OVERVIEW
You asked whether an unfunded, or “empty,” Northern Marianas Islands trust established
under Section 1917(d)(4)(A) of the Social Security Act (the Act) is a valid trust
for the purpose of determining Supplemental Security Income (SSI) eligibility. As
discussed below, we conclude that an empty trust is not a valid trust under Northern
Marianas Islands law.
BACKGROUND
In general, when determining an individual’s eligibility for SSI, all assets in a
revocable trust established by the individual, as well as those assets in an irrevocable
trust which could be paid to the individual, will be considered a resource. See Act § 1613, 42 U.S.C. § 1382b(e)(3); POMS SI 01120.201(D). Assets in a trust may be excluded as a resource, however, if a statutory exception
applies.
Section 1917(d)(4)(A), 42 U.S.C. § 1396p(d)(4)(A), provides for one such exception,
commonly known as the Medicaid payback trust or “special needs trust.” To qualify
for the exception, a trust must:
1. be established with the property of an individual under age 65 who is disabled;
2. be established for the benefit of such individual by a parent, grandparent, legal
guardian, or court; and
3. provide that, on the death of the individual, any funds remaining in the trust
will be used to reimburse the state for Medicaid payments made for the benefit of
the individual during his lifetime.
Act § 1917(d)(4)(A); POMS SI 01120.203(B)(1).
Where a parent or grandparent creates such a trust, the parent or grandparent must
either (1) create a “seed” trust, i.e., establish a trust using a nominal amount of
his or her own funds, after which the disabled individual may transfer his or her
own funds to the trust, or (2) create an empty or dry trust, if state law permits,
into which the competent disabled adult’s funds can be placed. POMS SI 01120.203(B)(1)(f).
Thus, if Northern Marianas Islands law recognizes the validity of an empty trust,
trusts created in this manner may be eligible for the Medicaid payback trust exception.
Conversely, if Northern Marianas Islands law does not recognize the validity of an
empty trust, such trusts will not qualify for the exception.
DISCUSSION
Northern Mariana Islands law does not directly address whether it would recognize
an empty Section 1917(d)(4)(A) trust. As a general rule, however, Northern Mariana
Islands law requires that a trust contain property. See, e.g., Estate of Roberto v. Roberto, 2003 MP 16, ¶ 45 (N. Mar. I. 2003) (citation omitted) (“the formation of a trust
occurs when a settlor . . . transfers an interest in property . . . to a trustee .
. . for the benefit of an ascertainable beneficiary”); Lifoifoi v. Lifoifoi-Aldan, 1996 MP 14, ¶28 (N. Mar. I. 1996) (providing that the creation of a trust requires
the transfer of “an interest in property”).
Moreover, to the extent that there is an absence of statutory or case law on any issue,
the Northern Mariana Islands will follow the Restatements of the Law, a well-established national legal authority promulgated by the American Law Institute.
See 7 CMC § 3401 (providing that “[i]n all proceedings, the rules of the common law,
as expressed in the restatements of the law approved by the American Law Institute
. . . shall be the rules of decision in the courts of Commonwealth, in the absence
of written law or customary law to the contrary”); Manglona v. Commonwealth, 2005 MP 15, ¶ 19 (N. Mar. I. 2005) (applying 7 CMC § 3401). The Restatement (Third) of Trusts, in turn, mandates that a trust contain property. See Restatement (Third) of Trusts § 2 (2007) (defining a trust as “a fiduciary relationship with respect to property”)
(emphasis added), and § 2 cmt. i (providing that “[a] trust cannot be created unless
there is trust property in existence and ascertainable at the time of the creation
of the trust”); accord Restatement (Second) of Trusts § 74 (requiring tangible trust property for creation of trust). Accordingly, whether
under its case law or under the long-standing Restatement rule, a trust in the Northern Marianas Islands is required to contain property at
the time of its creation.
CONCLUSION
The Northern Marianas Islands do not recognize empty trusts as valid. Consequently,
such trusts would not qualify for the exception to counting set forth in Section 1917(d)(4)(A).