This Regional Chief Counsel opinion provides the State laws on trusts established with no funds (i.e., dry or empty trusts) for the states in Region IV, to help field offices address how to consider such purported trusts under the agency's Supplemental Security Income (SSI) resource rules.

QUESTION

You asked us to provide the laws for the states in Region IV, related to trusts established with no funds (i.e., dry or empty trusts), to help field offices address how to consider such purported trusts under the agency’s Supplemental Security Income (SSI) resource rules.

BACKGROUND

SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Social Security Act (Act) §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2017).^[1] The Act does not define “resources” and provides only a list of certain items excluded in determining the resources of an individual. See Act § 1613(a). However, Congress empowered the Commissioner to promulgate rules and regulations to establish the right to SSI payments. See Act §§ 205(a), 1631(d)(1). Pursuant to that authority, the Commissioner has clarified that resources include “any real or personal property interest that an individual . . . owns and could convert to cash to be used for his or her support and maintenance.” 20 C.F.R. § 416.1201(a); see Program Operations Manual System (POMS) SI 01110.100.B.1; POMS SI 01120.010.B. “If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual . . . .” 20 C.F.R. § 416.1201(a)(1); see POMS SI 01110.100.B.1, B.3; POMS SI 01110.115.A; POMS SI 01120.010.B. Even if property has no current market value, it may still be considered a resource if it is property that an individual owns and has the right to convert to cash and the individual is not legally restricted from using the property for his or her support and maintenance. See POMS SI 01110.100.B.2, B.3.

Property held in a trust may or may not be considered a resource for SSI purposes. See Act § 1613(e); POMS SI 01120.200.A.1. Generally, the agency must consider the principal or corpus of a trust established with the assets of an individual to be a resource of the individual. See Act § 1613(e)(1)-(3); POMS SI 01120.201.A.1. Trust principal is a countable resource if the individual (claimant, recipient, deemer) has legal authority to revoke or terminate the trust and use the funds to meet his or her food or shelter needs, or if the individual can direct the use of the trust principal for his or her support and maintenance under the terms of the trust. See POMS SI 01120.200.D.1.a. Also, if an individual can sell his or her beneficial interest in the trust, that interest is a resource. See POMS SI 01120.200.D.1.a. Conversely, if an individual does not have legal authority to revoke or terminate the trust or to direct the use of the trust assets for his or her own support and maintenance, the trust principal is not a resource for SSI purposes. See POMS SI 01120.200.D.2. The revocability of a trust and the ability to direct the use of trust principal depends on the terms in the trust agreement and on state law. See POMS SI 01120.200.D.2.

DISCUSSION

Alabama:

Alabama statutes indicate that a trust may be established through the conveyance of property, but do not otherwise explain the property requirements to establish a trust. See Ala. Code §§ 19-3B-401, 19-3B-402 (2018). Alabama case law indicates the existence of property held by a trustee for the benefit of a trust is an essential element of a trust. SeeCorretti v. First Nat’l Bank of Birmingham, 276 So. 2d 141, 147 (Ala. 1973); Gordon v. Central Park Little Boys League, 119 So. 2d 23, 27 (Ala. 1960). Alabama’s trust code defines “property” generally as “anything that may be the subject of ownership, whether real or personal, legal or equitable, or any interest therein.” See Ala. Code § 19-3B-103(13). Alabama’s statutes regarding wills and estates, however, appear to recognize at least some unfunded trusts by describing situations in which a will may validly transfer property to a trustee of a trust. See Ala. Code Ann. § 43-8-140. Specifically, Ala. Code § 43-8-140 indicates a will may validly transfer property to the trustee of, among other types of trusts, an “unfunded life insurance trust,” and a trust identified in a will, where the terms of the trust are set forth in a written instrument other than a will, “regardless of the existence, size, or character of the corpus of the trust.” Thus, Alabama law appears to recognize a trust may be established with no funds under certain situations.

Florida:

Florida’s trust statutes indicate a trust may be created when property or a property interest is transferred to a trustee, but do not further explain the property requirements to establish a trust. See Fla. Stat. Ann. §§ 736.0401, 736.0402 (West 2018); see also Fla. Stat. Ann. § 736.0103(15) (West 2017) (defining “property” as “anything that may be the subject of ownership, real or personal, legal or equitable, or any interest therein”). Florida case law, however, indicates a trust is not created until property is conveyed for the purpose of the trust. SeeVaughan v. Boerckel, 963 So.2d 915, 920 (Fla. Dist. Ct. App. 2007) (noting a corpus is essential to a valid trust in holding an express trust cannot exist unless there is a transfer of legal ownership in the subject property); McLemore v. McLemore, 675 So. 2d 202, 205 (Fla. Dist. Ct. App. 1996). Thus, Florida does not appear to recognize dry or empty trusts.^[2]

Georgia:

Georgia statutes, which recognize two types of trusts, express and implied,^[3] require express trusts to include trust property, and presume implied trusts include trust property. See Ga. Code Ann. §§ 53-12-2(3), (5); 53-12-20(b)(2); 53-12-130; 53-12-132 (West 2018); see also Ga. Code Ann. § 53-12-20(9) (West 2018) (defining property as “any type of property, whether real or personal, tangible or intangible, legal or equitable”). Georgia case law also holds that an essential element of an express trust is the existence of trust property. SeeHayes v. Clark, 530 S.E.2d 38, 39 (Ga. Ct. App. 2000); Lummus Supply Co. v. Fidelity Fed. Sav. & Loan Ass’n, 234 S.E.2d 671, 672 (Ga. Ct. App. 1977). Georgia’s statutes regarding wills and estates, however, appear to recognize at least some unfunded trusts by describing situations in which a will may validly transfer property to a trustee of a trust. See Ga. Code Ann. § 53-12-101(a). Specifically, Ga. Code Ann. § 53-12-101(a) indicates a will may validly transfer property to the trustee of, among other types of trusts, an “unfunded life insurance trust,” and a trust identified in a will, where the terms of the trust are set forth in a written instrument other than a will, “regardless of the existence, size, or character of the corpus of the trust.” Thus, Georgia law appears to recognize a trust may be established with no funds under certain situations.

