TN 91 (01-18)
PS 01825.052 Virginia
A. PS 18-023 Three questions about the Commonwealth Community Trust (CCT) Endowment Fund Self-Funded Pooled Disability Trust
Date: December 5, 2017
This Regional Chief Counsel (RCC) opinion examines whether the Commonwealth Community Trust (CCT) Endowment Fund Self-Funded Pooled Disability Trust (CCT Master Trust), as amended in 2014 and 2016, satisfies the exception to SSI resource counting under section 1917(d)(4)(C) of the Social Security Act (Medicaid pooled trust exception). The RCC concludes that the 2014 amended version did not meet the exception because a for-profit corporation managed the trust, and the 2016 amended version did not meet the exception because the early termination provisions did not appear to satisfy agency policy in POMS SI 01120.199F. If the CCT Master Trust clarifies those provisions to coincide with agency policy, the trust would satisfy the Medicaid pooled exception to SSI resource counting.
Whether the 2014 restatement of the Commonwealth Community Trust (CCT) Endowment Fund Self-Funded Pooled Disability Trust (CCT Master Trust) satisfies the exception to resource counting under section 1917(d)(4)(C) of the Social Security Act (Medicaid pooled trust exception);
Whether the 2016 restatement of the CCT Master Trust satisfies the Medicaid pooled trust exception; and
The date the 2016 restatement became effective.
The 2014 restatement does not satisfy the pooled trust exception. Per the 2014 provisions, a for-profit corporation Trust Company of Virginia (TCVA) acted as its Trustee (or at least, co-Trustee), and the restatement did not make clear that CCT retained supervisory authority over the management of the beneficiaries’ subtrusts.
The 2016 restatement of the CCT Master Trust does not meet the pooled trust exception. Although the 2016 restatement addressed the above concern by shifting the trust’s supervision from TCVA to CCT’s board of directors, the early termination provisions must be clarified to satisfy agency policy.
The 2016 restatement became valid on June 13, 2016, when a majority of CCT’s Board of Directors, including its President, President-Elect, Secretary and Treasurer, signed the document.
On December 8, 1994, the CCT Endowment Fund Board of Trustees (hereinafter “Board of Directors”) established the CCT Master Trust. 2014 CCT Master Trust Agreement, Preamble Recital 1. CCT created the trust fund to hold the assets of disabled individuals pursuant to 42 U.S.C. § 1396p. Preamble ¶¶ 1 and 2. CCT’s Board of Directors and TCVA amended the CCT Master Trust through the 2014 and 2016 restatements.
The 2014 and 2016 restatements differ in some respects. For instance, the 2016 version adds multiple instances of supervision and/or shifting of responsibility from the TCVA to CCT, and by adding the option for a Medicare Set-Aside (MSA) sub-account. While the option to add the MSA sub-account does not affect the guidance provided in this memorandum, the alteration of numerous terms from “Trustee” to “CCT” satisfies the requirement that the CCT Master Trust be “maintained” by a non-profit association.
S~, a disabled beneficiary, executed a Joinder Agreement to join the CCT Master Trust in July 2014. She established a trust account with $38,710.42 of her assets from the sale of a residence. See S~ Joinder.
As a general rule, a trust established after January 1, 2000 with an individual’s assets for his or her own benefit is considered a resource under sections 1613 and 1917 of the Act. Social Security Act (Act) §§ 1613(e), 1917(d), 42 U.S.C. §§ 1382b, 1396p(d); Program Operations Manual System (POMS) SI 01120.201. The Act provides an exception for certain trusts established under section 1917(d)(4)(A) and (C), commonly known as the Medicaid trust exceptions. See POMS SI 01120.203. There are two types of Medicaid trust exceptions: special needs trusts and pooled trusts (which are also a form of special needs trust). POMS SI 01120.203.A.
