You asked whether the South Dakota Guardianship Program Trust (SDGPT) Master Trust
Agreement and the Amended Joinder Agreement conform to section 1917(d)(4)(C) of the
Social Security Act (“the pooled trust exception”). You also asked whether SSA is
bound by the Administrative Law Judge’s (ALJ’s) comment that the claimant should be
permitted to amend the original Joinder Agreement to include Medicaid payback language,
nunc pro tunc, November 20, 2009, the date he applied for Supplemental Security Income (SSI) benefits.
No. The trust documents do not meet the pooled trust exception to counting assets
in the trust sub-accounts as resources. The distribution provisions of the Master
Trust Agreement conflict with the Medicaid payback language of the Amended Joinder
Agreement. Moreover, we have identified three additional problems with the Master
Trust Agreement that are contrary to the pooled trust exception. Further, the amendment
of the original Joinder Agreement (and any future amendments of the trust documents)
are modifications that apply prospectively, and SSA is not bound by the ALJ’s nunc pro tunc comment. Lastly, if SDGPT were to amend only the problematic (and no other) provisions
of the MTA to satisfy the pooled trust exception, the claimant’s sub-account would
not be countable as a resource under the regular resource counting rules.
I~’s Family Settlement Fund Management Trust
In April 1994, the claimant’s parents petitioned the court to appoint a guardian/conservator
of the estates of their three minor children (including the claimant), and to establish
I~’s Family Settlement Fund Management Trust (“I~’s Family Trust”) with the children’s
share of settlement proceeds from a wrongful death suit. The court approved the claimant’s
mother as guardian/conservator of the children’s estates and Nations Bank Trust as
trustee. Petition for Appointment of Guardian and Conservator of the Estates of .
. . and Petition for Protective Arrangement (”Petition”) (Office of Hearings Operations
(OHO) Exhibit 2). OHO provided us with a copy of the exhibits considered by the ALJ.
Subject to the court’s written approval, the “grantor” (identified as the children’s
guardian/conservator) could terminate the trust without the consent of the trustee
or any beneficiary. Trust, §§ 2, 9 (OHO Exhibit 1). I~’s Family Trust also provided
for a monthly payout of $220 to each beneficiary. However, for a beneficiary that
was a minor, adjudicated incompetent or in the trustee’s judgment unable to manage
the distribution, the trustee could retain the distribution and use all or any portion
of it for the beneficiary’s support, maintenance, health and education as the trustee,
in its sole discretion, deemed advisable. Petition, § VII; Trust, § 4. “If a Beneficiary
. . . die[d] before complete distribution of his or her share of the trust property,
then the undistributed balance of such share [would] be distributed to the deceased
Beneficiary’s estate.” Trust, § 4(c).
The claimant had an application for SSI pending when his mother as guardian/conservator
established the Trust. Petition, § IX. His parents received advice “that if monies
are placed in trust and any income generated does not, when combined with other family
income, exceed the sum of $2,000 per month, SSI benefits can likely be maintained
for their children.” Petition, § IX.
Transfer of Guardianship/Conservator and Management of the Trust Accounts
Effective December 15, 2008, the court appointed the South Dakota Guardianship Program,
Inc. (SDGP) as successor guardian for the claimant (and another of I~’s Family Trust
beneficiaries). Order Appointing Successor Guardian/Trustee/Conservator (OHO Exhibit
4). The court also transferred management of Issac’s Family Trust accounts for all
three children to SDGPT, a division of SDGP. The court sought and received the consent
of all three beneficiaries (all of whom had reached the age of majority) to make these
The claimant applied for SSI benefits on November XX, 2009, and listed a trust valued
at $33,000 as a resource. At the initial and reconsideration levels, SSA determined
the trust was a countable resource and denied his application for benefits. The claimant
requested a hearing before an ALJ. The ALJ considered the SDGPT Master Trust Agreement
(discussed further below) and the original Joinder Agreement. In a decision dated
August 5, 2011, the ALJ determined “[t]he sole issue before [him] . . . [was] whether
the claimant’s trust must be included as a resource that precludes [him] from receiving
[SSI] benefits.” The ALJ ultimately found that “[t]he claimant’s trust was properly
included as a countable resource in [his] income and resource determination.” The
ALJ found that the Master Trust Agreement and Joinder Agreement did not satisfy the
pooled trust exception because “[n]either . . . contain[ed] provision to reimburse
South Dakota, or any other State, for any medical assistance paid on behalf of the
claimant beneficiary.” The ALJ also stated that “all of the elements of section 1396p(d)(4)(C)
are met except [the Medicaid payback requirement].” The ALJ commented further that
[g]iven that it was always the intent of [SDGPT] to provide for the claimant and assist
[him] in remaining eligible for [SSI] and Medicaid benefits, . . . the claimant should
be afforded [the] opportunity to amend the trust to contain the proper language, nunc pro tunc, November XX, 2009, the date of the claimant’s original application for benefits
under Title XVI of the Social Security Act.
