Question Presented
You asked us to review the Violet P~ Disability Trust (VPDT) to determine whether
the representative payee (Community Options) can continue to transfer Social Security
disability benefits into the trust.
Short Answer
We have determined that the representative payee cannot properly transfer Social Security
disability benefits into the VPDT because (1) the trust prohibits the use of trust
funds for the primary beneficiary’s current needs, such as food and shelter, and (2)
pursuant to the trust’s early termination provisions, the trust could cease to be
for the sole benefit of the Social Security beneficiary during her lifetime.
DISCUSSION
The POMS explains that:
A payee must use benefits to provide for the beneficiary’s current needs such as food,
clothing, housing, medical care and personal comfort items, or for reasonably foreseeable
needs. If not needed for these purposes or, in title II only, for the support of the
beneficiary’s legally dependent spouse, child and/or parent, the payee must conserve
or invest benefits on behalf of the beneficiary.
POMS GN 00602.001. Pursuant to the POMS, a representative payee may transfer Title II or Title XVI
benefits (or both) to establish a trust or to fund an existing trust if:
We have determined that the representative payee cannot properly transfer Social Security
disability benefits into the VPDT because (1) the trust prohibits the use of trust
funds for the primary beneficiary’s current needs, such as food and shelter, and (2)
pursuant to the trust’s early termination provisions, the trust could cease to be
for the sole benefit of the Social Security beneficiary during her lifetime.
* Establishing the trust is in the beneficiary’s best interest;
* The trust is established exclusively for the use and benefit of the beneficiary
to meet the beneficiary’s current and reasonably foreseeable needs; and
* The Social Security beneficiary is the sole beneficiary of the trust during his
or her lifetime.
POMS GN 00602.075(C)(1). The trust must provide that funds in the account will be used only for purposes
that would be permitted by a representative payee. POMS GN 00602.075(D)(3). A trust will meet this requirement if it provides for “expenditures for food,
clothing, housing, medical care, recreation, education, etc.” Id. A trust will also meet this requirement if it directs that trust assets be used only
to meet the beneficiary’s current maintenance needs that are not covered by public
assistance, since this does not prevent the use of trust assets to meet the beneficiary’s
current maintenance needs. Id. However, a trust does not meet this requirement where it prohibits the use of trust funds to meet the beneficiary’s current needs for food, clothing,
housing and medical care and provides that trust funds are to be used to enhance the
beneficiary’s quality of life in the broadest sense. Id. Thus, a representative payee could not properly transfer benefits to a trust with
such provisions. Once the benefits are transferred into the trust, “the benefits are
considered ‘expended’ or ‘used’ to meet the beneficiary’s current and reasonably foreseeable
needs, just as if the payee used the funds to purchase goods and services to benefit
the beneficiary.” POMS GN 00602.075(C)(2).
Violet P~ Disability Trust
The VPDT appears to conflict with the POMS in two ways. First, it prohibits the trustee
from using any trust funds for the basic care and support of the trust beneficiary.
Specifically, the VPDT provides that distributions of income and principal can be
made only to provide for the “supplemental needs” of the primary beneficiary, and
defines “supplemental needs” as “services or goods that are not considered food or shelter.”[1] See Violet P~ Disability Trust, Section 3.01 (emphasis added). Therefore, because the
VPDT specifically prohibits the use of trust funds for the beneficiary’s current needs
such as food and shelter, [2] the representative payee cannot properly transfer Social Security disability benefits
into the trust. See POMS GN 00602.075(D)(3).
Second, the VPDT could terminate early and cease to be for the sole benefit of the
Social Security beneficiary during her lifetime. The VPDT provides that the trust
shall terminate (1) upon the death of the beneficiary; (2) when the trust is no longer
required for Medicaid eligibility in Colorado; (3) upon order of the court; or (4)
upon depletion of the trust assets, whichever occurs first. See Violet P~ Disability Trust, Section 3.05. Upon termination, after paying administrative
expenses and reimbursing the state of Colorado for medical assistance, any remaining
trust assets will be paid to individuals named in the beneficiary’s will, or if no
will is executed, to the parents of the beneficiary (or the parents’ then living issue).
See Violet P~ Disability Trust, Section 3.06. Therefore, the trust’s termination provisions
create a possibility that the trust could terminate early and the assets to be paid
to a third party. Since other individuals could benefit from the trust during the
beneficiary’s lifetime, the trust could cease to be for the sole benefit of the Social
Security beneficiary during her lifetime. Thus, the representative payee cannot properly
transfer Social Security benefits into the trust. See POMS GN 00602.075(C)(1); POMS GN 00602.075(D)(3).
CONCLUSION
In sum, the representative payee cannot properly transfer Social Security disability
benefits to the VPDT.
John J. L~
Regional Chief Counsel Region VIII
By: _______________
Laura H~
Assistant Regional Counsel