INTRODUCTION
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.
BACKGROUND
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.
DISCUSSION
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.
CONCLUSION
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.
Nora Koch
Acting Regional Chief Counsel
By:_____________
Andrew C. Lynch
Assistant Regional Counsel