrevocable because it identifies at least one definite residual beneficiary.

CONCLUSION

The Trust is irrevocable under South Carolina law; therefore, it is not a countable resource for determining NH’s SSI eligibility.

D. PS 20-025 Validity of Charities Pooled Trust as a Pooled Trust - Region IV Survey

Date: February 27, 2020

1. Syllabus

This Regional Chief Counsel opinion examines whether the Charities Pooled Trust (CPT), which operates in every state of Region IV (Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, and Tennessee), qualifies as a pooled trust under the Social Security Act, 42 U.S.C. § 1396p(d)(4)(C), and the implementing provisions of the Program Operations Manual System. The opinion concludes that the CPT qualifies as a pooled trust in all states of Region IV.

2. Opinion

QUESTION

Whether the Charities Pooled Trust (CPT), which operates in every state in this region, qualifies as a pooled trust under the Social Security Act (Act), 42 U.S.C. § 1396p(d)(4)(C), and the relevant provisions of the Program Operations Manual System (POMS).

OPINION

CPT qualifies as a pooled trust under 42 U.S.C. § 1396p(d)(4)(C) and the relevant POMS provisions.

BACKGROUND

Between October 2016 and July 2018, CPT executive director, W~, executed Master Trust Agreements (MTAs) in Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, and Tennessee. Each trust established CPT as a pooled trust in these respective states. The MTA for each state includes identical provisions, except with respect to the extent to which the MTA addresses directed trustees, whether the trustee will notify the state’s Medicaid agency about a beneficiary’s death, and how the trust will distribute the remainder funds in an individual benefit account (IBA) upon a beneficiary’s death. The MTAs also have identical joinder agreements.

NH1, a number holder living in Kentucky, NH2, a number holder living in Tennessee, and NH3, a number holder living in Florida, receive Supplemental Security Income (SSI). NH1 signed a Joinder Agreement with CPT under the Kentucky MTA on February 13, 2017. NH2’s parent and grandparent signed a Joinder Agreement with CPT under the Tennessee MTA on July xx, 2019. NH3 signed a Joinder Agreement with CPT under the Florida MTA on August xx, 2018. NH1, NH2, and NH3 funded the IBAs of their respective trusts through the transfer of their own assets to the trusts.

I. Purpose and Establishment of the Trust

CPT’s MTAs identify CPT as the Trustee. See MTA, § 2.2.[15] They identify CPT as a non-profit corporation recognized as tax-exempt under section 501(c)(3) of the Internal Revenue Code. Seeid.

The MTAs indicate that the trust intends to comply with 42 U.S.C. § 1396p(d)(4)(C) (§ 1917(d)(4)(A) of the Act). See MTA, § 1.5. They indicate that each trust shall establish a separate account for each beneficiary, but may pool the amounts in the separate accounts for investment and management purposes. See MTA, §§ 4.1, 9.1.

The MTAs classify a trust beneficiary as a person with a disability, as defined by 42 U.S.C. § 1382c(a)(3) (codifying § 1614(a)(3) of the Act), whom a grantor identifies as the sole recipient of services and benefits from the individual account created within the trust for such person with a disability. See MTA, § 13.12; Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.4; Florida, Kentucky, Tennessee MTA, § 2.6. A trust beneficiary, or the trust beneficiary’s parent, grandparent, or legal guardian, or another person or entity acting pursuant to a court order or other legal authority, can be a grantor and can establish an account for a trust beneficiary in the Trust and contribute assets to the trust for the sole benefit of the trust beneficiary. See MTA, § 3.1; Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.3; Florida, Kentucky, Tennessee MTA, § 2.5. The stated purpose of the trust is to supplement, not displace, a beneficiary’s government benefits. See MTA, § 3.2.

II. Distribution and Powers of the Trustee

The Trustee is responsible for overseeing the custody, investment asset allocation model selection, and disbursement of funds contributed to the trusts. See MTA, § 2.2. In carrying out this responsibility, the Trustee may retain an independent investment advisor to handle the custody, investment, and management of the trust assets. See Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.5; Florida, Kentucky, Tennessee MTA, § 2.7. The Trustee and any investment advisor shall perform their duties provided in the trusts to receive, hold, manage, and control all income and principal in the IBAs comprising the Trust as may be appropriate to effectuate the intent and purpose of the trusts. See MTA, § 10.1.

The Trustee shall hold, administer, and distribute all property and income from an individual trust beneficiary’s IBA for the sole benefit of the beneficiary. See MTA, §§ 6.1, 6.2. Distributions are solely within the Trustee’s discretion, but the Trustee must make them for the sole benefit of a beneficiary and should make them if the distribution has the effect of supplanting or replacing any government assistance or disqualifying a beneficiary from receiving government assistance. See MTA, § 6.1.

The Trustee assesses enrollment fees for the fees and expenses associated with a beneficiary enrolling in one of the trusts and establishing an IBA and annual administration fees for the administration and maintenance of an IBA at the time a beneficiary enrolls in the trust. See MTA, § 9.2. The Trustee may adjust the enrollment fees schedule and annual administration fees schedule from time to time. See id.

III. Irrevocability and Spendthrift

The trusts established under each state’s MTA are irrevocable upon the Trustee’s acceptance of a beneficiary’s joinder agreement and related required documents, and the grantor’s contributed amount, and upon the grantor and beneficiary completing the enrollment requirements to join the trust. See MTA, § 1.3. The MTA treats the amount contributed to a beneficiary’s IBA as irrevocably assigned, transferred, conveyed and delivered to the Trustee to be used for the sole benefit of the beneficiary. MTA, § 4.2. Once the Trustee accepts the contributed amount, it is not refundable to the beneficiary. Seeid. A beneficiary has no right to demand a distribution from the trust for his or her own support or maintenance. See MTA, § 9.8.

Each trust is a spendthrift trust. See MTA, § 9.9. No beneficiary can subject any part of either trust to an assignment; attachment; levy; a creditor’s control; a creditor’s legal or equitable action, proceeding, suit, or procedure to take from the Trust; or a compelled distribution to any beneficiary’s creditor. Seeid.

IV. Termination

Upon a beneficiary’s death, the Trustee will use remaining funds in the beneficiary’s IBA to pay back to a state’s Medicaid agency or agencies an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under a state Medicaid plan. See MTA § 7.2B, D. If the payback amount is equal or greater than the amount remaining in the IBA, the MTAs for Alabama, Georgia, and North Carolina indicate that the trust will retain ten percent of the remaining amount and use the remaining ninety percent to pay back the Medicaid agency or agencies. Alabama, Georgia, North Carolina MTA, § 7.2D.1. The MTAs for the rest of the states in the Atlanta region indicate that under the same circumstances, the Trust will retain fifty percent of the remaining amount and use the remaining fifty percent to pay back the Medicaid agency or agencies. See Kentucky, Mississippi, South Carolina, Tennessee MTA, § 7.2D.1. If the payback amount is less than the amount remaining in the IBA, the MTAs for every state in the Atlanta region indicate that the Trust will retain five percent of the amount remaining in the IBA and pay back the full amount to the Medicaid agency or agencies. See MTA, § 7.2D.2. The Trustee will distribute any remaining amount left after the Trust retains five percent and pays back the Medicaid agency or agencies to any remainder beneficiaries of the deceased beneficiary identified in the IBA joinder agreement. See MTA, § 7.2C, D.2.