Kentucky:

Under the Kentucky statutes’ chapter on trusts, one may create a trust by transferring property to a trustee or by a property owner’s declaration that the owner holds identifiable property as trustee, but the chapter does not further explain the property requirements to establish a trust. See Ky. Rev. Stat. Ann. § 386B.4-010 (West 2017); see alsoKy. Rev. Stat. Ann. § 386B.1-010(12) (West 2017) (defining property as “anything that may be the subject of ownership, whether legal or equitable, or any interest therein”). Kentucky’s statutes regarding wills and estates, however, appear to recognize at least some unfunded trusts by describing situations where a will may validly transfer property to a trustee. SeeKy. Rev. Stat. Ann. § 394.076 (West 2017). Specifically, Ky. Rev. Stat. Ann. § 394.076 indicates a will may validly transfer property to the trustee of, among other types of trusts, an “unfunded life insurance trust,” and a trust identified in a will, where its terms are set forth in a written instrument other than a will, “regardless of the existence, size, or character of the corpus of the trust.” The Supreme Court of Kentucky has recognized that a dry trust is a valid trust pursuant to Ky. Rev. Stat. Ann. § 394.076 and Kentucky’s adoption of the Uniform Testamentary Additions to Trust Act. SeeCummings v. Pitman, 239 S.W. 3d 77, 84 (Ky. 2007) (finding trust existed at the time trust instrument was executed, despite the fact that the trust did not contain assets until settlor’s death, one year after the trust instrument was executed). Thus, Kentucky law does recognize a trust may be established with no funds under certain situations.

Mississippi:

Under the Family Trust Preservation Act of 1998, Mississippi statutes define trusts to mean an express trust, private or charitable, or a trust created or determined by a judgment or decree under which the trust is to be administered in the manner of an express trust. See Miss. Code Ann. § 91-9-501(a) (West 2017). Mississippi statutes do not appear to contain any additional explanation regarding any property requirements to establish a trust. Furthermore, Mississippi case law does not appear to address whether there are property requirements to establish a trust. Cases that describe the essentials of an express trust do not address this question. See, e.g., Sligh v. First Nat’l Bank of Holmes Cty., 735 So. 2d 963, 974 (Miss. 1999); Ogle v. Durley, 77 So. 2d 688, 691-92 (Miss. 1955); Smiley v. Yllander, 105 So. 3d 1171, 1175 (Miss. Ct. App. 2012). Thus, we found no Mississippi statute or case law recognizing or prohibiting the establishment of a trust with no funds.

North Carolina:

North Carolina statutes identify a number of requirements to create a trust, and indicates a trust may be established when property is transferred to or held by a trustee, but do not describe any particular property requirements to establish a trust. See N.C. Gen. Stat. Ann. §§ 36C-4-401, 36C-4-402 (West 2017); see also N.C. Gen. Stat. Ann. § 36C-1-103(14) (defining property as “[a]nything that may be the subject of ownership, whether real or personal, legal or equitable, or any interest therein”). North Carolina’s trust code includes a provision on trusts based on life insurance or death benefit interests, which indicates an unfunded trust is valid where the trust is a designated beneficiary of a life insurance policy or retirement benefits. See N.C. Gen. Stat. Ann. § 36C-4-401.1, comment (West 2017). North Carolina statutes on testamentary additions to trusts also indicate a will may devise property to a trustee of a trust that is established at the testator’s death, if the trust is identified in the will and its terms are described in a written instrument executed before or concurrently with the execution of the will, “regardless of the existence, size, or character of the corpus of the trust during the testator’s lifetime.” N.C. Gen. Stat. Ann. § 31-47(a)(2). These statutory provisions indicate North Carolina does recognize that a trust may be established with no funds under certain situations.

South Carolina:

South Carolina statutes indicate that a trust may be established when property is transferred to a trustee or through a written, signed declaration from an owner of property that the owner is holding the property as a trustee, but does not further explain the property requirements to establish a trust. See S.C. Code Ann. § 62-7-401 (2017). South Carolina case law indicates that a trust generally can exist only if it is funded. SeePatterson v. Witter, 791 S.E.2d 294, 301 (S.C. Ct. App. 2016) (listing trust corpus as a necessary element to establish existence of a trust); Mayer v. M.S. Bailey & Son, 555 S.E.2d 406, 410 (S.C. Ct. App. 2001) (noting a trust generally can exist only if it is funded). South Carolina’s trust code defines “property” generally as “anything that may be the subject of ownership, whether real or personal, legal or equitable, or any interest therein,” including interests created through beneficiary designations in insurance policies, financial instruments, deferred compensation, and other retirement arrangements. S.C. Code Ann. § 62-7-103(11), comment. Thus, although South Carolina defines “property” to broadly include interests in retirement arrangements and other financial instruments or policies, South Carolina law does not appear to recognize a trust that is established with no property.

