Identification Number:
SI 01120 TN 64
Intended Audience:See Transmittal Sheet
Originating Office:ORDP OISP
Title:Trust early terminations/transfers/decanting updates
Type:POMS Transmittals
Program:All Programs
Link To Reference:
 

PROGRAM OPERATIONS MANUAL SYSTEM
Part SI – Supplemental Security Income
Chapter 011 – Resources
Subchapter 20 – Identifying Resources
Transmittal No. 64, 10/22/2020

Audience

FO/TSC: CS, CS TXVI, CSR, CTE, DRT, FR, OA, OS, RR, TA, TSC-CSR;

Originating Component

OISP

Effective Date

Upon Receipt

Background

This transmittal changes policy related to early termination provisions in Section 1917(d)(4)(A) and Section 1917(d)(4)(C) trusts that allow for a transfer of the beneficiary’s assets to a secondary Section 1917(d)(4)(A) or Section 1917(d)(4)(C) trust.

In addition, we provide guidance on trust decanting and new examples to illustrate acceptable versus unacceptable early termination provisions.

 

Summary of Changes

SI 01120.199 Early Termination Provisions and Trusts

In addition to minor editorial revisions for clarity throughout this section, we made the following substantive changes:

  • Subsection A - Combined the old subsections A and B into one subsection for clarity and relevance.

  • Subsection D.7 - Added trust decanting to the glossary of terms and provided general guidance on the treatment of trust decanting.

  • Subsection E.1 - Clarified a criterion for trust early termination provisions that all remaining funds must be disbursed so as solely to benefit the trust beneficiary. The remaining funds do not have to be disbursed directly to the beneficiary.

  • Subsection E.2 - Revised the exception for transfers to a secondary trust upon early termination. Going forward, an early termination provision in a Section 1917(d)(4)(A) or Section 1917(d)(4)(C) trust does not have to meet the regular criteria in SI 01120.199E.1 if the provision allows solely for a transfer of the beneficiary’s assets to a secondary Section 1917(d)(4)(A) or Section 1917(d)(4)(C) trust of which the same individual is the beneficiary.

  • Subsection G - Revamped all the examples of acceptable and unacceptable early termination provisions for clarity and relevance.

SI 01120.199 Early Termination Provisions and Trusts

A. When to apply the policies in this section

This section applies to:

  • special needs trusts intending to meet the requirements for exception to resource counting under section 1917(d)(4)(A)of the Social Security Act (Act) (see SI 01120.203); and

  • pooled trusts intending to meet the requirements for exception to resource counting under section 1917(d)(4)(C) of the Act (see SI 01120.203).

This includes trusts that:

  • are newly formed; or

  • have not been previously excepted from resource counting under section 1917(d)(4)(A) or 1917(d)(4)(C) of the Act; or

  • were previously excepted from resource counting under section 1917(d)(4)(A) or Section 1917(d)(4)(C) of the Act, but that need to be amended for continued exception.

Trusts cannot be excepted under section 1917(d)(4)(A) or 1917(d)(4)(C) of the Act unless their early termination provisions meet the requirements in this section.

Trusts that were previously determined to meet the requirements for exception continue to be excepted, provided they are amended to conform with the requirements of this section within 90 days. For more information on the 90-day amendment period, see SI 01120.201K.2. For more information on the manual notice to send if the trust still does not conform with the policy requirements within 90 days, see SI 01120.204D.

B. Case processing alert for early termination provisions and trusts

Trusts are often complex legal arrangements involving State law and legal principles that require legal counsel. Therefore, the following instructions may be sufficient only to recognize that an issue is present that you should refer to the regional office (RO) for possible referral to the office of the Regional Chief Counsel (RCC). When in doubt, discuss the issue with the RO staff or submit the inquiry via vHelp.

C. What is an early termination provision?

An early termination provision allows a trust to terminate before the death of the beneficiary. Commonly, such provisions provide for termination of the trust when, for example, the beneficiary is no longer disabled or otherwise becomes ineligible for Supplemental Security Income (SSI) and Medicaid, or when the trust no longer contains enough assets to justify its continued administration.