A beneficiary cannot terminate the Trust or any part of the beneficiary’s IBA at any time, under any circumstances. See MTA, § 8.1. If the Trust terminates during the lifetime of a beneficiary, the Trustee will use any funds remaining in an IBA to pay back a state’s Medicaid agency or agencies an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under a state Medicaid plan, with the remaining amounts distributed to the beneficiary. See MTA, § 8.1.

DISCUSSION

A. To qualify as a pooled trust, a trust must meet six requirements.

To be eligible for Supplemental Security Income (SSI), the dollar value of a claimant’s countable resources cannot exceed certain statutory limits. See 42 U.S.C. § 1382(a)(1)(B), (3)(B); 20 C.F.R. §§ 416.202(d), 416.1201, 416.1205; POMS SI 01110.003(A). Under 42 U.S.C. § 1382b(e), a trust is a resource unless it meets certain requirements, including those articulated in § 1396p(d)(4)(C). Trusts that meet the requirements of 42 U.S.C. § 1396p(d)(4)(C) are considered to be qualifying pooled trusts.

B. The MTAs for every state in the Atlanta Region qualifies as a pooled trust.

The MTAs for every state in this region qualify as pooled trusts. As further explained below, the MTAs meet each of the six criteria articulated in 42 U.S.C. § 1396p(d)(4)(C) as follows:

1. Disabled Individual

To qualify as a pooled trust, the trust must contain “the assets of an individual who is disabled.” 42 U.S.C. § 1396p(d)(4)(C); see POMS SI 01120.203.D.2 (stating that “the individual whose assets were used to establish the trust account must be disabled for SSI purposes . . . .”). That requirement is satisfied here.

The MTAs require that a trust beneficiary be a person with a disability. See MTA, § 13.12; Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.4; Florida, Kentucky, Tennessee MTA, § 2.6. Although a grantor besides the trust beneficiary may contribute assets to the trust, the grantor makes those contributions for the sole benefit of the trust beneficiary. See MTA, § 3.1; Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.3; Florida, Kentucky, Tennessee MTA, § 2.5. Additionally, the individuals who established IBAs under the MTAs for Florida, Kentucky, and Tennessee are disabled and used their own assets to fund their IBAs.

2. Established and Managed by a Nonprofit Association

Second, the trust must be “established and managed by a non-profit association.” 42 U.S.C. § 1396p(d)(4)(C)(i); see POMS SI 01120.203.D.3 (trust is “established and maintained by the actions of a nonprofit association”). This requirement is satisfied as well.

According to the MTAs, CPT is the settlor and trustee of the MTAs and is a non-profit corporation under section 501(c)(3) of the Internal Revenue Code. MTA, § 2.2. CPT is a fictitious name for the Institute for Health Care Advocacy, Inc. See sunbiz.org – Florida Department of State, http://dos.sunbiz.org/scripts/ficidet.exe?action=DETREG&docnum=G09000149562&rdocnum=G09000149562 (last accessed Feb. xx, 2020). The Institute for Health Care Advocacy, Inc. is an active not-for-profit Florida corporation. See sunbiz.org – Florida Department of State, http://search.sunbiz.org/Inquiry/CorporationSearch/SearchResultDetail?inquirytype=EntityName&directionType=Initial&searchNameOrder=INSTITUTEFORHEALTHCAREADVOCACY%20N930000037871&aggregateId=domnp-n93000003787-3d08880b-9b2a-400f-bc4b-4f26864703fb&searchTerm=Institute%20for%20Health%20Care%20Advocacy&listNameOrder=INSTITUTEFORHEALTHCAREADVOCACY%20N930000037871 (last accessed Feb. xx, 2020). The fictitious name registration for CPT expired on December xx, 2019. See sunbiz.org – Florida Department of State, http://dos.sunbiz.org/scripts/ficidet.exe?action=DETREG&docnum=G09000149562&rdocnum=G09000149562 (last accessed Feb. xx, 2020). However, under Florida law, the failure of a business to register a fictitious name “does not impair the validity of any contract, deed, mortgage, security interest, lien, or act of such business . . . .” Fla. Stat. Ann. § 865.09(9)(b). Accordingly, this requirement is still satisfied in spite of the failure of the Institute for Health Care Advocacy, Inc., to maintain its registration of CPT as a fictitious name.

3. Separate Accounts, Pooled for Investing

Third, to be a pooled trust, the trust must maintain a separate account for each beneficiary. 42 U.S.C. § 1396p(d)(4)(C)(ii); see POMS SI 01120.203.D.4. However, “for purposes of investment and management of funds, the trust pools these accounts.” 42 U.S.C. § 1396p(d)(4)(C)(ii); seePOMS SI 01120.203.D.4 (the “trust may pool the funds in the individual accounts . . . for purposes of investment and management of funds”). This requirement is reflected in POMS, which notes that “[t]he trust must be able to provide an individual accounting for each individual.” POMS SI 01120.203.D.4. The MTAs for every state in this region meet these requirements.

The MTAs indicate that each trust shall establish a separate account for each beneficiary, but trust may pool the amounts in the separate accounts for investment and management purposes. MTA, §§ 4.1, 9.1. The MTAs also indicate that the trustee, or its agent, must “maintain records for each Trust IBA in the name of each Trust Beneficiary and showing the Contributed Amount plus any income earned from the Contributed Amount.” MTA, § 4.1. The trust must provide periodic reports, at least annually, about receipts and disbursements to and from the individual’s account. See MTA, § 9.4.

4. Established for the Sole Benefit of the Disabled Individual

The fourth requirement for a pooled trust is that the trust account is “established solely for the benefit of individuals who are disabled.” 42 U.S.C. § 1396p(d)(4)(C)(iii); accord POMS SI 01120.203.D.5 (trust “must be established for the sole benefit of the disabled individual”). The statute does not provide guidance on “sole benefit,” but the POMS explains that a trust is “established for the sole benefit of an individual” when it “benefits no one but that individual, whether at the time the trust is established or at any time for the remainder of the individual’s life.” POMS SI 01120.201.F.1.

The trust may pay third parties for goods or services for the beneficiary and still be for the “sole benefit” of the beneficiary. POMS SI 01120.201.F.3. The trust also may “provide for reasonable compensation for (a) trustee(s) to manage the trust and reasonable costs associated with investment, legal, or other services rendered on behalf of the individual with regard to the trust.” POMS SI 01120.201.F.4.

The MTAs for every state in this region meet this requirement. The MTAs indicate that the trustee must “hold, administer, and distribute all property, and all income therefrom from an Individual Trust Beneficiary’s IBA, for the sole benefit of the Trust Beneficiary during the Trust Beneficiary’s lifetime and after Trust termination.” MTA, § 6.2 (emphasis in original); MTA, § 6.3 (“Trust Beneficiary’s IBA is for the sole benefit of the Trust Beneficiary.”) (emphasis in original).