Tennessee:

Tennessee’s Uniform Trust Code identifies the requirements for creating a trust, particularly with respect to identifying a settlor with the requisite capacity and intention, a trustee with duties to perform, and a definite beneficiary; but, it does not further identify any property requirements to establish a trust. See Tenn. Code Ann. § 35-15-402 (West 2017). Tennessee case law appears to indicate that an express trust cannot exist without trust property. SeeIn re Estate of Darken, No. M2016-00711-COA-R3, CV, 2016 WL 7378806, at *10 (Tenn. Ct. App. Dec. 20, 2016); Myers v. Myers, 891 S.W.2d 216, 218 (Tenn. Ct. App. 1994). Tennessee’s trust code defines “property” generally as “anything that may be the subject of ownership, whether real or personal, legal or equitable, or any interest therein,” including interests created through beneficiary designations under insurance policies, financial instruments, deferred compensation, and other retirement arrangements. See Tenn. Code Ann. § 35-15-103(23), comment. Additionally, under Tennessee’s statutes on wills, Tennessee appears to recognize at least some unfunded trusts by describing situations in which a will may validly transfer property to a trustee of a trust. See Tenn. Code Ann. § 32-3-106. Specifically, Tenn. Code Ann. § 32-3-106(a)(1) indicates a will may validly transfer property to the trustee of, among other types of trusts, an “unfunded life insurance trust,” and a trust identified in a will, where its terms are set forth in a written instrument other than a will, “regardless of the existence, size, or character of the corpus of the trust.” Thus, while Tennessee appears to generally require trust property to establish a trust, Tennessee defines “property” for trust purposes to include interests created through beneficiary designations under insurance policies, financial instruments, and deferred compensation and other retirement arrangements. Tennessee law additionally appears to recognize a trust may be established with no funds under certain situations.

CONCLUSION

[None]

This Regional Chief Counsel opinion examines whether the Charities Pooled Trust (CPT), which operates in every state of Region IV (Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, and Tennessee), qualifies as a pooled trust under the Social Security Act, 42 U.S.C. § 1396p(d)(4)(C), and the implementing provisions of the Program Operations Manual System. The opinion concludes that the CPT qualifies as a pooled trust in all states of Region IV.

QUESTION

Whether the Charities Pooled Trust (CPT), which operates in every state in this region, qualifies as a pooled trust under the Social Security Act (Act), 42 U.S.C. § 1396p(d)(4)(C), and the relevant provisions of the Program Operations Manual System (POMS).

OPINION

CPT qualifies as a pooled trust under 42 U.S.C. § 1396p(d)(4)(C) and the relevant POMS provisions.

BACKGROUND

Between October 2016 and July 2018, CPT executive director, W~, executed Master Trust Agreements (MTAs) in Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, and Tennessee. Each trust established CPT as a pooled trust in these respective states. The MTA for each state includes identical provisions, except with respect to the extent to which the MTA addresses directed trustees, whether the trustee will notify the state’s Medicaid agency about a beneficiary’s death, and how the trust will distribute the remainder funds in an individual benefit account (IBA) upon a beneficiary’s death. The MTAs also have identical joinder agreements.

NH1, a number holder living in Kentucky, NH2, a number holder living in Tennessee, and NH3, a number holder living in Florida, receive Supplemental Security Income (SSI). NH1 signed a Joinder Agreement with CPT under the Kentucky MTA on February 13, 2017. NH2’s parent and grandparent signed a Joinder Agreement with CPT under the Tennessee MTA on July 3, 2019. NH3 signed a Joinder Agreement with CPT under the Florida MTA on August 22, 2018. NH1, NH2, and NH3 funded the IBAs of their respective trusts through the transfer of their own assets to the trusts.

I. Purpose and Establishment of the Trust

CPT’s MTAs identify CPT as the Trustee. See MTA, § 2.2.^[4] They identify CPT as a non-profit corporation recognized as tax-exempt under section 501(c)(3) of the Internal Revenue Code. Seeid.

The MTAs indicate that the trust intends to comply with 42 U.S.C. § 1396p(d)(4)(C) (§ 1917(d)(4)(A) of the Act). See MTA, § 1.5. They indicate that each trust shall establish a separate account for each beneficiary, but may pool the amounts in the separate accounts for investment and management purposes. See MTA, §§ 4.1, 9.1.

The MTAs classify a trust beneficiary as a person with a disability, as defined by 42 U.S.C. § 1382c(a)(3) (codifying § 1614(a)(3) of the Act), whom a grantor identifies as the sole recipient of services and benefits from the individual account created within the trust for such person with a disability. See MTA, § 13.12; Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.4; Florida, Kentucky, Tennessee MTA, § 2.6. A trust beneficiary, or the trust beneficiary’s parent, grandparent, or legal guardian, or another person or entity acting pursuant to a court order or other legal authority, can be a grantor and can establish an account for a trust beneficiary in the Trust and contribute assets to the trust for the sole benefit of the trust beneficiary. See MTA, § 3.1; Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.3; Florida, Kentucky, Tennessee MTA, § 2.5. The stated purpose of the trust is to supplement, not displace, a beneficiary’s government benefits. See MTA, § 3.2.