To qualify for the Medicaid pooled trust exception, the pooled trust must meet the following conditions:
It contains the assets of a disabled individual;
Is established and maintained by a non-profit association;
Has separate accounts maintained for each beneficiary, with assets pooled for investing and management purposes;
Has accounts established solely for the benefit of the disabled individuals;
Accounts are established through the actions of the individual, a parent, grandparent, legal guardian, or court; and
Provides that to the extent any amounts remaining in the beneficiary’s account upon the beneficiary’s death are not retained by the trust, the trust will pay to the State(s) the amount remaining, up to an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under State Medicaid plan(s). To the extent that the trust does not retain the funds in the account, the State(s) must have priority over payment of other debts and administrative expenses, except for taxes due to the State(s) or Federal government because of the beneficiary’s death and reasonable fees for the administration of the trust estate for actions associated with the termination and wrapping up of the trust.
Act § 1917(d)(4)(C); POMS SI 01120.203.B.2.
In addition to these criteria, in order for the agency not to count a trust as a resource, the beneficiary must not be able to revoke or terminate the trust and then use the funds to meet his/her shelter or food needs. Additionally, the beneficiary must not be able to direct the use of the trust principal for his or her support and maintenance under the terms of the trust. POMS SI 01120.200.D. Finally, if there is an early termination clause (that is, termination before the beneficiary’s death), the trust must provide that it will reimburse states for Medicaid assistance, and that any remaining funds (except for administrative expenses and certain taxes) be disbursed to the beneficiary. POMS SI 01120.199.F.1. However, the early termination clause does not have to satisfy these requirements if the clause allows solely for transfer of the beneficiary’s assets from one Medicaid pooled trust to another Medicaid pooled trust. POMS SI 01120.199.F.2.
The 2014 Restatement of CCT Master Trust
While CCT, a non-profit association, established the trust, the 2014 restatement is ambiguous regarding the management of the CCT Master Trust. Preamble ¶1. The TCVA, a Virginia corporation, is designated as the “sole acting Trustee,” but both TCVA and the CCT Board of Directors are referred to as “Trustee(s).” Preamble ¶ 1. Either way, the 2014 restatement does not make clear that CCT “maintains” or “manages” the trust.
A Medicaid pooled trust must be established and maintained by a non-profit association. Act §1917(d) (trust must be established and “managed by” nonprofit association); POMS SI 01120.203.B.2.a.
Under Virginia law, a trustee may exercise those powers “conferred by the terms of the trust,” and may exercise certain further powers “except as limited by terms of the trust.” Va. Code Ann. § 64.2-777(A). In addition, the exercise of a power by the trustee is subject to the fiduciary duties prescribed by the Virginia trust code. § 64.2-777(B).
In accordance with Virginia law, the 2014 CCT Master Trust confers multiple powers upon the Trustee. Because TCVA, instead of CCT, has the “managing” role of the trust (or to the extent that TCVA and CCT’s respective roles are not clear), the 2014 restatement does not satisfy this Medicaid pooled trust criterion.
2016 Restatement of the CCT Master Trust
Non-Profit Manages the Trust
The Social Security Act requires that a non-profit association establish and “manage” the Medicaid trust. Act § 1917(d). The POMS provides that the non-profit must establish and “maintain” the trust. POMS SI 01120.203.B.2.a. If a non-profit association employs the services of a for-profit entity, the non-profit association must maintain ultimate managerial control over the trust, but the for-profit entity may handle certain trust functions. POMS SI 01120.225.D. However, the for-profit entity must always be subordinate to the non-profit managers of the pooled trust. Id.
As detailed in the attached Appendix, the 2016 restatement revised all of the Trustees’ powers in the CCT Master Trust to clarify that the Trustee acts only in an administrative, non-supervisory role. While the 2014 version granted management powers to the “Trustees” including both CCT and TCVA, the 2016 restatement clarifies that TCVA is the only Trustee. Preamble ¶1. Moreover, Article 1, Subsections E, F, G and H, and Article 2, Subsections D and E now provide that TCVA acts at CCT’s direction. See Appendix ‘A’. The effect of these additions is to shift ultimate managerial control from TCVA to CCT.
The 2016 restatement limits TCVA’s power and effectively eliminates its supervisory and/or discretionary role. Thus, while TCVA has the same fiduciary duties, the 2016 restatement makes clear that CCT controls, directs, or supervises TCVA’s acts. Since CCT has oversight over TCVA, the 2016 restatement is consistent with the Act and the POMS.
Establishment of the Trust, Assets of the Individual and Separate Accounts
The 2016 restatement satisfies agency policy requiring that the trust accounts be established through the actions of the individual, a parent, grandparent, legal guardian, or court. The trust provides that if a grantor or someone on the grantor’s behalf executes a joinder agreement that incorporates the CCT Master Trust by reference and CCT agrees to the joinder, the trustee will hold, administer, and distribute the income and principal of the assets received in accordance with the CCT Master Trust provisions. The 2016 restatement clarifies that “someone on the grantor’s behalf” is “subject to the limitations of 42 U.S.C. § 1396p regarding a permissible Grantor representative,” meaning that the joinder agreement must be “established through the actions of the individual, a parent, grandparent, legal guardian, or court.” Act, § 1917(d).
The 2016 restatement satisfies the assets of the individual requirement. We note, however, that the trustee may accept for good cause additional assets from “any source” and that the grantor or someone on the grantor’s behalf may add “other property” to the trust fund. Art. 1, §§ I, J. A portion of the trust consisting of a third party’s assets must be evaluated per POMS SI 01120.200. See POMS SI 01120.200.A.2.b.
The 2016 trust satisfies the separate accounts requirement. Under the 2016 restatement, separate sub-accounts will be maintained for each beneficiary, and the funds will be pooled for management and investment purposes. Art. 1, § A; Art. 2, § B; Art. 5, § E. The trustee shall maintain records and accounts for each fund. Art. 2, §§ B, C.
The 2016 restatement provides that to the extent any amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust will “first” pay to the state the amount remaining, up to an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under State Medicaid plan(s). Art. 1, §§ F, L. The provisions provide for reimbursement to each state in which the beneficiary received Medicaid, and does not limit reimbursement to any state(s). Id.
According to Article 1, section L, the trustee does not have a duty to make an inquiry concerning any claims for any state other than Virginia and any state in which the beneficiary resides of the date of his death. Art. 1, § L. We do not believe that this language is problematic because the trust also provides that the trustee will reimburse all Medicaid assistance and the POMS does not require a trust to describe the reimbursement process.
Revocability of Trust
In order for the trust principal not to count as a resource, the beneficiary must not be able to revoke or terminate the trust and then use the funds to meet his/her shelter or food needs. The beneficiary must not be able to direct the use of the trust principal for his or her support and maintenance under the terms of the trust. POMS SI 01120.200.D.
Article 8, Section A provides the CCT Master Trust is irrevocable. In addition, the grantor intends that the trust fund’s income and principal not be considered income or assets of the beneficiary. Art. 1, § C.
In Virginia, the terms of the trust prevail over the provisions of the Uniform Trust Code, except in certain circumstances. Va. Code Ann. § 64.2-703. Virginia law allows a settlor and beneficiaries to consent to the modification or termination of a noncharitable irrevocable trust. Va. Code Ann. § 64.2-729(A). This suggests that a grantor who is the sole beneficiary of a trust may be able to revoke the trust. With respect to S~, however, she has expressly named primary successor beneficiaries. Accordingly, S~ does not have the ability to revoke the trust.
Sole Benefit & Early Termination
The following provisions state the trust is for the disabled beneficiary’s sole benefit. At CCT’s direction, the trustee “shall regard the Trust Fund as existing solely for the benefit of the Beneficiary and not for the benefit of the residual beneficiaries.” Art. 1, § E. At CCT’s direction, the trustee shall pay or apply so much of the net income or principal of the trust fund to provide for the beneficiary’s needs over and above the basic maintenance and support and medical/dental care the beneficiary receives from the government. Art. 1, § B. The trustee may purchase services and items that promote the beneficiary’s happiness, welfare and development. Art. 1, § B.