The MTAs also allow for fees in accordance with a written fee schedule and expenses for administering the trust. MTA, §§ 9.2, 10.5. The MTAs further state that the trust will compensate a trustee for “services rendered and reimbursed reasonable expenses incurred on behalf of the Trust or a Trust Beneficiary.” MTA, § 10.5. Additionally, the MTAs allow for charges of pro rata legal fees to all individual trust accounts, or to accounts of affected beneficiaries, and the trustee will determine “if defense costs affect a substantial number of Trust beneficiaries” and warrant allocation. MTA, § 10.6. These provisions pass muster under the statute because they constitute “reasonable costs associated with investment, legal, or other services rendered on behalf of the individual with regard to the trust.” POMS SI 01120.201.F.4.

The MTAs contain an early termination provision that accounts for a scenario where the trust terminates prior to the death of the beneficiary. MTA, Art. 8. An early termination provision is allowable under the pooled-trust exception so long as three criteria are met: (1) “[u]pon early termination (i.e., termination prior to the death of the beneficiary), the State(s), as primary assignee, would receive all amounts remaining in the trust at the time of termination up to an amount equal to the total amount of medical assistance paid on behalf of the individual under the State Medicaid plan(s);” (2) “[o]ther than payment for those expenses [for taxes, reasonable fees, and administrative expenses], 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);” and (3) “[t]he early termination clause gives the power to terminate to someone other than the trust beneficiary.” POMS SI 01120.199.F.1 (bold in original). The trust may pay taxes, reasonable fees, and administrative expenses before reimbursing any state(s) for medical assistance. See POMS SI 01120.199.F.3.

The MTAs for this region satisfy these criteria. Specifically, the MTAs indicate that, if the trust terminates during the beneficiary’s life, all remaining funds in that account will be paid to reimburse each state for medical assistance paid on behalf of the beneficiary. MTA, § 8.1. The MTAs also indicate that, after paying the states, “if there are any assets remaining, the Trustee shall distribute all of the remaining assets to the Trust Beneficiary.” MTA, § 8.1. Additionally, the beneficiary does not have the power to terminate his or her trust account. See MTA, § 8.1.[16]

5. Established Through the Actions of the Individual, Parent, Grandparent, Legal Guardian, or Court

To qualify as a pooled trust, the trust account also must be “established... by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court.” 42 U.S.C. § 1396p(d)(4)(C)(iii); see POMS SI 01120.203.D.6. The MTAs here meet this requirement, as they require that a beneficiary or a grantor, who must be a parent, grandparent, legal guardian, or other person acting pursuant to a court order, execute the joinder agreement to establish an IBA under the MTA. MTA, §§ 3.1, 13.2; Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.3; Florida, Kentucky, Tennessee MTA, § 2.5. The joinder agreements submitted for NH1, NH2, and NH3 for the Florida, Kentucky, and Tennessee MTAs, respectively, also show that each of these individuals have established their IBAs either through their own actions or through the actions of their parents.

6. Remaining Amounts Paid to the State

Sixth, “[t]o 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.” 42 U.S.C. § 1396p(d)(4)(C)(iv); accord POMS SI 01120.203.D.8. The trustee may pay taxes and reasonable fees and costs before paying the state for medical assistance. SeePOMS SI 01120.203.E.1.

The MTAs meet this requirement, as well. Specifically, the MTAs allocate remaining assets between the trust, the state(s), and the remainder beneficiaries. MTA, § 7.2. If the state medical assistance amount is equal to or greater than the total amount left in the beneficiary’s IBA, the MTAs for Alabama, Georgia, and North Carolina state that the trust will retain ten percent of the remaining amount and use the remaining ninety percent to pay back the Medicaid agency or agencies. See Alabama, Georgia, North Carolina MTA, § 7.2D.1. The MTAs for the rest of the states in the Atlanta region state that under the same circumstances, the trust will retain fifty percent of the remaining amount and use the remaining fifty percent to pay back the Medicaid agency or agencies. See Kentucky, Mississippi, South Carolina, Tennessee MTA § 7.2D.1. If the state medical assistance amount is less than the amount left in the beneficiary’s IBA, the trust in every state in the Atlanta region will retain the first five percent of the amount; the trustee will pay the full amount owed to the state; and the trustee will pay any remaining amount to the beneficiary’s heirs. See MTA, § 7.2D.2. This distribution scheme comports with the statute.

In addition, the MTAs allow the trustee to pay certain administrative expenses, such as taxes and reasonable fees and costs, before paying the state for medical assistance. MTA, § 7.4A. The MTAs incorporate by reference the allowable and prohibited expenses in SSA’s POMS, by stating the Trustee will not pay any administrative expenses not allowed by the SSA’s POMS. MTA, § 7.4B.

CONCLUSION

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

E. PS 20-012 Validity of Purported Pooled Trust -- South Carolina – Supplemental Opinion (Able Life Foundation Inc. Pooled Trust Agreement; Formerly Disabilities Foundation of Charleston County Inc. Pooled Fund Trust)

February 7, 2020

1. Syllabus

In this opinion, the Regional Chief Counsel (RCC) examines the amended Able Life Foundation Inc. Pooled Trust, which was formerly named the Disabilities Foundation of Charleston County Inc. Pooled Fund Trust. The amendments to the trust and joinder agreements cured all of the previously noted defects, as discussed in PS 18-104. THe trust now complies with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act.

2. Opinion

QUESTION

Whether the amended Able Life Foundation Inc. Pooled Trust Agreement (Trust)[17] and Joinder Agreement meets 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 Trust and Joinder Agreement comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant POMS provisions.

BACKGROUND

In a legal opinion dated June xx, 2018, we advised that the Trust did not meet the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant POMS provisions (copy attached). POMS PS 01825.045 (PS 18-104).[18] Specifically, we explained that the Trust was not managed by a nonprofit association; the Joinder Agreement allowed beneficiaries to add multiple beneficiaries under his/her sub-account; the sub-accounts were not established for the sole benefit of each beneficiary; and the Trust’s termination provisions did not comply with the Medicaid reimbursement provision. Id. On January 11, 2020, counsel for Able Life submitted an amended Trust to the agency for review.[19]

The Trust identifies Able Life as the Settlor and the Manager of the Trust. Trust, Art. VII. The Trust includes new Articles VII and VIII, identifying and distinguishing the roles of the Manager and the Trustee. Trust, Art. VII, VIII. The Trust provides that, as Manager, Able Life:

. . . 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.

Trust, Art. VII; see also Trust, Art. III, §§ 2, 3, 4, 5, 6, 9, 10, Art. VI, §§ 1, 2, 3, 5, 6, 7, Art. VIII, §§ 3, 4 (describing further the powers and duties of the Manager); Joinder Agreement, § J, ¶ 2 (providing disbursements by the Trustee to the beneficiary are “at the Manager’s direction”). The Manager employs the Trustee, Branch Banking and Trust Company (BB&T), to provide certain investment and accounting functions, but the Manager “retains full discretion as to disbursements to be made from the Trust.” Trust, 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. Trust, Art. IX. Able Life 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. Trust, Art. VII.

As in the previous version, the Trust provides that “[a] separate Trust sub-account shall be maintained for each Beneficiary” although the Trust can pool the sub-accounts for purposes of investment and management of funds. Trust, Art. VI, § 1. The amended Trust includes a definition for “sub-account,” which is defined as the financial account within the pooled trust for the benefit of an “individual disabled Beneficiary” that is established with the funds of that “individual” Beneficiary. Trust, Art. II, § 9. The revised Joinder Agreement states that if the Sponsor intends to enroll more than one beneficiary under one sub-account, the Sponsor must enter into an additional agreement with the Manager. Joinder Agreement, § L, ¶ 9.