II. Distribution and Powers of the Trustee

The Trustee is responsible for overseeing the custody, investment asset allocation model selection, and disbursement of funds contributed to the trusts. See MTA, § 2.2. In carrying out this responsibility, the Trustee may retain an independent investment advisor to handle the custody, investment, and management of the trust assets. See Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.5; Florida, Kentucky, Tennessee MTA, § 2.7. The Trustee and any investment advisor shall perform their duties provided in the trusts to receive, hold, manage, and control all income and principal in the IBAs comprising the Trust as may be appropriate to effectuate the intent and purpose of the trusts. See MTA, § 10.1.

The Trustee shall hold, administer, and distribute all property and income from an individual trust beneficiary’s IBA for the sole benefit of the beneficiary. See MTA, §§ 6.1, 6.2. Distributions are solely within the Trustee’s discretion, but the Trustee must make them for the sole benefit of a beneficiary and should make them if the distribution has the effect of supplanting or replacing any government assistance or disqualifying a beneficiary from receiving government assistance. See MTA, § 6.1.

The Trustee assesses enrollment fees for the fees and expenses associated with a beneficiary enrolling in one of the trusts and establishing an IBA and annual administration fees for the administration and maintenance of an IBA at the time a beneficiary enrolls in the trust. See MTA, § 9.2. The Trustee may adjust the enrollment fees schedule and annual administration fees schedule from time to time. See id.

III. Irrevocability and Spendthrift

The trusts established under each state’s MTA are irrevocable upon the Trustee’s acceptance of a beneficiary’s joinder agreement and related required documents, and the grantor’s contributed amount, and upon the grantor and beneficiary completing the enrollment requirements to join the trust. See MTA, § 1.3. The MTA treats the amount contributed to a beneficiary’s IBA as irrevocably assigned, transferred, conveyed and delivered to the Trustee to be used for the sole benefit of the beneficiary. MTA, § 4.2. Once the Trustee accepts the contributed amount, it is not refundable to the beneficiary. Seeid. A beneficiary has no right to demand a distribution from the trust for his or her own support or maintenance. See MTA, § 9.8.

Each trust is a spendthrift trust. See MTA, § 9.9. No beneficiary can subject any part of either trust to an assignment; attachment; levy; a creditor’s control; a creditor’s legal or equitable action, proceeding, suit, or procedure to take from the Trust; or a compelled distribution to any beneficiary’s creditor. Seeid.

IV. Termination

Upon a beneficiary’s death, the Trustee will use remaining funds in the beneficiary’s IBA to pay back to a state’s Medicaid agency or agencies an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under a state Medicaid plan. See MTA § 7.2B, D. If the payback amount is equal or greater than the amount remaining in the IBA, the MTAs for Alabama, Georgia, and North Carolina indicate that the trust will retain ten percent of the remaining amount and use the remaining ninety percent to pay back the Medicaid agency or agencies. Alabama, Georgia, North Carolina MTA, § 7.2D.1. The MTAs for the rest of the states in the Atlanta region indicate that under the same circumstances, the Trust will retain fifty percent of the remaining amount and use the remaining fifty percent to pay back the Medicaid agency or agencies. See Kentucky, Mississippi, South Carolina, Tennessee MTA, § 7.2D.1. If the payback amount is less than the amount remaining in the IBA, the MTAs for every state in the Atlanta region indicate that the Trust will retain five percent of the amount remaining in the IBA and pay back the full amount to the Medicaid agency or agencies. See MTA, § 7.2D.2. The Trustee will distribute any remaining amount left after the Trust retains five percent and pays back the Medicaid agency or agencies to any remainder beneficiaries of the deceased beneficiary identified in the IBA joinder agreement. See MTA, § 7.2C, D.2.

A beneficiary cannot terminate the Trust or any part of the beneficiary’s IBA at any time, under any circumstances. See MTA, § 8.1. If the Trust terminates during the lifetime of a beneficiary, the Trustee will use any funds remaining in an IBA to pay back a state’s Medicaid agency or agencies an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under a state Medicaid plan, with the remaining amounts distributed to the beneficiary. See MTA, § 8.1.

DISCUSSION

A. To qualify as a pooled trust, a trust must meet six requirements.

To be eligible for Supplemental Security Income (SSI), the dollar value of a claimant’s countable resources cannot exceed certain statutory limits. See 42 U.S.C. § 1382(a)(1)(B), (3)(B); 20 C.F.R. §§ 416.202(d), 416.1201, 416.1205; POMS SI 01110.003(A). Under 42 U.S.C. § 1382b(e), a trust is a resource unless it meets certain requirements, including those articulated in § 1396p(d)(4)(C). Trusts that meet the requirements of 42 U.S.C. § 1396p(d)(4)(C) are considered to be qualifying pooled trusts.

B. The MTAs for every state in the Atlanta Region qualifies as a pooled trust.

The MTAs for every state in this region qualify as pooled trusts. As further explained below, the MTAs meet each of the six criteria articulated in 42 U.S.C. § 1396p(d)(4)(C) as follows:

1. Disabled Individual

To qualify as a pooled trust, the trust must contain “the assets of an individual who is disabled.” 42 U.S.C. § 1396p(d)(4)(C); see POMS SI 01120.203.D.2 (stating that “the individual whose assets were used to establish the trust account must be disabled for SSI purposes . . . .”). That requirement is satisfied here.