The SDGPT Master Trust Agreement and the Amended Joinder Agreement Definitions, Establishment,
SDGPT established the Master Trust Agreement (MTA) in July 1997. The MTA defines “trustors”
as “[a]ny individuals or other entities who wish to have the Trustee administer property
for the benefit of a person who is developmentally or otherwise disabled [and who]
adopt this Agreement” by executing a Joinder Agreement. MTA, Art. I(A) (OHO Exhibit
18, pp. 61-71). The purpose of a trust sub-account is to provide for the supplemental
needs of a beneficiary, i.e., “a person who is developmentally or otherwise disabled.”
The MTA defines supplemental needs as expenses approved by the trustee, in its sole
discretion, that are not covered by any public benefits program. MTA, Art. III(A)
& (B); Amended Joinder Agreement (AJA), § 5. SDGPT may resign and choose a successor
trustee and replace any successor trustee with another trustee. MTA, Art. IX(A) &
(B). The trustee maintains a separate sub-account for each Beneficiary, MTA, Art.
I(B), and trust sub-accounts are pooled for the purpose of investing and managing
the funds. MTA, Art. II, Art. VII.
Distribution of Assets
The trustee, in its sole discretion, may distribute income and principal to a beneficiary
to meet his or her supplemental needs. MTA, Art. V; AJA, § 5.
Amendment and Termination
Article VI(D) of the MTA provides that the trust “shall terminate upon the death of
the [b]eneficiary or upon revocation of the Trust if revocation is provided for in
Section 7 of the Joinder Agreement.” The AJA states explicitly that the sub-account
cannot be revoked. AJA,§ 7.
Article VI(A) provides “[t]he Joinder Agreement may be amended only by a superseding
Joinder Agreement and only by the [t]rustors who have the power to revoke the Trust.”
The trustee may amend the MTA, “except for those portions . . . which pertain to the
amount of distributions of income and principle to the Beneficiary or the amount of
distributions to the [t]rustor or to individuals or other entities upon termination
of the trust.” MTA, Art. VI(B). The MTA provides that “[n]o amendment of the Joinder
Agreement or this Agreement or any Trust created hereunder shall be considered a termination
of any such Trust.” MTA, Art. VI(C). The MTA also states “[i]f any provision of this
instrument is unenforceable, the remaining provisions shall nevertheless be carried
into effect.” MTA, Art. VIII(C).
Distribution of Assets upon Termination of a Sub-Account
Article IV of the MTA provides for the distribution of assets upon death of a beneficiary
or other termination of the trust. “If the [t]rustee under Section 5 of the Joinder
Agreement is given direction as to distribution of principal, the [t]rustee may in
the [t]rustee’s sole discretion pay the last illness and funeral expenses, attorneys’
fees and other costs in administering the [b]eneficiary’s estate.” MTA, Article IV(A).
Section 5 of The AJA provides that income and principal are distributed in the trustee’s
Upon a beneficiary’s death, the trustee must distribute the balance of the assets
“to the individuals or other entities as provided in section 6 of the Joinder Agreement.”
MTA, Art. IV(B). Section 6 of the AJA provides:
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.