The Trust and Joinder Agreement include some revisions related to the administration of the trust and payment of trust property. The Joinder Agreement states the Trustee will administer the sub-account for the “sole benefit” of the beneficiary. Joinder Agreement, § J, ¶ 1. The Trustee, at the Manager’s direction, may make disbursements from a sub-account that are for the beneficiary’s health, safety, and welfare. Joinder Agreement, § J, ¶ 3; see also Trust, Art. III, § 2 (providing the Manager may direct the Trustee to pay or apply for the supplemental care needs of each beneficiary). At the Manager’s direction, the Trustee may make payments to either a person deemed suitable by the Manager or by direct payment of a beneficiary’s expenses. Trust, Art. VI, § 5. The amended Trust also limits 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. Trust, Art. II, § 6.

The Trust provides that the Manager can charge a sub-account for administrative services and expenses attributable to the segregated assets in addition to its proportional share of general administrative services and expenses. Trust, Art. VI, § 2. The Manager may also only charge the costs and expenses of defending the 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. Trust, Art. VI, § 7.

The amended Trust’s early termination clause permits 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) [sic.] 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.

Trust, Art. XIII, § 1.

The amended Trust provides that, upon a beneficiary’s death, the Manager may direct the Trustee to pay expenses that are allowable under the agency’s POMS in effect at the time of disbursement. Trust, Art. III, § 9, Art. XIII, § 2. The Trust retains any amounts remaining. Trust, Art. XIII, § 2. However, to the extent amounts remaining are deemed not to be retained by the Trust, “such sums shall be paid to the State(s), up to an amount equal to the total amount of medical expenses paid on behalf of the [b]eneficiary under the State Medicaid Plan(s).” Id.

DISCUSSION

As discussed in our June 2018 legal opinion, 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; and,

  • 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 title.

Act § 1917(d)(4)(C); POMS SI 01120.203.D.1.

The amended Trust complies with the first requirement because it is managed by a nonprofit association. See Act § 1917(d)(4)(C)(i). Able Life, a nonprofit association,[20] now retains managerial control over the Trust. See Trust, Art. VII; see also Trust, Art. III, §§ 2, 3, 4, 5, 6, 9, 10, Art. VI, §§ 1, 2, 3, 5, 6, 7, Art. VIII, §§ 3, 4; Joinder Agreement, § J, ¶ 2. Although BB&T remains as the Trustee and still manages many of the Trust’s financial activities, Able Life, 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.” Trust, 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. POMS SI 01120.225.D. Able Life, as the Manager, is ultimately responsible for determining the amount of the Trust corpus to invest, removing or replacing the trustee,[21] and making the day-to-day decisions regarding the health and well-being of the Trust’s beneficiaries. See Trust, Art. VII; Joinder Agreement, § J, ¶ 2; POMS SI 01120.225.D (providing list of actions for which the non-profit association must be responsible).

The Trust along with the Joinder Agreement also appears to comply with the second requirement because a separate sub-account is maintained for each beneficiary. See Act § 1917(d)(4)(C)(ii). The Trust explicitly states “[a] separate Trust sub-account shall be maintained for each Beneficiary,” Trust, Art. VI, § 1 (emphasis added), and was amended to define “sub-account,” as the financial account within the pooled trust for the benefit of an “individual disabled Beneficiary,” Trust, Art. II, § 9 (emphasis added). The revised Joinder Agreement states that if the Sponsor intends to enroll more than one beneficiary under one sub-account, the Sponsor must enter into an additional agreement with the Manager. Joinder Agreement, § L, ¶ 9. While the language in the Joinder Agreement could be clearer, taking into the account the language in the Trust, it appears that Able Life is requiring that each beneficiary have his/her own sub-account under separate Joinder Agreements.

The amended Trust also complies with the third requirement because the Trust sub-accounts are established for the sole benefit of the beneficiary. See Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.D.5 . The POMS consider a trust 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. POMS SI 01120.201.F.1. Although the Trust allows the Trustee, at the Manager’s direction, to make any payment to any person deemed suitable by the Manager or by direct payment of a beneficiary’s expenses, Trust, Art. VI, § 5, the Joinder Agreement specifies that sub-account distributions must be made for the sole benefit of the Beneficiary, Joinder Agreement, § J. The POMS also permits a Trust to pay third parties for goods or services, as here, so long as the goods or services are for the primary benefit of the trust beneficiary. POMS SI 01120.201.F.3.a. The trust 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. Trust, Art. II, § 6; see POMS SI 01120.201.F.3.c. Finally, as amended, the Trust no longer allows the Trustee or Able Life, as Manager, to apportion to all sub-accounts administrative fees, or other fees and expenses regardless of whether the fees and expenses are only associated with a particular sub-account or group of sub-accounts. The Trust now provides that the Manager may charge a sub-account for administrative services and expenses attributable to its segregated assets in addition to its proportional share of general administrative services and expenses. Trust, Art. VI, § 2. The Trust also provides that the costs and expenses of defending the Trust may be charged only against the sub-account of the affected beneficiary or the sub-accounts of a group of affected beneficiaries. Trust, Art. VI, § 7; POMS SI 01120.201.F.4. (permitting the Trust to provide for reasonable compensation for the trustee to manage the trust and reasonable costs associated with investment, legal, or other services rendered on behalf of an individual with regard to the Trust).

The Trust’s early termination provision also complies with the third requirement. Trust, Art. XIII, § 1; Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.D.5. An early termination is acceptable if it “solely” allows for transfer of the sub-account assets to another pooled trust. POMS SI 01120.199.F.2. Alternatively, the early termination provision must require the assets to be paid first to the state(s) for medical assistance provided to the individual under the state Medicaid plan(s), with any remaining funds used only for allowable administrative expenses, reasonable compensation to the trustee, reasonable costs for services rendered on behalf of the beneficiary, or distributions to the trust beneficiary. POMS SI 01120.199.F.1. The 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[22] and any balance to the affected beneficiary. Trust, Art. XIII, § 1. Thus, the Trust’s early termination provision conforms to the criteria listed for an acceptable early termination clause enumerated in POMS SI 01120.199.F.

The Trust’s termination provision for when the beneficiary has died also now complies with the Act’s Medicaid reimbursement provision. Trust, Art. XIII, § 2; see Act § 1917(d)(4)(C)(iv). To qualify, any amounts not retained by a trust must be paid to “any State(s)” that have provided medical assistance under a Medicaid plan. See POMS SI 01120.203.D.8. The trust cannot limit payback to any particular State and if the trust does not have sufficient funds to reimburse each State that had provided medical assistance, the trust must reimburse each State on a pro-rata basis. Seeid. The Trust as amended provides that to the extent any amounts are deemed not to be retained by the 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). Trust, Art. XIII, § 2. Further, upon a beneficiary’s death, the amendments permit the Manager to direct the Trustee to pay for allowable expenses prior to reimbursement of medical assistance to the State(s). Trust, Art. III, § 9, Art. XIII, § 2. The POMS permits certain expenses to be paid prior to reimbursing the state[s] for medical assistance, such as taxes due from the trust to the state(s) or Federal government because of the death of the beneficiary and reasonable fees for administration of the trust estate. POMS SI 01120.203.E.1. The Trust limits the expenses that may be paid prior to reimbursement to the states to those allowed by the agency’s POMS at the time disbursement is made. Trust, Art. III, § 9, Art. XIII, § 2.