The MTAs require that a trust beneficiary be a person with a disability. See MTA, § 13.12; Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.4; Florida, Kentucky, Tennessee MTA, § 2.6. Although a grantor besides the trust beneficiary may contribute assets to the trust, the grantor makes those contributions for the sole benefit of the trust beneficiary. See MTA, § 3.1; Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.3; Florida, Kentucky, Tennessee MTA, § 2.5. Additionally, the individuals who established IBAs under the MTAs for Florida, Kentucky, and Tennessee are disabled and used their own assets to fund their IBAs.

2. Established and Managed by a Nonprofit Association

Second, the trust must be “established and managed by a non-profit association.” 42 U.S.C. § 1396p(d)(4)(C)(i); see POMS SI 01120.203.D.3 (trust is “established and maintained by the actions of a nonprofit association”). This requirement is satisfied as well.

According to the MTAs, CPT is the settlor and trustee of the MTAs and is a non-profit corporation under section 501(c)(3) of the Internal Revenue Code. MTA, § 2.2. CPT is a fictitious name for the Institute for Health Care Advocacy, Inc. See sunbiz.org – Florida Department of State, http://dos.sunbiz.org/scripts/ficidet.exe?action=DETREG&docnum=G09000149562&rdocnum=G09000149562 (last accessed Feb. 24, 2020). The Institute for Health Care Advocacy, Inc. is an active not-for-profit Florida corporation. See sunbiz.org – Florida Department of State, http://search.sunbiz.org/Inquiry/CorporationSearch/SearchResultDetail?inquirytype=EntityName&directionType=Initial&searchNameOrder=INSTITUTEFORHEALTHCAREADVOCACY%20N930000037871&aggregateId=domnp-n93000003787-3d08880b-9b2a-400f-bc4b-4f26864703fb&searchTerm=Institute%20for%20Health%20Care%20Advocacy&listNameOrder=INSTITUTEFORHEALTHCAREADVOCACY%20N930000037871 (last accessed Feb. 24, 2020). The fictitious name registration for CPT expired on December 31, 2019. See sunbiz.org – Florida Department of State, http://dos.sunbiz.org/scripts/ficidet.exe?action=DETREG&docnum=G09000149562&rdocnum=G09000149562 (last accessed Feb. 24, 2020). However, under Florida law, the failure of a business to register a fictitious name “does not impair the validity of any contract, deed, mortgage, security interest, lien, or act of such business . . . .” Fla. Stat. Ann. § 865.09(9)(b). Accordingly, this requirement is still satisfied in spite of the failure of the Institute for Health Care Advocacy, Inc., to maintain its registration of CPT as a fictitious name.

3. Separate Accounts, Pooled for Investing

Third, to be a pooled trust, the trust must maintain a separate account for each beneficiary. 42 U.S.C. § 1396p(d)(4)(C)(ii); see POMS SI 01120.203.D.4. However, “for purposes of investment and management of funds, the trust pools these accounts.” 42 U.S.C. § 1396p(d)(4)(C)(ii); seePOMS SI 01120.203.D.4 (the “trust may pool the funds in the individual accounts . . . for purposes of investment and management of funds”). This requirement is reflected in POMS, which notes that “[t]he trust must be able to provide an individual accounting for each individual.” POMS SI 01120.203.D.4. The MTAs for every state in this region meet these requirements.

The MTAs indicate that each trust shall establish a separate account for each beneficiary, but trust may pool the amounts in the separate accounts for investment and management purposes. MTA, §§ 4.1, 9.1. The MTAs also indicate that the trustee, or its agent, must “maintain records for each Trust IBA in the name of each Trust Beneficiary and showing the Contributed Amount plus any income earned from the Contributed Amount.” MTA, § 4.1. The trust must provide periodic reports, at least annually, about receipts and disbursements to and from the individual’s account. See MTA, § 9.4.

4. Established for the Sole Benefit of the Disabled Individual

The fourth requirement for a pooled trust is that the trust account is “established solely for the benefit of individuals who are disabled.” 42 U.S.C. § 1396p(d)(4)(C)(iii); accord POMS SI 01120.203.D.5 (trust “must be established for the sole benefit of the disabled individual”). The statute does not provide guidance on “sole benefit,” but the POMS explains that a trust is “established for the sole benefit of an individual” when it “benefits no one but that individual, whether at the time the trust is established or at any time for the remainder of the individual’s life.” POMS SI 01120.201.F.1.

The trust may pay third parties for goods or services for the beneficiary and still be for the “sole benefit” of the beneficiary. POMS SI 01120.201.F.3. The trust also may “provide for reasonable compensation for (a) trustee(s) to manage the trust and reasonable costs associated with investment, legal, or other services rendered on behalf of the individual with regard to the trust.” POMS SI 01120.201.F.4.

The MTAs for every state in this region meet this requirement. The MTAs indicate that the trustee must “hold, administer, and distribute all property, and all income therefrom from an Individual Trust Beneficiary’s IBA, for the sole benefit of the Trust Beneficiary during the Trust Beneficiary’s lifetime and after Trust termination.” MTA, § 6.2 (emphasis in original); MTA, § 6.3 (“Trust Beneficiary’s IBA is for the sole benefit of the Trust Beneficiary.”) (emphasis in original).