However, the early termination provisions in the 2016 restatement do not appear to satisfy agency policy.
An early termination provision must satisfy the following criteria:
Upon early termination (i.e., termination prior to the beneficiary’s death), the State(s) 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);
Other than payment for expenses (taxes due to the State or Federal government due to the trust’s termination and reasonable fees and administrative expenses associated with the trust’s termination), no entity other than the trust beneficiary may benefit from the early termination;
The beneficiary does not have the power to terminate the trust.
POMS SI 01120.199.F.1. However, an early termination clause does not have to satisfy these criteria if the clause solely allows for a transfer of the beneficiary’s assets from one Medicaid pooled trust to another Medicaid pooled trust. POMS SI 01120.199.F.2.
In the 2016 restatement, CCT or the court may terminate the trust during the beneficiary’s lifetime. Art. 1, § G. In that situation, the trustee shall “first” distribute to the states 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’s Medicaid plan. Art. 1, § G. After reimbursement to the State(s), all remaining funds shall be distributed to the beneficiary and to no entity, other than payment of taxes and administrative expenses allowed by POMS or to another entity as specified in Article 1, section H. Art. 1, § G. Article 1, section H states that the trustee, as directed by CCT, may transfer the entire balance of the trust fund to another 42 U.S.C. § 1396p trust. Art. 1, § H.
This early termination provision does not appear to satisfy POMS SI 01120.199.F.1 or 2. POMS provides that on early termination, the trust proceeds either go the beneficiary after Medicaid reimbursement and payment of permissible administrative expenses, OR the trust proceeds are transferred to another Medicaid pooled trust. Here, however, the language in section G seems to conflate the beneficiary and “another entity” provisions. In addition, the language in section H is problematic because it is overbroad; it does not specify that the transfer must be to another Medicaid pooled trust (i.e., the transfer must be to a section 1396p(d)(4)(C) trust as opposed to section 1396p(d)(4) trust). The provisions (sections G and H) should be clarified to more clearly follow POMS.
Finally, we note that Article 8, section C provides that if the CCT ceases to exist and is not continued by another non-profit as a legal successor, the trustee may, in its discretion, deliver and pay over the assets in the trust to a non-profit organization that the trustee determines is serving the interests and needs of persons with special needs in a matter consistent with the terms and purpose of this trust. Art. 8, § C. This seems to be an early termination provision because it allows the trust to terminate before a beneficiary’s death. This provision should be revised and clarified to satisfy agency policy on early terminations.
Effective Date of 2016 CCT Master Trust Restatement
Amendments to the CCPT trust agreement become effective and binding upon written approval of the CCT Board of Directors. Art. 8 § B. Actions by the CCT Board of Directors are valid when approved by a majority of the Directors at an annual meeting, or in the alternative, any decision or action of the Board may be approved without a meeting by the President, President-Elect, Treasurer and Secretary of the Board. Art 4 § L. The 2016 restatement (containing amendments to the CCT Master Trust) was signed by the President, President-Elect, Treasurer and Secretary on June 13, 2016, and a majority of the Board also signed the restatement on that date. As a result, the 2016 restatement became valid on June 13, 2016, regardless of whether it was signed during an annual meeting of the Board.
The 2014 CCT Master Trust did not satisfy the Medicaid Trust exception in part because TCVA, a for-profit entity, managed, or at least co-managed, the trust.
We recommend that the 2016 CCT Master Trust be revised to satisfy the early termination criteria of POMS SI 01120.199.F. Specifically, Article 1, sections G and H should be amended to more clearly delineate between transfer of the assets to the beneficiary on early termination, and transfer of assets to another Medicaid pooled trust (specifically, a section 1396p(d)(4)(C) on early termination. Article 8, section C should also be amended to comply with the early termination criteria.