CONCLUSION

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

 

F. PS 18-104 Does the Purported Pooled Trust for Disabilities Foundation of Charleston County, Inc. (DFCC) meet the requirements for a pooled trust for SSI

Date: June 22, 2018

1. Syllabus

This Regional Chief Counsel (RCC) opinion outlines why the Disabilities Foundation of Charleston County, Inc. Pooled Fund Trust (Trust) and the number holder’s Joinder Agreement do not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act and the implementing POMS provisions. As written, the Trust is managed by a for profit organization; the Joinder Agreement allows for multiple beneficiaries under NH’s sub-account; the trust sub-accounts are not established for the sole benefit of each beneficiary; and the Trust’s termination provisions do not comply with the Medicaid reimbursement provision.

2. Opinion

QUESTION

Whether the Disabilities Foundation of Charleston County, Inc. Pooled Fund Trust (Trust) meets 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).

ANSWER

For the reason discussed below, the Trust does not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and relevant provisions of the POMS.

BACKGROUND

According to the information provided, N~, the number holder (NH), has been receiving Supplemental Security Income (SSI) since 1981. NH enrolled in the Trust on August XX, 2016, and is currently a beneficiary of the Trust.

Purpose and Establishment of the Trust

In October 2007, the Disabilities Foundation of Charleston County Inc. (DFCC or Grantor), established the Trust. See Trust, Art. III, ¶ 1. The Trust states the intention of DFCC was to establish a pooled fund trust pursuant to 42 U.S.C. § 1396p (section 1917 of the Act) for the benefit of beneficiaries under the Trust. See id. In July 2016, DFCC changed its name to The Able Life Foundation, Inc. (Able Life). See State of South Carolina Secretary of State Nonprofit Corporation Articles of Amendment. A letter from the Internal Revenue Service (IRS) dated March 28, 2017, states that Able Life is an exempt organization under section 501(c)(3) of the Internal Revenue Code.[23]

The Trust identifies Branch Banking and Trust Company (BB&T) as the Trustee.[24] See Trust, pmbl. The Grantor maintains sole discretion to change the Trustee. See Trust, Art. VIII.

The Trust provides that a separate Trust sub-account shall be maintained for each beneficiary, but for purposes of investment and management of funds, the Trust will pool the Trust sub-accounts. See Trust, Art. VII, ¶ 1. The Trustee, or the Trustee’s authorized agent, must maintain records for each Trust sub-account in the name of, and showing the contributed property for, each beneficiary. See Trust, Art. VII, ¶ 1. The Trustee must also provide an accounting, at least annually, to each beneficiary or the beneficiary’s legal representative. See Trust, Art. VII, ¶ 3.

The Trust defines “Beneficiary” as an individual who, at the time the sub-account is established or at the time additional funds are added to the sub-account, is disabled as defined in § 1614(a)(3) of the Act. See Trust, Art. II, ¶ 1. A “Sponsor” is defined as a parent, grandparent, guardian, or other legal representative of the beneficiary, the beneficiary, or any court. See Trust, Art. II, ¶ 6. A Sponsor can also be the Grantor, a person appointed by the Grantor, or any person or entity that contributes assets or property to the Trust for the benefit of a beneficiary. See id. The Trust becomes effective with respect to a beneficiary upon execution of a Joinder Agreement by the Sponsor and the Grantor. See Trust, Art. III, ¶ 1, Art. V, ¶ 1. A Sponsor must make a minimum contribution of $1000 to establish a sub-account. See Trust, Art. V, ¶ 1.

NH’s Joinder Agreement identifies NH as both the Sponsor and Beneficiary and states the agreement was entered on August 31, 2016. See Joinder Agreement, ¶¶ B, C, G. The Joinder Agreement also identifies NH as a recipient of SSI. See Joinder Agreement, ¶ C. NH’s Joinder Agreement provides that her sub-account will be administered for her benefit. See Joinder Agreement, ¶ E. NH’s Joinder Agreement also permits NH as Sponsor to enroll more than one beneficiary under the sub-account, provided there is an additional agreement between the Sponsor and Grantor. See Joinder Agreement, ¶ G.

Distribution and Powers of the Trustee

NH’s Joinder Agreement states that all distributions from her sub-account are at the Trustee’s “sole” discretion. Joinder Agreement, ¶ E. The Trust provides that a beneficiary has no entitlement to the income or corpus of the Trust except as the Trustee, in consultation with a Special Advisor, elects to disburse. See Trust, Art. III, ¶¶ 3, 5. A “Special Advisor” is defined as a person who is responsible for determining the needs of the beneficiary and the effect of distributions on the beneficiary’s eligibility for government benefits. See Trust, Art. II, ¶ 5. NH’s Joinder Agreement does not specifically identify a Special Advisor but designates Able Life (formally DFCC) as a substitute or successor Special Advisor in the event any Special Advisor the Sponsor does name is unable or unwilling to serve as a Special Advisor. See Joinder Agreement, ¶ E.

The Trust provides that Trustee, as directed by the Grantor, may make any payment directly to a beneficiary; in any form allowed by law; to any person deemed suitable by Trustee; by direct payment of a beneficiary’s expenses; or to the Grantor in reimbursement for advances made to or for the benefit of a beneficiary. See Trust, Art. VII, ¶ 6.

The Trust provides that the Trustee may pay or apply for the supplemental care of each beneficiary any principal or income from the beneficiary’s Trust sub-account as the Special Advisor may request and the Grantor shall approve for the satisfaction of the beneficiary’s supplemental care needs. See Trust, Art. III, ¶ 4. The Trust defines “supplemental needs” or “supplemental care” to include distributions that supplement and do not replace public or private benefits. See Trust, Art. II, ¶ 4. Supplemental needs may include educational, medical, and dental expenses; personal care services; equipment; travel; and recreation. See id. They may also include expenditures for travel, companionship, cultural experiences, and expenses in bringing a beneficiary’s siblings, children, and others for visitation with him or her. See id. NH’s Joinder Agreement incorporates by reference any supplemental needs plan established for NH[25] and provides that pending the preparation of such a plan, the Trustee has discretion to provide NH any nonsupport items that are required for her health, safety, and welfare that are not being provided for by a public agency or by other income. See Joinder Agreement, ¶ E.

The Trust also provides that the Trustee, in consultation with the Grantor’s representative, has absolute discretion to refuse to make distributions which may disqualify the beneficiary from government benefits and may refuse to make distributions for any reason if it is determined by the appropriate advisor that such distributions are not in the beneficiary’s best interest. See Trust, Art. III, ¶ 4.

In addition to payments made for supplemental care, the Trustee also has complete and absolute discretion to make disbursements to a beneficiary that are recommended by the Special Advisor even if it reduces or eliminates benefits from one or more programs. See Trust, Art. III, ¶ 6. A beneficiary’s future needs may be considered by the Trustee in connection with disbursements made and the interests of remainder beneficiary shall be secondary to those of the primary beneficiary. See Trust, Art. III, ¶ 5.