If the sub-account is revoked or terminated before death of the beneficiary, the assets
shall be distributed to the trustors and any other transferors of property to the
trust or their heirs in the proportions of their transfers to the Trust. MTA, Art.
IV(C) & (D).
Upon death of a “trustor,” the trustee shall use trust assets to pay inheritance taxes
imposed on the estate because of the trustor’s death, unless the trustor has made
adequate provision for payment of such taxes in his or her will. MTA, Art. V.
The MTA provides that “[n]o interest in the principal or income of the Trust shall
be anticipated, assigned, encumbered, or subjected to creditor’s claim or legal process
before actual receipt by the Beneficiary.” MTA, Art. VIII(I).
The trust documents are governed by South Dakota law. MTA, Art. VIII(D).
1. The MTA Sub-Account Is a New Trust Subject to the Statutory Trust Resource Rules
As an initial matter, we considered whether the court’s transfer of management of
the claimant’s trust sub-account to SDGPT resulted in formation of a new trust or
reformation of I~’s Family Trust. If the transfer resulted in a new trust, the statutory
trust resource rules of section 1613(e) of the Social Security Act apply. If, however,
the transfer was a reformation of I~’s Family Trust, only the regular resource counting
rules apply (because I~’s Family Trust was established prior to 1/1/00). As explained
below, we conclude the court terminated Family Trust and created a new trust.
Under South Dakota law, “the court may reform the terms of the trust to conform to
the trustor’s intention, if the failure to conform was due to a mistake of fact or
law and the trustor’s intent can be established.” S.D. Codified Laws § 55-3-28. Here,
however, the Order Appointing Successor Guardian/Trustee/Conservator does not state
the court is “reforming” I~’s Family Trust. In fact, the court referred to the MTA
sub-accounts as “successor trusts” and approved the transfer nunc pro tunc, December 15, 2008, the date of the hearing, rather than retroactively to July 2004,
the date I~’s Family Trust was established.
While arguably in establishing I~’s Family Trust, the trustor intended to provide
for the beneficiaries’ maintenance and support without preventing them from qualifying
for Medicaid or SSI, the court does not discuss the trustor’s intent or any mistake
of fact or law. Moreover, I~’s Family Trust does not contain any provisions that specifically
authorize the trustee to conduct a trustee-to-trustee transfer, and the transfer was
certainly not out of the beneficiaries’ control, since the court requested and obtained
their consent. See Memorandum from Reg. Chief Counsel, Chicago, to Ass’t Reg. Comm.-MOS, Chicago, SSI—Wisconsin—Review
of the WisPACT I Trust (July 29, 2005) (discussing elements of trustee-to-trustee
transfers). Thus, we believe there is ample evidence to conclude the transfer resulted
in the creation of a new trust that must satisfy the statutory trust resource rules.
2. The MTA and the AJA Do Not Meet the Pooled Trust Exception under 42 U.S.C.§ 1396p(d)(4)(C).
In general, irrevocable trusts created after January 1, 2000, that are established
with the assets of an individual by means other than transfer by a will are considered
to be a resource of that individual for SSI eligibility purposes. See 42 U.S.C. § 1382b(e)(2)(A). The purpose of the trust, the discretion of the trustee,
and the restrictions on distributions will not affect its status as a resource. See id. § 1382b(e)(2)(C). There is an exception to this general rule for certain pooled trusts
that are established under the provisions of section 1917(d)(4)(C) of the Act, commonly
known as the pooled trust exception. See 42 U.S.C. § 1396p(d)(4)(C). For this exception to apply, the pooled trust must satisfy
the following conditions:
(1) The trust must be established and managed by a non-profit association;
(2) A separate account must be maintained for each beneficiary of the trust, but the
trust pools these accounts for purposes of investing and managing the funds;
(3) Accounts in the trust must be established solely for the benefit of the disabled
(4) Accounts must be established by the individual, a parent, grandparent, a legal
guardian, or a court; and
(5) The trust must provide that, to the extent that amounts remaining in the beneficiary’s
sub-account upon the death of the beneficiary are not retained by the trust, the state(s)
will receive all amounts remaining in trust upon the death of the individual up to
an amount equal to the total medical assistance paid on behalf of the individual under
state Medicaid plans.