The 2016 CCT Master Trust became effective June 13, 2016.
B. PS 15-035 Update to Survey of State Trust Law Within Region III
Date: November 25, 2014
Revision of the 2003 Regional Chief Counsel (RCC) opinion on whether a parent or grandparent can establish an empty trust for the purpose of receiving a competent adult’s supplemental security income (SSI) payments at a later date under the law of the jurisdiction within Region III. Since 2003 four out of the six States within Region III have adopted the Uniform Trust Code (UTC) provision requiring identifiable trust property. The two states that have not adopted the UTC provisions do not have statutes that permit empty trusts. No State within Region III will recognize as valid an empty trust, and for a trust to be permissible under the exceptions of Social Security Act § 1917(d)(4)(A) the parent or grandparent that establishes the trust will have to “seed” it with their own money before transferring the individuals money to the trust.
On August 27, 2003, we provided advice on whether a parent or grandparent can establish an empty trust for the purpose of receiving a competent adult supplemental security income (SSI) beneficiary’s assets at a later date under the laws of the jurisdictions within Region III (Delaware, District of Columbia, Maryland, Pennsylvania, Virginia, and West Virginia). In preparing this advice, we were instructed to assume that the trust agreements that we were to consider satisfied the requirements of Social Security Act § 1613(e)(5), 42 U.S.C. '1382b(e)(5). In 2003, our research of case law led us to conclude that every jurisdiction in Region III would recognize empty trust agreements as valid if there was an expectation of funding, such as from a court order awarding funds that would become the property of a trust. We have recently reviewed the applicable law in the intervening 11 years, and found that the law has evolved more clearly to require some funds be transferred to a trust at the time it is established. Since 2003, four jurisdictions within Region III have adopted the Uniform Trust Code (UTC), thereby offering legal authority other than case law for the establishment of trusts. Although two states did not adopt the UTC, the Restatement (Third) of Trusts also supports our conclusion. Consequently, we believe that jurisdictions within Region III would not recognize as valid trust agreements that satisfy the provisions of Social Security Act § 1613(e)(5) when a parent or grandparent establishes only an empty trust. Therefore, we recommend replacing our
August 27, 2003 memorandum (which is found at SSA POMS PS 01825.042, 2002
WL 1879916) with this revised opinion.
To qualify for SSI, an individual must not have resources that total more than $2,000. 20 C.F.R. ' 416.1205 (2013). In addition, as a general rule, a trust established with the assets of an individual (or spouse) will be considered a resource for SSI eligibility purposes. Social Security Act § 1613(e)(3). There is, however, an exception to these resource provisions. Under Social Security Act § 1613(e)(5), if any agreement satisfies the criteria found in Social Security Act § 1917(d)(4), 42 U.S.C. ' 1396p(d)(4), it is not counted as a resource. Social Security Act § 1917(d)(4)(A) provides the following exception for counting a trust as a resource:
A trust containing assets of an individual under age 65 who is disabled (as defined in section 1614(a)(3)) and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court if the state will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this title.
With respect to trust property, “[i]n the case of a legally competent, disabled adult, a parent or grandparent may establish a ‘seed’ trust using a nominal amount of his or her own money, or if State law allows, an empty or dry trust.” POMS SI 01120.203(B)(1)(f). Consequently, the POMS answers in the affirmative the question of whether a special needs trust can be established with nominal or seed funds, and leaves the resolution of questions pertaining to empty trusts to the individual states.
Since we prepared our August 27, 2003 memorandum, the majority of jurisdictions within Region III (Pennsylvania, Virginia, West Virginia, and the District of Columbia) have adopted § 401 of the UTC. See 20 Pa.C.S.A. § 7731 (effective Nov. 6, 2006), VA Code Ann. § 64.2-719 (effective Oct. 1, 2012), W. Va. Code, § 44D-4-401 (effective June 10, 2011), and DC ST
§ 19-1304.01 (effective Mar. 10, 2004). This section of the UTC explains how trusts are established and reads, as relevant:
A trust may be created by:
(1) transfer of property to another person as trustee during the settlor's lifetime or by will or other disposition taking effect upon the settlor's death;
(2) declaration by the owner of property that the owner holds identifiable property as trustee; or
(3) exercise of a power of appointment in favor of a trustee.