The Trust permits payments to a beneficiary’s dependent with the consent of the beneficiary and states such payments are considered to be made for the benefit of the beneficiary. See Trust, Art. VII, ¶ 6.

In addition to any other rights, powers, authority, and privileges granted under the Trust, the Trustee has absolute discretion with respect to any property held by the Trust to engage in a variety of activities related to investing and managing the Trust property. See Trust Art. VI. Such rights include the right to invest all or part of the Trust estate. See Trust, Art. VI, ¶ 1.

The Trust also provides that the Trustee, in its discretion, has the authority to allocate assets received in kind solely to the sub-account for which the assets were contributed. See Trust, Art. VII, ¶ 2. In such cases, only the sub-account in question shall be credited or charged with its share of income, profits, gains, and losses derived from such segregated assets. See id. The Trustee also has the right to charge the sub-account for administrative services and expenses attributable to the segregated assets in addition to general administrative services and expenses. See id.

The Trust provides that the Trust’s general administrative expenses may be allocated equally among all sub-accounts. See Trust, Art. VII, ¶ 9. Any necessary expenses connected to a particular sub-account or particular sub-accounts, including attorney or accountant fees, management fees, taxes, debts, or charges may be paid by the Trustee out of the affected sub-account or sub-accounts. See id. Expenses that are not incurred for the benefit of a specific sub-account or specific group of sub-accounts may be allocated between all sub-accounts. See id. Also, the Grantor’s compensation for services may at the Trustee’s discretion be charged at a pro rata basis to all sub-accounts or between specific affected sub-accounts. See id. The charges of the Trustee will be prorated among all the sub-accounts. See Trust, Art. XIII, ¶ 3.

Costs and expenses of defending the Trust from any claim, demand, legal or equitable action, suit, or proceeding may, in the sole discretion of the Grantor, either be apportioned on a pro rata basis to all trust sub-accounts, be charged only against the Trust sub-account of the affected beneficiary, or be charged to the sub-accounts of a group of affected beneficiaries or to a group of beneficiaries whose interests may be reasonably expected to be affected by the outcome of the action. See Trust, Art. VII, ¶ 8.

Irrevocability and Spendthrift

Upon delivery to and acceptance by the Trustee of property, the Trust, as to the Sponsor of such property and the designation of the respective beneficiary shall be irrevocable and the contributed property shall not be refundable unless a Committee established by the Grantor determines the Trust is unable to meet the needs of a beneficiary. See Trust, Art. V, ¶ 1, Art. XII, ¶ 3. A designation to transfer property to the Trust in the future that has not yet been made may be revoked by the Sponsor at any time during the Sponsor’s life and continued competence, upon prior written notice from the Sponsor to the Trustee. See Trust, Art. V, ¶ 2.

The Trust agreement is irrevocable, except that it may be amended from time to time by agreement between the Trustee and the Grantor or by the Grantor to conform with rules, regulations, and related statutes. See Trust, Art. XI. No beneficiary has the right to amend or revoke the Trust. See id.

The Trust is not available to the beneficiaries’ creditors. See Trust, Art. III, ¶ 2. The Trust also includes a provision stating that no part of the Trust principal or income shall be subject to anticipation or assignment by a beneficiary. See Trust, Art. III, ¶ 9. Also, no Trust principal or income is subject to legal or equitable process by any voluntary or involuntary creditor of any beneficiary and the beneficiary cannot compel a distribution from her sub-account. See id.

Termination

If the Trustee has reasonable cause to believe that income or principal in a Trust sub-account is or will become liable for basic maintenance, support, or care for the beneficiary, which had been or otherwise would have been provided by a local government, a state, or the federal government, the Trustee, in its sole discretion may: (a) terminate the Trust sub-account as if the affected beneficiary has died; (b) determine the Trust is impossible to implement; or (c) continue to administer the Trust sub-account under a separate arrangement with the affected beneficiary or his or her guardian or other legal representative. See Trust, Art. XII, ¶ 1.

Before or on the death of a beneficiary or within three months of a beneficiary’s death, the Trustee, upon the request of the Special Advisor, may pay all or part of the beneficiary’s funeral and estate administrative expenses, including taxes and attorney’s fees, from his or her Trust sub-account. See Trust, Art. III, ¶ 11. When a beneficiary dies, any remaining amounts in the beneficiary’s sub-account after payment of final expenses shall be deemed surplus trust property and shall be retained by the Trust to be used for operational and charitable purposes. See Trust, Art. XII, ¶ 2. To the extent that amounts are not retained by the Trust, such sums will be paid to the South Carolina Department of Health and Human Services up to an amount equal to the total amount of medical expenses paid on behalf of the beneficiary for Medicaid assistance. See id.

If the Trustee determines the Trust is impossible to implement or a Committee determines the Trust is unable to meet a beneficiary’s needs, the Trustee may pay over all or any portion of the sub-account property to a beneficiary, the probate court, another Trust for the benefit of the beneficiary, a third party as agreed upon by the beneficiary, or the beneficiary’s guardian or legal representative. See Trust, Art. XII, ¶¶ 1,3.

Governing law and Severability Clause

The validity of the Trust is determined by the laws and regulations of the United States and the State of South Carolina. See Trust, Art. XIII, ¶ 4. The Trust provides that should any provision of the Agreement be or become invalid or unenforceable, the remaining provisions of the Agreement continue to remain fully effective. See Trust, Art. III, ¶ 10.

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 (2018).[26] “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); see POMS SI 01120.010.B.

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 01120.201.A.1. However, the rules in section 1613(e) of the Act do not apply to trusts described in section 1917(d)(4) of the Act. See Act § 1613(e)(5); POMS SI 01120.201.A.1; POMS SI 01120.203.A. Trusts created in accordance with paragraphs (A) and (C) of section 1917(d)(4) are commonly known as Medicaid trust exceptions and consist of two types: Special Needs Trusts (paragraph (A)) and Pooled Trusts (paragraph (C)). See POMS SI 01120.203.A.

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:

(i) The trust is established and managed by a nonprofit association;

(ii) 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;

(iii) 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; and,

(iv) 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 title.

Act § 1917(d)(4)(C); POMS SI 01120.203.D.1. As written, the Trust does not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of Act and the implementing POMS provisions. Specifically, the Trust is not managed by a nonprofit association; the Joinder Agreement allows the NH to add multiple beneficiaries under her sub-account; the sub-accounts are not established for the sole benefit of each beneficiary; and the Trust’s termination provisions do not comply with the Medicaid reimbursement provision.

The Trust is not managed by a nonprofit association. See Act § 1917(d)(4)(C)(i). Although a nonprofit organization may employ the services of a for-profit entity, the nonprofit organization must maintain “ultimate managerial control” over the trust. POMS SI 01120.225.D. The nonprofit association must remain responsible for (among other things) determining the amount of the trust corpus to invest and making the day-to-day decisions regarding the health and well-being of the pooled trust beneficiaries. See id.