The MTAs also allow for fees in accordance with a written fee schedule and expenses for administering the trust. MTA, §§ 9.2, 10.5. The MTAs further state that the trust will compensate a trustee for “services rendered and reimbursed reasonable expenses incurred on behalf of the Trust or a Trust Beneficiary.” MTA, § 10.5. Additionally, the MTAs allow for charges of pro rata legal fees to all individual trust accounts, or to accounts of affected beneficiaries, and the trustee will determine “if defense costs affect a substantial number of Trust beneficiaries” and warrant allocation. MTA, § 10.6. These provisions pass muster under the statute because they constitute “reasonable costs associated with investment, legal, or other services rendered on behalf of the individual with regard to the trust.” POMS SI 01120.201.F.4.

The MTAs contain an early termination provision that accounts for a scenario where the trust terminates prior to the death of the beneficiary. MTA, Art. 8. An early termination provision is allowable under the pooled-trust exception so long as three criteria are met: (1) “[u]pon early termination (i.e., termination prior to the death of the 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);” (2) “[o]ther than payment for those expenses [for taxes, reasonable fees, and administrative expenses], no 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 to the trust beneficiary);” and (3) “[t]he early termination clause gives the power to terminate to someone other than the trust beneficiary.” POMS SI 01120.199.F.1 (bold in original). The trust may pay taxes, reasonable fees, and administrative expenses before reimbursing any state(s) for medical assistance. See POMS SI 01120.199.F.3.

The MTAs for this region satisfy these criteria. Specifically, the MTAs indicate that, if the trust terminates during the beneficiary’s life, all remaining funds in that account will be paid to reimburse each state for medical assistance paid on behalf of the beneficiary. MTA, § 8.1. The MTAs also indicate that, after paying the states, “if there are any assets remaining, the Trustee shall distribute all of the remaining assets to the Trust Beneficiary.” MTA, § 8.1. Additionally, the beneficiary does not have the power to terminate his or her trust account. See MTA, § 8.1.^[5]

5. Established Through the Actions of the Individual, Parent, Grandparent, Legal Guardian, or Court

To qualify as a pooled trust, the trust account also 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 POMS SI 01120.203.D.6. The MTAs here meet this requirement, as they require that a beneficiary or a grantor, who must be a parent, grandparent, legal guardian, or other person acting pursuant to a court order, execute the joinder agreement to establish an IBA under the MTA. MTA, §§ 3.1, 13.2; Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.3; Florida, Kentucky, Tennessee MTA, § 2.5. The joinder agreements submitted for NH1, NH2, and NH3 for the Florida, Kentucky, and Tennessee MTAs, respectively, also show that each of these individuals have established their IBAs either through their own actions or through the actions of their parents.

6. Remaining Amounts Paid to the State

Sixth, “[t]o 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.” 42 U.S.C. § 1396p(d)(4)(C)(iv); accord POMS SI 01120.203.D.8. The trustee may pay taxes and reasonable fees and costs before paying the state for medical assistance. SeePOMS SI 01120.203.E.1.

The MTAs meet this requirement, as well. Specifically, the MTAs allocate remaining assets between the trust, the state(s), and the remainder beneficiaries. MTA, § 7.2. If the state medical assistance amount is equal to or greater than the total amount left in the beneficiary’s IBA, the MTAs for Alabama, Georgia, and North Carolina state that the trust will retain ten percent of the remaining amount and use the remaining ninety percent to pay back the Medicaid agency or agencies. See Alabama, Georgia, North Carolina MTA, § 7.2D.1. The MTAs for the rest of the states in the Atlanta region state that under the same circumstances, the trust will retain fifty percent of the remaining amount and use the remaining fifty percent to pay back the Medicaid agency or agencies. See Kentucky, Mississippi, South Carolina, Tennessee MTA § 7.2D.1. If the state medical assistance amount is less than the amount left in the beneficiary’s IBA, the trust in every state in the Atlanta region will retain the first five percent of the amount; the trustee will pay the full amount owed to the state; and the trustee will pay any remaining amount to the beneficiary’s heirs. See MTA, § 7.2D.2. This distribution scheme comports with the statute.

In addition, the MTAs allow the trustee to pay certain administrative expenses, such as taxes and reasonable fees and costs, before paying the state for medical assistance. MTA, § 7.4A. The MTAs incorporate by reference the allowable and prohibited expenses in SSA’s POMS, by stating the Trustee will not pay any administrative expenses not allowed by the SSA’s POMS. MTA, § 7.4B.

CONCLUSION

The Trust complies with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions.

This Regional Chief Counsel (RCC) opinion examines whether the Alabama Family Trust (AFT Trust) complies with the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant provisions of the Program Operations Manual System (POMS). The RCC concludes that because the AFT Trust does not contain acceptable early termination provisions (in accordance with SI 01120.199F.1.), the trust accounts were not established solely for the benefit of the disabled individuals. Therefore, the AFT Trust does not meet all requirements of the pooled trust exception and must be counted as a resource for Supplemental Security Income (SSI) purposes.

QUESTION

You asked whether the Alabama Family Trust (AFT Trust) complies with the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant provisions of the Program Operations Manual System (POMS).

OPINION

The AFT Trust does not comply with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS.

BACKGROUND

In 1975, the State of Alabama created the AFT board of trustees, whose role is to establish and administer the AFT Corporation, which is a not-for-profit corporation that qualifies as an organization pursuant to section 501(c)(3) of the United States Internal Revenue Code. See Ala. Code §§ 38-9B-2(3), 38-9B-4(a), 38-9B-5(a).^[6] The State also authorized AFT Corporation to establish and administer the AFT Trust. See id. § 38-9B-5(b). The purpose of the AFT Trust “is to encourage, enhance, and foster the provision of medical, social, or supplemental services for persons with a mental or physical impairment.” Ala. Code § 38-9B-1(b).