Unif. Trust Code § 401 (2000) (emphasis added). Therefore, the UTC requires that a trust must contain identifiable property, and empty trusts will not satisfy this requirement.
The comments found in the Restatement of Trusts further clarify that a trust must have identifiable property. The UTC was drafted in close coordination with the revision of the Restatement (Second) of Trusts to the extent that a significant number of UTC provisions could be described as a codification of the Restatement. D~, The Uniform Trust Code (2000): Significant Provisions and Policy Issues, 67 Mo. L. Rev. 143, 148 (Spring 2002). Similar to § 401 of the UTC, the Restatement (Third) of Trusts provides that a trust cannot be created unless there is trust property in existence and ascertainable at the time of the creation of the trust. See Restatement (Third) of Trusts (2003) § 2, cmt. i.
In summary, four of the six jurisdictions within Region III have adopted the UTC provision requiring identifiable trust property. The two jurisdictions (Delaware and Maryland) that have not yet adopted the UTC provision, do not have statutes that permit empty trusts. Thus, we conclude that no state within our region would recognize as valid an empty trust. Accordingly, to qualify for the exception under Social Security Act § 1917(d)(4)(A), when a parent or grandparent establishes the trust, they must first “seed” the trust with some of the parent or grandparent’s own money before transferring the individual’s money to the trust. POMS SI 01120.203(B)(1)(f). Since empty trusts are not considered valid in our region, simply transferring the individual’s money to the trust without first seeding would be considered equivalent to the individual establishing the trust on their own, which is not permitted under the trust exception codified at 42 U.S.C. § 1396p(d)(4)(A). Accordingly, we recommend replacing our August 27, 2003 memorandum (which is found at SSA POMS PS 01825.042, 2002 WL 1879916), with this updated opinion.
Acting Regional Chief Counsel
By: Andrew C. Lynch
Assistant Regional Counsel
TCVA is a corporate fiduciary concern with multiple offices in Virginia, a primary purpose of which is to provide corporate trustee services. See http://www.tcva.com/our-services/.
We note that in the referral, the Center for Disability and Program Support (CDPS) stated that it was not seeking a specific case review of S~’s joinder, but rather an analysis of the master trust.
We discuss only the issue of the non-profit’s management in addressing the 2014 restatement. However, additional provisions of the 2014 restatement did not satisfy agency policy.
The 2014 CCT Master Trust provides that its terms shall be governed by Virginia law.
Fiduciary duties include duties of care and loyalty and a duty to administer the trust and prudently invest trust assets.
We need not determine whether the CCT Master Trust’s spendthrift provision is valid under Virginia law because the CCT Master Trust and the S~ Joinder do not provide for mandatory periodic payments. The CCT Master Trust provides that payments may be made to or for the benefit of the beneficiary at the trustee’s discretion, “unless otherwise directed by the provisions of the Joinder.” Art. 1, § B. The Joinder for S~ provides that “income and principal will be distributed for the Beneficiary as directed by the Board of Directors of CCT.” S~ Joinder, § 8 (emphasis added).
The trust’s citation to the POMS SI 01120.199.D.3 in Article 1, section G is incorrect; there is no subsection 3 under POMS SI 01120.199.D. We presume that the CCT Master Trust intended to cite to POMS SI 01120.199.F.3, pertaining to permissible administrative expenses prior to State Medicaid reimbursement.
Although still pending and not yet final POMS have changed the requirement that the transfer must be to another Medicaid pooled trust, that change only applies to trusts established on or after December 13, 2016, and the 2016 restatement at issue is dated June 13, 2016.