Although Able Life (formally DFCC), a nonprofit entity, established the Trust and maintains some powers as Grantor, the Trust gives Trustee BB&T, a for profit entity, significant managerial control over the Trust. BB&T has absolute discretion to engage in a variety of activities related to managing the Trust, including the power to invest all or part of the Trust estate. See Trust Art. VI, ¶ 1. NH’s Joinder Agreement also gives BB&T, as Trustee, “sole discretion” in making distributions to her from her sub-account. See Joinder Agreement, §  E. Likewise, the Trust document gives BB&T significant discretion in making distributions or in refusing to make distributions to the Trust’s beneficiaries. See Trust, Art. III, ¶ 4, Art. III, ¶ 5, Art. III, ¶ 6.

NH’s Joinder Agreement also allows NH, as Sponsor, to enroll more than one beneficiary under her Trust sub-account. See Joinder Agreement, ¶ G.3; Act § 1917(d)(4)(C)(ii). The Trust document does provide that a separate Trust sub-account shall be maintained for each beneficiary. See Trust, Art. VII, ¶ 1. However, this conflicts with the language in the Joinder Agreement specifically allowing more than one beneficiary under NH’s sub-account. See Joinder Agreement, ¶ G. If NH has enrolled another individual as beneficiary in her Trust sub-account or does so in the future, a separate account would not be maintained for each beneficiary of the Trust.

The Trust sub-accounts are also not established solely for the benefit of each beneficiary. See Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.D.5. 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.1. Generally, a trust is not for the sole benefit of an individual if the trust account: (a) provides a benefit to another individual or entity during the individual’s lifetime; or (b) allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity. See POMS SI 01120.203.D.5.

Payments for goods and services to a third party are for the sole benefit of the trust beneficiary if the goods and services are for the beneficiary’s “primary benefit.” POMS SI 01120.201.F.3.a. As written, the Trust permits the Trustee to make payments to a beneficiary’s dependents with the consent of the beneficiary. See Trust, Art. VII, ¶ 6. Although the Trust states that such payments are considered for the benefit of the beneficiary, even if the beneficiary derives some benefit, such payments would appear to primarily benefit the dependent rather than the beneficiary. See POMS SI 01120.201.F.3.a (providing as an example that the purchase of a car for a beneficiary’s family member to take the beneficiary to appointments a few times a month is not for the beneficiary’s sole benefit, if the family member uses the car daily for purposes that are not benefiting the beneficiary such as driving to work).

The Trust also gives the Trustee discretion to allocate administrative expenses, including attorney fees and accountant fees, on a pro rata basis to all sub-accounts regardless of whether the expenses are only associated with a particular sub-account or group of sub-accounts. See Trust, Art. VII, ¶ 9. Although the Trust states necessary expenses “may” only be charged against affected sub-accounts, the Trust does not require this restriction. As such, the Trustee could potentially charge a beneficiary costs associated with investment, legal, or other services that are not rendered “on behalf of the [beneficiary] with regard to the trust.” POMS SI 01120.201.F.4.

The Trust also includes a non-exhaustive list of appropriate distributions that include expenditures for travel, companionship, cultural experiences, and expenses in bringing a beneficiary’s siblings, children, and others for visitation with him or her. See Trust, Art. II, ¶ 4. Travel expenses to a third party for visiting a beneficiary do not violate the sole benefit rule if the travel is to oversee a beneficiary’s living arrangements if the beneficiary is residing in an institution or similar facility or if the travel is for a trustee or trust advisor to ensure the beneficiary’s well-being. See POMS SI 01120.201.F.3.c. Also, the travel must be for the purpose of ensuring the “safety” and/or “medical well-being” of the individual. See id. As written, the Trust allows for travel of family, friends, and others, regardless of whether it is to oversee a beneficiary’s living arrangements where the beneficiary is residing in an institution or similar facility and regardless of whether it is for the beneficiary’s safety or medical well-being. See Trust, Art. II, ¶ 4. Thus, the Trust sub-accounts would not solely benefit each beneficiary.

The Trust also allows for termination prior to a beneficiary’s death and payment of the corpus to another individual or entity. A provision that allows a trust to terminate before a beneficiary’s death is an “early termination provision.” POMS SI 01120.199.D. 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(s) for medical assistance provided to the individual under the State Medicaid Plan(s), with any remaining funds used only for allowable administrative expenses, reasonable compensation to the trustee, reasonable costs for services rendered on behalf of the beneficiary, or distributions to the trust beneficiary, see POMS SI 01120.199.F.1. The Trust’s early termination provision is not acceptable because it gives the Trustee discretion to pay amounts remaining to either the Trust for operational or charitable expenses or to a third party (with the beneficiary’s agreement) depending on if the Trustee treats the beneficiary “as though” she had died or determines the Trust has become impossible to implement for the beneficiary. Trust, Art. XII. The Trust’s early termination provision does not conform to the criteria listed for an acceptable early termination clause enumerated in POMS SI 01120.199.F.

The Trust’s termination provision for when the beneficiary has died also does not comply with the Act’s Medicaid reimbursement provision. See Act § 1917(d)(4)(C)(iv). To qualify, any amounts not retained by a trust must be paid to “any State(s)” that have provided medical assistance under a Medicaid plan. POMS SI 01120.203.D.8. The trust cannot limit payback to any particular State and if the trust does not have sufficient funds to reimburse each State that had provided medical assistance, the trust must reimburse each State on a pro-rata basis. See id. As written, the Trust only permits payback to the South Carolina Department of Health and Human Services. See Trust, Art. XII, ¶ 2.

The Trust also allows for the payment of prohibited expenses upon a beneficiary’s death. Upon a beneficiary’s death, the trust may pay for taxes due from the trust because of the beneficiary’s death and reasonable fees for administration of the trust estate before reimbursement to the State(s) for medical assistance. See POMS SI 01120.203.E.1. However, some types of expenses and payments are not permitted prior to reimbursement of the States including funeral expenses and taxes due the estate of the beneficiary other than those arising from inclusion of the trust in the estate. See POMS SI 01120.203.E.2. As written, the Trust allows prohibited expenses and payments upon the Beneficiary’s death, including funeral expenses and estate taxes that are not due to inclusion of the Trust in the estate. See Trust, Art. III, ¶ 11.

The Trust contains a severability clause for severing invalid or unenforceable provisions without invalidating any remaining provisions. See Trust, Art. III, ¶ 10. For SSI purposes, however, a null and void clause or savings clause does not cure an otherwise defective trust instrument. See POMS SI 01120.227.D. To qualify for the pooled trust exception, the Trust must meet the criteria in 1917(d)(4)(C) without regard to its severability clause. See POMS SI 01120.227.D.1. Thus, the Trust’s severability clause does not nullify or sever the Trust provisions discussed above that do not comply with section 1917(d)(4)(C) of Act and the implementing POMS provisions. See POMS SI 01120.227.D.

The Trust complies with the remaining requirements of section 1917(d)(4)(C) and the implementing POMS provisions. As discussed above, the Trust was established by Able Life (formally DFCC), a nonprofit entity. See Trust, Art. III, ¶ 1; IRS Non-Profit Determination Letter; Act § 1917(d)(4)(C)(i); POMS SI 01120.203.D.3. The Trust also provides for an accounting to each beneficiary annually, unless NH has added another beneficiary to her sub-account. See Trust, Art. VII, ¶ 3; POMS SI 01120.203.D.4 (providing the Trust must be able to provide an individual accounting for each individual). Finally, NH’s sub-account was established in August 2016 by her, with her assets, at a time the agency had already determined she was disabled and she was receiving SSI. See Joinder Agreement, §§ B, C; Trust, Art. V.1; Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.D.1, 6.