D. Defining terms for trusts

1. Trust

A trust is a property interest whereby property is held by an individual or entity (e.g., a bank) called the trustee, subject to a fiduciary duty to use the property for the benefit of another (i.e., the beneficiary).

2. Trust established with the assets of an individual

We consider a trust to be established with the assets of an individual if any assets of the individual or spouse were transferred to the trust other than by a will. To determine what we consider an “asset,” see SI 01120.201B.1.

3. Grantor

A grantor, also referred to as a settlor or trustor, is the individual who provides the trust principal or corpus. The grantor must be the owner of, or have a legal right to, the property or otherwise be qualified to transfer it. For more information on grantors, see SI 01120.200B.3.

4. Trustee

A trustee is a person or entity that holds legal title to property for the use or benefit of another. In most instances, the trustee has no legal right to revoke the trust or use the property for his, her, or its own benefit.

5. Trust beneficiary

A trust beneficiary is a person for whose benefit a trust exists. A beneficiary does not hold legal title to trust property but has an equitable ownership interest in it. As equitable owner, the beneficiary has certain rights that will be enforced by a court because the trust exists for his or her benefit. The beneficiary receives the benefits of the trust, while the trustee holds the title and duties.

6. Trust principal

The trust principal is the property that is placed in trust by the grantor and held by the trustee, subject to the rights of the beneficiary. It includes any earnings on the trust. It is also called “the corpus of the trust.”

7. Decanting

Trust decanting generally refers to the distribution or transfer of trust property from one trust to one or more other trusts, usually with more favorable terms. Decanting may involve the early termination of the first trust, or the effect of decanting may be materially the same as the effect of an early termination. In such a situation, we generally evaluate the decanting provision under the instructions on early termination in this section. However, decanting can be complex and can vary depending on applicable State law. It may be appropriate for the RO to seek input from the office of the RCC.

8. Other definitions

For other definitions applicable to this section, see SI 01120.200B.

E. Policy for early termination provisions

Apply the following policies to early termination provisions in trusts intending to comply with section 1917(d)(4)(A) or 1917(d)(4)(C) of the Act.

1. Criteria for determining whether an early termination provision is acceptable

A trust that contains an early termination provision may not be excepted from the SSI resource counting rules at Section 1613(e) of the Act unless it satisfies the requirements in either Section 1917(d)(4)(A) or Section 1917(d)(4)(C). Additionally, the trust must satisfy the resource counting rules in SI 01120.200D and SI 01110.100B in order not to be a countable resource. To meet those requirements, all of the following criteria must be met:

  • Upon early termination (i.e., termination prior to the death of the trust 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); and

  • Other than payment for the administrative expenses listed in this section and in SI 01120.201F.4, no individual or 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 so as solely to benefit the trust beneficiary); and

  • The early termination provision gives the power to terminate to an individual or entity other than the trust beneficiary.

NOTE: 

For trusts that are excepted from resource counting under Section 1917(d)(4)(C) as a pooled trust and do not contain an early termination provision, it is permissible for the trust to retain amounts remaining in the individual’s account upon the death of the individual. For more information, see SI 01120.203D.8.

2. Exception for transfers to a secondary trust upon early termination

An early termination provision in a Section 1917(d)(4)(A) special needs trust or Section 1917(d)(4)(C) pooled trust does not need to meet the above criteria if the provision allows solely for a transfer of the beneficiary’s assets to a secondary Section 1917(d)(4)(A) or Section 1917(d)(4)(C) trust of which the same individual is the beneficiary.

The early termination provision must contain specific limiting language that precludes the early termination from resulting in disbursements other than to the secondary Section 1917(d)(4)(A) or Section 1917(d)(4)(C) trust or to pay for the administrative expenses listed in SI 01120.199E.3 in this section and in SI 01120.201F.4.