To be eligible to participate in the AFT Trust, a life beneficiary must suffer from an impairment, which is defined as a “mental or physical disability that substantially limits one or more major life activities . . . and where the impairment is verified by medical findings that meet the medical-vocational requirements for a finding of disability under Section 223(d) of the Social Security Act, 42 U.S.C. Section 423(d), or under Section 1614 of the Social Security Act, 42 U.S.C. Section 1382c.” Id. § 38-9B-2(10); see id. § 38-9B-5(c)(1). Although contributions and earnings of the AFT Trust may be administered as one trust for the purposes of investment and management of funds, separate accounts are established for each designated life beneficiary. See id. § 38-9B-5(c)(2). A trust account is established when the Irrevocable Agreement is executed between the settlor and the AFT Corporation as trustee. See Ala. Family Trust, Irrevocable Agreement (revised Oct. 17, 2016), http://www.alabamafamilytrust.com/wp-content/uploads/2015/08/Irrevocable-Agreement-2.pdf (last visited Apr. 4, 2017).

In addition, “[a] financial record is maintained for each sub-account that reflects all activity in the account. Quarterly financial statements are sent to the Co-Trustee or Advocate or can be accessed through the internet.” Ala. Family Trust, Financial Information, http://www.alabamafamilytrust.com/trusts/financial-information/ (last visited Apr. 5, 2017).

In the case where a settlor^[7] has designated a contributor^[8] as the life beneficiary, the trust account must be irrevocable, and the amounts remaining in the account upon the life beneficiary’s death must be first dispersed to the AFT Corporation as reimbursement for any funds owed to the State of Alabama or any other State for medical assistance paid on behalf of the life beneficiary under the State plan. See id. § 38-9B-5(c)(4). The life beneficiary’s account is then terminated, and the distribution of the remaining amount depends on whether the life beneficiary received any benefits from the AFT Trust during his or her life. See id. § 38-9B-5(c)(10). If the life beneficiary did not receive any benefits from the AFT Trust during his or her life, the remaining amount is distributed to the successor life beneficiary, and if there is no successor life beneficiary, the remaining amount is distributed to the person designated by the settlor. See id. If the life beneficiary received benefits from the AFT Trust during his or her life, the remaining amount is distributed as follows:

90% of the balance to the person designated by the settlor and the remaining balance to the AFT Charitable Trust. See id. The AFT Charitable Trust is an account within the AFT Trust. See id. § 38-9-B-5(d)(1). The income from the AFT Charitable Trust is “used for the benefit of beneficiaries of AFT individual trusts who have needs that cannot be met from funds available to such life beneficiaries from their AFT individual trusts.” Id.

If prior to death, a life beneficiary ceases to be eligible to participate in the AFT Trust, the trustee may terminate the life beneficiary’s account. See id. § 38-9-B-5(c)(8). Upon termination of the account, a portion of the funds within the account are distributed to the AFT Charitable Trust and the remaining portion of the funds within the account are distributed to the account of the successor life beneficiary. See id. § 38-9-B-5(c)(9).

DISCUSSION

SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Act §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2017).^[9] “Resources” include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to be used for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a). “If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual . . . .” 20 C.F.R. § 416.1201(a)(1); accord POMS SI 01120.010.B.

Generally, the Social Security Administration (SSA) must consider the principal or corpus of a trust established with the assets of an individual to be a resource of the individual. See Act § 1613(e)(1)-(3); POMS SI 01120.201.A.1. However, certain exceptions are provided for trusts established in accordance with section 1917(d)(4) of the Act. See Act § 1613(e)(5); POMS SI 01120.201.A.1; POMS SI 01120.203.A. Pooled trusts are one such exception. See Act § 1917(d)(4)(C); POMS SI 01120.203.B.2 (describing an exception in accordance with § 1917(d)(4)(C) as a “pooled trust”). To satisfy the pooled trust exception, a trust must contain the assets of an individual who is disabled (as defined in section 1614(a)(3)) and meet the following requirements:

• •

  The trust is established and managed by a nonprofit association.

• •

  A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts.

• •

  Accounts in the trust are established solely for the benefit of individuals who are disabled (as defined in section 1614(a)(3)) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court.

• •

  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 under this title.

Act § 1917(d)(4)(C); accord POMS SI 01120.203.B.2.a.

The AFT Trust meets the initial requirement of containing the assets of an individual who is disabled. See Act § 1917(d)(4)(C); POMS SI 01120.203.B.2.a. This requirement is met because all life beneficiaries of the AFT Trust must be disabled under the Act. See Ala. Code §§ 38-9B-2(10); 38-9B-5(c)(1).

To meet the first numbered requirement, the trust must be established and maintained by an organization that has been established and certified under a State nonprofit statute. See Act § 1917(d)(4)(C)(i); POMS SI 01120.203.B.2.c. The AFT Corporation established and administers the AFT Trust. See Ala. Code § 38-9B-5(b). Under Alabama law, the AFT Corporation must qualify as a section 501(c)(3) organization, and the Internal Revenue Service (IRS) identifies the AFT Corporation as a tax-exempt organization.^[10] See Ala. Code § 38-9B-5(a); see also POMS SI 01120.203.F (referring to the procedures in POMS SI 01130.689.E for determining if an organization is a nonprofit or tax-exempt organization); POMS SI 01130.689.E.2 (indicating SSA considers an organization to be a non-profit organization if it can verify it is a tax-exempt organization with the IRS). Thus, the AFT Trust meets the first numbered requirement of the pooled trust exception.