See id.; POMS SI 01120.203(B)(2). Here, as discussed below, the trust documents fail to meet the third, fourth,
and fifth requirements. (And although the MTA has a null and void clause, MTA Art.
VIII(C), such clause “cannot nullify provisions that would otherwise make the trust
a countable resource. . . [and] cannot overcome missing or conflicting trust provisions.”
POMS SI 01120.27(D).)
Established and Maintained by a Non-profit Association, Separate Accounts Maintained
The trust documents meet the first and second requirements of the pooled trust exception.
SDGPT is a division of SDGP, Inc., a non-profit association. SDGPT established and
manages the pooled trust. Consistent with the second requirement, each beneficiary
has a separate sub-account, but SDGPT pools these accounts for purposes of investing
and managing the funds. MTA, Art. II, Art. VII.
Accounts Established Solely for the Benefit of Disabled Individuals
To be established “for the sole benefit” of an individual, the trust must benefit
no one but that individual during his or her lifetime (other than reasonable compensation
for a trustee and reasonable costs associated with managing the trust). See 42 U.S.C. § 1396p(d)(4)(C)(iii); POMS SI 01120.203(B)(2)(a), (e); POMS SI 01120.201(F)(2).
Where a trust can be terminated during a beneficiary’s lifetime, the trust must provide
Upon early termination, the trust must reimburse the state(s) in an amount equal to
the total amount of medical assistance paid under state Medicaid plan(s);
After reimbursement to the state(s) and payment of allowed expenses, all remaining
funds must be disbursed to the trust beneficiary; and
The early termination power is given to someone other than the trust beneficiary.
See POMS SI 01120.199(F). Here, the MTA seems to allow for early termination of the trust, at which time
assets shall be distributed to the trustors and any other transferors of property
to the trust or their heirs in the proportions of their transfers to the Trust. MTA,
Art. IV(C) & (D). The early termination provisions of the MTA do not provide for reimbursement
to the state(s) for Medicaid, and do not provide that remaining funds go to the trust
beneficiary. Thus, the sub-account is not for the “sole benefit” of the claimant during
The MTA is also problematic because it appears to define disability more broadly than
the statute. To meet the pooled trust exception, the sub-accounts must contain assets
of disabled individuals “as defined in section 1614(a)(3)” of the Social Security
Act (“the Act”). The Act provides that an individual shall be considered to be disabled
if he or she is unable to engage in any substantial gainful activity by reason of
a medically determinable physical or mental impairment which can be expected to result
in death or which has lasted or can be expected to last for a continuous period of
not less than 12 months. See 42 U.S.C.§ 1382(a)(3)(A). An individual under the age of 18 shall be considered disabled
if that individual has a medically determinable physical or mental impairment, which
results in marked and severe functional limitations, and which can be expected to
result in death or which has lasted or can be expected to last for a continuous period
of not less than 12 months. See id. 42 U.S.C.§ 1396p(d)(4)(C). Here, the MTA allows any individual or entity to establish
a sub-account “for the benefit of a person who is developmentally or otherwise disabled.”
MTA, Art. I(A). Thus, the MTA does not define a disabled individual pursuant to section
1614(a)(3) of the Act.
Accounts Established by the Individual, Parent, Grandparent, Legal Guardian or Court
To meet the pooled trust exception, accounts in the trust 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 also POMS SI 01120.203(B)(2)(f). The MTA permits any individual or entity to establish a sub-account. MTA,
Art. I(A). Thus, contrary to the Act, the trust allows individuals/entities other
than those identified in the statute to establish a pooled trust on behalf of a disabled
Medicaid Reimbursement Provision
The trust documents also fail to satisfy the fifth requirement of the pooled trust
exception—that the trust contain specific language providing that, to the extent amounts
remaining in an individual’s account are not retained by the trust, the trust pays
to the State(s) from such remaining amounts in the account an amount equal to the
total amount of medical assistance paid on behalf of the individual under the State
Medicaid plan. See POMS SI 01120.203(B)(2)(g).
Although the AJA includes the required provision, the MTA has conflicting provisions.