CONCLUSION

The Trust and Joinder Agreement do not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions. As written, the Trust is managed by a for profit organization; the Joinder Agreement allows for multiple beneficiaries under NH’s sub-account; the trust sub-accounts are not established for the sole benefit of each beneficiary; and the Trust’s termination provisions do not comply with the Medicaid reimbursement provision.

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

Date: August xx, 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).*[27] “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.

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

Date: September xx, 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 xx, 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 xx, 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.[28] 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.[29] 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.[30] 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 xx, 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,[31] 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,[32] 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.

I. 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.


Footnotes:

[1]

K~ is the named Trustee in the Trust. Trust, Preamble, Art. I.

[2]

All reference to the Code of Federal Regulations is to the 2020 edition.

[3]

The text of section 1613(e)(5) only removes special needs trusts from consideration as a resource under section 1613(e) of the Act; it does not remove the trusts from consideration as a resource under the agency’s other resource-counting rules.

[4]

“Settlor” and “grantor” are synonymous terms. POMS SI 01120.200.B.3. Although the NH is named as a “[b]eneficiary” of the Trust, in this instance, he is also the grantor or the settlor of the Trust; his assets are contained in the Trust. SeeTrust, Preamble, Art. I; see also POMS SI ATL01120.201.A (stating that an SSI applicant or recipient may be both the trust grantor and the trust beneficiary).

[5]

All future citations to the S.C. Code Ann. refer to the 2020 edition.

[6]

Courts in South Carolina rely on the Restatement (Second) of Trusts. See e.g., Mayer v. Bailey, 555 S.E.2d 406, 410 (S.C. Ct. App. 2001) (citing the Restatement (Second) of Trusts).

[7]

All references to Code of Federal Regulations are to the 2018 edition.

[8]

Florida’s probate code indicates a will may make a valid devise to a trust, even if the trust property is only the “possible expectancy” of receiving death benefits. See Fla. Stat. Ann. § 732.513(2). While this language is similar to the language other states have adopted from the Uniform Testamentary Additions to Trusts Act, See, e.g., Ala. Code Ann. § 43-8-140, Testamentary Additions to Trusts § 1, Unif. Testamentary Additions to Trusts Act (1991), it is not identical. Notably, it appears Florida declined to adopt the uniform language that expressly recognizes trusts that are not funded or regardless of the existence of the trust corpus, further suggesting that Florida continues to require property to establish a trust.

[9]

An express trust is one that is created or declared in writing and signed by a settlor. See Ga. Code Ann. § 53-12-20(a)(West 2018). An implied trust is a trust that is created where a person holds legal title to property is unable to enjoy the beneficial interest in the property, either based on the intent of the settlor or because doing so would violate an established principle of equity. See Ga. Code Ann. §§ 53-12-130, 53-12-132 (West 2018).

[10]

All reference to the Code of Federal Regulations is to the 2020 edition.

[11]

The text of section 1613(e)(5) only removes special needs trusts from consideration as a resource under section 1613(e) of the Act; it does not remove the trusts from consideration as a resource under the agency’s other resource counting rules.

[12]

“Settlor” and “grantor” are synonymous terms. See POMS SI 01120.200.B.2.

[13]

All future citations to the S.C. Code Ann. refer to the 2020 edition.

[14]

Courts in South Carolina rely on the Restatement (Second) of Trusts. See e.g., Mayer v. Bailey, 555 S.E. 2d 406, 410 (S.C. Ct. App., 2001) (citing the Restatement (Second) of Trusts).

[15]

Unless otherwise stated, citation to “MTA” refers to every MTA executed for all eight states in this region.

[16]

The MTAs permit transfer of the Beneficiary’s assets to another section 1396p(d)(4)(C) trust, noting that such a transfer does not constitute early termination and does not require the State Medicaid agency to be reimbursed. MTA, § 6.6. The POMS permits such transfers, in that it states that “an early termination clause does not need to meet the . . . criteria [for early termination] if the clause solely allows for a transfer of the beneficiary’s assets from one Section 1917(d)(4)(C) trust to another Section 1917(d)(4)(C) trust.” POMS SI 01120.199.F.2.

[17]

The Trust was previously named the Disabilities Foundation of Charleston County Inc. Pooled Fund Trust. In July 2016, the Disabilities Foundation of Charleston County Inc. changed its name to The Able Life Foundation, Inc. (Able Life). POMS PS 01825.045 (PS 18-104).

[18]

We incorporate the previous opinion by reference, except for the updates specifically set forth in this Supplemental Opinion. See POMS PS 01825.045 (PS 18-104).

[19]

Counsel provided an unsigned Joinder Agreement. See Joinder Agreement. The Trust becomes effective with respect to a beneficiary upon the execution of a Joinder Agreement by the Sponsor and the Manager. Trust, Art. III, § 1.

The Trust requires a Sponsor to be a parent, grandparent, legal guardian, the beneficiary, or any court. Trust, Art. II, § 8.

[20]

 

Websites for the IRS and South Carolina Secretary of State list Able Life as a non-profit corporation. See https://apps.irs.gov/app/eos/allSearch.do?ein1=&names=Able+Life+Foundation&resultsPerPage=25&indexOfFirstRow=0&dispatchMethod=searchAll&city=&state=SC&country=US&postDateFrom=&postDateTo=&exemptTypeCode=al&deductibility=all&sortColumn=orgName&isDescending=false&submitName=Search (last visited January 29, 2020); Able Life Foundation, https://search.scsos.com/charities (last visited January 29, 2020).

[21]

Although the 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 Charleston 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. Trust, Art. VIII, §§ 3, 4.

[22]

The amended Trust does not specifically identify all “allowed expenses.” Trust, Art. XIII, § 1. However, the POMS section regarding early termination provisions allows for the listed expenses in the Trust as well as payment of reasonable compensation to the trustee for managing the trust, and reasonable costs associated with investment, legal, or other services rendered on behalf of the beneficiary with regard to the Trust. POMS SI 01120.199.F.1, F.3; POMS SI 01120.201.F.4.

[23]

. Websites for the IRS and South Carolina Secretary of State also list Able Life as a non-profit corporation. See IRS, https://apps.irs.gov/app/eos/pub78Search.do?ein1=59-3705979&names=&city=&state=FL&country=US&deductibility=all&dispatchMethod=searchCharities&submitName=Search (last visited June 8, 2018); Able Life Foundation, https://www.scsos.com/index.asp?n=46&p=0&s=46&char_id=3652 (last visited June 8, 2018).

[24]

. BB&T is a for-profit banking corporation that provides financial services. See BB&T, About Us, https://www.bbt.com/about-us/default.page (last visited June 7, 2018).

[25]

. Region IV’s Office of General Counsel has not received any Supplemental Needs Plan.

[26]

. All references to the C.F.R. are to the 2018 edition.

[27]

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

[28]

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

[29]

. 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.

[30]

. 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.

[31]

. 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).

[32]

. 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.


To Link to this section - Use this URL:
http://policy.ssa.gov/poms.nsf/lnx/1601825045
PS 01825.045 - South Carolina - 05/29/2020
Batch run: 09/01/2020
Rev:05/29/2020