3. Allowable administrative expenses paid from the trust

The following types of administrative expenses may be paid from the trust prior to reimbursement of medical assistance to the State(s):

  • Taxes due from the trust to the State(s) or Federal government due to the termination of the trust; and

  • Reasonable fees and administrative expenses associated with the termination of the trust.

For more information about allowable and prohibited expenses, see SI 01120.203E.

F. Procedure for the development and documentation of trusts

For instructions on how to develop and document the trusts to which this section applies, see SI 01120.202.

G. Examples of trust evaluations and determinations

The following examples are illustrative of situations you may encounter.

  • Do not rely solely on the analysis provided in the examples in making determinations in a specific case, as laws vary from State to State and the language of individual trust documents may warrant different treatment from that given in an example.

  • Refer to applicable regional instructions and consult your RO as necessary. Also, be aware of the implications that the trust may have for Medicaid eligibility - see SI 01730.048.

1. Unacceptable early termination provisions

EXAMPLE 1: A special needs trust contains an early termination provision stating that, upon early termination, all assets remaining in the trust will be distributed to the trust beneficiary. The provision gives the trustee or the trust beneficiary the power to terminate.

Treatment: This early termination provision is unacceptable for two reasons. First, upon early termination, the trust does not provide first for reimbursement to the State(s) for the amount of medical assistance paid on behalf of the trust beneficiary. Second, the early termination provision gives the trust beneficiary the power to terminate the trust.

EXAMPLE 2: A pooled trust established in State X contains an early termination provision stating that, upon early termination, State X will receive all amounts remaining in the trust up to an amount equal to the total amount of medical assistance paid on behalf of the individual under the State X Medicaid plan. After reimbursement to State X, any remaining funds will be distributed evenly among the other sub-accounts in the pooled trust. The provision gives the trustee the power to terminate.

Treatment: This early termination provision is unacceptable for two reasons. It restricts Medicaid payback to State X rather than requiring payback to any State(s) that paid medical assistance on behalf of the trust beneficiary. It also allows for individuals or entities other than the trust beneficiary (i.e., the other pooled trust sub-accounts) to benefit from the early termination.

2. Acceptable early termination provisions

EXAMPLE 1: A special needs trust contains an early termination provision stating that, upon early termination, the State(s) will first be reimbursed for the amount of medical assistance paid on behalf of the trust beneficiary, and any remaining assets will be distributed to the beneficiary. The provision gives the trustee the power to terminate.

Treatment: This early termination provision is acceptable because it meets all three criteria in SI 01120.199E.1 in this section.

EXAMPLE 2: A pooled trust contains an early termination provision stating that, upon early termination, trust assets may solely be transferred to a secondary Section 1917(d)(4)(A) trust, or a secondary Section 1917(d)(4)(C) trust, where the beneficiary of the original trust also is the beneficiary of the secondary trust.

Treatment: This early termination provision does not meet the regular criteria for an acceptable early termination provision outlined in SI 01120.199E.1 in this section. However, it meets the exception to the regular criteria, set out in SI 01120.199E.2 in this section, by allowing solely for a transfer of the beneficiary’s assets to a secondary Section 1917(d)(4)(A) trust, or a secondary Section 1917(d)(4)(C) trust, of which the same individual is the beneficiary.

H. References

  • SI 01120.200 Trusts – General, Including Trusts Established Prior to 1/1/00, Trusts Established with the Assets of Third Parties and Trusts Not Subject to Section 1613(e) of the Social Security Act

  • SI 01120.201 Trusts Established with the Assets of an Individual on or after 1/1/00

  • SI 01120.202 Development and Documentation of Trusts Established on or after 1/1/00

  • SI 01120.203 Exceptions to Counting Trusts Established on or after 1/1/00

  • SI 01150.100 What is a Resource Transfer

  • SI 01150.121 Exceptions – Transfers to a Trust

  • SI 01730.048 Medicaid Trusts


SI 01120 TN 64 - Trust early terminations/transfers/decanting updates - 10/22/2020