Specifically, the MTA provides that, if the trustee is given discretion to distribute
principal under section 5 of the Joinder Agreement, the trustee may pay last illness
and funeral expenses, attorney fees, and other costs incurred in administering the
beneficiary’s estate. MTA, Art. IV(A). After such expenses are paid, the balance of
the account shall be distributed as provided in section 6 of the Joinder Agreement.
MTA, Art. IV(B). Section 5 of the AJA gives the trustee discretion to distribute principal;
as such, the MTA allows the trustee to pay funeral and other expenses before all Medicaid
services have been reimbursed. However, these types of expenses cannot be paid until
after all Medicaid services have been reimbursed. See POMS SI 01120.203(B)(3)(a)-(b) (distinguishing between allowable administrative expenses and prohibited
expenses). The MTA also appears to require payment of inheritance taxes due for residual
beneficiaries prior to reimbursement to the state(s) for Medicaid services, contrary
to POMS SI 01120.203(b). When a “trustor” dies, the MTA provides that the trustee “shall pay out of the
principal” any “Federal or State inheritance taxes” imposed on the estate because
of the trustor’s death. MTA, Art. V.
3. The ALJ’s Comment That the AJA Should Apply Retroactively to the Date the Claimant
Applied for Benefits Is Not Binding.
You asked whether SSA is bound by the ALJ’s comment that the claimant “should be afforded
t[he] opportunity to amend the trust to contain the proper language, nunc pro tunc, November 20, 2009,” the date he applied for SSI benefits. We note that this issue
is essentially moot, given that the trust sub-account continues to be countable as
Nonetheless, we conclude that the ALJ’s comment is not binding. “Nunc pro tunc” literally means “now for then,” and indicates retroactive legal effect. Courts have
inherent power to enter orders nunc pro tunc in order to correct errors and conform the record to the court’s original intent.
See generally 56 Am. Jur. 2d Motions, rules, and Orders § 62 (2011).
Even assuming an ALJ has the same inherent authority to enter an order nunc pro tunc, the ALJ here did not merely correct an error. Rather, the ALJ made a substantive
judgment regarding the effect of a future amendment to the trust (and as explained
below, the ALJ’s substantive judgment on this point is contrary to trust principles).
An ALJ’s authority is derived from, and is limited by, the Act and regulations. The
ALJ has authority to decide “all the issues brought out in the initial, reconsidered
or revised determination, that were not decided entirely in [the claimant’s] favor.”
20 C.F.R. § 416.1446. Here, the issue before the ALJ was whether the claimant had
excess resources exceeding the maximum allowed for SSI eligibility. See Notice of Hearing, p. 3 (OHO Exhibit 29). The ALJ had no authority to decide issues
that were not presented—such as whether the claimant would have excess resources at
some future date, after amending the trust. As such, the ALJ’s comment regarding the
effect of a future amendment to the trust is merely dicta and is not binding. Similarly,
the ALJ’s statement that the trust documents satisfied all elements of the pooled
trust exception, except the Medicaid payback provision, is considered dicta and is
not binding. As we have explained, there are a number of problematic provisions in
4. Amendment of the Joinder Agreement and Future Amendments of the Trust Documents
to Satisfy the Pooled Trust Exception Are Modifications That Apply Prospectively.
“[South Dakota] statutes do not explicitly recognize the validity of non-judicial
reformations, but the statutes can be fairly interpreted to mean that seeking court
affirmation of . . . reformation is permissive rather than mandatory. Simmons, Decanting
and Its Alternatives: Remodeling and Revamping Irrevocable Trusts, 55 S.D. L. Rev.
253, 267 n. 69 (2010) (citing S.D. Codified Laws § 55-3-24). However, reformation
is a tool to enforce rather than change the agreement. According to the Restatement
(Third) of Trusts, there are two separate methods to alter a trust document— reformation
and modification. Reformation involves the use of interpretation (including evidence
of mistake, etc.) in order to ascertain and properly restate the true, legally effective
intent of the settlors with respect to the original terms of the trust they created.