To satisfy the second numbered requirement, the trust must maintain a separate account for each trust beneficiary, although the funds may be pooled for investment and management purposes. See Act § 1917(d)(4)(C)(ii); POMS SI 01120.203.B.2.d. The trust must also be able to provide an accounting for each beneficiary’s individual account. See POMS SI 01120.203.B.2.d. The AFT Trust funds are pooled for investment and management purposes, but each life beneficiary has a separate account. See Ala. Code § 38-9B-5(c)(2). The board of trustees is required to prepare an annual accounting of funds in the AFT Trust. Id. § 38-9B-4(c). In addition, “[a] financial record is maintained for each sub-account that reflects all activity in the account. Quarterly financial statements are sent to the Co-Trustee or Advocate or can be accessed through the internet.” Ala. Family Trust, Financial Information, http://www.alabamafamilytrust.com/trusts/financial-information/ (last visited Apr. 5, 2017). Accordingly, the AFT Trust meets the second numbered requirement of the pooled trust exception.

The third numbered requirement mandates that the accounts in the trust are established for the sole benefit of individuals who are disabled within the meaning of the Act. See Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.B.2.e. SSA considers a trust to be for the sole benefit of an individual “if the trust benefits no one but that individual, whether at the time the trust is established or at any time for the remainder of the individual’s life.” POMS SI 001120.201.F.2.a. Therefore, aside from payments for goods or services for the trust beneficiary and reasonable administrative expenses, the trust must not:

(1) provide a benefit to any other individual or entity during the disabled individual’s lifetime; or

(2) allow for termination of a trust account prior to the individual’s death and payment of the assets to another individual or entity. See POMS SI 001120.201.F.2; POMS SI 01120.203.B.2.e.

The Alabama statute that governs the AFT Trust includes an early termination provision for when prior to death, a life beneficiary becomes ineligible to participate in the AFT Trust. See Ala. Code § 38-9B-5(c)(8), (9). A trust with an early termination provision can meet the third numbered requirement if the following criteria are met:

(1) Upon early termination, the State Medicaid plans receive all funds up to the amount the plans paid for medical assistance on behalf of the life beneficiary;

(2) After reimbursement to the State Medicaid plans, all remaining funds are disbursed to the life beneficiary, save for those funds used to pay the expenses listed in POMS SI 01120.199.F.3 and POMS SI 01120.201.F.2.c; and

(3) The power to terminate the trust early is held by someone other than the life beneficiary.^[11] See POMS SI 01120.199.F.1.

The AFT Trust’s early termination provision indicates that the trustee, which by definition is the AFT Corporation, holds the power to terminate the trust early. See Ala. Code §§ 38-9B-2(17), 38-9B-5(c)(8). Thus, the AFT Trust meets the third criterion. However, the AFT Trust does not meet the two other criteria for an acceptable early termination provision. Upon early termination of a trust within the AFT Trust, the funds that were within the trust are distributed to the AFT Charitable Trust and the successor life beneficiary. See id. § 38-9B-5(c)(9). Thus, the AFT Trust’s early termination provision does not require reimbursement to the State Medicaid plans, and it allows for disbursement to entities or persons other than the life beneficiary—namely, the AFT Charitable Trust and the successor life beneficiary. See id. Therefore, the AFT Trust does not meet the criteria that a trust with an early termination provision must meet to satisfy the third numbered requirement of the pooled trust exception.

Because the AFT Trust does not meet the third numbered requirement, it is not a pooled trust regardless of whether it meets the fourth numbered requirement. See Act § 1917(d)(4)(C) (indicating a trust must meet all four requirements to qualify for the pooled trust exception); POMS SI 01120.203.B.2.a. (same). However, it is worth noting that an account within the AFT Trust could meet the fourth numbered requirement of the pooled trust exception.

To meet the fourth numbered requirement, the trust instrument must contain specific language providing that, to the extent that amounts remaining in an individual’s account upon his or her death are not retained by the trust, the trust will pay the remaining amount to the State(s) up to the total amount of medical assistance State Medicaid plan(s) paid on behalf of the individual. See Act § 1917(d)(4)(C)(iv); POMS SI 01120.203.B.2.g. When a contributor to a AFT Trust account is also the life beneficiary of the account, the amounts remaining in the account upon the life beneficiary’s death are first dispersed to the AFT Corporation as reimbursement for any funds owed to the State of Alabama or any other State for medical assistance paid on behalf of the life beneficiary under the State plan. See Ala. Code § 38-9B-5(c)(4)(ii). Thus, whether an account within the AFT Trust meets the fourth numbered requirement of the pooled trust exception must be determined on a case-by-case basis. When the life beneficiary of an AFT Trust account is also a contributor to the account, the account will meet the fourth numbered requirement of the pooled trust exception.

Although the AFT Trust can meet the first, second, and fourth numbered requirements of the pooled trust exception, it cannot meet the third numbered requirement. Accordingly, the AFT Trust is not a pooled trust under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS.^[12]

CONCLUSION

For the reasons discussed above, the AFT Trust does not meet all the requirements of the pooled trust exception under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS.