You asked us to determine whether the Utah Pooled Trust (Trust) and Joinder Agreement
conform to the pooled trust exception at 42 U.S.C. § 1382c(a)(3).
The Trust does not meet the pooled trust exception to counting assets in the Trust
sub-accounts as resources because:
The Trust allows the Trustee to delegate investment authority to an advisor without
proper oversight by the Trustee; and
Upon the death of a beneficiary, it allows for the payment of impermissible expenses
prior to the payback of state Medicaid expenses.
But if the Trust were amended to satisfy the pooled trust exception, and assuming
no other changes were made, beneficiary sub-accounts would not be countable as resources
under the regular resource counting rules.
Definitions, Establishment, and Purpose
A Utah nonprofit corporation, Arc of Utah, Inc. (Arc), established the Trust in 2008.
The Trust was amended in September 2009 and TURN Community Services, Inc. (TURN),
also a Utah nonprofit corporation, became the successor Trustee. The purpose of the
Trust is to provide “extra and supplemental services and benefits for the health,
care, comfort, safety, welfare, education and training of the Beneficiaries,” i.e.,
persons with disabilities as defined in the Social Security Act (Act) who have sub-accounts
established within the Trust. Art. 1.3, 2.1, 2.9, 5.1. The Trust defines supplemental
needs or supplemental care as “non-support disbursements and disbursements for in-kind
support and maintenance” which include, but are not limited to, supplemental medical,
dental, or nursing care, and expenditures for travel and recreation, including cultural
experiences and athletic events, and other expenses authorized by the Trustee. Art.
A “sponsor” is a parent, grandparent, legal representative or guardian of a beneficiary,
a beneficiary himself or herself, or any court. Art. 2.8. It also includes “any person
or entity that contributes his, her, or its own assets or property to the Trust for
the benefit of a Beneficiary.” Id. TURN maintains a separate sub-account for each beneficiary, but the Trust sub-accounts
are pooled for the purpose of investing and managing the funds. Art. 4.1, 4.2.
Amendment, Termination, and Distribution of Assets upon Termination
The Trust is irrevocable, except that it may be amended with court approval to conform
to statutes, rules, or regulations relating to 42 U.S.C. § 1396p. Art. 3.1, 11.1,
11.2. The Trustee cannot amend the Trust in a manner that adversely affects the exempt
status of the funds under federal or state law. Art. 11.2.
The Trustee will petition the court for further instructions if, due to developments
in the law, the Trustee has “reasonable cause to believe that the income or principal
in a Trust Sub-account maintained for any Beneficiary is or will become liable for
basic maintenance, support, or care for that Beneficiary which has been or would otherwise
be provided by local, state, or federal government, or an agency or department thereof,
or private program.” Art. 6.2. If it becomes impossible or impracticable to carry
out the Trust’s purposes with respect to all Beneficiaries, the Trustee will likewise
petition the court for further instructions. Art. 6.3.
Upon the death of a beneficiary, the Trust provides that any remaining amounts in
the sub-account may first be used to pay the beneficiary’s expenses, including management
and investment fees, estate administration expenses such as attorneys’ fees and taxes,
and other outstanding bills for the benefit of the beneficiary. Art. 6.1.1. After
payment of such expenses, up to 50% of any remaining amounts shall be provided to
the State of Utah or other states from which the beneficiary has received Medicaid
assistance, up to an amount equal to the total amount of Medicaid assistance paid
on behalf of the beneficiary. Art. 6.1.2, 6.1.3. The remaining 50% (plus any additional
amounts remaining after payment of the Medicaid portion) shall be deemed “surplus
Trust property” and may be retained by the Trust. Art. 6.1.2, 6.1.3.
The Trust provides that “[n]o part of this Trust, principal or income, shall be subject
to anticipation or assignment by the Beneficiaries; nor shall it be subject to attachment
or control by any public or private creditor of the Beneficiaries; nor may it be taken
by any legal or equitable process by any voluntary or involuntary creditor, including
those that have provided for the Beneficiary’s support and maintenance. Further, under
no circumstance may any Beneficiary compel a distribution from a Beneficiary’s Sub-account.”
The trust documents are governed by Utah law. Art. 12.2.
The Trust is effective as to a beneficiary upon: (1) execution of a Joinder Agreement
by a Sponsor or court order, (2) acceptance of the Joinder Agreement by the Trustee,
and (3) a Sponsor’s delivery to, and Trustee’s acceptance of, property. Art. 3.1 The
Trust is irrevocable upon delivery and acceptance of the property, and the Sponsor’s
property shall not be refundable except as provided in Article V (Distributions).
(A) The Trust Does Not Meet the Pooled Trust Exception Under 42 U.S.C.
In general, irrevocable trusts created after January 1, 2000, that are established
with the assets of an individual by means other than transfer by a will are considered
to be a resource of that individual for SSI eligibility purposes. See 42 U.S.C. § 1382b(e)(2)(A). The purpose of the trust, the discretion of the trustee,
and restrictions on distributions will not affect its status as a resource. See id. at § 1382b(e)(2)(C). There is an exception to this general rule for trusts that are
established pursuant to the provisions of § 1917(d)(4)(C) of the Act, commonly known
as the pooled trust exception. See 42 U.S.C. § 1396p(d)(4)(C). For this exception to apply, the pooled trust must satisfy
1) The trust must be established and maintained by a non-profit association;
2) A separate account must be maintained for each beneficiary of the trust, but the
trust pools these accounts for purposes of investing and managing the trust;
3) Accounts in the trust must be established solely for the benefit of the disabled
4) Accounts must be established by the individual, a parent, a grandparent, a legal
guardian, or a court; and
5) The trust must provide that, to the extent that amounts remaining in the beneficiary’s
sub-account upon the death of the beneficiary are not retained by the trust, the state(s)
will receive all amounts remaining in the trust upon the death of the individual up
to an amount equal to the total medical assistance paid on behalf of the individual
under the state Medicaid plans.
See id.; POMS SI 01120.203(B)(2). As discussed below, the Trust does not meet the last pooled trust requirement.
(1) The Trust Is Established and Maintained by a Nonprofit Association, But it Potentially
Provides Excess Authority to a an Investment Advisor
The Trust was established by ARC and is now maintained by TURN, a nonprofit corporation.
But the Trust allows the Trustee to hire investment counsel and delegate investment
authority to that counsel. Art. 9.2. More specifically, the Trust provides that the
Trustee can delegate to the investment advisor the authority to make investments on
behalf of the Trust without prior approval from the Trustee. Art. 9.2.
Pursuant to POMS SI 01120.225(D), a nonprofit corporation may employ a for-profit entity as an investment advisor
if the nonprofit corporation maintains ultimate managerial control over the Trust.
For example, the nonprofit corporation must remain responsible for determining the
amount of the trust corpus to invest, removing or replacing the trustee, and making
the day-to-day decisions regarding the health and well-being of the pooled trust beneficiaries.
See id. Here, the investment advisor provision does not contain any such restricting language,
and, assuming the investment advisor is a for-profit entity, it raises the possibility
that the investment advisor would have authority exceeding the limits set forth in
POMS SI 01120.225. For example, the provision does not make clear that TURN, as Trustee, must be responsible
for determining the amount of the Trust corpus to invest. Art. 9.2; see POMS SI 01120.225(D).
(2) Separate Accounts Are Maintained for Each Beneficiary of the Trust
Consistent with the second requirement, each beneficiary has a separate sub-account
and TURN pools these accounts for the purpose of investing and managing the funds.
Art. 4.1, 4.2.
(3) The Trust Accounts Are Established Solely for the Benefit of the Disabled Individual,
and Early Termination Is Only Possible with a Court Order
Each beneficiary’s sub-account must be established for the sole benefit of the disabled
individual in order to meet the third requirement. See POMS SI 01120.203(B)(2)(a), (e). The sub-account cannot benefit any other individual or entity during
the disabled individual’s lifetime, or allow for termination of the account prior
to the individual’s death and payment of the corpus to another individual or entity.
Id. Exceptions are permitted for certain administrative expenses and payments to a third
party for goods, services, and limited travel expenses. POMS SI 01120.201(F)(2)(b)-(c).
In the event that a trust can be terminated during a beneficiary’s lifetime, the trust
must provide that:
(1) Upon early termination, the trust must reimburse the state(s) in an amount equal
to the total amount of medical assistance paid under state Medicaid plan(s);
(2) After reimbursement to the state(s) and payment of allowed expenses, all remaining
funds must be given to the trust beneficiary; and
(3) The early termination power is provided to someone other than the trust beneficiary.
See POMS SI 01120.199(F). Here, the Trust does not contain any provision expressly providing for early
termination, but it does state that the Trustee should petition the court for further
instructions if it becomes impossible or impracticable to effectuate the purpose of
the Trust with respect to all beneficiaries. Art. 6.3. A related provision states
that the Trustee should also petition the court for further instructions where developments
in the law give the Trustee reasonable cause to believe the purpose of a Trust sub-account
can no longer be effectuated. Art. 6.2. In these two circumstances, it appears that
a court could order the termination of a
sub-account prior to the death of a beneficiary.
These provisions do not themselves provide for any impermissible third-party benefit
during the disabled individual’s lifetime, and we assume that if a court of competent
jurisdiction did order a Trust sub-account terminated prior to the death of a beneficiary,
it would do so in a manner consistent with the purpose of the Trust and in accordance
with the payback requirements of POMS SI 01120.199(F). Because it is too speculative to assume a court would do otherwise, the Trust
appears to satisfy the third requirement of the pooled trust exception.
(4) The Trust Properly Provides that Individuals Authorized by Statute May Establish
To meet the fourth requirement, the accounts in the Trust must be established by a
parent, grandparent, legal guardian of an individual, individual himself, or by a
court. See 42 U.S.C.
§ 1396p(d)(4)(C); see also POMS SI 01120.203(B)(2)(f). This requirement is satisfied in the present case as the sub-account at
issue was established by the disabled individual. See Art. 2.8; Joinder Agreement §§ B-C. We note, however, that the Trust also provides
that a Sponsor includes “any person or entity that contributes his, her, or its own
assets or property to the Trust for the benefit of a Beneficiary, by gift, will, contract,
or agreement.” See Art. 2.8. If an individual beneficiary sub-account was established by anyone other
than a parent, grandparent, legal guardian, disabled individual, or court, it would
still be a countable resource.
(5) The Trust Does Not Properly Provide for Medicaid Reimbursement
The Trust contains specific language providing that, to the extent that amounts remaining
in a beneficiary’s account after their death are not retained by the Trust, the Trust
pays to the state(s) an amount equal to the total amount of medical assistance paid
on behalf of the individual under the State Medicaid plans(s). Art. 6.1.2-.1.3. The
Trust does not limit payment to any particular state or time-period. See Art. 6.1.2-.1.3; see also POMS SI 01120.203(B)(2)(g).
But the Trust does not appear to satisfy the fifth requirement of the pooled trust
exception because it provides for the payment of impermissible expenses prior to the
payback of state Medicaid expenses. See Art. 6.1.1; POMS SI 01120.203(B)(2)(g), (B)(3). To the extent amounts remaining in a beneficiary’s account are
not retained by the Trust following the beneficiary’s death, states that provided
medical assistance must have priority of payment over other debts and administrative
expenses subject to a few exceptions. POMS SI 01120.203(B)(2)(g). The types of administrative expenses that may be paid from the Trust prior
to reimbursement of medical assistance to the state(s) include:
Taxes due from the Trust to State(s) or Federal government because of the death of
the beneficiary; and
Reasonable fees for administration of the Trust estate such as an accounting of the
Trust to a court, completion and filing of documents, or other required actions associated
with termination and wrapping up of the Trust.
POMS SI 01220.203(B)(3).
The Trust agreement provides that prior to state reimbursement for medical assistance,
the Trustee may pay “(1) any management and investment fees attributable to Beneficiary’s
Trust Sub-Account, (2) Beneficiary’s estate administration expenses including attorneys’
fees and taxes, and (3) any other outstanding bills for the benefit of the Beneficiary
pursuant to the terms and conditions of the Trust.” Art. 6.1.1. While the first category
of fees and expenses arguably qualifies as an allowable administrative expense, the
second and third categories, allowing for the payment of estate administration expenses
and outstanding bills, appear to be prohibited expenses. See POMS SI 01120.203(B)(3)(b) (prohibited expenses include taxes “due from the estate of the beneficiary
other than those arising from inclusion of the trust in the estate” and “[p]ayment
of debts owed to third parties”).
(B) Assuming the Trust Were Amended to Comply with 42 U.S.C. § 1396p(d)(4)(C), the
Sub-Account Would Not Be a Resource Under the Regular Resource Counting Rules
Even if the Trust is amended to address the issue noted above, the sub-accounts must
still be evaluated under the regular resource rules where a trust is established with
a beneficiary’s own assets. See POMS SI 01220.203(B)(1)(A); POMS SI 01120.200(D)(2). Pursuant to these rules, trust property may be a resource for SSI purposes
if the individual: (1) has the authority to revoke the trust and then use the funds
to meet her basic needs for food or shelter; (2) can direct the use of the trust principal
for her support and maintenance; or (3) can sell her beneficial interest in the trust.
See POMS SI 01120.200(D)(1)(a)-(b).
The Trust provides that the sub-accounts are irrevocable as to the grantor (sponsor)
and the beneficiary. Art. 3.1, 11.1, 11.2. But Utah follows 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 to the contrary in the trust document. See Restatement (Second) of Trusts § 339 (1959); Clayton v. Behle, 565 P.2d 1132, 1133 (Utah 1977) (recognizing that “where the settlor is the sole
beneficiary . . . he can terminate the trust at any time and compel the trustee to
reconvey the property to him”). Here, however, the Trust is a contingent residual
beneficiary because it retains at least 50% of any funds left over after the beneficiary’s
death (after payment of administrative expenses). Art. 6.1.1-.1.3; Joinder Agreement
§ F. The Trust therefore has an identifiable residual beneficiary and is irrevocable.
See POMS 01120.200(D)(3).
Further, beneficiaries do not have the right to direct the use of the Trust principal
for their support and maintenance; rather the Trustee has the sole and absolute discretion
to elect to disburse such funds for the benefit of the beneficiary. See Art. 1.3, 5.1. With respect to selling a beneficiary’s interest in a sub-account,
the Trust contains a spendthrift clause that prohibits beneficiaries from anticipation,
assignment, attachment, or compelling a disbursement from the Trust. Art. 5.5; see also POMS SI 01120.200(D)(1)(a). Where the grantor is also the beneficiary, such spendthrift provisions
are generally invalid. See Restatement (Third) of Trusts § 58 cmt. e (2003); POMS SI 01120.200(B)(16). Even so, the beneficiary’s interest in the Trust has no significant market
value because disbursements are within the sole discretion of the Trustee. See Art. 1.3, 5.1. Thus, the beneficiary’s interest in the Trust should be considered
a resource with zero market value. See POMS SI 01140.44.
In sum, we conclude that the Trust does not satisfy the pooled trust exception to
counting assets in the sub-account as resources. The Trust allows for an investment
advisor to have excess authority and, upon the death of the beneficiary, the Trust
allows for the payment of impermissible expenses prior to the payback of state Medicaid
expenses. If TURN were to amend these problematic provisions to satisfy the pooled
trust exception, and assuming no other modifications were made, the sub-accounts would
not be countable as resources under the regular resource counting rules.