See Restatement (Third) of Trusts § 62, reporter’s notes (2001). In other words, a reformation
alters an original donative document to correct a mistake of fact or law so that the
text conforms to the intent of the donor. See Restatement (Third) of Property § 12.1 (2003); S.D. Codified Laws § 55-3-28. In contrast,
a modification involves a change from the true, original terms of the trust. See id. A reformation may relate back to the original date of execution. See id. A modification, however, is a later departure from the intention of the donor. See Restatement (Third) of Trusts § 62, reporter’s notes. It is therefore not retroactive.
Here, in addition to the AJA, future changes to the MTA would be necessary in order
for the trust sub-accounts to meet the pooled trust exception. Under South Dakota
law, a “court may reform the terms of the trust to conform to the trustor’s intention
if the failure to conform was due to a mistake of fact or law . . .” S.D. Codified
Laws § 55-3-28. There is no indication the MTA and the original Joinder Agreement
did not accurately reflect the settlors’ intentions on the date of execution. Moreover,
the significant problems with the MTA could not fairly be viewed as mistakes of law
or fact. Indeed, we could not conclude that a reformation occurred any time a trust
document were altered to conform to the pooled trust exception simply because the
settlor intended to establish a trust that would qualify the beneficiary for SSI benefits;
this would be an overly broad interpretation of the reformation criteria. Here, to
meet the pooled trust exception, at a minimum, SDGPT would have to adopt a vastly
different distribution scheme than that originally intended. Therefore, we conclude
the AJA was a modification with only prospective effect. Likewise, any future amendments
to the trust documents would be modifications that would not relate back to the date
of trust formation.
5. Assuming the Sub-Account Met the Criteria for an Exception under 42 U.S.C.§ 1396p(d)(4)(C),
Which it Currently Does Not, the Sub-Account Would Not Be a Resource under the Regular
Resource Counting Rules.
Assuming SDGPT were to amend only the problematic (and no other) provisions of the
MTA to satisfy the pooled trust exception, the claimant’s sub-account must still be
evaluated to determine if it is a countable resource. See POMS SI 01120.203(b)(1)(A); POMS SI 01120.200. Under the regular resource counting rules, trust property may be a resource for
SSI purposes if the individual: (1) has the authority to revoke the trust and then
use the funds to meet his basic needs for food or shelter; (2) can direct the use
of the trust principal for his support and maintenance; or (3) can sell his beneficial
interest in the trust. See POMS SI 01120.200(D)(1)(a).
Article VI(A) of the MTA provides that, “The Joinder Agreement may be amended only
by a superseding Joinder Agreement and only by the [t]rustors who have the power to
revoke the Trust.” Read in isolation, this section suggests the claimant may revoke
the trust. However, Article VI(D) of the MTA states the Joinder Agreement determines
whether the trust can be revoked, and the AJA states explicitly that the sub account
cannot be revoked.
With respect to requirements two and three above, the claimant does not have the right
to direct use of the sub-account principal for his support and maintenance; rather
the trustee has sole discretion over distributions. The sub-account does not provide
for mandatory payments that the beneficiary could sell. In any event, even if the
claimant could sell his beneficial interest in the trust sub-account, that interest
would have no significant market value, since disbursements are completely within
the discretion of the trustee. Since the sub-account is irrevocable, the claimant’s
beneficial interest in the trust would be considered a resource with zero value –
if the trust were otherwise amended to conform to the pooled trust exception. See POMS SI 01140.044.
The claimant’s sub-account is a new trust that is subject to the statutory resource
counting rules. The trust documents do not satisfy the pooled trust exception to counting
assets in the sub-account as resources. The ALJ’s statement that SSA should apply
a future amendment of the Joinder Agreement retroactively is merely dicta and non-binding
on the agency. The AJA and any future amendments of the MTA to satisfy the pooled
trust agreement should be considered modifications that apply prospectively. If SDGTP
were to amend only the problematic (and no other) provisions of the MTA to satisfy
the pooled trust exception, the sub-account would not be countable as a resource under
the regular resource counting rules.
John Jay Lee
Regional Chief Counsel, Region VIII
By: Yvette G. Keesee
Assistant Regional Counsel